Apple Fined for Misleading Aussie Ads

Federal Court Justice Mordy Bromberg fined Apple Inc. ( AAPL - Analyst Report ) A$2.25 million ($2.29 million) judging that the tech giant misled customers through its latest iPad advertisements, reported Bloomberg. The company was ordered to pay A$300,000 related to costs for breach of consumer law.

Earlier in March 2012, The Australian Competition and Consumer Commission (“ACCC”) alleged that iPad advertisements suggested that it was compatible with the 4G network run by Telstra Corp. (TLS). But in actuality, though the new iPad was compatible with the 4G LTE or Long-Term Evolution connectivity, Telstra network’s operating frequency did not support 4G compatibility. In relation to the same case, Apple had offered refund to the customers after ACCC asked for a court injunction.

This is not the first time that Apple has been blamed for misleading customers. In late 2011, Italian anti-trust authorities slapped a fine of $1.2 million (€ 900,000) on Apple for misleading consumers regarding assistance services and guarantees for its products. Italian authorities also found Apple guilty of violating Italian customer laws.

However, we believe that Australia is a much bigger and strategically important market than Italy, as the company intends to expand its business in the Asia-Pacific region. Therefore, Apple would no doubt prefer to pay the fine and avoid the injunction than get banned in the country.

We believe that Australia and China are important markets for Apple. However, Apple is currently facing legal issues in the both these countries, which may hurt its growth prospects going forward.

The 4G LTE compatible iPad is currently available from carriers such as Verizon Communication Inc. ( VZ - Analyst Report ) and AT&T Inc. ( T - Analyst Report ) in the U.S. and from Bell, Rogers and Telus Networks in Canada. We expect Apple to forge partnerships with local telecom providers in order to increase its penetration in the Asia-Pacific region going forward.

The partnerships will help it to provide devices compatible with local 3G and 4G networks, thereby boosting its subscriber base going forward. Moreover, we believe that Apple’s ability to innovate and grow in the region, where the market is more cost-sensitive, will determine the company’s fortunes over the long term.

We have an Outperform recommendation on Apple over the long term. Currently, Apple has a Zacks #2 Rank, implying a short-term Buy rating.