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Popular Media The FCC published in June its annual report on the state of competition in the mobile services marketplace. Under ordinary circumstances, this 300-plus page tome would sit quietly on the shelf ...
Excerpt The FCC published in June its annual report on the state of competition in the mobile services marketplace. Under ordinary circumstances, this 300-plus page tome would sit quietly on the shelf, since, like last year’s report, it ‘‘makes no formal finding as to whether there is, or is not, effective competition in the industry.’’ But these are not ordinary circumstances. Thanks to innovations including new smartphones and tablet computers, application (app) stores and the mania for games such as ‘‘Angry Birds,’’ the mobile industry is perhaps the only sector of the economy where consumer demand is growing explosively. Meanwhile, the pending merger between AT&T and T-Mobile USA, valued at more than $39 billion, has the potential to accelerate development of the mobile ecosystem. All eyes, including many in Congress, are on the FCC and the Department of Justice. Their review of the deal could take the rest of the year. So the FCC’s refusal to make a definitive finding on the competitive state of the industry has left analysts poring through the report, reading the tea leaves for clues as to how the FCC will evaluate the proposed merger. Make no mistake: this is some seriously expensive tea. If the deal is rejected, AT&T is reported to have agreed to pay T-Mobile $3 billion in cash for its troubles. Some competitors, notably Sprint, have declared full-scale war, marshaling an army of interest groups and friendly journalists. But the deal makes good economic sense for consumers. Most important, T-Mobile’s spectrum assets will allow AT&T to roll out a second national 4G LTE (longterm evolution) network to compete with Verizon’s, and expand service to rural customers. (Currently, only 38 percent of rural customers have three or more choices for mobile broadband.) More to the point, the government has no legal basis for turning down the deal based on its antitrust review. Under the law, the FCC must approve AT&T’s bid to buy T-Mobile USA unless the agency can prove the transaction is not ‘‘in the public interest.’’ While the FCC’s public interest standard is famously undefined, the agency typically balances the benefits of the deal against potential harm to consumers. If the benefits outweigh the harms, the Commission must approve. The benefits are there, and the harms are few. Though the FCC refuses to acknowledge it explicitly, the report’s impressive detail amply supports what everyone already knows: falling prices, improved quality, dynamic competition and unflagging innovation have led to a golden age of mobile services. Indeed, the three main themes of the report all support AT&T’s contention that competition will thrive and the public’s interests will be well served by combining with T-Mobile. Continue reading
The FCC published in June its annual report on the state of competition in the mobile services marketplace. Under ordinary circumstances, this 300-plus page tome would sit quietly on the shelf, since, like last year’s report, it ‘‘makes no formal finding as to whether there is, or is not, effective competition in the industry.’’
But these are not ordinary circumstances. Thanks to innovations including new smartphones and tablet computers, application (app) stores and the mania for games such as ‘‘Angry Birds,’’ the mobile industry is perhaps the only sector of the economy where consumer demand is growing explosively.
Meanwhile, the pending merger between AT&T and T-Mobile USA, valued at more than $39 billion, has the potential to accelerate development of the mobile ecosystem. All eyes, including many in Congress, are on the FCC and the Department of Justice. Their review of the deal could take the rest of the year. So the FCC’s refusal to make a definitive finding on the competitive state of the industry has left analysts poring through the report, reading the tea leaves for clues as to how the FCC will evaluate the proposed merger.
Make no mistake: this is some seriously expensive tea. If the deal is rejected, AT&T is reported to have agreed to pay T-Mobile $3 billion in cash for its troubles. Some competitors, notably Sprint, have declared full-scale war, marshaling an army of interest groups and friendly journalists.
But the deal makes good economic sense for consumers. Most important, T-Mobile’s spectrum assets will allow AT&T to roll out a second national 4G LTE (longterm evolution) network to compete with Verizon’s, and expand service to rural customers. (Currently, only 38 percent of rural customers have three or more choices for mobile broadband.)
More to the point, the government has no legal basis for turning down the deal based on its antitrust review. Under the law, the FCC must approve AT&T’s bid to buy T-Mobile USA unless the agency can prove the transaction is not ‘‘in the public interest.’’ While the FCC’s public interest standard is famously undefined, the agency typically balances the benefits of the deal against potential harm to consumers. If the benefits outweigh the harms, the Commission must approve.
The benefits are there, and the harms are few. Though the FCC refuses to acknowledge it explicitly, the report’s impressive detail amply supports what everyone already knows: falling prices, improved quality, dynamic competition and unflagging innovation have led to a golden age of mobile services. Indeed, the three main themes of the report all support AT&T’s contention that competition will thrive and the public’s interests will be well served by combining with T-Mobile.
Continue reading
Scholarship Abstract Economic analysis to aid in the implementation of public policy made major strides in the 1960s when organizations such as the Rand Corporation and . . .
Popular Media Commentators who see Trinko as an impediment to the claim that antitrust law can take care of harmful platform access problems (and thus that prospective rate . . .
Commentators who see Trinko as an impediment to the claim that antitrust law can take care of harmful platform access problems (and thus that prospective rate regulation (i.e., net neutrality) is not necessary), commit an important error in making their claim–and it is a similar error committed by those who advocate for search neutrality regulation, as well. In both cases, proponents are advocating for a particular remedy to an undemonstrated problem, rather than attempting to assess whether there is really a problem in the first place. In the net neutrality context, it may be true that Trinko would prevent the application of antitrust laws to mandate neutral access as envisioned by Free Press, et al. But that is not the same as saying Trinko precludes the application of antitrust laws. In fact, there is nothing in Trinko that would prevent regulators and courts from assessing the anticompetitive consequences of particular network management decisions undertaken by a dominant network provider. This is where the concerns do and should lie–not with an aesthetic preference for a particular form of regulation putatively justified as a response to this concern. Indeed, “net neutrality” as an antitrust remedy, to the extent that it emanates from essential facilities arguments, is and should be precluded by Trinko.
But the Court seems to me to be pretty clear in Trinko that an antitrust case can be made, even against a firm regulated under the Telecommunications Act:
Section 601(b)(1) of the 1996 Act is an antitrust-specific saving clause providing that “nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.” This bars a finding of implied immunity. As the FCC has put the point, the saving clause preserves those “claims that satisfy established antitrust standards.” But just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause’s mandate that nothing in the Act “modify, impair, or supersede the applicability” of the antitrust laws.
Section 601(b)(1) of the 1996 Act is an antitrust-specific saving clause providing that “nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.” This bars a finding of implied immunity. As the FCC has put the point, the saving clause preserves those “claims that satisfy established antitrust standards.”
But just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause’s mandate that nothing in the Act “modify, impair, or supersede the applicability” of the antitrust laws.
There is no problem assessing run of the mill anticompetitive conduct using “established antitrust standards.” But that doesn’t mean that a net neutrality remedy can be constructed from such a case, nor does it mean that precisely the same issues that proponents of net neutrality seek to resolve with net neutrality are necessarily cognizable anticompetitive concerns.
For example, as Josh noted the other day, quoting Tom Hazlett, proponents of net neutrality seem to think that it should apply indiscriminately against even firms with no monopoly power (and thus no ability to inflict consumer harm in the traditional antitrust sense). Trinko (along with a vast quantity of other antitrust precedent) would prevent the application of antitrust laws to reach this conduct–and thus, indeed, antitrust and net neutrality as imagined by its proponents are not coextensive. I think this is very much to the good. But, again, nothing in Trinko or elsewhere in the antitrust laws would prohibit an antitrust case against a dominant firm engaged in anticompetitive conduct just because it was also regulated by the FCC.
Critics point to language like this in Trinko to support their contrary claim:
One factor of particular importance is the existence of a regulatory structure designed to deter and remedy anticompetitive harm. Where such a structure exists, the additional benefit to competition provided by antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny.
But I don’t think that helps them at all. What the Court is saying is not that one regulatory scheme precludes the other, but rather that if a regulatory scheme mandates conduct that makes the actuality of anticompetitive harm less likely, then the application of necessarily-imperfect antitrust law is likely to do more harm than good. Thus the Court notes that
The regulatory framework that exists in this case demonstrates how, in certain circumstances, “regulation significantly diminishes the likelihood of major antitrust harm.”
But this does not say that regulation precludes the application of antitrust law. Nor does it preclude the possibility that antitrust harm can still exist; nor does it suggest that any given regulatory regime reduces the likelihood of any given anticompetitive harm–and if net neutrality proponents could show that the regulatory regime did not in fact diminish the likelihood of antitrust harm, nothing in Trinko would suggest that antitrust should not apply.
So let’s get out there and repeal that FCC net neutrality order and let antitrust deal with any problems that might arise.
Filed under: antitrust, essential facilities, exclusionary conduct, monopolization, net neutrality, technology Tagged: Competition law, FCC, Federal Communications Commission, Free Press, Monopoly, net neutrality, Network neutrality, regulation, Telecommunications Act
Popular Media Recently, I’ve been blogging about the difference between so-called “bias” in vertically integrated economic relationships and consumer harm (e.g., here and here). The two are . . .
Recently, I’ve been blogging about the difference between so-called “bias” in vertically integrated economic relationships and consumer harm (e.g., here and here). The two are different. Indeed, vertical integration and contractual arrangements are generally pro-consumer and efficient. Many of the same arguments surrounded the net neutrality debate with critics largely skeptical that the legislation was not needed (antitrust could be used when such contractual arrangements actually generated competitive harm) and would chill pro-competitive behavior.
In January, the Federal Communications Commission has now received its first complaint under the Order against MetroPCS. So, is the complaint about a monopolist Internet Service Provider (ISP) employing vertical contracts to exclude rivals and harm consumers? You be the judge. My colleague Tom Hazlett describes the situation in his (always) excellent Financial Times column:
MetroPCS, hit with its first formal complaint, is an upstart wireless network offering low prices and short-term contracts. As part of their $40 a month “all you can eat” voice, text and data plan, they slipped in a bonus: free, unlimited YouTube videos, customised to run fast and clear. Activist groups, led by Free Press, went ballistic. Their petition to the FCC declared that the mobile provider was favouring YouTube over other video sites, creating just the sort of “walled garden” that would destroy the internet. “The new service plans offered by MetroPCS give a preview of the future in a world without adequate protections for mobile broadband users,” they wrote. The complaint performs a great public service, revealing just how net neutrality would “adequately protect mobile broadband users”. In fact, MetroPCS advances the interests of consumers by supporting enhanced access to the applications most popular with users. Such arrangements do not sabotage internet development, but drive it.
MetroPCS, hit with its first formal complaint, is an upstart wireless network offering low prices and short-term contracts. As part of their $40 a month “all you can eat” voice, text and data plan, they slipped in a bonus: free, unlimited YouTube videos, customised to run fast and clear. Activist groups, led by Free Press, went ballistic. Their petition to the FCC declared that the mobile provider was favouring YouTube over other video sites, creating just the sort of “walled garden” that would destroy the internet. “The new service plans offered by MetroPCS give a preview of the future in a world without adequate protections for mobile broadband users,” they wrote.
The complaint performs a great public service, revealing just how net neutrality would “adequately protect mobile broadband users”. In fact, MetroPCS advances the interests of consumers by supporting enhanced access to the applications most popular with users. Such arrangements do not sabotage internet development, but drive it.
But what about the possibility of consumer harm so prominent in the Net Neutrality Order? As Hazlett explains, not only is such a competitive threat unlikely, but the regulatory restrictions imposed by the Order will impede competition and hurt consumers (in this case, especially targeting the price sensitive customers). Indeed, the crux of the complaint surrounds an effort by MetroPCS and Google to offer consumers additional choices. Read on:
MetroPCS possesses no market power. With 8m customers, it is the country’s fifth largest mobile operator, less than one-tenth the size of Verizon. Under no theory could it force customers to patronise certain websites. It couldn’t extract monopoly cash if it tried to. Indeed, low-cost prepaid plans of MetroPCS are popular with users who want to avoid long-term contracts and are price sensitive. Half its customers are ‘cord cutters’, subscribers whose only phone is wireless and usage is intense. Voice minutes per month average about 2,000, more than double that of larger carriers. The $40 plan is cheap because it’s inexpensively delivered using 2G technology. It is not broadband (topping out, in third party reviews, at just 100 kbps), and has software and capacity issues. In general, voice over internet is not supported by the handsets and video streaming is not available on the network. The carrier deals with those limitations in three ways. First, the $40 per month price tag extends a fat discount. Unlimited everything can cost $120 on faster networks. Second, it has also deployed new 4G technology, offering both a $40 tier similar to the 2G product (no video streaming), but also a pumped up version with video streaming, VoIP and everything else – without data caps – for $60 a month. Of course, this network has far larger capacity and is much zippier (reliable at 700 kbps). PC World rated the full-blown 4G service “dirt cheap”. Third, to upgrade the cheaper-than-dirt 2G experience, MetroPCS got Google – owner of YouTube – to compress their videos for delivery over the older network. This allowed the mobile carrier to extend unlimited wildly popular YouTube content to its lowest tier subscribers. Busted! Favouring YouTube is said to violate neutrality. … The FCC has already erred. Innovators such as MetroPCS and Google should need no defence in supplying customers’ superior choices. Neither consumers nor the internet are “protected” by rules hostile to co-operative efforts – even if money were to pass between firms – that expand outputs and lower prices. If the FCC is to take such ill-targeted attacks on competitive rivalry seriously, it will do far more to deter the open internet than to preserve it.
MetroPCS possesses no market power. With 8m customers, it is the country’s fifth largest mobile operator, less than one-tenth the size of Verizon. Under no theory could it force customers to patronise certain websites. It couldn’t extract monopoly cash if it tried to.
Indeed, low-cost prepaid plans of MetroPCS are popular with users who want to avoid long-term contracts and are price sensitive. Half its customers are ‘cord cutters’, subscribers whose only phone is wireless and usage is intense. Voice minutes per month average about 2,000, more than double that of larger carriers. The $40 plan is cheap because it’s inexpensively delivered using 2G technology. It is not broadband (topping out, in third party reviews, at just 100 kbps), and has software and capacity issues. In general, voice over internet is not supported by the handsets and video streaming is not available on the network. The carrier deals with those limitations in three ways.
First, the $40 per month price tag extends a fat discount. Unlimited everything can cost $120 on faster networks. Second, it has also deployed new 4G technology, offering both a $40 tier similar to the 2G product (no video streaming), but also a pumped up version with video streaming, VoIP and everything else – without data caps – for $60 a month. Of course, this network has far larger capacity and is much zippier (reliable at 700 kbps). PC World rated the full-blown 4G service “dirt cheap”. Third, to upgrade the cheaper-than-dirt 2G experience, MetroPCS got Google – owner of YouTube – to compress their videos for delivery over the older network. This allowed the mobile carrier to extend unlimited wildly popular YouTube content to its lowest tier subscribers. Busted! Favouring YouTube is said to violate neutrality. …
The FCC has already erred. Innovators such as MetroPCS and Google should need no defence in supplying customers’ superior choices. Neither consumers nor the internet are “protected” by rules hostile to co-operative efforts – even if money were to pass between firms – that expand outputs and lower prices. If the FCC is to take such ill-targeted attacks on competitive rivalry seriously, it will do far more to deter the open internet than to preserve it.
Not an auspicious beginning for the Net Neutrality regime — or consumers.
Filed under: antitrust, economics, error costs, exclusionary conduct, google, net neutrality, regulation, technology Tagged: antitrust, economics, FCC, google, Hazlett, net neutrality
TOTM Richard Thaler’s NYT Economic View column features Tom Hazlett (my colleague, and former chief economist as the FCC) proposal for auctioning off TV spectrum. Thaler . . .
Richard Thaler’s NYT Economic View column features Tom Hazlett (my colleague, and former chief economist as the FCC) proposal for auctioning off TV spectrum. Thaler points out…
Read the full piece here.
TOTM From the NY Times: Federal regulators on Wednesday approved a rule that would ban exclusive agreements that cable television operators have with apartment buildings, opening . . .
From the NY Times:
Federal regulators on Wednesday approved a rule that would ban exclusive agreements that cable television operators have with apartment buildings, opening up competition for other video providers that could eventually lead to lower prices. The Federal Communications Commission unanimously approved the change, which Chairman Kevin Martin said would help lower cable rates for millions of subscribers who live in apartment buildings and other multi-unit dwellings, or about 25 million households. He said the move would particularly help minorities who disproportionately live in multi-unit dwellings.
Federal regulators on Wednesday approved a rule that would ban exclusive agreements that cable television operators have with apartment buildings, opening up competition for other video providers that could eventually lead to lower prices.
The Federal Communications Commission unanimously approved the change, which Chairman Kevin Martin said would help lower cable rates for millions of subscribers who live in apartment buildings and other multi-unit dwellings, or about 25 million households. He said the move would particularly help minorities who disproportionately live in multi-unit dwellings.
What is at issue here is the exclusive contracts between cable operators and the owners of “multiple dwelling units” (MDUs). From what I understand, the FCC order appears to prohibit the enforcement of both existing and new exclusive arrangements with MDUs as anticompetitive contracts. It is well known in the economics literature that exclusive contracts, and competition for access to consumers through the use of exclusives, can generate significant pro-competitive benefits.
TOTM The Federal Communications Commission has announced that it is stepping up efforts in its investigation of payola practices at four radio conglomerates: Clear Channel, CBS . . .
The Federal Communications Commission has announced that it is stepping up efforts in its investigation of payola practices at four radio conglomerates: Clear Channel, CBS Radio, Entercom, and Citadel, and has issued former letters of inquiry. Bill pointed me to an article in the LA Times which reports that settlement talks with the four radio firms broke down recently…
