Antitrust

DISH Network gets another opportunity on Tuesday to plead with Congress for another Satellite Home Viewer Act reauthorization–ostensibly to protect consumers from unwarranted rate increases and program blackouts, but actually to preserve and expand DISH Network’s and DirecTV’s access to broadcast programming at regulated, below-market rates. A couple minor provisions in the Act that have nearly outlived their original purpose are due to expire, but DISH Network is taking advantage of this opportunity to argue that “there is much more that Congress can do to expand consumers’ access to local programming…” DISH’s plea is an example of the narcotic effect of supposedly benign regulation intended to promote competition by giving nascent competitors a leg up. DISH Network, in particular, has Read More ›

The hottest companies in Washington, DC right now include Netflix, Sprint and T-Mobile. What do these firms have in common? They are all marketplace losers.
A few years ago, the Supreme Court said that the Sherman Act “does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition” (see: Verizon v. Trinko, 2004). Yet this is precisely the course of action that technocrats are taking as a result of accepting invitations from Netflix to conduct a “wide-ranging antitrust investigation” of the cable industry and from Sprint and T-Mobile to find a way to block Verizon Wireless’ acquisition of additional spectrum.
Netflix built a successful mail order DVD business when it wasn’t very practical to download movies over the Internet. Fortunately for Netflix, consumers can send and receive, but they cannot rent DVDs from the Post Office. There are legal and political constraints that prevet the U.S. Postal Service from diversifying into new lines of business, and these restrictions conferred a significant degree of monopoly protection on Netflix. Incidentally, saving the Postal Service requires diversification, among other things. What was great for Netflix wasn’t so good for the postal system (upon which we all depend).
Although some advocates of network neutrality wanted to postalize broadband, the Federal Communications Commission said no. Apparently, we are going to have that debate all over again.
Cable companies obviously will not be prevented from competing against Netflix and other online video providers. But a drive to eliminate any conceivable competitive advantage that cable providers may have would ultimately lead to extensive regulation, including, most likely, infrastructure sharing rules like those the Supreme Court looked at in AT&T v. Iowa Utilities Board (1999). In his separate opinion, Justice Stephen Breyer warned that “rules that force firms to share every resource or element of a business would create, not competition, but pervasive regulation, for the regulators, not the marketplace, would set the relevant terms.”
The current administration promised to reinvigorate antitrust enforcement. What that means is a return to the economic stagnation of the 1970s, when antitrust forced consumers to do business with uncompetitive, inefficient firms. It is no exaggeration to speak of antitrust as a form of corporate welfare financed by hidden taxes on consumers. The reality is that government cannot create competition; it can only suppress competitors.

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When the federal government torpedoed the AT&T/T-Mobile USA merger in December pursuant to the current administration’s commitment to “reinvigorate antitrust enforcement,” it created a new client in search of official protection and favors.
It was clear there is no way T-Mobile – which lost 802,000 contract customers in the fourth quarter – is capable of becoming a significant competitor in the near future. T-Mobile doesn’t have the capital or rights to the necessary electromagnetic spectrum to build an advanced fourth-generation wireless broadband network of its own.
T-Mobile’s parent, Deutsche Telekom AG, has been losing money in Europe and expected its American affiliate to become self-reliant. In 2008, T-Mobile sat out the last major auction for spectrum the company needs.
The company received cash and spectrum worth $4 billion from AT&T when the merger fell apart, from which T-Mobile plans to spend only $1.4 billion this year and next on the construction of a limited 4G network in the U.S. But it must acquire additional capital and spectrum to become a viable competitor.
Unfortunately, every wireless service provider requires additional spectrum. “[P]rojected growth in data traffic can be achieved only by making more spectrum available for wireless use,” according to the President’s Council of Economic Advisers. Congress recently gave the FCC new authority to auction more spectrum, but it failed – in the words of FCC Chairman Julius Genachowski – to “eliminate traditional FCC tools for setting terms for participation in auctions.”
Everyone fears it will take the FCC years to successfully conduct the next round of auctions while it fiddles “in the public interest.” That’s why Verizon Wireless is seeking to acquire airwaves from a consortium of cable companies, and why T-Mobile will do anything to stop it.

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AT&T and T-Mobile withdrew their merger application from the Federal Communications Commission Nov. 29 after it became clear that rigid ideologues at the FCC with no idea how to promote economic growth were determined to create as much trouble as possible. The companies will continue to battle the U.S. Department of Justice on behalf of their deal. They can contend with the FCC later, perhaps after the next election. The conflict with DOJ will take place in a court of law, where usually there is scrupulous regard for facts, law and procedure. By comparison, the FCC is a playground for politicians, bureaucrats and lobbyists that tends to do whatever it wants. In an unusual move, the agency released an analysis Read More ›

Blocking the merger between AT&T + T-Mobile is apropos of this administration’s strategy for creating jobs, according to James M. Cole, the deputy attorney general.

The view that this administration has is that through innovation and through competition, we create jobs. Mergers usually reduce jobs through the elimination of redundancies, so we see this as a move that will help protect jobs in the economy, not a move that is going in any way to reduce them.

Remarkably, someone forgot to include that in the complaint filed by the Department of Justice in the District Court for D.C. The complaint itself does not allege that the merger will cost jobs, nor does it suggest that blocking the merger would create or save jobs. As a technical matter, antitrust is not concerned with job protection, although many seek to exploit it for that and other purposes. More on why that is a bad idea in a minute.
Instead, the complaint is focused specifically on the possibility that the combined company may not longer offer T-Mobile’s lower-priced data and voice plans to new customers or current customers who upgrade their service.
Yet, the complaint concedes that from a consumer’s perspective, local areas may be considered relevant geographic markets for mobile wireless telecommunications services. On the other hand, enterprise and government customers require services that are national in scope, according to the complaint.

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Over at Technology Liberation Front, several colleagues and I recently “debated” the proposed merger between AT&T and T-Mobile from a free market perspective. For a skeptical take on the merger, see the item by Milton Mueller. The rest of us are more optimistic.
The AT&T – T-Mobile Merger: Beyond the Arithmetic, by Larry Downes (Apr. 18, 2011)
Why I fear the AT&T-T-Mobile merger, by Milton Mueller (Apr. 18, 2011)
Open minded on the AT&T/T-Mobile merger, by Hance Haney (Apr. 19, 2011)
Information Control, Market Concentration, and the AT&T/T-Mobile Deal, by Ryan Radia (Apr. 20, 2011)
For The Last Time: The Bell System Monopoly Is Not Being Rebuilt, by Steven Titch (Apr. 22, 2011)

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Ryan Singel explains why Google may not dominate the net, at Wired. And it has nothing to do with antitrust scrutiny of the company’s activities, such as the flap over Google’s purchase of ITA Software. Google slayed Microsoft and Yahoo in the battle for search supremacy but it has been slowly losing momentum in what may turn out to be the real war — the one for the display ad revenues — to an unlikely foe: the dorm-room-born Facebook. At a recent conference sponsored by the Technology Policy Institute, Robert W. Crandall and Charles L. Jackson shared a draft of a paper they are working on analyzing the IBM, AT&T and Microsoft antitrust cases. Crandall and Jackson argue that in Read More ›

Prof. Tim Wu has a provocative essay in Saturday’s edition of the Wall Street Journal, arguing in effect that a company which is successful is by definition a monopoly that should be regulated. Fortunately, the antitrust laws don’t punish companies that are successful as a result of superior skill, foresight and industry; only those who engage in anticompetitive conduct. That would not include Google, Facebook, eBay, Apple nor Amazon so far as I know. Every businessperson dreams of a monopoly advantage. The pursuit of a monopoly advantage either justifies the high rent that a retailer pays to an airport or the owner of a shopping mall in exchange for an exclusive right to serve coffee or ice cream on the Read More ›

A Sunday editorial in the New York Times expressed concerns about Comcast’s proposed acquisition of NBC, but explicitly stopped short of calling for rejection of the deal.
According to the Times, this combination could be just awful

Comcast could bar rival cable and satellite TV companies from access to desirable NBC shows, or it could offer them only at a high price, bundled with less attractive content …. Comcast could now be tempted to limit access to NBC content on rival Internet services, or charge them high fees. And Comcast could take its bundling business model to the Internet by forcing customers to buy cable packages in order to see content from NBC’s network online.

After citing these horrific possibilities, the Times then says,

These concerns might not justify blocking a merger. But they do justify a careful review …. What regulators must not do is let this deal pass unchallenged.

What? If it’s so bad, shouldn’t we call 911?
Well, if the deal is rejected or withdrawn, various special interests get nothing.

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