Correcting Herb Kohl (& Kayak & Bing Travel) on Google/ITA

by on December 2, 2010 · 1 comment

Today comes news that Senator Kohl has sent a letter to the DOJ urging “careful review” of the proposed Google/ITA merger. Underlying his concerns (or rather the “concerns raised by a number of industry participants and consumer advocates that I believe warrant careful review”) is this:

Many of ITA’s customers believe that access to ITA’s technology is critical to competition in online air travel search because it cannot be matched by other players in the travel search industry. They claim that ITA’s superior access to information and superior technology enables it to provide faster and better results to consumers. As a result, some of these industry participants and independent experts fear that the current high level of competition among online travel agents and metasearch providers could be undermined if Google were to acquire ITA and start its own OTA or metasearch service. If this were to happen, they argue, consumers would lose the benefits of a robustly competitive online air travel market.

For several reasons, these complaints are without merit and a challenge to the Google/ITA merger would be premature at best—and a costly mistake at worst. Continue reading →

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Buzz Out Loud’s Epic Misunderstanding of Peering

by on December 2, 2010 · 20 comments

I love listening to podcasts, yet I’m increasingly disappointed with popular tech news podcasts like CNET’s Buzz Out Loud, which despite being staffed by tech journalists, consistently fail to grasp the basic economics of the Net.  The latest case of this arose on Episode 1360 of “BOL,” which took on the recent dispute between Comcast and Level3 over their peering agreement.

To provide some background, Comcast and Level3 have had a standard peering agreement for years, meaning the balance of incoming and outgoing traffic on either side is so similar that the two have simply agreed to exchange data without exchanging any dollars.

In the past, Comcast and Level3 had a different arrangement. Comcast paid Level3 for access to their network in a “transit” agreement.  This sort of agreement made sense at the time because Comcast was sending a lot more traffic over Level3’s network than it was taking in from Level3, hence it was a net consumer of bandwidth and was therefore treated by Level3 as a customer, rather than a peer.

Now, the tables have turned thanks to Level3 taking on the huge tasks of delivering Netflix streaming video, which takes an impressive amount of bandwidth—up to 20% of US peak traffic, according to CNET.  So, logic and economics compel Comcast to start charging Level3, as Level3 is now the net consumer.

None of this background was understand by the folks at Buzz Out Loud, which probably explains why the hosts acted as though this peering dispute was a sign of the coming Internet apocalypse, decrying the action on the podcast and summarizing their feelings on the action in the episode’s show notes by stating:

We break down the Level 3 and Comcast battle–no matter how you slice it, it’s still very, very, VERY bad for the Web.

No, it’s really, really, REALLY not. Continue reading →

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The EU tightens the noose around Google

by on December 1, 2010 · 2 comments

[Cross-posted at Truth on the Market]

Here we go again.  The European Commission is after Google more formally than a few months ago (but not yet having issued a Statement of Objections).

For background on the single-firm antitrust issues surrounding Google I modestly recommend my paper with Josh Wright, Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google (forthcoming soon in the Harvard Journal of Law & Public Policy, by the way).

According to one article on the investigation (from Ars Technica):

The allegations of anticompetitive behavior come as Google has acquired a large array of online services in the last couple of years. Since the company holds around three-quarters of the online search and online advertising markets, it is relatively easy to leverage that dominance to promote its other services over the competition.

(As a not-so-irrelevant aside, I would just point out that I found that article by running a search on Google and clicking on the first item to come up.  Somehow I imagine that a real manipulative monopolist Google would do a better job of white-washing the coverage if its ability to tinker with its search results is so complete.)

More to the point, these sorts of leveraging of dominance claims are premature at best and most likely woefully off-base.  As I noted in commenting on the Google/Ad-Mob merger investigation and similar claims from such antitrust luminaries as Herb Kohl:

If mobile application advertising competes with other forms of advertising offered by Google, then it represents a small fraction of a larger market and this transaction is competitively insignificant.  Moreover, acknowledging that mobile advertising competes with online search advertising does more to expand the size of the relevant market beyond the narrow boundaries it is usually claimed to occupy than it does to increase Google’s share of the combined market (although critics would doubtless argue that the relevant market is still “too concentrated”).  If it is a different market, on the other hand, then critics need to make clear how Google’s “dominance” in the “PC-based search advertising market” actually affects the prospects for competition in this one.  Merely using the words “leverage” and “dominance” to describe the transaction is hardly sufficient.  To the extent that this is just a breathless way of saying Google wants to build its business in a growing market that offers economies of scale and/or scope with its existing business, it’s identifying a feature and not a bug.  If instead it’s meant to refer to some sort of anticompetitive tying or “cross-subsidy” (see below), the claim is speculative and unsupported.

The EU press release promotes a version of the “leveraged dominance” story by suggesting that

The Commission will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons (so-called vertical search services) and by according preferential placement to the results of its own vertical search services in order to shut out competing services.

The biggest problem I see with these claims is that, well, they make no sense. Continue reading →

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In Uncle Sam, You’ve Got a Friend… Who Wants Everybody’s DNA

by on December 1, 2010 · 0 comments

In the latest WikiLeaks data dump, around a quarter-million confidential American diplomatic cables were published online. “Cablegate,” as it is being called, has revealed some rather startling information. Among the tech-relevant secrets, the State Department tasked agents to collect DNA and other biometric information on foreigners of interest.

Specifically, U.S. officials were told that in addition to collecting “email addresses, telephone and fax numbers,” they should also snap up “fingerprints, facial images, DNA, and Iris scans.” This directive makes the recent TSA scandal over airport full body scanners seem like child’s play.

Wired joked that this would explain to foreign leaders why the “chief of mission seemed a bit too friendly at the last embassy party.”

Jokes aside, access to DNA information is potentially one of the most important privacy issues of the future.

In a world in which DNA sequencing is becoming exponentially faster and cheaper, it won’t be long before it is possible to sequence everyone’s genomes for medical purposes. Possession of an individual’s DNA blueprint will be useful in fighting disease and in personalizing drugs and other therapies. Of course, as with any technology, DNA sequencing can be used for either good or evil purposes, so it will need to be used wisely.

[…]

Read the rest of my column here.

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Brief Thoughts on today’s Net Neutrality developments at the FCC

by on December 1, 2010 · 0 comments

Late last night, FCC Chairman Julius Genachowski made explicit what he’d been hinting for weeks–that he was going to call for a vote in December on the agency’s long-running net neutrality proceedings.

Today, the Chairman gave a speech outlining a new version of the rules he has circulated to fellow Commissioners, which will be voted on on Dec. 21, 2010..

The new order itself has not yet been made public, however, and the Chairman’s comments didn’t give much in the way of details.  The latest version appears to reflect the proposed legislation circulated before the mid-term recess by then-Commerce chair Henry Waxman.  That version, for those following the ball here, was itself based on the legislative framework proposed by Google and Verizon, which itself emerged from informal negotiations convened over the summer at the FCC. Continue reading →

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FCC Pulls a Fast One on Net Neutrality, Presenting New Regulations as Fait Accompli to GOP Congress

by on December 1, 2010 · 2 comments

Last June, when the FCC was careening towards issuing net neutrality rules on its own authority, even on the heels of a tongue-lashing from the DC Circuit in the Comcast decision (holding that the agency lacked authority to impose net neutrality principles on broadband as a deregulated Title I service), Charlie Kennedy (a giant of telecom law who’s a partner at Wilkinson Barker and was an adjunct at the now-defunct Progress & Freedom Foundation) made a bold prediction in a PFF paper. That prediction was today, sadly, proven true with the FCC’s net neutrality proposal. Charlie wrote:

With no clear consensus to be “restored” and no compelling need to overturn the Commission’s de-regulatory classification of Internet access under Title I, there is simply no need for the FCC to undertake—let alone rush—this proceeding. The timing of the NOI’s release and the rapid comment schedule suggest that the agency is simply trying to ram reclassification through as quickly as possible so that the 112th Congress—which seems likely to be even more hostile than the current Congress to the imposition of net neutrality regulation by the FCC—will be presented in January with a regulatory fait accompli. If that regulatory endrun around Congress succeeds, it will be remembered for decades as a pivotal moment in the decline of the rule of law and the rise of a regulatory bureaucracy “freed … from its congressional tether,” as the D.C. Circuit rightly denounced the FCC’s jurisdictional over-reach in Comcast.

In essence, Genachowski is asserting that, despite what the pesky DC Circuit thinks, he already has the authority to impose net neutrality regulation—so reclassification of broadband from deregulated Title I to common-carriage Title II is unnecessary. Talk about an agency freed from its congressional tether! See you in court, Mr. Chairman!  And while we duke this out in court, infrastructure investment will stagnate—and consumers will suffer. As Charlie predicted:

Reclassification under the “Third Way” will also be the beginning of the Internet’s “Lost Decade” (or more) of stymied investment, innovation, and job creation as all sides do battle over the legality of reclassification and its implementation. To paraphrase President John Adams: “Great is the guilt of an unnecessary regulatory war.”

And as Adam Thierer points out, so much for the democratic accountability of administrative agencies and the rule of law!

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Net neutrality announcement: No reclassification, good; no details, bad

by on December 1, 2010 · 0 comments

_Written with Jerry Ellig._

Chairman Genachowski’s [net neutrality announcement](http://www.openinternet.gov/speech-remarks-on-preserving-internet-freedom-and-openness.html) today was very short on details. What we learned is that the Chairman plans to buck Congress and the courts in a drive to regulate broadband. He is proceeding against the wishes of hundreds of members of Congress from both parties that [have written the FCC](http://news.cnet.com/8301-13578_3-20005834-38.html) demanding that it not adopt net neutrality rules until Congress has an opportunity to review the matter. Also, since he has announced that he will not seek to reclassify broadband as a regulated telecommunications service, he seems to be resisting the D.C. Circuit Court of Appeals, which told the FCC earlier this year that it [lacked the authority](http://techliberation.com/2010/04/06/fcc-loses-comcast-case-end-of-line-for-fccs-creative-claims-of-authority/) to regulate broadband.

Genachowski’s remarks gave us only a thumbnail sketch of how the rules he’s advocating the FCC adopt. We don’t know what authority would undergird new rules, and we don’t know what the chairman means when he says that the new rules would prohibit “unreasonable” discrimination of content by service providers. The devil is in those details, and they seemingly won’t be available until the FCC adopts the rules at its December 21st meeting — days before a new Congress is sworn in.

While taking reclassification off the table is a welcome compromise from the chairman, we don’t understand the rush to action. Why the midnight announcement last night? Why the limited announcement today? Why not allow the new Congress to take up the matter?

Having chosen to act, however, it’s “put up or shut up” time. Chairman Genachowski said the broadband providers have incentives to act as gatekeepers to the Internet and have prevented consumers from using the applications of their choice in the past. But it takes more than these assertions to justify a new regulation. Any net neutrality order [needs to offer a coherent, logical theory](http://docs.google.com/viewer?url=http%3A%2F%2Fcommlaw.cua.edu%2F%2Farticles%2Fv16%2F16.1%2FBrito.pdf) that explains why broadband providers face systematic incentives to act in non-neutral ways that have no offsetting consumer benefits. And it needs to back up that theory with rigorous empirical evidence that proves a widespread problem exists — not just a repetition of the same handful of anecdotes about bad actors.

It’s heartening to see that Chairman Genachoswki believes wireless broadband is at a different stage in its development and should be treated differently from landline broadband. But insisting that wireless is too different invites a sleight of hand trick that would allow the FCC to claim that broadband faces insufficient competition because wireless doesn’t count. The commission has [already done this](http://techliberation.com/2010/05/19/more-on-the-fccs-broadband-funding-gap-and-universal-service/) in its National Broadband Plan, which dismisses third generation wireless as a competitor because it allegedly isn’t fast enough. This stacks the deck in favor of regulation by making it easier to claim that wireline broadband doesn’t face enough competition.

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FTC Endorses “Do Not Track” Information Control Regime for the Internet

by on December 1, 2010 · 18 comments

This morning, the Federal Trade Commission (FTC) released its eagerly-awaited Preliminary FTC Staff Report on Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers. As expected, the agency has generally endorsed an expanded regulatory regime to govern online data collection and advertising efforts in the name of protecting consumer privacy.  More specifically, the agency endorsed a so-called “Do Not Track” mechanism that would supposedly help consumers block unwanted data collection or advertising.  Here’s how the agency describes it:

Such a universal mechanism could be accomplished by legislation or potentially through robust, enforceable self-regulation.  The most practical method of providing uniform choice for online behavioral advertising would likely involve placing a setting similar to a persistent cookie on a consumer’s browser and conveying that setting to sites that the browser visits, to signal whether or not the consumer wants to be tracked or receive targeted advertisements.  To be effective, there must be an enforceable requirement that sites honor those choices. (p. 66)

I’m sure we’ll have plenty more to say here about the issue in coming weeks and months (comments on the FTC report are due by Jan. 31), but we’ve already commented on this proposal here before. See 1, 2, 3.  To briefly summarize a few of those concerns: Continue reading →

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European Commission Should Leave Internet Search Alone

by on November 30, 2010 · 1 comment

By Ryan Radia and Wayne Crews

Today, the European Commission opened a formal antitrust investigation into Google to probe allegations that the firm rigged its search engine to discriminate against rivals. This intervention in the online search market, however, will distort the market’s evolution, discourage competitors from innovating, and ultimately hurt consumers.

Google isn’t a monopoly now, but the more it tries to become one, the better it will be for us all. When capitalist enterprises strive to earn a bigger market share, rival firms are forced to respond by trying to improve their offerings. Even if Google is delivering biased search results, it is only paving the way for competitors to break into the search market.

The European Commission is wrong to assume that Google possesses monopoly power. Google accounts for just 6 percent of all dollars spent on advertising in Europe. And even loyal Google users regularly find websites through competing search engines like Bing or through social websites like Facebook and Twitter.

Before resorting to tired old competition laws, European policy makers should remember that the Internet economy is hardly understood by anybody—including by regulators. We are in terra incognita; no one knows how information markets will evolve. But one thing is for sure: Online search technology cannot evolve properly if it is improperly regulated. Why make risky investments in hopes of revolutionizing Internet markets if marvelous success means regulation and confiscation?

The real threat to consumers is not from successful high-tech firms like Google, but from overreaching government interventions into competitive market processes. As economists have documented in scholarly journals, antitrust intervention is especially problematic in the information age, because it severely underestimates the critical role of innovation in dynamic high-tech markets. Continue reading →

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The promise and limits of e-rulemaking

by on November 30, 2010 · 0 comments

Earlier today I spoke at the Brookings Institution event “The Future of E-rulemaking: Promoting Public Participation and Efficiency,” which was co-sponsored with the Administrative Conference of the United States. I made two points: we have not yet achieved regulatory transparency, and wiki-government does not overcome Hayek’s knowledge problem. What follows are my remarks.

When we talk about e-rulemaking, we often think about a first generation and a second generation of e-rulemaking.

The first generation is focused on making available online all of the information related to regulation and the rulemaking process, as well as making it simple for citizens to participate electronically in traditional rulemaking. In this way we improve the transparency and accountability of the regulatory process.

The second generation moves beyond the basics to leverage the new social technologies of the internet to increase citizen participation and enhance agency expertise. This is the exciting stuff of using Twitter and Facebook and wikis and collaborative commenting systems to achieve a truly democratic, efficient, and responsive rulemaking process. And while I’m very excited by the prospect of this transformation, I feel I have to suggest some caution.

For one thing, I’m not sure we have successfully graduated from the first generation. Less than two years ago we launched [OpenRegs.com](http://openregs.com) because [Regulations.gov](http://regulations.gov) did not offer something as simple as RSS feeds and had a less than ideal user interface. Since then it has been much improved, but if we look at the recommendations of the [ABA Administrative Law Section’s report on e-rulemaking](http://ceri.law.cornell.edu/erm-comm.php) — in which so many of the folks I see here today participated — or the recommendations of [OMB Watch’s Task Force on e-rulemaking](http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1292911), we can see that we’re a long way from where we should be to say that the first generation is complete. Continue reading →

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