Articles by Hance Haney 
Hance Haney is Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute. Haney spent ten years as an aide to former Senator Bob Packwood (R-OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a BA in history from Willamette University and a JD from Lewis and Clark Law School in Portland, Oregon.
Is it anticompetitive for Google to let Yahoo use some of its technology to earn more money in the search ad business if Google had 61.6 percent of the search market in April while Yahoo had 20.4 percent and Microsoft, 9.1 percent?
It’s only anticompetitive if you believe search ad revenue is—and always will be—the bedrock of the Internet economy. But that’s quite an assumption. Not too long ago some believed Microsoft’s success in desktop software would allow it to monopolize the online world.
Then along came Google and search ads, which no one foresaw.
An outsourcing deal between Google and Yahoo could be profoundly procompetitive because Yahoo makes less than it could in search ads. Using Google’s technology may enable Yahoo to pocket an extra $1 billion which could make Yahoo a stronger player in the search for the next big thing.
It’s important to consider that there may be a next big thing because neither Yahoo nor Microsoft may be capable of giving Google a run for its money in search ads despite their vast resources, in which case it would not be procompetitive to keep them afloat through government intervention. It would just be inefficient.
What if Google becomes a monopoly in search ads? Most monopolies are temporary. Schumpeter teaches that durable monopolies are aided and abetted by government. The risk of that grows with government intervention led by antitrust attorneys.
Microsoft and Yahoo need to find their strengths; we shouldn’t subsidize their weaknesses.
What would be procompetitive would be for Microsoft and Yahoo to invent something new.
The Rural Cellular Association wants the FCC to eliminate exclusivity arrangements between cellphone carriers and manufacturers of popular handsets.
For many consumers, the end result of these exclusive arrangements is being channeled to purchase wireless service from a carrier that has monopolistic control over the desired handset and having to pay a premium price for the handset because the market is devoid of any competition for the particular handset.
Exclusivity deals are common throughout the business world and often serve procompetitive purposes. And there is no way to condemn AT&T-Apple iPhone, Verizon Wireless-LG Voyager or Sprint Nextel-Samsung Ace without condemning exclusivity generally. For one thing, there are five major cellphone carriers and many smaller competitors. AT&T (Mobility), the largest, has an approximate market share of only 26 percent. You can’t argue this is a concentrated market. The only thing unique about this market is the unnecessary presence of a legacy regulator.
The obvious course of action for the rural carriers is to partner with a handset manufacturer and develop something of their own which customers will want. “If you build a better mousetrap…,” as they say. Perhaps some rural carriers lack the imagination or the ingenuity. But it’s really not the job of government to try to compensate for that.
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Several state public utility commissioners are pleading with the Federal Communications Commission to preserve unnecessary, burdensome and anticompetitive accounting requirements that I have discussed here and here.
Sara Kyle, Tre Hargett and Ron Jones of the Tennessee Regulatory Authority say they review the data required of telephone companies, even if their review has little or nothing to do with the purpose for which the data was originally required.
This information is particularly useful in evaluating competition levels in Tennessee; further, such information may be necessary in fulfilling our Commission’s responsibilities should we decide that a state universal service fund is necessary.
The argument the FCC essentially is hearing is without the data there would be less work for state regulators, which would diminish their power.
The state commissioners think they have a chance to persuade FCC commissioners Robert M. McDowell and Deborah Taylor Tate to reject the AT&T petition along with one or both of the commission’s two Democrats.
The question McDowell and Tate ought to be asking is whether it is the role of the feds to collect information primarily for the use of the states? The states can do that for themselves.
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Recenty I commented that the Federal Communications Commission has an opportunity to relieve AT&T of several unnecessary, burdensome and anticompetitive accounting requirements.
I noted that the data derived from the legacy accounting procedures simply isn’t used anymore to regulate revenue or set prices. That’s true, by the way.
This week a group which calls itself the Ad Hoc Telecommunications Users Committee filed a letter (in which it didn’t identify its members) claiming:
As we explained at the debate, the data produced by the cost allocations at issue have been used by the Commission and private parties in the past (CALLS), are being used by the Commission and private parties in the present (272 Sunset Nonstructural Safeguards, Separations reform and theSpecial Access Rulemaking) and will in all likelihood be used by the Commission and private parties in the future (Special Access Rulemaking, Inter-Carrier Compensation Reform and monitoring the efficacy of the Price Caps formula).
What’s going on here?
Well, like I said, the commission doesn’t use the data to regulate revenue or set prices, but competitors apparently do use the data to argue that incumbent telephone companies can “afford” to charge lower wholesale prices.
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Normally when you quote someone extensively but selectively and you’re making a different (arguably opposite) point, you acknowledge that.
Stanford Law Professor Lawrence Lessig, who got a chance to lecture a captive Federal Communications Commission during a special public hearing on broadband network management this week, began the lesson quoting from remarks Gerald R. Faulhaber, Professor Emeritus of Business and Public Policy at Wharton, made at Stanford on Dec. 1, 2000 when he was chief economist at the FCC.
I think Prof. Lessig is a gifted and well-intentioned scholar and educator. And Prof. Faulhaber framed the issues well, so it’s understandable why Lessig quoted him.
But Faulhaber wasn’t on Lessig’s page.
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The Federal Communications Commission is facing another deadline at the end of this month to accept or reject a petition for regulatory forbearance. The petition would relieve AT&T of several unnecessary, burdensome and anticompetitive accounting requirements.
The accounting rules at issue were designed to restrain telephone prices when AT&T was a monopoly entitled to recover its costs plus a reasonable profit. Rate-of-return or cost-plus regulation, as it was known, was a complete failure. It gave companies like AT&T an incentive to inflate, misallocate and manipulate costs. The companies responded, according to critics, by gold-plating their operations.
AT&T hasn’t been subject to rate-of-return regulation at the FCC or in any of the states in which it operates for 10 years. And no one is proposing to bring it back.
The FCC and the states now merely set maximum prices AT&T can charge (“price caps”), which is why the rules cited in the petition are no longer necessary. The data derived from the legacy accounting procedures simply isn’t used anymore to regulate revenue or set prices.
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Communications Daily ($) cited my recent post comparing Google’s limited objectives for the 700 MHz auction with the expansive objectives it outlined to the Federal Communications Commission last summer, and it included the following reaction to my comments from Richard Whitt of Google:
Whitt said in response that Haney had misread his company’s comments from last summer. “We consistently have argued that the open access license conditions adopted by the FCC would inject much-needed competition into the wireless apps and handset sectors, but would not by themselves lead to new wireless networks,” he said Monday. “Only if the commission had adopted the interconnection and resale license conditions we also had suggested — which the agency ultimately did not do — would we have seen the potential for new facilities-based competition.”
Another way to look at this is if there wasn’t any potential for new facilities-based wireless competition without the interconnection and resale license conditions Google wanted, why would Google have submitted bids for the spectrum which it might have won and had to pay for?
I do agree that prior to the FCC’s adoption of two of the four open platform principles Google proposed the company consistently premised its commitment to participate in the auction on the FCC adopting all four principles. I also agree Google was clear that it believed all four principles were necessary to promote competition.
Then it participated in the auction anyway.
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In 1993 Congress substituted auctions for the deplorable practice of giving away valuable spectrum to well-connected commercial entities.
Lawmakers who think spectrum is a valuable public resource for which the taxpayers should be compensated need to wake up for a minute. FCC rulemaking could render the remaining assets worthless, distort wireless competition and contribute to the unfortunate perception of the FCC as a candy store.
Google has made it clear that it plans to weigh in at the FCC as it determines how to re-auction the D-block from the recent 700 MHz auction, and that it wants to open the white spaces between channels 2 and 51 on the TV dial for unlicensed broadband services.
Anna-Maria Kovacs, a regulatory analyst, reported that in the recent 700 MHz auction AT&T Mobility paid an average price of $3.15 per POP in the B-block while Verizon Wireless paid 77 cents per POP in the C-block which was subject to special rules advocated by Google.
Now comes an admission that Google’s main goal was not to win C-block licenses in the auction but to jack up the price just enough so the reserve could be met, according to the New York Times.
“Our primary goal was to trigger the openness conditions,” said Richard Whitt, Google’s Washington telecommunications and media counsel.
This certainly isn’t consistent with the way Google presented the open access proposal to the Federal Communications Commission last summer.
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I have said that the threat of regulation is a credible deterrent to prevent unreasonable discrimination by broadband service providers and we don’t need a new regulatory framework with the unintended consequences which always flow from regulation.
And James Gattuso, noting that Comcast and BitTorrent were already working with one another on a solution to their network problems “long before this story broke,” correctly chided me for overlooking how public opinion is also a credible deterrent. James is right, particularly when there is a competitive market. And like it or not, the broadband market is competitive.
A “duopoly,” you say?
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Comcast and BitTorrent are working together to improve the delivery of video files on Comcast’s broadband network.
Rather than slow traffic by certain types of applications — such as file-sharing software or companies like BitTorrent — Comcast will slow traffic for those users who consume the most bandwidth, said Comcast’s [Chief Technology Officer, Tony] Warner. Comcast hopes to be able to switch to a new policy based on this model as soon as the end of the year, he added. The company’s push to add additional data capacity to its network also will play a role, he said. Comcast will start with lab tests to determine if the model is feasible.
Over at Public Knowledge, Jef Pearlman argues that the pioneering joint effort by Comcast and BitTorrent “changes nothing about the issues raised in petitions” before the FCC advocating more regulation, because Comcast and BitTorrent are “commercial entities whose goals are, in the end, to make sure that their networks and technology are as profitale as possible.”
Setting aside whether the pursuit of profit is a good thing or not, what this episode actually proves is that the Federal Communications Commission has done its job, the threat of regulation is a credible deterrent to prevent unreasonable discrimination by broadband service providers and we don’t need a new regulatory framework with the unintended consequences which regulation always entails.
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