Antitrust & Competition Policy

Event: The FCC’s Wireless Competition Report: A Preview

by on April 25, 2011 · 0 comments

Every year since 1995, the Federal Communications Commission has released a report on the state of competition in the wireless market, and it will soon release the fifteenth. Last year’s report was [the first not to find the market “effectively competitive.”](http://techliberation.com/2010/05/21/the-underlying-desperation-at-the-fcc/) As a result, expectations are high for the new annual report. How it determines the state of competition in the wireless market could affect regulatory policy and how the Commission looks at proposed mergers

Join the Mercatus Center at George Mason University’s [Technology Policy Program](http://mercatus.org/technology-policy-program) for a discussion of these issues, including:

– What does a proper analysis of wireless competition look like?
– What should we expect from the FCC’s report this year?
– How should the FCC address competition in the future?

Our panel will feature [**Thomas W. Hazlett**](http://mason.gmu.edu/~thazlett/), Professor of Law & Economics, George Mason University School of Law; [**Joshua D. Wright**](http://mason.gmu.edu/~jwrightg/), Assistant Professor of Law, George Mason University School of Law; [**Robert M. Frieden**](http://comm.psu.edu/people/rmf5), Professor of Telecommunications & Law, Penn State University; and [**Harold Feld**](http://www.publicknowledge.org/user/1540), Legal Director, Public Knowledge

**When:** Wednesday, May 18, 2011, 4 – 5:30 p.m. (with a reception to follow)

**Where:** George Mason University’s Arlington Campus, just ten minutes from downtown Washington. (Founders Hall, Room 111, 3351 N. Fairfax Drive, Arlington, VA)

To RSVP for yourself and your guests, please contact Megan Gandee at 703-993-4967 or [mmahan@gmu.edu](mailto:mmahan@gmu.edu) no later than May 16, 2011. If you can’t make it to the Mercatus Center, you can watch this discussion live online at mercatus.org.

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For The Last Time: The Bell System Monopoly Is Not Being Rebuilt

by on April 22, 2011 · 6 comments

Believe it or not, this argument is being trotted out as part of the pressure from consumer activist groups against AT&T’s proposed acquisition of T-Mobile. The subject of a Senate Judiciary Hearing on the merger, scheduled for May 11, even asks, “Is Humpty Dumpty Being Put Back Together Again?”

It seems because the deal would leave AT&T and Verizon as the country’s two leading wireless service providers, the blogosphere is aflutter with worries that we are returning to the bad old days when AT&T pretty much owned all of the country’s telecom infrastructure.

It is true that AT&T and Verizon trace their history back to the six-year antitrust case brought by the Nixon Justice Department, which ended in the 1984 divestiture of then-AT&T’s 22 local telephone operating companies, which were regrouped into seven regional holding companies.

Over the last 28 years, there has been gradual consolidation, each time accompanied by an uproar that the Bell monopoly days were returning. But those claims miss the essential goal of the Bell break-up, and why, even though those seven “Baby Bell” companies have been integrated into three, there’s no going back to the pre-divestiture AT&T.

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Information Control, Market Concentration, and the AT&T/T-Mobile Deal

by on April 20, 2011 · 2 comments

Like Milton, I’m very worried about the political vulnerabilities that might arise if the wireless sector grows more concentrated. Still, I think it’s a big mistake to legitimize one repressive incarnation of coercive state power (antitrust intervention) to reduce the likelihood that another incarnation (information control) will intensify. This approach is not only defeatist, as Hance argues, but it also requires a tactical assessment that rests on several dubious assumptions.

First, Milton overestimates the marginal risk that the AT&T – T-Mobile deal will pave the way for an information control regime. The wireless market isn’t static; the disappearance of T-Mobile as an independent entity (which may well occur regardless of whether this deal goes through) hardly means we’re forever “doomed” to live with 3 nationwide wireless players. With major spectrum auctions likely on the horizon, and the possibility of existing spectrum holdings being combined in creative ways, the eventual emergence of one or more nationwide wireless competitors is quite possible — especially if, as skeptics of the AT&T – T-Mobile deal often argue, the wireless market underperforms in the years following the acquisition.

More importantly, network operators, like almost all Internet gatekeepers, face mounting pressure from their users not to facilitate censorship, surveillance, and repression. Case in point: AT&T is a leading member of the Digital Due Process coalition (to which I also belong) that’s urging Congress to substantially strengthen the 1986 federal statute that governs law enforcement access to private electronic communications. Consider that AT&T’s position on this major issue is officially at odds with the official position of the same Justice Department that’s currently reviewing the AT&T – T-Mobile deal. Would a docile, subservient network operator challenge its state overseers so publicly?

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Open minded on the AT&T/T-Mobile merger

by on April 19, 2011 · 8 comments

Is it “insane” for free market oriented thinkers to support the AT&T/T-Mobile merger?  Although AT&T says there are five choices of wireless providers to choose from in 18 of 20 major markets, Milton Mueller argues that 93 percent of wireless subscribers prefer a seamless, nationwide provider.  If the merger is approved, there would only be three such providers.

A market dominated by three major providers is neither competitive nor noncompetitive as a definitional matter.  Factual analysis is necessary to determine competitiveness.

And it may be premature to conclude that there is no competitive significance either to the fact there are over a hundred providers currently delivering nationwide service on the basis of voluntary roaming agreements that are common in the industry, or to assume that the possibility the FCC will double the amount of spectrum available for wireless services will not impact the structure of the industry.

The trouble with antitrust generally is the possibility that government will choose to protect weak or inefficient competitors, thus preventing meaningful competition that attracts private investment which leads to innovation, better services and lower prices.  Antitrust is supposed to protect consumers, not politically influential producers.  Although this sounds simple in theory, it can get confusing in practice.  As free market oriented thinkers, we do not want government picking winners and losers.

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The AT&T – T-Mobile Merger: Beyond the Arithmetic

by on April 18, 2011 · 5 comments

Following AT&T’s announcement last month of its planned acquisition of T-Mobile USA, pundits and other oddsmakers have settled in for a long tour of duty. Speculation, much of it uninformed, is already clogging the media about the chances the $39 billion deal—larger even than last year’s merger of Comcast and NBC Universal—will be approved.

Both the size of the deal and previous consolidation in the communications industry lead some analysts and advocates to doubt the transaction will or ought to survive the regulatory process.

Though the complex review process could take a year or perhaps even longer, I’m confident that the deal will go through—as it should. To see why, one need only look to previous merger reviews by the Department of Justice and the Federal Communications Commission, both of which must approve the AT&T deal. Continue reading →

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Search Bias and Antitrust

by on March 24, 2011 · 4 comments

[Cross-posted at Truthonthemarket.com]

There is an antitrust debate brewing concerning Google and “search bias,” a term used to describe search engine results that preference the content of the search provider.  For example, Google might list Google Maps prominently if one searches “maps” or Microsoft’s Bing might prominently place Microsoft affiliated content or products.

Apparently both antitrust investigations and Congressional hearings are in the works; regulators and commentators appear poised to attempt to impose “search neutrality” through antitrust or other regulatory means to limit or prohibit the ability of search engines (or perhaps just Google) to favor their own content.  At least one proposal goes so far as to advocate a new government agency to regulate search.  Of course, when I read proposals like this, I wonder where Google’s share of the “search market” will be by the time the new agency is built.

As with the net neutrality debate, I understand some of the push for search neutrality involves an intense push to discard traditional economically-grounded antitrust framework.  The logic for this push is simple.  The economic literature on vertical restraints and vertical integration provides no support for ex ante regulation arising out of the concern that a vertically integrating firm will harm competition through favoring its own content and discriminating against rivals.  Economic theory suggests that such arrangements may be anticompetitive in some instances, but also provides a plethora of pro-competitive explanations.  Lafontaine & Slade explain the state of the evidence in their recent survey paper in the Journal of Economic Literature:

We are therefore somewhat surprised at what the weight of the evidence is telling us. It says that, under most circumstances, profit-maximizing vertical-integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. Moreover, even in industries that are highly concentrated so that horizontal considerations assume substantial importance, the net effect of vertical integration appears to be positive in many instances. We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked. Furthermore, we have found clear evidence that restrictions on vertical integration that are imposed, often by local authorities, on owners of retail networks are usually detrimental to consumers. Given the weight of the evidence, it behooves government agencies to reconsider the validity of such restrictions.

Of course, this does not bless all instances of vertical contracts or integration as pro-competitive.  The antitrust approach appropriately eschews ex ante regulation in favor of a fact-specific rule of reason analysis that requires plaintiffs to demonstrate competitive harm in a particular instance. Again, given the strength of the empirical evidence, it is no surprise that advocates of search neutrality, as net neutrality before it, either do not rely on consumer welfare arguments or are willing to sacrifice consumer welfare for other objectives.

I wish to focus on the antitrust arguments for a moment.  In an interview with the San Francisco Gate, Harvard’s Ben Edelman sketches out an antitrust claim against Google based upon search bias; and to his credit, Edelman provides some evidence in support of his claim.

I’m not convinced.  Edelman’s interpretation of evidence of search bias is detached from antitrust economics.  The evidence is all about identifying whether or not there is bias.  That, however, is not the relevant antitrust inquiry; instead, the question is whether such vertical arrangements, including preferential treatment of one’s own downstream products, are generally procompetitive or anticompetitive.  Examples from other contexts illustrate this point.

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App Store Wars: Apple, Amazon, Google, Microsoft & Dynamic Platform Competition

by on March 23, 2011 · 1 comment

Venture capitalist Bill Gurley asked a good question in a Tweet late last night when he was “wondering if Apple’s 30% rake isn’t a foolish act of hubris. Why drive Amazon, Facebook, and others to different platforms?” As most of you know, Gurley is referring to Apple’s announcement in February that it would require a 30% cut of app developers’ revenues if they wanted a place in the Apple App Store.

Indeed, why would Apple be so foolish? Of course, some critics will cry “monopoly!” and claim that Apple’s “act of hubris” was simply a logical move by a platform monopolist to exploit its supposedly dominant position in the mobile OS / app store marketplace.  But what then are we to make of Amazon’s big announcement yesterday that it was jumping in the ring with its new app store for Android? And what are we to make of the fact that Google immediately responded to Apple’s 30% announcement by offering publishers a more reasonable 10%-of-the-cut deal?  And, as Gurley notes, you can’t forget about Facebook. Who knows what they have up their sleeve next.  They’ve denied any interest in marketing their own phone and, at least so far, have not announced any intention to offer a competing app store, but why would they need to? Their platform can integrate apps directly into it!  Oh, and don’t forget that there’s a little company called Microsoft out there still trying to stake its claim to a patch of land in the mobile OS landscape. Oh, and have you visited the HP-Palm development center lately?  Some very interesting things going on there that we shouldn’t ignore.

What these developments illustrate is a point that I have constantly reiterated here: Continue reading →

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No Facts, No Problem?

by on March 22, 2011 · 0 comments

[Cross-Posted at Truthonthemarket.com]

There has been, as is to be expected, plenty of casual analysis of the AT&T / T-Mobile merger to go around.  As I mentioned, I think there are a number of interesting issues to be resolved in an investigation with access to the facts necessary to conduct the appropriate analysis.  Annie Lowrey’s piece in Slate is one of the more egregious violators of the liberal application of “folk economics” to the merger while reaching some very confident conclusions concerning the competitive effects of the merger:

Merging AT&T and T-Mobile would reduce competition further, creating a wireless behemoth with more than 125 million customers and nudging the existing oligopoly closer to a duopoly. The new company would have more customers than Verizon, and three times as many as Sprint Nextel. It would control about 42 percent of the U.S. cell-phone market.

That means higher prices, full stop. The proposed deal is, in finance-speak, a “horizontal acquisition.” AT&T is not attempting to buy a company that makes software or runs network improvements or streamlines back-end systems. AT&T is buying a company that has the broadband it needs and cutting out a competitor to boot—a competitor that had, of late, pushed hard to compete on price. Perhaps it’s telling that AT&T has made no indications as of yet that it will keep T-Mobile’s lower rates.

Full stop?  I don’t think so.  Nothing in economic theory says so.  And by the way, 42 percent simply isn’t high enough to tell a merger to monopoly story here; and Lowrey concedes some efficiencies from the merger (“buying a company that has the broadband it needs” is an efficiency!).  To be clear, the merger may or may not pose competitive problems as a matter of fact.  The point is that serious analysis must be done in order to evaluate its likely competitive effects.  And of course, Lowrey (H/T: Yglesias) has no obligation to conduct serious analysis in a column — nor do I in a blog post. But this idea that the market concentration is an incredibly useful and — in her case, perfectly accurate — predictor of price effects is devoid of analytical content and also misleads on the relevant economics.

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The AT&T and T-Mobile Merger

by on March 22, 2011 · 2 comments

[Cross-Posted at Truthonthemarket.com]

The big merger news is that AT&T is planning to acquire T-Mobile.  From the AT&T press release:

AT&T Inc. (NYSE: T) and Deutsche Telekom AG (FWB: DTE) today announced that they have entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash-and-stock transaction currently valued at approximately $39 billion. The agreement has been approved by the Boards of Directors of both companies.

AT&T’s acquisition of T-Mobile USA provides an optimal combination of network assets to add capacity sooner than any alternative, and it provides an opportunity to improve network quality in the near term for both companies’ customers. In addition, it provides a fast, efficient and certain solution to the impending exhaustion of wireless spectrum in some markets, which limits both companies’ ability to meet the ongoing explosive demand for mobile broadband.

With this transaction, AT&T commits to a significant expansion of robust 4G LTE (Long Term Evolution) deployment to 95 percent of the U.S. population to reach an additional 46.5 million Americans beyond current plans – including rural communities and small towns.  This helps achieve the Federal Communications Commission (FCC) and President Obama’s goals to connect “every part of America to the digital age.” T-Mobile USA does not have a clear path to delivering LTE.

As the press release suggests, the potential efficiencies of the deal lie in relieving spectrum exhaustion in some markets as well as 4G LTE.  AT&T President Ralph De La Vega, in an interview, described the potential gains as follows:

The first thing is, this deal alleviates the impending spectrum exhaust challenges that both companies face. By combining the spectrum holdings that we have, which are complementary, it really helps both companies.  Second, just like we did with the old AT&T Wireless merger, when we combine both networks what we are going to have is more network capacity and better quality as the density of the network grid increases.In major urban areas, whether Washington, D.C., New York or San Francisco, by combining the networks we actually have a denser grid. We have more cell sites per grid, which allows us to have a better capacity in the network and better quality. It’s really going to be something that customers in both networks are going to notice.

The third point is that AT&T is going to commit to expand LTE to cover 95 percent of the U.S. population.

T-Mobile didn’t have a clear path to LTE, so their 34 million customers now get the advantage of having the greatest and latest technology available to them, whereas before that wasn’t clear. It also allows us to deliver that to 46.5 million more Americans than we have in our current plans. This is going to take LTE not just to major cities but to rural America.

Continue reading →

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AT&T and T-Mobile: The Anti-Antitrust Terrorists

by on March 21, 2011 · 1 comment

In the rush of ink that flowed yesterday over AT&T’s announced merger with T-Mobile USA, I posted a long piece on CNET calling for calm, reasoned analysis of the deal by regulators, chiefly the Department of Justice and the FCC.

Since the details of the deal have yet to be fleshed out, it’s hard to say much about the specifics of how customers will be affected in the short or long term. My CNET colleague Maggie Reardon, however, does an excellent job laying out both the technical and likely regulatory issues in a piece posted today from the CTIA conference. Continue reading →

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