Antitrust & Competition Policy

On Google-Yahoo! as an Antitrust Problem

by Jim Harper on July 16, 2008 · 6 comments

My favorite anti-Google gadfly Scott Cleland has a post up entitled “Debunking the Google-Yahoo Antitrust Myths” in which he purports to debunk some erroneous thinking about the Google-Yahoo! deal.

Where Scott often furnishes the world with interesting ideas in an over-the-top way, here I think he’s gotten it wrong.

He walks through a series of purported “myths” about the antitrust implications of Google-Yahoo!, which got a hearing in the Senate this week. I want to walk through just a couple of them because I think he’s framing the relevant market wrongly.
Continue reading →

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Declan on Google-Microsoft Antitrust Shenanigans

by Adam Thierer on July 15, 2008 · 7 comments

Declan has got it exactly right here in commenting about the antitrust circus taking place between Google and Microsoft right now as the rhetorical war between them heats up and the feds—both in Congress and at the DOJ—get more and more involved in monitoring this market:

The underlying problem is that antitrust law is so malleable that it can be bent into virtually any shape that its practitioners desire. Given nearly any set of hard-nose business practices, some economist can be hired to claim that “predatory” prices are illegally low (hurting competitors) or illegally high (hurting consumers). No wonder Lester Thurow, the former dean of MIT’s business school, concluded that “the time has come to recognize that the antitrust approach has been a failure. The costs it imposes far exceed any benefits it brings.” And no wonder that some state attorneys general are now sniffing around to see if there’s a way for them to join the antitrust hunt.

And things are only going to get worse–far, far worse–in coming months.

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Evolving Theory of Network Effects

by Hance Haney on July 7, 2008 · 18 comments

Should antitrust enforcers be concerned about entry barriers in the search ad market? Some believe the market exhibits “network effects,” according to the New York Times.

Although traditionally applied to Industrial Age industries with high fixed costs like railroads and telephone exchanges, anything now exhibits a network effect if its value increases because more people use it. Network effects are “everywhere,” according to a top former antitrust official. Coke and Pepsi drinkers, for example, “benefit from the network of their fellow consumers because Coke and Pepsi are widely available in restaurants and in vending machines,” claims Timothy J. Muris.

A preexisting network of vending machines is admittedly tough for soft drink imitators to replicate. But a barrier to imitation can also be viewed as a spur to innovation because it acts as a reward which inspires creators and investors. Not an incentive to create a barely distinguishable alternative, to be sure, but to create something transformative.

The alleged network effects in search advertising are more subtle than in the case of railroads, telephone exchanges or soft drinks (in fact, they even bear a striking resemblance to what one might also term legitimate and hard-won competitive advantages).
Continue reading →

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Not One, Not Two, but THREE Competing Open Source Mobile Operating Systems

by Berin Szoka on June 25, 2008 · 20 comments

Global handset manufacturing giant Nokia has purchased the shares they didn’t already own in Symbian, Ltd., the company formed in 1998 as a partnership among Ericsson, Nokia, Motorola and Psion and the developer of the Symbian mobile operating system, by far the world’s leading OS for “smart mobile” phones with 67% of the market, followed by Microsoft on 13%, with RIM on 10% (source).

But wait, there’s more (per Engadget)!

Here’s where it gets interesting, though: rather than taking Symbian’s intellectual private for Nokia’s own benefit, the goods will be turned over to the Symbian Foundation, a nonprofit whose sole goal will be the advancement of the Symbian platform in its many flavors. Motorola and Sony Ericsson have signed up to contribute UIQ assets, while NTT DoCoMo (which uses Symbian-based wares in a number of its phones) will be donating code as well.

Other Symbian Foundation members include Texas Instruments, Vodafone, Samsung, LG, and AT&T (yep, the same AT&T that currently sells precisely one Symbian-based phone), so things could get interesting. The move clearly seems to be a preemptive strike against Google’s Open Handset Alliance, LiMo, and other collaborative efforts forming around the globe with the goal of standardizing smartphone operating systems; the writing was on the wall, and Symbian didn’t want to miss the train. Total cash outlay for the move will run Nokia roughly €264 million — about $410 million in yankee currency.

Other reports note that the Symbian Foundation will eventually take Symbian open source, and that this move is as much as response to Apple’s closed iPhone platform as it is to Gogole’s open Android and LiMo platforms. (Although it is intriguing to note that AT&T, Apple’s exclusive U.S. partner for the iPhone, is among the backers of the new Symbian Foundation, perhaps indicating that even AT&T is hedging its bets.)

The fact that we will soon see three open source platforms (counting Google’s Android and LiMo) competing for market share provides yet another measure of the exceptionally high degree of competition in the wireless industry. Continue reading →

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Confusing Fact and Fiction at Techdirt

by James Gattuso on June 25, 2008 · 5 comments

Mike Masick over on Techdirt yesterday decried the “amount of misinformation flying around” on the retention marketing issue. Unfortunately, however, his attempt to clear things up actually added to the airborne debris.

Specifically, Mike claims that I erred the other day in writing that the question at hand was whether Verizon can contact customers who have agreed to switch telephone service providers, and ask them not to switch. That, he says, is incorrect. Saying that “no one” is saying that telcos can’t try to convince customers not to switch, he claims the issue is instead whether Verizon can delay making the change while it trys to take them out of it:

What the FCC has said is that Verizon cannot abuse its position to block the switch while it tries to convince customers not to switch. That’s what Verizon is doing. When it gets the request from the cable companies to switch, it basically goes into procrastinate mode, even though it’s required to process the switch. It codes the switch request as a “conflict” which gives it extra time to resolve the “conflict” before obeying the switch request.

Masick is simply wrong. The FCC’s order, released Monday, explains clearly that a conflict code is entered only after Verizon is successful at convincing a customer not to change carriers. There’s no claim that, or even a reference to, Verizon improperly delaying any pending switch requests (although the cable industry is certainly pushing for telcos to be required to make switches more quickly).

What the FCC did say was that the information contained in the switch request (i.e., that the customer wants to change), is “proprietary,” and that — to quote Commissioner McDowell: “marketing efforts [based on that information] cannot take place during the window of time when a customer’s phone number is being switched”.

Bottom line: I stand by my original post.

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CWA Blog Claims Credit for FCC Data Order, But Ignores Local Company Data

by Drew Clark on June 24, 2008 · 18 comments

Over at the Communications Workers of America’s blog, Speed Matters, the union claims credit for the Federal Communications Commission’s recent order requiring broadband companies to provide the FCC with more information, including data about availability by Census tract.

The blog notes:

The CWA Speed Matters campaign can claim another victory – this time at the FCC. As part of our Speed Matters campaign, CWA called on the FCC to increase its definition of “high speed” – a definition that had not changed for nine years — and to improve its broadband data collection.

Well, it is possible that the FCC’s broadband data collection will be improved. But the public is not likely to benefit from any improvements. Continue reading →

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Retention Marketing: Bad Call at the FCC

by James Gattuso on June 22, 2008 · 6 comments

Targeted by Chairman Kevin Martin’s apparent war on cable, the cable industry has had a tough time at the FCC of late. Being a cable lobbyist at the FCC today is like being a Communist in the State Department in the 1950s. One can just imagine the question: “Are you now, or have you ever been, a user of coaxial technology?”

That said, the cable folks don’t always lose. Just this Friday, they won one – handing a defeat to Martin. The problem is that its one they really should have lost.

The question at hand (addressed ably by Berin Szoka on Friday, and by Adam Thierer earlier) is whether telephone companies should be able to contact customers who have requested that their phone numbers be switched over to a competitor, and try to convince them not to switch. Several cable firms filed a complaint against Verizon over the practice early this year. The practice is anti-competitive, they said, pointing out that Verizon was able to ply customers with “price incentives and gift cards” to convince them not to switch.

In April, the FCC staff said it would side with the telcos on this one. But on Friday the commission voted 4-1 – with Chairman Martin the only ‘no’ vote – to ban the practice.

That is unfortunate. Far from being a threat to competition, being able to fight to keep your customers – and even to ply them with a few incentives – is at the heart of it. The practice is common in other highly competitive industries – just try letting a magazine subscription expire. In fact, as Verizon’s Tom Tauke argues, cable firms have long engaged in similar activity to keep customers from moving to telco video service. Why should it now be wrong for telcos to do the same thing for telephone services?

I don’t say this often, but Chairman Martin was right on this one. Not because cable should lose, but because consumers would win.

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The Winback Wars, Round Two: Verizon v. NCTA

by Berin Szoka on June 20, 2008 · 9 comments

Verizon’s Tom Tauke and NCTA’s Kyle McSlarrow take to fisticuffs in their comments (well worth reading and remarkably… candid) on the Verizon Policy Blog after Tom asked “Will Cable and FCC Thwart Consumer Choice?” In case you missed it, Verizon has been feuding with cable providers before the FCC about Verizon’s practice of calling customers who ask to cancel their telephone service and offering them incentives to stay with Verizon rather than switch to a cable VoIP service.

Adam Thierer very capably addressed this subject several months ago:

there are two issues here: (1) Is Verizon technically violating any existing FCC regulations; and (2) do those rules make any sense?

I’ll leave it to the legal beagles to sort out the answer to question #1. From my perspective, the more important question is, regardless of what the regs say, what’s the impact of all this is on consumers and competition? On that point, it’s hard for me to see how those old number portability regulations make sense if they limit the ability of incumbents to play hard-ball in an attempt to retain customers. After all, that’s what we should want more of in the marketplace: good ol’ fashion head-to-head, facilities-based competition….

Bottom line: the FCC should be careful about regulating customer inducements by incumbents whether those offers happen before or after the porting process. The better approach would be to make sure that the incumbents can offer whatever inducements they want but then also make sure that rivals have a clear opportunity to respond and beat the offer.

Amen!

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Trade War

by Hance Haney on June 16, 2008 · 20 comments

Picking up on Braden’s recent post, “Abuse of Power? Competition Commissioner that Pushes ‘Smart Business Decisions,’” it’s no secret that Europe’s software industry is years behind Microsoft, and not surprising the industry is seeking help from politicians in Brussels.

When Kroes, a politician, talks about open standards one must assume she is referring to the European software industry, not to the open source movement generally. Of course, for the moment “the enemy of my enemy [may be] my friend,” as they say.

In her remarks last week Kroes said,

“I know a smart business decision when I see one — choosing open standards is a very smart business decision indeed,” Ms. Kroes told a conference in Brussels. “No citizen or company should be forced or encouraged to choose a closed technology over an open one.”

This statement could be read either as an innocent statement of personal opinion, or more like an informal, unofficial statement of official policy with plausible deniability. I suspect it is the latter, and that if you are a European bureaucrat or business leader you now understand what is expected of you as far as your future software procurement is concerned.

Why would Kroes need to be opaque? Because there are both structural (e.g., excessive tariffs, unreasonable licensing terms, etc.) and nonstructural trade violations (e.g., certain winks and nods) which are actionable. And because two or more can play this game.

A good reason for governments to not encourage boycotts of foreign goods is because foreign governments can do the same thing. That can lead to trade war, in which your efforts to protect one of your small, insignificant struggling industries may result in foreign retaliation against your most successful exporters.

Trade wars don’t always have serious repercussions, but they have sparked global recessions and many think a trade war sparked the Great Depression.

That’s another good reason why maybe politicians on both sides of the Atlantic ought to leave software procurement decisions up to the marketplace.

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Intel Antitrust: Trouble for All Tech Companies

by Sonia Arrison on June 13, 2008 · 9 comments

So-called consumer groups may be calling for antitrust action against Google right now, but Intel is actually facing charges. Unfortunately, antitrust has come to be used by under-performing companies to slow down their competitors in the the hyper-competitive tech sector. This trend is not only bad news for consumers, but it may put American companies at risk now that foreign governments are getting more interested in the game. Here’s my recent article on the issue.