Antitrust & Competition Policy

AT&T-BellSouth: No Big Deal

by on March 6, 2006

There no doubt will be much gnashing of teeth in the wake of yesterday’s announcement that AT&T (the former SBC) has agreed to buy BellSouth. WIthin hours, to no one’s surprise, old-line consumer groups called for regulators to reject the merger. In truth, however, the acquisition just won’t make that much difference, and to the extent it does, it likely will help consumers in the southeastern states BellSouth serves.

Sure, the deal reduces the number of “Bell” telephone companies to two–down from the original seven created in 1984. But does that mean less choice and less competition for consumers? Far from it. Today’s traditional telephone companies are quickly becoming but one choic among many for consumers wanting to make a telephone call. Cable TV companies alone now provide telephone service for some six million Americans, a number that is rapidly increasing. And that doesn’t include the millions more service by stand-alone Internet telephone companies such as Vonage. Wireless telephone service provides another source of competition to traditional telephoney, with millions of Americans cutting the cord, and dropping their traditional service entirely. And while the merged AT&T-BellSouth will own Cingular, one of the leading wireless firms, the wireless market is still vibrantly competitive.

Perhaps more important for the future is the market for broadband Internet service. The networks that connect Americans to the Internet are increasingly important–serving as the platform for everythng from e-mail to Internet telephony, to (soon) television. Here, however, the traditional telephone companies are even less dominant. In fact, they are the challengers in this market, trailing cable TV firms, who have some 60 percent of the market.

As a result, this merger, like last years mergers before it, is no big deal to consumers. However, at least one area, consumers will likely be better off. BellSouth has trailed AT&T and Verizon in making plans to enter the television market. While the two larger phone companies are already starting to offer TV service in competition with traditional cable firms, BellSouth–with more limited resources – has lagged behind. As a result, while consumers in many areas of the country could soon be enjoying the benefits of more cable TV competition, consumers in the southeastern U.S. were facing a long wait for the same benefits. If the proposed deal goes through, cable competition could come sooner to the South.

Despite the easy rhetoric, this deal does not signal a return to the days of monopoly in telephone service. Instead, it serves as a reminder of how far competition has come, and how choices have increased, for American consumers. And that competition and choice will, if anything, be stronger due to this merger.

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AT&T is Dead, Long Live AT&T

by on November 18, 2005

Speaking of departures, today another departure from the telecommunications scene was finalized–that of AT&T. The final paperwork was concluded earlier today with the filing of a merger certificate with the New York state secretary of state.

Making things more than a little confusing, the name “AT&T” will not actually be retired–instead the SBC moniker will be leaving the stage. The merged company will take the historic AT&T name.

The most remarkable thing about this is the lack of attention it is getting. The old AT&T was once one of the most powerful companies in the world. And for the past 20 years, its battles (along with MCI and Sprint) with the Bells kept food on the table for hundreds of lobbyists and lawyers. Yet, its final passing–and that of the long-distance industry as a whole, has barely reached outside the business sections of newspapers. The fact is (as argued here earlier this year) the world has moved on. Real competition in the phone business is raging–with wireless firms, cable firms, and Internet providers all joining the fray. This leaves the old AT&T looking somewhat dated, like a rotary dial phone among Blackberries.

It bequeathes no monopoly its new owners–only an object lesson. The new AT&T (which will still be called SBC until Monday) cannot rely on size alone. It–like its competitors–must survive by providing what consumers what. That’s the way it should be.

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Mergers, Conditions, and the Missing Commissioner

by on October 31, 2005

The FCC today unanimously approved SBC’s acquisition of AT&T as well as Verizon’s purchase of MCI, ending a federal approval process that began early this year. For these mergers to take effect, now all that is needed is approval by a few remaining state regulators.

Symbolically, the mergers revolutionize the telecom industry–ending for all intents and purposes the 20-year split between long-distance and local portions of the industry, and he political warfare that went along with it. Yet, there was always less to the mergers than met the eye. Their effect on the marketplace will actually be quite limited. It been a few years since consumers looked to AT&T and MCI for telecom choice, moving instead to wireless and net-based alternatives. And with E-Bay and Google now playing on the telecom field, the significance of these mergers wi. (See “Ma Bells’ Retirement: No Big Deal“) And, with SBC’s announcement that it will change its own name to AT&T, even the cosmetic change is diminished.

Still, there’s a fair amount of gain to be had by integrating these firms into SBC and Verizon respectively. Yet, these gains will be limited, thanks to regulatory conditions placed on the deals. Each firm pledged to abide by restrictions demanded by the Commission, ranging from leasing lines toEven this will be limited, though, by 13 specified conditions, ranging from a freeze on UNE rates to maintaining “settlement free” peering policies for Internet backbone traffic (though the Commission found the mergers did not threaten competition in this market). The conditions even included special commitments regarding the state of Alaska.

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Blockbuster and Video Rental Industry, Part 3: The Beginning of the End?

by on September 19, 2005

In previous posts earlier this year, I warned that efforts by the Federal Trade Commission (FTC) to block the proposed acquisition of video rental firm Hollywood Video by Blockbuster Inc. would likely lead to the demise of both companies in the long run. Well, excuse me while I toot my own horn for a moment, but it appears that I was likely right, and sooner than I expected.

Joe Flint and Kate Kelly report in today’s Wall Street Journal (“New Signs of Strain for Blockbuster” p. B5) that “Blockbuster Inc. is facing new pressures as signs increase that a sharp decline in the video-rental market is putting a strain on the company’s finances.” The company’s stock prices fell by 9.7% on Friday, hitting a 52-week low of $4.60 per share. This came on news that Movie Gallery Inc., the industry’s #2 firm, was reporting that sales at many of its stores were expected to drop by 8-10% this quarter.

What’s happening is clear: technological and market evolution are finally catching up with this old business and is about to wipe it from the face of the Earth. With all the new sources of competition out there–Netflix and cheap DVDs at WalMart, online movie download services, cable and satellite movie channels plus video-on-demand, telco entry into the video business, all sorts of handheld mobile media gadgets like the PlayStation Portable, and so on–its no wonder that Blockbuster and others in this sector are struggling.

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Is Google Evil? The Never-Ending Search for High-Tech Villainy

by on June 30, 2005

Beware lowly citizens of Planet Cyberspace, an ominous new threat lurks in your midst. Its name is Google and this beast won’t rest until it has taken control of all our minds. At least that’s what Wired columnist Adam Penenberg would lead us to believe.

In a June 23rd article entitled “Beware the Google Threat,” Penenberg spins a dark and foreboding tale of “big, bad” Google’s apparent sinister plot to take over the world and control our minds. You think I’m kidding? Well, let’s dissect Penenberg’s apocalyptic article in detail.

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European Union: Reduced Innovation Edition

by on June 16, 2005

This is hilarious.

Strange thing about an operating system with missing functionality… no one wants to sell it. That’s what the European Commission is discovering, as major PC OEMs are declining to preinstall the media-player-free Windows XP N on any of the systems they sell. While Fujitsu Siemens says they’ll sell it “on request,” Dell, Lenovo, and HP are all taking a pass on it.

EU antitrust regulators won their battle against Microsoft, securing a court order to “unbundle” Windows Media Player from Windows XP. Now consumers are free to get the products separately if they prefer.

And now we’ve learned that, strangely enough, when you offer people with a product with fewer features for an identical price, most people don’t buy it! (My girlfriend, who pines for the days of DOS 6, says she’d buy it; she seems to be in the tiny minority though)

I think this exercise has laid bare the absurdity of Microsoft’s antitrust critics, who claim that Microsoft has somehow been shoving unwanted browsers and media players down their customers’ throats. Those customers who who pay attention to such things can easily download FireFox and Quicktime. Those customers who don’t pay much attention, by definition, don’t care very much.

So who exactly are the EU’s antitrust busybodies helping? When they attain victory and consumers across the continent yawn, maybe the regulators were barking up the wrong tree in the first place.

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“The Carnage of the Past Six Years”: Consumer Groups on Telecom Mergers

by on May 13, 2005

The dog-bites-man story of the past week was no doubt a petition filed at the FCC by the Consumer Federation of America, Consumers Union and US PIRG urging rejection of Verizon’s acquisition of MCI. The petition (virtually a carbon-copy of a filing by the same groups on the SBC-AT&T deal) was rather breathless in tone–warning of all kinds of consequences should the merger go through–destroyed competition, higher prices, bad breath, and so on. The chicken little claims are groundless–as discussed here and here both mergers are the natural consequence of the decline of the long-distance industry, and are a sign of a healthy, not a troubled industry. But what got my attention was an “I told you so” reference, arguing that the FCC made a mistake in OKing previous Bell mergers in 1999-2000, specifically SBC-Ameritech and the Bell Atlantic-GTE merger which formed Verizon. Specifically, they say:

“The Commission simply cannot look back on the carnage of the past six years and conclude that its decision to allow a handful of incumbents to dominate the local telecommunications market has served the public interest.”

What in heaven’s name are they talking about?

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One Bundle, Many Antitrust Laws: The Dilemma for Digital Products

by on April 29, 2005 · 2 comments

Recent news accounts on Steve Ballmer’s visit with Europe’s top antitrust official, Neelie Kroes, again brings to light the concept of software bundling. With Microsoft’s Longhorn operating system still 18 months away, we’ll have a little reprieve at least from more antitrust actions directed against MS (maybe). But what the operating system bundles (and what it doesn’t) will surely be the subject of legal attacks.

It can be easy to bundle digital products, but when is it illegal? This is a difficult question to answer, made more difficult when viewed against the global regulatory scale. In my recent article published in the Intellectual Property & Technology Law Journal, I argue that while it is easy to think of bundling as anticompetitive tying, economic justifications show that this fear is overblown. Consumers generally prefer bundled products because they offer convenience and more value for the money. That’s why EU regulators need to adopt a “rule of reason” approach toward antitrust tying cases. This is the approach that the U.S. has essentially adopted, and represents a more forgiving standard than the hard and fast per se rule.

Why bundle digital products? What are the consumer and regulatory misunderstandings toward technology bundling? What is tying, legally speaking? What’s the international impact? Answers to these and other titillating questions here.

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Do Regulators Read the Papers? The Blockbuster Antitrust Fiasco Revisited

by on April 18, 2005

A few weeks ago, video rental giant Blockbuster announced it was abandoning its effort to acquire rival Hollywood Video after Federal Trade Commission (FTC) antitrust officials made it clear they would likely block the deal.

As I mentioned in a post prior to that announcement, this represents a classic example of how backward-looking antitrust policy can be at times. In particular, rarely has a case gotten the “relevant market” for purposes of market power analysis so completely wrong.

The idea that Blockbuster and Hollywood Video only compete against each other is absolutely absurd. To make that claim, antitrust officials are essentially arguing that the relevant market in this case is a niche of a niche of a niche. That is, apparently they believe that the relevant market here is:

(a) the market for video programming;
(b) in which you rent the video programming;
(c) in which you rent the video programming on a piece of tangible plastic;
(d) in which you get in your car and drive to a store to rent the video programming on a piece of tangible plastic.

This is just crazy. Is that really the relevant market in a world in which 85% of all households subscribe to cable and satellite television services and have access to a 500-channel universe of video programming? On those cable and satellite networks, consumers can also gain access to dozens of a la carte video-on-demand (VOD) movies and programs.

The Internet is also increasingly offering an array of video download services, including the popular Movielink.com site. An article on page B1 of today’s Wall Street Journal also mentions how many Bell companies are preparing to roll out IPTV (Internet protocal TV) services with their new fiber networks.

And how about Netflix, which has single-handedly upended this entire business and forced the traditional vendors to abolish late fees? And even if your relevant market is just the good old tangible plastic video store, don’t you think WalMart has a bearing on market price? After all, there are bins of DVDs at WalMart that include new movies for less than $10 bucks. Hell, why rent when you can own for almost the same amount of money?

Don’t these other providers and technologies count as competitors? Why not? As Mr. Spock would say, this is highly illogical.

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Blocking Blockbuster

by on March 17, 2005

Today’s Wall Street Journal reports that the Federal Trade Commission is expected to file a lawsuit to block Blockbuster’s move to takeover Hollywood Entertainment, a competing video rental company.

Here again is a classic example of how backward looking antitrust officials can often be. I suppose an argument could have be made that this was anti-competitive five years ago, when everyone still drove down to the local video store to get their movies. But come on, the world has changed a lot since then! Certainly most antitrust officials must have heard of Netflix by now. Netflix alone is decimating the traditional movie rental business and has already forced it to change its business model by eliminating late fees and moving to adopt their own online services.

Meanwhile, on-demand, pay-per-view video offerings are flourishing. Turn on any cable or satellite service and start flipping through the pay-per-view channels. It’ll take you a short eternity to scan all the options at your disposal.

And then’s there’s Internet video. True, it’s still in its infancy, but for a couple of bucks you can already download and watch most your favorite movies on your PC via Movielink.com.

Meanwhile, the costs of DVDs continue to fall to the point where if you plan on watching a movie more than once, you might as well just buy it for your personal collection. Heck, WalMart has giant bins of movies on sale every day for a couple of bucks.

So the net result of the FTC blocking a Blockbuster-Hollywood Video merger will just be to stop two dying dinosaurs from having a chance to survive this coming storm. Once again, antitrust officials got the relevant market wrong and failed to appreciate the rapid pace of technological change.

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