FCC says AT&T and Verizon ‘harm consumers’ with free data schemes(theverge.com)
theverge.com
FCC says AT&T and Verizon ‘harm consumers’ with free data schemes
http://www.theverge.com/2016/12/2/13820294/fcc-att-verizon-sponsored-data-letters
4 comments
Can someone articulate the theory of harm here from an antitrust perspective? This practice is essentially bundling, which is practiced by many firms, from meal deals at fast food chains to Amazon's free streaming content with a prime subscription. In theory this could have anti-competitive motivations or just be standard business conduct with some efficiency/extraction motivation. How are people certain it's the first case?
Your analogies sound comparable, but fall a little short when you examine the full picture, here's why they do not quite apply.
There is limited competition for the 'last mile' infrastructure (due in part to the significant upfront capital costs creating a network, and the historical fact that existing infrastructure was previously a public good in many cases--ie paid for by the gov.)
So, you can look at this from an anti-competitive monopoly perspective. If I have a regional monopoly on the last mile infrastructure and I bundle in such a way that it gives my new video streaming business an advantage over others then I am illegally leveraging my monopoly to another business category. That is illegal in the US.
Mobile is similar, except instead of copper in the ground a handful of companies have paid for a monopoly access (or perhaps more correctly a triopoly) to certain broadcasting frequencies.
Going back to your analogy, maybe rephrase it in terms of core infrastructure like a public road being turned into a private good. Now, if the operator of the private roadways started to run their own fast food restaurants and when you buy a meal from them you get free access to the road. Alternatively, you could buy a meal from someone else, but now you have to pay for access to the road.
There is limited competition for the 'last mile' infrastructure (due in part to the significant upfront capital costs creating a network, and the historical fact that existing infrastructure was previously a public good in many cases--ie paid for by the gov.)
So, you can look at this from an anti-competitive monopoly perspective. If I have a regional monopoly on the last mile infrastructure and I bundle in such a way that it gives my new video streaming business an advantage over others then I am illegally leveraging my monopoly to another business category. That is illegal in the US.
Mobile is similar, except instead of copper in the ground a handful of companies have paid for a monopoly access (or perhaps more correctly a triopoly) to certain broadcasting frequencies.
Going back to your analogy, maybe rephrase it in terms of core infrastructure like a public road being turned into a private good. Now, if the operator of the private roadways started to run their own fast food restaurants and when you buy a meal from them you get free access to the road. Alternatively, you could buy a meal from someone else, but now you have to pay for access to the road.
To be clear, I'm agnostic about the competitive harm in this case (and relatively ignorant about the market-specifics).
Here's the DOJ guidance for single firm conduct which is pretty relevant:
https://www.justice.gov/atr/competition-and-monopoly-single-...
Their discussion of the potential for harm through bundling is exactly the foreclosure story you tell.
However, they also allude to the classic price discrimination justification for bundling.
To give you a simple example, imagine a monopolist producing 2 goods A, B and facing two customers 1 and 2. If the customers value the goods at (1,10) and (10,1) then the optimal conduct for the monopolist is to price both at 10 and sell the preferred product to each. However, if they can sell a bundle at price 11, they can increase profits without harming customers or breaking antitrust law. This core effect can persist with more complicated product offerings and market structures.
Here's a good discussion of the topic by the current fed chairman:
http://feeds.czaj.org/pub/teaching/IO/Commodity%20Bundling%2...
To me, it seems challenging to differentiate between these two explanations (and others). I'm sure the FCC have looked into this further and have a reason for their conclusions but I'd be interested to hear it.
Here's the DOJ guidance for single firm conduct which is pretty relevant:
https://www.justice.gov/atr/competition-and-monopoly-single-...
Their discussion of the potential for harm through bundling is exactly the foreclosure story you tell.
However, they also allude to the classic price discrimination justification for bundling.
To give you a simple example, imagine a monopolist producing 2 goods A, B and facing two customers 1 and 2. If the customers value the goods at (1,10) and (10,1) then the optimal conduct for the monopolist is to price both at 10 and sell the preferred product to each. However, if they can sell a bundle at price 11, they can increase profits without harming customers or breaking antitrust law. This core effect can persist with more complicated product offerings and market structures.
Here's a good discussion of the topic by the current fed chairman:
http://feeds.czaj.org/pub/teaching/IO/Commodity%20Bundling%2...
To me, it seems challenging to differentiate between these two explanations (and others). I'm sure the FCC have looked into this further and have a reason for their conclusions but I'd be interested to hear it.
I never thought of it from their perspective, thank you for the links.
I suppose I see it as a structural problem. That is, the company positioned their business lines to put them in the unique position to bundle in a way that gave them distinct market advantages. Owning the highway and distributing goods on that same highway. In the past it didn't matter so we never saw the conflict of interest. However, technology progressed and now the conflict is obvious.
I wonder what do other markets do? E.g. power comes to mind. Are the transmission lines owned by the folks that produce the power? If I understand my local market the power producer is a separate company from the transmission company. That was how we choose to privatize the industry. It seems telco got a better deal during their privatization as they own both sides. The solution, strikes me as simple (split the company into transmission and content businesses). Obviously there is no political will to do that.
I suppose I see it as a structural problem. That is, the company positioned their business lines to put them in the unique position to bundle in a way that gave them distinct market advantages. Owning the highway and distributing goods on that same highway. In the past it didn't matter so we never saw the conflict of interest. However, technology progressed and now the conflict is obvious.
I wonder what do other markets do? E.g. power comes to mind. Are the transmission lines owned by the folks that produce the power? If I understand my local market the power producer is a separate company from the transmission company. That was how we choose to privatize the industry. It seems telco got a better deal during their privatization as they own both sides. The solution, strikes me as simple (split the company into transmission and content businesses). Obviously there is no political will to do that.
In the UK, power is regulated by a complicated system of price controls, profit caps and requirements to supply downstram rivals. I don't fully understand it orhow it works in the US.
I'm sympathetic to your sentiment that Telcos seem too powerful and it could be socially optimal to constrain them. They could well be a natural monopoly, where price controls (or government provision) improves welfare.
I don't like your idea of splitting upstream and downstream though. An economist called Ronald Coase once said 'whats worse than a monopoly? A chain of monopolies..'
The idea of double marginalisation is not obvious but totally fundamental to the topic of vertical restraints/mergers and why they are so much less clear cut than horizontal agreements/mergers. This video is good.
https://m.youtube.com/watch?v=2NElV61MUDE
I'm sympathetic to your sentiment that Telcos seem too powerful and it could be socially optimal to constrain them. They could well be a natural monopoly, where price controls (or government provision) improves welfare.
I don't like your idea of splitting upstream and downstream though. An economist called Ronald Coase once said 'whats worse than a monopoly? A chain of monopolies..'
The idea of double marginalisation is not obvious but totally fundamental to the topic of vertical restraints/mergers and why they are so much less clear cut than horizontal agreements/mergers. This video is good.
https://m.youtube.com/watch?v=2NElV61MUDE
Fast food chains aren't primarily sole distributors of other businesses' food.
Interesting that the article doesn't mention T-Mobile, who have been facing net neutrality complains for similar acts:
http://thenextweb.com/insider/2016/08/21/t-mobile-one-eff-ne...
"Both companies have recently instituted similar plans. Under the programs, customers can use select services without having them contribute to a data cap — a practice known as zero rating. In AT&T’s case, the FCC writes that, despite protests from the company, its sponsored data program “strongly favors AT&T's own video offerings” while damaging the opportunity for other video services to compete."
T-Mobile applies its zero rating to all services that partner with it, and does not have its own offering that competes.
T-Mobile applies its zero rating to all services that partner with it, and does not have its own offering that competes.
There is a link on the page to another Verge article which mentions T-Mobile. http://www.theverge.com/2016/11/29/13774648/fcc-att-zero-rat...
I've complained to T-Mobile a lot about their policies and the responses I get are basically "we can do whatever we want". I'm glad to see the FCC cracking down as these companies have been walking all over them for too long now.
Conversely, I've emailed John Legere and shared with him my support of zero rating as a long time customer, and have submitted a letter to the FCC that I'm in favor of it for traffic management purposes when the provider doesn't have their own competing offering.
Vote with your dollars if it bothers you. Not all traffic is created equal, and it shouldn't be treated as such.
Vote with your dollars if it bothers you. Not all traffic is created equal, and it shouldn't be treated as such.