Competition

Despite Sprint and Clearwire opposing the proposed AT&T-T-Mobile acquisition, expect the DOJ and FCC to approve it, because the DOJ appreciates the facts of vibrant wireless competition and because the FCC will come to appreciate how the transaction actually helps solve many of the FCC's highest priority problems.

As a veteran analyst, who has closely covered most all of the roughly two dozen major communications mergers since the 1996 Telecom Act, it is easy to cut through the critics' standard, hyperbole and histrionics -- that they use to attack every major communications merger -- to get to the rub of this matter.

• The rub here is twofold:
  • First, the market competition facts of this transaction and the DOJ's many analogous precedents from previous similar mergers, provide no basis for the DOJ to try and block this merger; and
  • Second, the communication policy facts of this transaction will help solve many of the FCC's highest priority problems: promoting universal broadband, mitigating spectrum exhaust, accelerating broadband adoption, and promoting economic growth and competitiveness.

Like I blogged that the Comcast-NBCU merger would get approval when the hyperbole and histrionics were similarly over the top and not credible, this acquisition ultimately will gain government approval.

It will be surprising if the Republican FCC Commissioners and a bipartisan majority of Congress do not oppose the FCC's unwarranted war on wireless competition policy.

• The FCC appears to be itching to start another political battle over competition policy with its upcoming fifteenth wireless competition report to Congress, by making another political decision devoid of supporting evidence or merit, that the wireless market does not have "effective competition."
  • Such a fantastical political finding, helps the FCC to ignore Congress and the law yet again, and also to unilaterally impose new sweeping economic regulations on wireless, including net neutrality.

The linchpin of the FCC's de-competition policy to restore the FCC to its pre-1996 monopoly regulation glory days, and to put the FCC in more control of the communications sector going forward, is to politically define away the existence of "effective competition," in order to justify FCC regulation of the mobile Internet.

Network World hosts a techdebate: "Net Neutrality: Needed or Not?" with dueling op-eds from NetCompetition and FreePress. Click here for the op-eds.

• I argue for NetCompetition.org that: "net neutrality regulation is unnecessary, unjustified, unwarranted, unproductive, unwise, unpopular, and unlawful."
• FreePress' Chris Riley argues that: "Net neutrality, a founding principle of the Internet, guarantees that no ISP can dictate where you go and what you do online. Without net neutrality, AT&T, Comcast and Verizon would be free to favor Hulu, but block Netflix. Or prioritize YouTube over Vimeo."

Google's biggest-ever reordering of its search results this past week to reward what Google believes is high quality content and punish low quality content prompted an public epiphany this week that Google has the market power to effectively pick winners and losers in the online content market.

• See WSJ's "Google Reorders Web Winners," "Google Search Cleanup Has Big Impact; see AP's "Google Tries to Bury Low Quality with Major Search Algorithm Changes;" and WebProNews' "Google Update Costs Mahalo Employees Their Jobs."

There are two big takeaways from this public epiphany that "Google is the de facto web content market:"

• First, Google's "algorithmic hand" largely has supplanted Adam Smith's "invisible hand" market mechanism to pick web content winners and losers; and
• Second, Google has proven to be a highly unstable, unpredictable and capricious economic platform/mechanism for online content entrepreneurs and businesses to try and build a successful and sustainable business on top of.

It will be telling to see if the FCC's proposed rule making Thursday on retransmission consent addresses the glaring issue of why prices ONLY go up in this obviously dysfunctional regulated, and out-of-date retrans marketplace, because the FCC's rules have never been updated to reflect the competitive entry, and great success of, strong DBS and telco competitors into the pay TV market.

• Embarrassingly, the FCC's current retrans rules are fossilized in a 1992 cable monopoly era that is long extinct.
• The pay TV market is obviously competitive, and the FCC's current retrans rules are obviously based on an out-of-date cable monopoly market assumption.
• It also will be telling to learn if the FCC is open to updating their retrans rules for the 21st century competitive Internet era.

In most every other FCC proceeding involving competition matters over the last fifteen years, the FCC has examined where industry pricing trends have gone directionally over time as a proxy for how competitive the market is and/or to learn if market power is at work.

It will be telling to learn if the FCC cares about competition policy and the state of competition in the pay TV market that the FCC has the direct statutory authority to oversee... given how focused the FCC has been over the last year to impose preemptive restrictions on broadband providers to address speculative harms to competition in the Open Internet Order based on questionable ancillary authority.

"The Net Neutrality Debate in Europe is Over" per an excellent commentary by Ben Rooney in WSJ TechEurope.

• Mr. Rooney chronicles the evolving public position of EU Digital Commissioner Neelie Kroes from an original pro net neutrality regulation mindset, to now the opposite -- a more pro-competition mindset where "the commissoner's position now [is] that a competitive market should be able to deliver an Internet to which everyone has access."

For those who follow history, it is truly ironic, surprising, and just plain bizarre that Europe is more pro-competition on Internet policy than the U.S. FCC.

How can this be? To understand this wierdness, look at this remarkable development through the lens of industrial policy.

I posit the reason for this European policy outcome is the fact that Europe does not have a Silicon Valley lobby -- with an aggressive corporate welfare agenda seeking government special treatment, regulation of their competitors, and implicit bandwidth subsidies -- like the U.S. does. 

The stark and ironic contrast between the FCC's European-style, interventionist, regulatory approach, and Europe's more American, non-interventionist, competitive approach can only be explained by the presence of the potent lobbying force of U.S. industrial policy national champions (Silicon Valley -- Google, eBay, Amazon, IAC) in the U.S. -- and the absence of European national champions seeking net neutrality in Europe.

The DOJ should call Google's bluff that it would fight the DOJ in court if the DOJ tries to block Google-ITA,  because Google will fold precisely because Google has so much to lose from going to war with the U.S. Justice Department over a $700m deal.

• If DOJ decides to sue to block Google's acquisition of ITA Software, expect Google to walk away from the deal to maintain the status quo and to choose to not make their antitrust predicament massively worse by their own behavior.

While Google blusters they have a strong case in court on Google-ITA, the last thing Google should want is for all their political and PR antitrust defenses to be subject to vivisection, sandblasting, and ridicule in public court for everyone to see.

Mobile content producers do not have a truly competitive choice between Google's 10% fee One Pass service and Apple's 30% fee subscription service, as much as they have a value system choice between Google's Internet commons model and Apple's property-rights-driven market.

• Google's One Pass offering looks eerily like its Google TV offering, where major video content owners faced the platform choice between dumb content and Content is King."
  • Given that choice, content-is-king-oriented owners broadly rejected Google's property-hostile, dumb-content system/model.
• As mobile content providers and carriers threatened with "dumb content" and bandwidth/spectrum commodification from Google's "free" commons model assess their real long term strategic competitive and value-creation options, they will increasingly look toward, and forward to, the nascent Microsoft-Nokia alliance offering and RIM's offering for content-is-king allies and true competitive choices.

As much as Google tries to fool Little Red Riding Hood content owners that their Grandma always had such big eyes and big teeth, most mobile content providers will spot the Google commons wolf in disguise.

Do the actions of the FCC match the FCC's words of support for the President's commitment to the "least burdensome tools to achieve regulatory ends?"

• Does the FCC truly agree with the President's State of the Union that: "We can't win the future with a government of the past?"

• There is much troubling evidence that the FCC mindset is firmly wedded to the regulatory past and not committed to competitively "winning the future."

There are three disturbing trends at the FCC: preservationism, pessimism and silo-ism -- that all strongly indicate that the FCC's trajectory is more geared toward losing the future than winning the future.

I. FCC Preservationism (Shackling the future with the mindset, approaches and legacy networks/regulations of the past.)

Most of the last year the FCC has been obsessed with FCC historical preservation, i.e. strongly considering restoring the FCC to its past glory days with new Title II common carrier regulation of the Internet, but then settling on a 1934 era interpretation of the FCC's Title I authority at its most boundless.

The FCC has a bellwether opportunity at its February 8th meeting to approve a Broadband Data Modernization proposed rule making, that respects the President's new Executive Order that regulations should be the "least burdensome tools to achieve regulatory ends."

• The FCC has announced that its proposed rule is to "streamline and modernize the collection of data"... "while minimizing burdens on voice and broadband providers."

Why this is an important test case: