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Online-Offline Asymmetric Regulation Is Winner-Take-All Government Policy

Online-offline asymmetric regulation is the biggest persistent competition problem in the economy for the next decade. 

Asymmetric commercial treatment by the Government predictably produces asymmetric market outcomes. Everyone knows how an unfair playing field or unfair rules of the game produce favored winners and disfavored losers.

Internet myth is that Google, Facebook, Amazon, Uber, Airbnb, and their “intermedia” Internet Association brethren deserve to be winner-take-all because they are more innovative and better for consumers than offline companies.

The reality is that these companies common “winner-take-all special sauce” is old-fashioned regulatory arbitrage, of its special Section 230 intermediary immunity from liability, regulation, and accountability.

To date, the intermedia’s decade-long, bankrolling and public leadership of the Title II net neutrality regulation of broadband effort, has been a spectacularly effective diversion of public and government attention from the intermedia’s regulatory arbitrage of their winner-take-all, asymmetric regulation advantages.

Anyone who doubts the winner-take-all extent of this asymmetric regulation, please should show this one-page info-graphic and side-by-side comparison here to any business person or investor and ask them, which set of companies has the U.S. Government de facto chosen to win big or lose big in the marketplace?

This real-world, practical asymmetric regulation is obvious and profound, and this info-graphic just covers the intermedia’s regulatory arbitrage in the communications space alone.

Let me summarize why this asymmetric regulation predictably produces serial winner-take-all online platform outcomes like: Google, Facebook and Amazon, and developing wannabe winner-take-all-ers: Uber and Airbnb, if their financial-backers, Google and Amazon, let them run.

Concerning competition, FCC-regulated companies are:

Scale-limited to roughly no more than a third of the customer or regional scale an intermedia platform can command in the U.S.;

Time-to-market and choice-limited by amorphous FCC merger review tests; and

Cost disadvantaged with extensive regulatory overhead, compliance, and reporting.

Concerning national security, law enforcement, and public safety obligations, offline companies have long-operated with national defense, rule of law, public safety and emergency-preparedness, duties, at substantial expense, while intermedia companies largely reject and often claim immunity from the normal corporate responsibilities to cooperate with national security officials and law enforcement.

Concerning the privacy of communications and information, offline companies have legacy obligations under law to respect and safeguard a wide variety of consumer and business confidential data. Those are responsibilities and expectations intermedia companies largely reject, or ignore claiming immunity from liability for information and data they collect, in automatically intermediating and disintermediating others’ interactions.

Concerning public interest obligations to society like indecency, Equal Employment Opportunity (EEO), children and consumer protections, election ad transparency, and a wide variety of local franchise obligations, legacy communications companies respect the historical obligations of communications, while intermedia companies reject them, and presume special government immunity from them.

So why is this winner-take-all?

This regulatory arbitrage enables similarly functioning intermedia companies the opportunity to capitalize the benefits of their arbitrage while socializing the costs, by offloading costs, duties, and risks to offline companies, consumers, and society.

For example, radio and TV broadcasters originally were granted free spectrum licenses to freely distribute their content themselves in return for very specific public interest obligations like public service announcements, emergency preparedness, localism, diversity, etc.

Now intermedia companies enjoy free distribution of their content and services by riding on other companies’ costly infrastructures, without any obligations to contribute to the costs that their outsized national use causes for infrastructure providers, nor do they any public interest obligations of most any kind.

“Winner-take-all” is the apt descriptor for this asymmetric regulation and its dynamic.

The intermedia’s regulatory arbitrage is a can’t-lose, “winner” scheme, that “takes all” it can, except taking any responsibility for others’ welfare.

If government allows this unintended regulatory arbitrage to be permanent, and lets it run to its logical conclusion, it is a winner-take-all United States economic policy.

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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google.

 

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