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The Unlevel Playing Field of Asymmetric Competition Expectations

A core question for the FTC to answer in its hearings on “Competition and Consumer Protection in the 21st Century,” is what are the FTC’s underlying competition expectations?

Why have telecom, cable, and wireless network communications’ convergence with information technology turned out to be pro-competitive, but the Internet platforms’ reverse convergence of information technology with communications networks turned out to be anti-competitive, i.e. naturally winner-take-all?

Asymmetric governmental competitive expectations are why.

Congress’ stated purpose in passing the 1996 Telecommunications Act was “to promote competition and reduce regulation…” [bold added] and Congress’ antitrust savings clause clearly did not change the applicability of antitrust laws to communications networks.

In stark contrast, as an unregulated information service, information technology companies’ networks operated outside of the FCC’s pro-competition mandate, despite the well-known monopolistic behavior of consumer/business software provider Microsoft at that time.

In 1994, the DOJ-Microsoft consent decree forbid Microsoft from using its operating system market power to squelch competition. In 1995, DOJ filed an antitrust suit against the proposed Microsoft-Intuit acquisition, which resulted in Microsoft dropping the transaction. In 1998, DOJ successfully sued Microsoft for abusing its market power to foreclose Internet browser competition, a decision that was upheld upon appeal in 2001.

In September 2018, in response to a recode question about big information technology companies, DOJ Antitrust Division Chief Makan Delrahim expressed these expectations of monopolization over competition for information technology networks: “We want every one of them to become monopolists as long as they are behaving properly. … We don’t want them to, once they are there, now try to block and create a moat around themselves in an inappropriate way. That’s the way I look at it.” [Bold added.]

When asked about what behavior would cause antitrust concern, Assistant Attorney General for Antitrust Makan Delrahim said: “Well, if they coordinated with each other, entered into an agreement to do certain things or to stay out of each other’s markets” [i.e. cartel behavior, which is per se illegal with no consumer welfare benefit.]    

Congress’ 1996 expectation of being able to transform the supposedly natural monopoly markets of telecom and cable into competitive communications markets proved spectacularly successful.

Telecom incumbents’ market share of U.S. household voice service has fallen 84% from ~100% in 1996 to 16% today, per FCC and USTelecom data. Cable incumbents market share of pay TV services has fallen 39% from 93% in 1995 to 54% share today per SNL Kagan data; and the top three U.S. video subscriptions services are not cable companies: Netflix, Amazon, and DirecTV.

Today America is the only country in the world with two distinct national wireline broadband communications infrastructures, telecom and cable, one publicly built the other privately built, that both reach at least 86% of U.S. households. America is also unique in having four national wireless infrastructures, which in turn enables 96% of Americans with the choice of three or more wireless broadband providers.

Broadband competitors have invested a world-leading $1.6t in multiple broadband infrastructures. Broadband has been the nation’s fastest-adopted communications technology ever. And 98% of the country has access to either wireline broadband at 25Mbps or mobile at 10Mbps, per the FCC.

Currently there is fierce competition for next generation, gigabit-speed, 5G wireless from all four national wireless broadband providers to supply gigabit fixed and mobile wireless broadband for homes, businesses, vehicles, and smart cities; and also from cable providers’ nationwide network of 500,000 CableWiFi hotspots supplemented with MVNO wireless broadband resale offerings.

In contrast, antitrust authorities’ evident expectation is that information technology markets will be monopolized not be competitive since the Microsoft case.

Given that expectation it has been delivering just that: winner-take-all outcomes that effectively expect foreclosure of competition for their monopolized markets.

If the FTC/DOJ study the public data, they can replicate the calculations to learn that the Internet sector is America’s most concentrated, where the top three Internet platforms, Google, Amazon and Facebook, are seven-times more concentrated by revenue than the top three offline companies, and that the top ten Internet economy companies are ten-times more concentrated by revenue than the top ten offline economy companies.

Public data also show that Google, Amazon, and Facebook have acquired ~370 potential competitors and the Internet Association overall has acquired ~900 potential competitors.

This apparent cartelization of Internet companies’ investment, acquisition, and innovation processes ensure no innovative “garage startup” has a plausible competitive opportunity to sneak up upon, or seriously threaten Internet platforms dominances, or in antitrust terms, to compete for these dominated markets.

A core purpose of Clayton Antitrust Act is to prevent anticompetitive mergers and acquisitions – no matter the technology.

Evidently, the FTC approvals of Google’s acquisitions of DoubleClick and AdMob, and DOJ of Admeld, have contributed to the substantial lessening of mobile search advertising competition given that Microsoft, Yahoo, Facebook, and Apple used to compete, but no longer directly compete for the mobile search advertising market. 

Evidently, the FTC approvals of Facebook’s acquisitions of Instagram and WhatsApp, have also contributed to substantial lessening of social advertising competition, given that they enabled Facebook to eliminate all four of their leading potential and actual competitors for the social advertising market, Instagram, WhatsApp, Google+, and Google’s Orkut.   

Evidently, the DOJ tacitly expects Google and Facebook to be monopolists in search advertising and social advertising respectively, and not direct competitors for each other’s markets, because there has been no apparent Sherman Act cartel investigation of how Google and Facebook went from strong mutual direct competitors in March 2014 to divided market monopolies in search and social advertising in December of 2014, that then immediately thereafter enjoyed an immediate, coincident, and consistent increase in their joint advertising revenue growth share.

In sum, there is an evident unlevel playing field in communications where the government by law expects competition for communications network markets, but antitrust authorities can, and do, expect monopolies and not competition for information technology network markets.

Why are symmetric potential Metcalfe’s Law network-effect inputs yielding asymmetric competition expectation outputs?

This is not logical outcome, but an unfair synthetic competition outcome.

It is probably a by-product of Section 230’s 1996 artificial industrial policy that in practice fully exempts just Internet platforms from regulation and fully immunizes just Internet platforms from accountability for the ramifications of their business models or practices… asymmetric advantages that to not travel to otherwise regulated communications competitors.    

This asymmetric expectation of competition did not come from the U.S. v. Microsoft information technology antitrust precedent which focused on: “Microsoft's Conduct Taken As a Whole … only when the separate categories of conduct are viewed, as they should be, as a single, well-coordinated course of action does the full extent of the violence that Microsoft has done to the competitive process reveal itself. See Continental Ore Co. v. Union Carbide & Carbon Corp. …

If the DOJ and FTC would follow the U.S. v. Microsoft antitrust precedent, and not miss the forest-for-the-trees as the Continental Ore Supreme Court precedent requires, and look at Google and Facebook’s conduct “as a whole” where they each went from having substantial competition and were fierce direct competitors, to having no substantial competition in each of their core markets after they stopping directly competing with one another, then the DOJ and the FTC would expect that these markets could  potentially be competitive again with antitrust enforcement, not the ill-gotten monopolies that they are.   

Simply, does the FTC and DOJ expect Internet network markets to be competitive? Or expect them to be winner-take-all monopolies?

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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 Internet competition and policy consultancy for Fortune 500 companies, some of which are Internet platform competitors, and he is Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. Cleland has testified before the Senate and House antitrust subcommittees on Google. Eight different Congressional subcommittees have sought Cleland's expert testimony and when he worked as an investment analyst, Institutional Investor twice ranked him the #1 independent analyst in his field.

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Precursor LLC Research on Asymmetric Accountability Harms:

Part 1:   The Internet Association Proves Extreme U.S. Internet Market Concentration [6-15-17]

Part 2:   Why US Antitrust Non-Enforcement Produces Online Winner-Take-All Platforms [6-22-17]

Part 3:   Why Aren’t Google Amazon & Facebook’s Winner-Take-All Networks Neutral? [7-11-17]

Part 4:   How the Google-Facebook Ad Cartel Harms Advertisers, Publishers & Consumers [7-20-17]

Part 5:   Why Amazon and Google Are Two Peas from the Same Monopolist Pod [7-25-17]

Part 6:   Google-Facebook Ad Cartel’s Collusion Crushing Competition Comprehensively [8-1-17]

Part 7:   How the Internet Cartel Won the Internet and The Internet Competition Myth [8-9-17]

Part 8:   Debunking Edge Competition Myth Predicate in FCC Title II Broadband Order [8-21-17]

Part 9:   The Power of Facebook, Google & Amazon Is an Issue for Left & Right; BuzzFeed Op-Ed[9-7-17]

Part 10: Google Amazon & Facebook’s Section 230 Immunity Destructive Double Standard [9-18-17]

Part 11: Online-Offline Asymmetric Regulation Is Winner-Take-All Government Policy [9-22-17] 

Part 12: CDA Section 230’s Asymmetric Accountability Produces Predictable Problems [10-3-17]

Part 13: Asymmetric Absurdity in Communications Law & Regulation [10-12-17]  

Part 14: Google’s Government Influence Nixed Competition for Winner-Take All Results[10-25-17]

Part 15: Google Amazon & Facebook are Standard Monopoly Distribution Networks [11-10-17]

Part 16: Net Neutrality’s Masters of Misdirection[11-28-17]

Part 17: America’s Antitrust Enforcement Credibility Crisis – White Paper [12-12-17]

Part 18: The U.S. Internet Isn’t a Free Market or Competitive It’s Industrial Policy [1-4-18]

Part 19: Remedy for the Government-Sanctioned Monopolies: Google Facebook & Amazon [1-17-18]Part 20: America Needs a Consumer-First Internet Policy, Not Tech-First[1-24-18]

Part 21: How U.S. Internet Policy Sabotages America’s National Security [2-9-18]

Part 22: Google’s Chrome Ad Blocker Shows Why the Ungoverned Shouldn’t Govern Others [2-21-18]

Part 23: The Beginning of the End of America’s Bad “No Rules” Internet Policy [3-2-18]

Part 24: Unregulated Google Facebook Amazon Want Their Competitors Utility Regulated [3-7-18]

Part 25: US Internet Policy’s Anticompetitive Asymmetric Accountability - DOJ Filing [3-13-18]

Part 26: Congress Learns Sect 230 Is Linchpin of Internet Platform Unaccountability [3-22-18]

Part 27: Facebook Fiasco Is Exactly What US Internet Law Incents Protects & Produces [3-26-18]

Part 28: How Did Americans Lose Their Right to Privacy? [4-14-18]

Part 29: The Huge Hidden Public Costs (>$1.5T) of U.S. Internet Industrial Policy [4-15-18]

Part 30: Rejecting the Google School of No-Antitrust Fake Consumer WelfareStandard [4-20-18]

Part 31: Why New FTC Will Be a Responsibility Reckoning for Google Facebook Amazon [4-27-18]

Part 32: “How Did Google Get So Big?” Lax Bush & Obama FTC Antitrust Enforcement [5-23-18]

Part 33: Evident Internet Market Failure to Protect Consumer Welfare -- White Paper [5-31-18]

Part 34: What Happened Since FTC Secretly Shut 2012 Google-Android Antitrust Probe? [6-8-18]

Part 35: Buying WhatsApp Tipped Facebook to Monopoly; Why Didn’t FTC Probe Purchase? [6-19-18]

Part 36: The Sea Change Significance of Simons-FTC Privacy and Antitrust Hearings [6-27-18]

Part 37: New U.S. Privacy & Data Protection Law Is Inevitable Like a Pendulum Swing [7-9-18]

Part 38: Why a US v. Google-Android Antitrust Case Is Stronger than US v. Microsoft [7-16-18]

Part 39: Google-Android’s Deceptive Antitrust Defenses Presage a US v. Alphabet Suit [7-20-18]

Part 40: Case Study of Google Serial Over-collection of Private Data for FTC Hearings [7-30-18]

Part 41: The Unfair and Deceptive Online-Offline Playing Field – FTC Hearing Filing [8-7-18]

Part 42: What Most Stunts FTC Antitrust and Consumer Protection Law and Enforcement? [8-21-18]

Part 43: Why New U.S. Privacy Data Protection Law Will Preempt State Privacy Laws [8-27-18]

Part 44: What’s the FTC Hearing before their Hearings on the Unlevel Playing Field? [9-6-18]

Part 45: Google Facebook & Amazon’s Anticompetitive Nontransparent Exchange of Ideas [9-12-18]

 

Q&A One Pager Debunking Net Neutrality Myths