Corporate Welfare

You can tell a lot about the true soul of people by how they treat the vulnerable and disadvantaged; do they naturally seek to help and protect those in need or do they instinctively seek to exploit others weaknesses for their own monetary or other gain?

• Or after a disaster, do people help with supplies, water, and a helping hand or do they opportunistically price gouge or seek to make a quick buck off of others misfortune? 

Despite Google's infamous words in its "Don't be evil" motto, its actions recently in dealing with the job-loss ravaged town of Lenoir, North Carolina gives us a sad and disappointing glimpse into the real soul of Google -- the Silicon Valley titan and leading brand in the world.

BusinessWeek just published an outstanding government/human interest story called: "The High Cost of Wooing Google" where it chronicles the story of how Google exploited the "down-on-its-luck" town of Lenoir, North Carolina with hardball negotiating tactics to extract :  "a package of tax breaks, infrastructure upgrades, and other goodies valued at $212 million over 30 years, or more than $1million for each of the 210 jobs Google said it eventually hoped to create in Lenoir."

The BusinessWeek article continued:

Anyone who hasn't read Google's letter to the FCC today  on the 700 MHz auction -- you have to -- its an absolute hoot! 

• I am amazed that a company so rich and successful in business could be so arrogant, impolitic, and ham-handed in Washington!  

First Google, despite what you may think, the US Government and FCC policy is not "for sale."  (And even if you think it is, at least try to be less obvious about your cynicism in public.)

• Does Google actually think "committing" to a minimum bid of $4.6B in the 700 MHz auction in return for its demands for a change in the 1993 auction law is somehow acceptable behavior for a publicly-traded company?
• Google is crassly and ham-handedly saying that their opening bid to effectively "buy" FCC policy starts at $4.6B!
• Hello Google! You "bid" at the spectrum auction not at the FCC for policy favors. One type of "bidding" is perfectly legal the other is not.
• As only dotcom billionaires can do, Google is disrespecting the FCC as just another type of "hired help" where it just needs to negotiate their "price."
• Any supporters of Google should be mortified at Google's disrespect for, and cheapening of the FCC policy process. Google should be ashamed and embarassed by this crass letter and tactic.  
• (It seems that Google is so used to buying off content providers that sue them for IP theft with "revenue sharing arrangements" that they seem to think they can buy-off whomever they want.)   

Second, the demand in their letter oozes with arrogance. Let's parse the final and operative sentence of Google's letter to see just how arrogant.

Please don't miss Holman Jenkin's great Wall Street Journal editorial on Google: "Sort of Evil."

I particularly like his new term for net neutrality/open access regulation: "business model chauvinism." Dead on.

• Google is lobbying for laws and regulations which will advantage their business model and further their dominance of Internet advertising, and also to "block, degrade and impair" any other business model from competing with Google.
• Simply, Google has a very sophisticated strategy to foreclose potential competition to Google.

He also points the spotlight on what Google is really doing in organizing groups to view broadband companies as the big public enemy for things they might do in the future, and how that conveniently distracts people from scrutinizing Google's own increasing dominance of online advertising and the business model of the Internet. 

My detailed analysis over the last several weeks leads me to believe that the FTC is likely to block the Google-DoubleClick merger because it will enable Google to dominate online advertising and dramatically increase the opportunity for market collusion and price manipulation in the market for consumer click data, ad-performance tools, ad-brokering and ad-exchanges.

Antitrust is fact-specific and evidence-driven. To understand the true antitrust outlook for a merger one needs to become familiar with the core facts of the case. To date, media and investment coverage of this merger has been remarkably superficial.

• The executive summary and my new 35-page white paper: "Googleopoly: the Google-DoubleClick Anti-Competitive Case" can be found at Googleopoly.net. An audio file of my conference call on this merger outlook will also be on Googleopoly.net. The analysis and conclusions are driven by pages and pages of facts and evidence.
• The purpose of the paper is to present the detailed case theory, argumentation and evidence of why the merger is anti-competitive and harms consumers, content providers and advertisers.
• The paper:
• Defines the market;
• Explains why Google-DoubleClick are competitors;
• Explains why startups, Yahoo and Microsoft can't compete with Google in search;
• Spotlights the four anti-competitive network effects of the merger; and
• Shows how the merger harms consumers, content providers and advertisers.

I see three big takeaways from my white paper.

First, the more people learn about this merger the more concern they will develop.

FCC Chairman Martin's surprising proposed open access/net neutrality regulations for the 700 MHz auction, threaten to broadly chill the broadband investment necessary to deliver broadband deployment to all Americans.

• Chairman Martin apparently has chosen to abandon over a decade of bipartisan free-market Internet policy and adopt a new more regulatory "managed competition" broadband policy advocated by new House Chairman Ed Markey, who has strongly praised Chairman Martin for his support for net neutrality regulation/open access.
• The real world effect of this unwarranted core policy flip flop is to introduce new and very substantial policy, legal and investment uncertainty into what had been a very stable economic growth environment. 
• Chairman Martin is making the heroic assumption that he can massively interfere with market forces and heavily subsidize untested and likely uneconomic business models with no unintended consequences on investment or economic growth in the critical broadband sector.    

Chairman Martin has now emphatically embraced the core economic principle of former FCC Chairman Reed Hundt's Frontline Proposal (and Frontline's Google gaggle of investors), which is that market forces will not and cannot promote sufficient "competition" so the government must regulate and "manage competition" (i.e. mandate prices, terms and conditions -- either directly or indirectly) to ensure consumer welfare.

CNBC's Larry Kudlow hosted a debate over Chairman Martin's proposed open access/net neutrality regulations for the 700 MHz auction.

Both sides were ably represented:

• John Rutledge of Rutledge Capital took the free market view and
• Gerry Waldron who represents Google and worked for Chairman Ed Markey took the pro-regulation view.

Watch and enjoy!

Given the issue of whether or not the 700 Mhz auction is being run for the benefit of the American taxpayer, there is a very interesting quote from a Justice Department official today on their view of "bid rigging" in a competitive government auction, in this case concerning a defense contractor.

• "The antitrust division is committed to protecting the competitive market for Americans," said Assistant Attorney General Thomas O. Barnett, who heads the department's antitrust division. "We will continue to bring to justice those who rig bids and thereby deprive the public of the benefits afforded by a competitive bidding process."

It is interesting to juxtapose this Justice Department quote of today with another quote from today in the Dow Jones article on the 700 MHz auction, which quoted the position of Gigi Sohn of Public Knowledge on "bid rigging":

• She acknowledged that effectively Google and public interest groups were asking the FCC to "rig the auction" to facilitate a third national broadband competitor to the incumbents - AT&T Inc. (T), Verizon Communications Inc. (VZ) and the cable companies.

The ends don’t justify the means.

Kudos to the Wall Street Journal today for their twin great editorials on net neutrality and the 700 MHz auction: "Reed Hundt's Spectrum Play" by the Jounal editorial writers and "Telecom Time Warp" by Robert Crandall and Hal Singer.

• The Journal editorial accurately hits on the Google/Hundt cabal to rig the auction rules so they can win the Nation's most valuable spectrum at a deep discount.
• Google is laughing all the way to the bank that they could sucker a Republican Chairman of the FCC to carry their water and stand heavily on the competitive scales to pick them as winner before the bidding commences.
• It will be interesting to see how Chairman Martin "squares this circle" and explains why market participants should ever trust what he says going forward on competition and regulation given that up to now he has discussed no market failure or consumer problem that requires regulation to solve up to now.
• My favorite point of many in Robert and Hal's great editorial is reminding everyone the outrageousness of the FCC mandating "unbundling" (a drastic action reserved for entrenched monopolies) when the wireless industry is so obviously competitive that the price of a wireless minute has fallen by 84% over the last decade!
• Amazing! Chairman Martin apparently finds market failure when prices are plummeting, consumer choice has exploded, subscribership and usage has skyrocketed and investment boomed. Huh?
• What's wrong with this picture? 
• The only apparent explanation is that Chairman Martin now believes more in the regulatory hand of Big Government than the "invisible hand" of market forces.
• Wireless is the single biggest competitive success story in communications!
• And Mr. Martin's reward for all those market players that invested billions of dollars of risk capital to buildout the world's most competitive facilities-based wireless marketplace -- is heavy handed and unnecessary "separations" and unbundling monopoly regulation!

Bottomline:  The Bush Adminstration's sole policy goal in telecommunications has been to promote broadband investment and deployment to all Americans.

According to DowJones, FCC Chairman Kevin Martin is proposing some of the net neutrality/open access regulation that Google requested for 22 of the 60 MHz of prime 700 MHz of spectrum to be auctioned off by the FCC in early 2008 for use in about 2010.

• A similar USA Today cover story got a key part of the story wrong in implying that the net neutrality/open access conditions would apply to  the whole 700 MHz auction, not just to 22 of the 60 MHz being auctioned.

I have three points to make about Chairman Martin's reported net neutrality/open access proposal.

The Washington Post gave a lot of "free" ink to former FCC Chairman Reed Hundt today to push for his Frontline Wireless corporate welfare scheme. The article also provides a "bay window view" of Mr. Hundt's perverted view of "competition."

• Mr. Hundt said: "We're asking the FCC to place conditions on the sale of the license, just like zoning on real estate."
• Competition through zoning regulations!
• This captures the essence of Mr Hundt's "market" views. He has always thought "competition" was much too important to be left to the marketplace.
• Mr. Hundt's entire tenure as FCC Chairman was characterized with a deep distrust of free market forces and a fondness for writing very detailed regulations that heavily tilted the playing field to guarantee his desired outcomes.

Now that his company has $3b in capital and is prepared to raise up to $10b in the next five years, according to the Post, why is he so afraid to compete in the auction like everyone else?