Hipster and Geriatric Antitrust Doctrine

Relentless concentration in broadband and other industries, coupled with ever increasing market power, has triggered more interest in antitrust law and policy.  Predictably, this increased scrutiny generates questions about the viability of case precedent and the empirical “proof” supporting policy.  It also encourages advocates—with a political agenda—to argue for maintenance of the status quo, or substantial change.

The “stay the course” camp sees no need to change doctrine, despite the Internet’s ascendency and the significant difference between “bricks and mortar” commerce and e-commerce.  These mandarins disparage advocates for change and dismiss anything new as “hipster,” undisciplined and wrong.  They have received millions of dollars to spread their gospel, early and often.

The insurgent group plays into the hands of status quo thinkers when their progressive goals subverts, subordinates, or ignores the core mission of antitrust law: to remedy market failures generated by single companies or cartels who use market dominance, conspiracies and other bad actions to harm competition and consumers.  Insurgents also muddy their message when they combine normative goals, inherent in antitrust enforcement, with public policy objectives well outside the antitrust enforcement mission.

A pox on both houses!  The mandarins act as though Chicago School doctrine operates as unimpeachable law.  They see no need to recalibrate and modify based on changed circumstances.  They make no distinction between downward price trends in bricks and mortar markets and the perception of “free” and enhanced value proposition from broadband-mediated services that require no cash payment, but extract great and sellable value from data mining.
The insurgents play into the hands of the mandarins when they lack the discipline and intellectual rigor needed to show the wisdom in incremental adjustments based on changed circumstances.  They become easy targets by pushing normative goals, baked into the antitrust regime, into a progressive, social policy agenda.

I seethe when reading arrogant, inflexible, hubristic and condescending hipster antitrust critiques.  I dismiss as naive, undisciplined and ineffectual the insurgents’ wish list for antirust enforcement.  The incumbents may not win on points, but they appear to have won in courts, legislatures and classrooms.  They have powerful and rich incumbents underwriting their academic work.  That investment has paid handsome dividends.

For example, the FCC and Justice Department continue to approve mergers and acquisitions that trigger “Defcon4” alerts about extreme market concentration.  Somehow, basic economics about market power and concentration do not matter if sponsored researchers can show how consumers theoretically benefit.

One can easily declare a winner when judges and their clerks, well versed in Chicago School doctrine, cannot understand that “free” does not mean without significantly high  individual and social costs.

AT&T-T Mobile One Merger Too Many?

So AT&T wants to acquire T-Mobile's market share concentrating the wireless marketplace so that 3 carriers control over 90% of the market.  Would anyone buy the bogus argument that No. 2 Delta Airline's acqusition of No. 4 American would "promote competition"?  Does anyone notice that mergers are job killing?  Does the FCC and the Justice Department have the courage to say no? 

Bear in mind the FCC rarely refuses to approve with conditions market concentrating mergers.  For wireless the FCC has abandoned spectrum caps and making new spectrum available only to new market bidders.

I predict that months from now the FCC will find a way to frame this merger as something really great for consumers.  Bogus!

The Verizon Wireless Data Rip Off—A Case Study

            For over three years, without unilateral amends by the company, or intervention by the FCC, Verizon Wireless, has profited handsomely when subscribers push a wrong button on their handsets and unintentionally access the Internet.  15 million subscribers initiated data sessions generating over $90 million in revenues for Verizon.  The revenue number is so high, because many handsets offer one button Internet access and even a few seconds of access generated a $1.99 fee as data users, lacking a monthly plan, trigger a per Megabyte fee regardless of whether only a few bytes got transmitted.  See Data Fee Mystery. 

            Okay we have an honest mistake, apparently easily made by lots of people texting in the dark and otherwise pushing the wrong number.  Verizon’s wireline venture typically provides a zero cost exit for misdialing.  For example, if you mistakenly end up at a dial a porn site, the meter does not start until after you are notified about charges for the call.  Verizon Wireless simply started the meter.

            What I find remarkable about this rip off is the “mystery” of how the charges rose to $90 million without either the company or the FCC doing something about it.  Might Verizon have grown to assume such revenues would contribute to “making its numbers”?  Might the FCC get all too easily persuaded that Verizon Wireless eventually would do the right thing?

            As a multi-decade observer of carriers and FCC behavior, I can readily attribute a cynical, but possible on point explanation to such cavalier attitudes.  So in the spirit of trying to make sense out of how this $90 million overcharge could continue for so long as an unsolvable “mystery,” I have a few rationales to suggest:

1)         FCC inaction

            The FCC has clear statutory authority (Truth in Billing laws) to investigate carrier billing anomalies and overcharges, regardless whether the carrier offers a telecommunications service, and information service, or both.  Similarly the FCC has statutory authority under Section 208 of the Communications Act to investigate complaints about carrier behavior.  Yet the Commission did nothing for three years even after having received ample notice, through consumer complaints, that unjustified data billing charges were accumulating. 

            I believe the FCC wants to serve the public interest, but often fears it cannot do the right thing if such action comes across to Congress and other stakeholders, like Verizon, as too aggressive.  Put another way without a forceful trigger the FCC cannot intervene and order refunds, or secure a Consent Decree to achieve the same outcome without the carrier’s acknowledgement of guilt. The trigger occurs when the Commission receives a sufficient number of consumer complaints, media inquiries, congressional letters and the like to outweigh carrier claims that they are “working on the problem.”  Until such time as a critical mass of complaints arrives, the Commission can defer to carrier claims that no problem exists, or that a minor billing anomaly will get fixed soon.

            Perhaps as well on a philosophical basis, the Commission is reticent to act when there are stakeholders that have framed every policy and regulatory issue in terms of whether the marketplace offers a better solution.  Applying that premise, the FCC should not intervene because consumers can vote with their feet and subscribe to another carrier that does not impose such false charges.  Alternatively, at least until so-called tort reform all but eliminates class action law suits, subscriber representatives can sue for collective refunds.

            The marketplace reliance rationale fails if all carriers offer similar handsets with Internet access buttons and similarly start the meter without providing subscribers notification that a charge will result if they stay online.  The rationale also suffers if the cost of litigation vastly exceeds the likely refund any single subscriber would win in litigation.

2)         Verizon Wireless’ Inaction

            I find it hard to believe that Verizon Wireless could have generated $90 million without ever asking why so many subscribers continuously triggered a $1.99 charge, but did not come close to using the 1 Megabyte allocation.  Perhaps Verizon lacked the metering or monitoring capability to detect such user mistakes.  If so the company could be excused from installing an intermediary web page warning that additional charges will ensue.  Again Verizon Wireline does this when for example, one calls a busy telephone number.  A recorded message offers to call you back when the line becomes available and dutifully notifies you that “an additional charge may apply.”

            I conclude that the folks at Verizon Wireless assumed they had little regulatory responsibilities to rectify the problem and that subscribers bore the obligation (“caveat emptor”—buyer beware) to detect overcharges and to invest the time and effort to dispute them.  Because $1.99 probably is too little over which to quibble, it is quite possible that Verizon Wireless management grew to expect revenues to accrue from subscriber button pushing mistakes.  In turn this revenue enhancer becomes “baked into” revenue projections.

            So for different reasons both the FCC and Verizon were willing to leave well enough alone.  But doesn’t this $90 million dollar false mystery evidence the need for a cop on the beat with a sufficiently stiff backbone to act on less than three years’ notice.