Remarkably Bad Consumer Protection at the FCC

 Wireless carrier deception and outright violations of FCC rules and regulation should not come as a surprise.  No wonder consumers hold AT&T, Comcast, Verizon, and TMobile in low esteem. They accrue billions in profits thanks to lax antitrust enforcement, FCC reticence to sanction carrier deceptions, and an apparent inability to require wireless carriers to comply with longstanding rules, including truth in billing, the right of consumers to activate used wireless handsets, and market assessments that ignore inconvenient truths about the lack of effective competition.

 My blood boils at the numerous instances that U.S. wireless carriers do not offer globally competitive rates both wireless service and handsets in the world. See https://www.billshark.com/blogs/u-s-mobile-plans-expensive; https://voicenation.com/resources/general-resources/where-around-the-world-are-people-paying-the-most-for-their-cell-phone-bill/; https://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-country.

Apparently, senior FCC officials do not travel abroad.  If they had, they would see something ubiquitous outside the U.S.:

See: https://londoncheapo.com/technology/uk-sim-card-options-london/

Contrary to cherry picked data provided by both the FCC and wireless industry trade, associations, wireless rates in the U.S. are not particularly cheap, compared to most other developed countries, and these already high rates are rising, well in excess of general inflation measures. Compare https://www.ctia.org/the-wireless-industry/infographics-library; with https://www.whistleout.com/CellPhones/Guides/average-phone-plan-price.

 Part of the problem lies in the persuasiveness of endless advertising by the carriers touting the bundling of wireless service with so-called “free” handsets.  Few consumers do their homework to detect the bait and switch.  See https://finance.yahoo.com/news/cheaper-mobile-plans-aim-dislodge-141119809.html.

 Not Free, Top of the Line Handsets

 With impunity, Verizon currently has a video ad with a Christmas caroler touting the carrier’s generous offer to give subscribers an incredible deal on Apple iPhone 15 handsets.  In the Christmas spirit of giving, the caroler reports that the handset is available “on us.” 

 Should we infer that “on us” means free?  Bear in mind that the FCC, not the Federal Trade Commission, has consumer protection jurisdiction for so-called Title II regulated common carriers, including ventures offering pre-paid and post-paid wireless service.  Apparently, the FCC has no problem with the use of “on us” marketing. 

 In reality, the fine print in the deal provides wireless carriers and resellers ample opportunity to limit the subsidization of handsets. The phone is not free.  Consumers must subscribe to “unlimited” plans costing $75 or more.  The subscribers locks into a multi-year service agreement.

Ineffectual or Nonexistent Merger Review

 The FCC and Department of Justice failed to convince a reviewing court that TMobile’s acquisition of Sprint would reduce competition and raise prices.  The judge bought hook line and sinker the counter intuitive premise that three gigantic wireless carriers, controlling most of the market, better serve consumers than two gigantic carriers battling two smaller, renegade carriers.  Contrary to the Judge’s conclusion and the sponsored researcher’s studies presented at trial, TMobile has relaxed its maverick, competitive muscles making it possible for all three gigantic carriers to raise rates, well above the general inflation level. https://www.lightreading.com/5g/t-mobile-s-premium-pricing-passes-at-t-verizon; https://ktla.com/news/money-smart/t-mobile-planning-to-move-customers-on-older-phone-plans-to-newer-ones/; https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. 

 Subsequently, the FCC did not seem to have any problem with Verizon’s billion dollar acquisition of prepaid, wireless service heavyweight Tracfone; https://www.verizon.com/about/news/verizon-completes-tracfone-wireless-inc-acquisition and TMobile’s $1.35 billion acquisition appears similarly benign. https://www.t-mobile.com/news/business/t-mobile-to-acquire-mint-and-ultra-mobile.

Why would a facilities-based carrier pay over $ 1 billion to acquire a reseller of the carrier’s network?  To promote competition? You bet!

 Barriers to the Use of Second-Hand Devices

 In 1956, the FCC started to establish the right of consumers to connect devices to telecommunications networks, limited only by confirmation that such attachment will not cause technical harm.  This Carterfone policy should allow consumers to acquire wireless handsets on the secondary market and have carriers and resellers permit such use.  It’s not happening in far too many instances.

On several occasions, I have tried unsuccessfully to activate a used handset that a carrier has “locked.”  Carriers can legitimately lock handsets, but only during a time when a subscriber has not fully paid for the device.  Some carriers, including Verizon, state that they voluntarily unlock handsets after installment payments have paid for the device. 

Most carriers and resellers conveniently fail to unlock handsets, resorting to clearly bogus assertions that they cannot determine whether the handset has been fully paid.  Both Mint, soon to be owned by TMobile, and Xfinity Mobile prohibit unlocking with an often impossible to satisfy precondition.

This weekend I acquired a 3-4 year old Samsung Galaxy Note 9, primarily to see if I can use the 128 Gigabyte capacity to store and play music files.  Glutton for punishment, as I sometimes appear, I also wanted to see if my dear friends at Comcast would unlock the handset.

 Of course, Comcast imposed a ridiculous condition: the company would only provide an unlock code the current subscriber provided it can determine that the handset is fully paid.  In my case, I acquired the handset at an estate sale for the deceased former owner of the phone.  He’s dead and I have a worthless handset, currently operating as a paperweight and eventually contributing to the glut of electronic waste.

The Comcast agent only would recite scripts in broken English.  I got nowhere explaining that surely Xfinity Mobile could use the IMEI serial number for the phone to research whether the handset was stolen or unpaid.  Common sense would suggest that a 3-4 year old phone, worth no more than $75, surely could pass the paid for threshold.

Not in Comcast world.  I either could activate the handset on Xfinity Mobile, or acquire a different handset.  So much for my Carterfone right to interconnect a not network harming device.

No wonder why people take the path of least resistance and bundle handsets with service, particularly in light of the enticements: free Netflix, Hulu, Disney, etc. and better yet, handsets “on the carrier.”

Such a deal.

New Publication: REMEDIES FOR UNIVERSAL SERVICE FUNDING COMPASSION FATIGUE

     I am pleased to offer my thoughts on universal service funding reform: Remedies for Universal Service Funding Compassion Fatigue,  39 Santa Clara High Tech. L.J. 395 (2023); available at: https://digitalcommons.law.scu.edu/chtlj/vol39/iss4/2/.

     Here’s the Abstract:

     Nearly every nation in the world has a government mandated program aiming to make telecommunications service more widely available and affordable. Universal service funding subsidies have garnered popular support largely based on the shared view that society and individuals benefit from progress in achieving ubiquitous and affordable access, initially to voice telephone service.

     Technological developments and changes in consumer requirements have generated support for expanding the universal service mission to include broadband access to the Internet, and to identify a growing number of subsidy beneficiaries, now including schools, libraries, healthcare facilities, telephone companies operating in high-cost areas, and people with low incomes.

     This Article summarizes the history and structure of the universal service funding in the United States with an eye toward identifying matters warranting immediate reform. The expansion of the mission to include affordable and widespread access to broadband service has added significant cost, complexity, and incentive to secure funding through fraudulent acts.

     Telecommunications carriers can lawfully pass through universal service funding requirements directly to subscribers, many of whom now question the efficacy and efficiency of the funding process. For the first quarter of 2023, consumers paid a 32.6% surcharge on telecommunications services, but incurred no contribution obligation when providing broadband Internet access and other data services. “Compassion fatigue” has encouraged litigation challenging whether the Federal Communications Commission (“FCC”) has clear statutory authority to impose the functional equivalent of a tax on consumers and to delegate management of the collection and distribution of funds to a private company.

    This Article evaluates the validity of such claims especially when the Covid-19 pandemic highlights the essentialness of broadband access. Additionally, congressional legislation, enacted in 1996, codified the universal service mission and required the FCC to act. The Article also evaluates several different types of universal service funding reform proposals with an eye towards identifying their marketplace impacts.

    Most proposals recommend expanding the categories of universal service contributors to spread the burden more equitably that in turn would reduce the subsidy cost now exclusively borne by telecommunications service subscribers. New categories of subsidy contributors include federal income taxpayers, any venture assigning telephone numbers to subscribers, broadband carriers delivering data to and from subscribers, platform intermediaries, such as eBay, Facebook, Google, and Twitter, and creators and aggregators of content, such as Amazon Prime, Netflix, and YouTube. The Article concludes with an assessment of what reforms can possibly occur in the short term.

 

Network Neutrality Redux and the Return of Falsehoods and Disinformation

            Despite vowing to eschew involvement in the latest Network Neutrality drama, I cannot sit back and let stand the resumption of the distorted gospel preached by the anti-network neutrality crowd.  This group has legitimate criticisms, many of which I have tried, via hundreds of law review pages—to analyze, and even endorse, in specific instances.  

            For example, see Freedom to Discriminate: Assessing the Lawfulness and Utility of Biased Broadband Networks, 20 VANDERBILT JOURNAL OF ENTERTAINMENT AND TECHNOLOGY LAW, 655-708 (2018); https://scholarship.law.vanderbilt.edu/jetlaw/vol20/iss3/2/; Grey nuances in the black and white debate over subsidized Internet access, 41 TELECOMMUNICATIONS POLICY 1017-1026 (2017); http://dx.doi.org/10.1016/j.telpol.2016.10.002; Network Neutrality and Consumer Demand for “Better Than Best Efforts” Traffic Management, 26 FORDHAM INTELLECTUAL PROPERTY, MEDIA & ENTERTAINMENT LAW JOURNAL, 71-102 (Fall, 2015); http://www.fordhamiplj.org/publications/network-neutrality-and-consumer-demand-for-better-than-best-efforts-traffic-management/; Internet Protocol Television and the Challenge of “Mission Critical” Bits, 33 CARDOZO ARTS & ENTERTAINMENT LAW JOURNAL, No. 1, 47-87 (2015);http://www.cardozoaelj.com/wp-content/uploads/2014/01/Frieden-FINAL.pdf.

Even current FCC Commissioners, who ought to know better, will trot out the same clearly untrue parade of horribles.

            Network neutrality regulation will not create a suffocating Internet rate regulation regime.  The Democratic majority has clearly exempted broadband internet access from Title II common rate regulation. By the way, Title II still explicitly applies to wireless telecommunications, like cellphone service, and no one can credibly claim that carriers are severely constrained by  overpowering FCC oversight.  Network neutrality orders have always applied light-handed regulatory oversight.

            Title II of the Communications Act does not impose some atavistic, old school “public utility” regulation.  Despite the growing efforts of the Supreme Court to prevent regulatory agencies from responding to changed circumstances, the FCC has frequently recalibrated its Title II regulatory toolkit over time.  My prior blog post https://telefrieden.blogspot.com/2023/10/upcoming-limits-on-fcc-statutory.html noted that an expansive reading of West Virginia. v. EPA,  https://www.supremecourt.gov/opinions/21pdf/20-1530_n758.pdf might prevent the Commission from streamlining and reducing regulation, unless the Court can craft language that creates an exemption for deregulatory initiatives that require a new and improved statutory interpretation.

A doctrinal and wrong-headed insistence on legislative clarity, ironically could prevent the FCC from improving regulations and make them better in light of fast changing technological and marketplace conditions.  Bear in mind that the last major revision to the Communications Act of 1934, took place in 1996, a time preceding the emergence of a mission critical Internet for most people.  It appears that some of the six conservative Supreme Court Justices now expect Congress to act early and often in revising the Communications Act.  If Congress fails to act—and we surely can expect that--then apparently the FCC is powerless to respond to changed circumstances.

Over several decades, I have tried to explain that much of the problems in applying statutory definitions to Internet access, stems from the FCC’s insistence that a single classification must apply.  The FCC created mutually exclusivity between telecommunications services and information services in 1998 in response to a letter of inquiry from a Senator Ted Stevens. See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report to Congress, 13 FCC Rcd 11501(1998).

Nothing in the Communications Act prevents the FCC from recognizing that technological and marketplace convergence creates service offerings that combine basic and enhanced, telecommunications and information services. Our wireless handsets offer basic plain old telephone service, texting, which used to be a legacy telecommunications service, and other services that combine data processing/information services with telecommunications carriage.

            The FCC does not have to insist on an either/or dichotomy,  Nothing in the Communications Act mandates this.  We have had to tolerate decades long regulatory toggling between telecommunications service and information service, because the FCC cannot wrap its head around the reality that convergence requires a nuanced and admittedly more complicated blend of definitions.  Sometimes the statute does not even provide a definition, such as “advanced telecommunications capability.” The FCC interprets these words to include broadband, but the Republican Commissioners want to ignore the word telecommunications and instead insert information service.  This sure looks like overreaching, legislating by unelected bureaucrats so reviled by the right.  Then again, some of them want to convert social networks into involuntary common carriers to deny them any sort of First Amendment editorial freedom.

            Lastly (I hope!), we really ought to laugh at the false notion that a single regulatory initiative will exclusively impact the aggregate level of infrastructure investment carriers will make in a given year.  Former FCC Chairman Ajit Pai preached this gospel relentlessly and it became a truth for anti-network neutrality advocates. One has to ignore the carriers’ business plans and the ebb and flow of technology investment as a function of innovation and product life cycles. 

To believe the network neutrality investment disincentive canard, one would have to discount the billions invested in new 5G spectrum and network upgrades.  I expect sponsored, voodoo economists to “prove” a decline in carrier network investment going forward.  Should aggregate investment actually decline, this outcome more likely results from the winding down of 5G investments, not the onset of innovation and investment stifling regulation.

The Resilient Advertiser-Support Video Content Model

             Changes in the rates for Netflix and other video content show a major nudge (make that push) toward a cheaper advertiser-supported option.  Just now, Netflix has raised its ad-free plans to $11.99-22.99 monthly, but kept its newly offered ad-supported plan at $6.99. https://www.cbsnews.com/news/netflix-price-increase-2023/.  Apparently, the company can accrue higher revenues and profits by combining monthly subscriber payments with advertising revenues.  I expect the number of advertising minutes to creep up incrementally, but who counts?

            The more things change, the more they remain the same.  Not too long ago, pundits touted the pay per view, and all you can eat pricing models, often with no advertising.  HBO considered ad free a competitive advantage underscoring its premium status. Now, the new HBO, called Max, offers an ad-supported option, for $9.99 compared to the $15.99-19.99 ad-free option. https://www.cabletv.com/hbo-max.

            The ad-support model comes at a time when consumers appear inclined to trim their monthly video content expenditures.  Increasingly, cable subscribers have “cut the cord,” no longer willing to pay an average $112.70 monthly for an array of content, much of which they do not watch. https://cordcuttersnews.com/the-average-cable-tv-bill-from-comcast-spectrum-more-is-now-112-70-a-month-just-for-tv-in-2023/. Why pay a cable operator $9.42 or more a month for ESPN channels (https://www.sportico.com/business/media/2023/sports-tv-cable-bundle-license-to-print-money-1234734446/) if you don’t care about sports programming?

            The resiliency of the advertiser supported pricing model presents consumers with a mixed bag.  On one hand, advertising interferes with the flow of programming, especially long form content, such as movies.  While Max currently emphasizes that it will interrupt programming with comparatively fewer minutes, it will join the bandwagon of incrementally more and more ads.  I recently watched programming on Amazon’s Freevee, https://www.amazon.com/gp/video/splash/freevee_findus and YoutubeTV.  It seemed that viewers face a sequence of 5 minute content blocs followed by 5 minutes of advertising.  A two hour movie extends well beyond three hours. 

            On the other hand, while you have to tolerate interruptions, you do not have to consume the products and services advertised.  You are not a complete “free rider,” as you still pay for a subscription, but there are growing out of pocket savings compared to the ever increasing ad free option.

            Content vendors will do more with less as they reduce programming expenses.  Another economic fact of life comes to mind: you get what you pay for.  Expect a speedy decline in the value proposition from streaming video.

 

 

 

Upcoming Limits on FCC Statutory Interpretations Unless It Deregulates

             The activist, results-driven Supreme Court appears ready to limit severely the ability of the Federal Communications Commission and other independent regulatory agencies to interpret ambiguous statutory language and answer essential questions about statutory meaning, even when vastly changing markets and technologies makes such work essential.  Lacking humility and common sense, the Court appears hellbent to outlaw statutory interpretation like what kinds of services fit within the following ambiguous words Congress crafted, circa 1996: “advanced telecommunications capability.” 47 U.S.C. § 1302(a), codified by the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, (1996)

            If one applies basic jurisprudence, telecommunications means what Congress defined it to be in the applicable statute, i.e., 47 U.S. Code § 153 – Definitions. It just so happens that Congress did provide a definition of advanced communications services, information service, telecommunications, and telecommunications service.  Applying the yet to be reversed Chevron Doctrine, the FCC has no need to interpret unambiguous statutory language, because it can apply the plain meaning.

            However, Congress failed to provide a definition for something that is both advanced and telecommunications.  The legislature did not define “advanced telecommunications capability.” Heretofore, no one has questioned the lawfulness of the FCC’s determination that this undefined category includes broadband, Internet access.  Additionally, no one has challenged the lawfulness of the FCC’s determination that its universal service mission, spelled out in Section 254 of the Telecommunications Act, includes promoting affordable access to broadband, interpreted by the Commission to fit somewhere within the definition of advanced telecommunications and/or information services.

            Just now, the Court finds it mission critical to ignore regulatory agency expertise, because deference might legitimize more, different, or possibly even improved regulation.  Apparently, any recalibration expands the dreaded regulatory state, managed by unelected officials intent on micromanaging our lives and depriving us of life, liberty, and the pursuit of happiness. 

            How ironic, that no one raised a peep when the FCC unilaterally decided to reclassify as an information service a legacy technology for decades fitting snugly in the telecommunications category.  With an eye toward expanding further the array of convergent services that combine both basic and advanced telecommunications capabilities, in 2018 then FCC Chairman Ajit Pai championed a new determination that paging, texting, and short messaging was much more sophisticated and “advanced” than simply keying in letters and numbers on a telephone handset.  See Petitions for Declaratory Ruling on Regulatory Status of Wireless Messaging Service, Declaratory Ruling, 33 FCC Rcd. 12075 (2018); available at: https://docs.fcc.gov/public/attachments/FCC-18-178A1.pdf.

            In a Declaratory Ruling, the FCC asked and answered whether it should shift its classification of texting from “old school” basic, common carrier telecommunications to something advanced and largely unregulatable information processing.  Most short messaging still involves keying in letters and numbers on a wireless handset, but clever statutory reinterpretation made it possible for a deregulatory-driven FCC to take matters into its own hand without awaiting new legislation.

            With the Supreme Court’s newfound antipathy to regulatory agency overreach, would the FCC’s reclassification of texting as data processing pass muster now?  If so, why would deregulatory freelancing not constitute unlawful overreach by a regulatory agency unwilling to await new statutory instruction?

 

Show Me One Merger or Acquisition That Promotes Competition or Enhances Consumer Welfare

            I marvel how sponsored researchers have perpetuated the myth that mergers and acquisitions are great events. Can anyone provide an example how consumers benefits?  How did removing Sprint from the marketplace make the wireless ecosystem more rewarding to consumers?  TMobile improved their quality of service, but no longer offers lower prices, or innovations.  Anyone care to assert that the company remains an iconoclastic champion of competition and enhanced consumer welfare?

            Why companies merge reminds me of the question why robbers target banks.  There’s money in banks and higher revenues, less competition, better stock prices, more annual bonuses, and less senior management wear and tear when markets concentrate.  Why spend sleepless afternoons competing when you can reduce the number of competitors making it more likely that the cartel can fix prices.  That’s what has occurred in meat packing, healthcare, commercial aviation, insurance companies, car rentals, and every other concentrated marketplace

            There’s an inconvenient fact that U.S. wireless subscribers pay some of the highest rates globally. See, e.g., https://communitytechnetwork.org/blog/why-is-the-internet-more-expensive-in-the-usa-than-in-other-countries/; https://kushnickbruce.medium.com/at-ts-wireless-profits-are-outrageous-at-t-s-5g-wireless-prepaid-prices-are-obscene-compared-dc15c57926f; https://themarkup.org/2020/09/03/cost-speed-of-mobile-data-by-country; https://www.quora.com/Why-are-phone-plans-in-the-US-so-expensive-compared-to-other-countries-not-hate/.

Statistics do show a long-term reduction in cost based on increasing minutes of use and data consumption, i.e., the per voice minute or per megabyte of data price has dropped precipitously.  As markets evolve and carriers accrue greater economies of scale, prices should decline.  However, the rate of decline in the U.S. pales in comparison to that occurring just about everywhere else.  Recently, U.S. carriers have raised, not further reduced rates.  See, e.g., https://www.cnn.com/2023/03/06/tech/verizon-plan-price-increase/index.html. Also, the three national carriers remarkably have the same prices for service, with differentiation a matter of which “free” content subscription is offered.

I also cannot wrap my mind around the persistent view that markets can be viewed from a static and fixed vertical and horizontal template.  The conventional wisdom views market “food chains” in a discrete, mutually exclusive frame where ventures compete, or not.  Horizontally, companies must compete, because they operate in the same market.  Vertically, they target separate markets and accordingly do not compete.

            This is a simplistic and ill-conceived conceptualization of how markets operate.  Of course, ABC, CBS, Fox, and NBC compete on a horizontal plane for advertising revenues and viewers’ attention.  If two of these companies sought to merge, a court might interpret the Sherman Act as a bar, based on the sense that market concentration would harm consumers.  But if any one these multinational giants wanted to acquire a wireless carrier, a reviewing court would have no concerns, based on the false notion that a content creator and distributor has no interest in, or impact on the wireless telecommunications marketplace.  If a venture does not directly compete with a merger or acquisition target, then where is the actual or potential harm to consumers?

            There’s plenty, because markets do not conveniently operate in mutually exclusive ecosystems. Vendors of video content have an interest in distributing their content in wireless markets.  They might consider a wireless carrier acquisition as a way to reduce their carriage costs, or a way to raise consumers’ total out of pocket costs, because a complete service requires both content and delivery of the content to screens.

            Consider the recent approval of Microsoft’s $69+ billion acquisition of Activision. https://www.nytimes.com/2023/10/13/technology/microsoft-activision-blizzard-deal-closes.html.

Reviewing courts and oversight bodies dismissed antitrust concerns, based on the simple notion that Microsoft, a software vendor, was acquiring a computer game content vendor.  As the two ventures presumably did not compete, no harm no foul.

            Yes foul, if you free your mind of this ridiculous locked in frame of mutual exclusivity.  Microsoft surely operates in gaming markets.  The company sells a gaming computer, Xbox.  It has created an operating system for gaming and surely wants that software to become dominant in the wireless gaming marketplace.  Did anyone think that Microsoft would use the compelling content available from Activision as a lure for consumers to migrate to devices, operating systems, and platforms controlled by Microsoft? Where is the enhanced consumer welfare in a more concentrated marketplace for games, gaming devices, gaming platforms, and gaming operating systems?

            I understand that in capitalism, companies do not operate as charities. They generate revenues to reward shareholders and to earn more money.  It’s their money, but our marketplace.

Lessons in Humble Pie

As a parent, college educator, husband, middle child, retiree, etc. I have had my share of humble pie.  It's calorie free and oh so dislodging. Like everyone, I deserve comeuppances and getting knocked down a few notches.

But (of course, a but was coming) . . . today marks a high or low point in my diet.

I just completed a draft of my first law review manuscript after having retired from Penn State.  I intend on continuing to make contributions to the academic literature and recently received the honorific title of Academy Professor, in recognition of my ongoing work.  This 15,000 word manuscript took six months to prepare, and some of the comprehensive footnotes required hours of research, writing, and editing.  

I am proud of the work.  Imagine my surprise when not more than 20 minutes transpired before I received my first rejection.

The law review submission process involves the use of a monopoly platform intermediary that handles the formatting and online delivery of manuscripts to editors of law reviews.  Unlike in other disciplines, law review authors submit the same work to multiple prospective publishers.  Younger, ambitious law professors strategize how to get an offer from the best possible publisher.  The intermediary platform operator, known as Scholastica, encourages the maximum number of submissions and offers to notify editors when authors seek expedited consideration, because they have an offer in hand and hope to secure one from a more prestigious journal.

This automated process saves time, but requires payment for each delivery.  I took great pains to draft a compelling abstract and the all important "pitch letter." How disappointing to receive a rejection in less time that it would have taken to read the abstract and pitch letter.  Adding insult to injury, and humble pie volume, the rejecting journal had previously published one of my articles.

Are law review editors relying on artificial intelligence to process and make a judgment about manuscripts?  Could the rejecting journal management, with or without computerized help, make a publication decision based on the title of the manuscript?  Maybe.

In any event, as I increasingly fade away, I at least can feel proud that I have a new lifetime achievement in humble pie.

Nipping in the Bud Any Reassessment of Merger Guidelines

             The Department of Justice and Federal Trade Commission have released for public comment proposed new guidelines designed to address "the many ways mergers can weaken competition, harming consumers, workers, and businesses." See https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines. Rather than participate in a thorough debate on the merits of the new government guidelines, a variety of stakeholders have launched a preemptive strike to discredit the inquiry and individuals like FTC chairwoman Lina M. Khan. 

             Sponsored researchers, Chicago School antitrust doctrine advocates, and maybe some true believers in the virtues of maintaining the status quo have become apoplectic in their disapproval, some preemptively oppositional even before release of the proposal. See e.g., https://www.uschamber.com/finance/antitrust/a-shift-in-merger-enforcement-risks-damaging-our-economy; https://cei.org/studies/turning-back-the-clock-structural-presumptions-in-merger-analyses-and-revised-merger-guidelines/.

             Using a commonsense standard, I smell a rat.  Advocates for maintaining the status quo have much to lose if DOJ, FTC, and eventually, reviewing courts, respond to changing marketplace conditions such as the proliferation of "winner take all" platform intermediaries, like Facebook and Google.  Information Age markets do not always match the manner in which bricks and mortar markets operate.  See Rob Frieden, The Internet of Platforms and Two-Sided Markets: Implications for Competition and Consumers, 63 Vill. L. Rev. 269 (2018); https://digitalcommons.law.villanova.edu/vlr/vol63/iss2/3/; Two-Sided Internet Markets and the Need to Assess Both Upstream and Downstream Impacts, 68 Am. U. L. Rev. 713 (2019); https://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=2085&context=aulr. Nevertheless, stakeholders tenaciously adhere to doctrine, rules, laws, and assumptions that surely need reassessment in light of changed circumstances.

             Here are a few significant new challenges to the status quo.

1) Chicago School emphasis on consumer welfare and price ignores harmful secondary and tertiary impacts.

             It does not take a Ph. D in economics to see financial and reputational harms resulting from mergers and acquisitions that further concentrate markets. Even using monetary impact as the sole evaluative criterion, market dominance makes it possible for firms to extract monopoly rents.  Chicago School advocates note how firms like Facebook and Goggle and offer a valuable service "for free." Using their narrow focus, free represents a remarkable value proposition. However, a broader focus on economic impact readily identifies offsetting harms: identity theft, insufficient data protection resulting in stolen email addresses and passwords, disinformation leading to distrust in government, media, organized religion, and other bedrock institutions, threats to elections, national security, and individuals' overall sense of wellbeing, etc.

             Free does not mean without cost, particularly in an ecosystem where "surveillance capitalism" offers a "free" service as an inducement for the opportunity to mine, collate, market, and generate revenues from data.

2) Vertical and horizontal mergers are not necessarily separate transactions.

             Conventional antitrust theory, subsequently baked into case precedent and current DOJ-FTC merger guidelines, considers as gospel truth the mutual exclusivity of vertical and horizontal mergers.  The former qualifies for relaxed scrutiny based on the assumption that the acquiring firm did not compete in the markets served by the acquired firm.  The rationale concludes that no harm will beset consumers in a merger of firms that did not compete with each other in the first place.  Because horizontal mergers involve the elimination of a competitor and expanded market share for the acquiring firm, closer scrutiny should apply.

             There are several grave problems with this convenient and simplistic doctrinal model.  Many markets, especially information, communications, and entertainment ("ICE") ones, have dominant firms that operate throughout vertical and horizontal "food chains."  For example, Comcast creates content (NBC Universal), syndicates and licenses content for distribution by unaffiliated firms, and also delivers content to consumers (cable, broadcasting, streaming).  The company is vertically integrated and horizontally integrated.  It competes with companies that also have to pay it for access to "must see" content, e.g., NBC as a broadcast network still offering mass market programming such as network news and live sporting events.

             If courts did not assume vertical acquisitions lack any adverse impact on markets and consumers, a vertical acquisition might get the kind of close scrutiny it warrants.  Consider Comcast's acquisition of NBC.  The conventional wisdom framed the deal as vertical integration, because Comcast mostly distributes content as a cable television operator, with seemingly limited investment in content creation.  Even accepting the obvious that Comcast does create content, reviewing courts assumed the company would never withhold access, because it would reduce licensing and syndication revenues.

             News flash: Comcast might want to withhold content, or extract higher payments from competitors.  So-called retransmission consent requires Comcast, as the owner of NBC to negotiate in good faith with unaffiliated cable television companies.  Frequently, the parties cannot reach a renewal agreement on time and valuable content is blocked.  These "black outs" have become more numerous and last longer.  See, Rob Frieden, Krishna Jayakar, & Eun-A Park, There’s Probably a Blackout in Your Television Future: Tracking New Carriage Negotiation Strategies Between Video Content Programmers and Distributors, 43 Colum. J.L. & Arts 487 (2020);  https://academiccommons.columbia.edu/doi/10.7916/d8-aq85-2z51/download.

3) Mergers rarely enhance competition.

             Has anyone empirically proven that a merger or acquisition enhances consumer welfare rather than just the acquiring company's profitability?  Does reducing the number of competitors somehow make the survivors more vigorous competitors, keen on innovating, reducing prices, improving customer service, and otherwise making the marketplace more robust?

             Consider TMobile's acquisition of Sprint.  The conventional wisdom, dutifully articulated in the court's approval of the transaction (see https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2019cv05434/517350/409/) assumed New TMobile would continue the tradition of being an innovator, lower cost competitor, and provocative pro-consumer warrior.  I see the wireless marketplace as an oligopoly of three offering roughly the same prices, happy to differentiate themselves on what "free" content like Netflix they will provide subscribers. Has New TMobile offered anything innovative and disruptive since acquiring Sprint?

             I readily acknowledge that Sprint had become a failing venture, perhaps on the brink of bankruptcy.  If an incumbent had not acquired the firm, I believe a new investor gladly would have paid pennies on the dollar for the opportunity to operate in a market with one of the highest average revenue per user in the world.  Yes, wireless rates have declined, but they are lower with better terms throughout most of the world.

4) Platform intermediaries, operating in two-sided markets, can adversely impact horizontal, vertical, secondary, and tertiary markets.

             Chicago School antirust doctrine provides simplistic, but easily understood and implemented rules. Judges and their law clerks, have become indoctrinated in "rules" that started as theory, but over time got baked into the jurisprudence.  I believe the Chicago School doctrine became unimpeachable gospel largely because stakeholders that would benefit from relaxed antitrust enforcement, invested heavily in making it a fundamental part of law and economics.

             How did this happen?  Millions of dollars spent over decades have made the doctrine appear legitimate and unimpeachable, despite regularly failing a simple smell test.  The combination of sponsored researchers, well-funded institutes, foundations, think tanks, and advocacy groups, all-expense paid seminars, endowed professorships, and the like have paid off.  Sponsored researchers create a plethora of work, framed as academic contributions, but designed to achieve support for a predetermined outcome. The process continues and builds on itself as sponsored researchers cite the prior work of sponsored researchers.  Over time, clearly results driven advocacy documents acquire the legitimacy and credibility of unsponsored work aiming to seek the truth.  In fact, sponsored research can crowd out work that does not have the public outreach and cheerleading provided by stakeholders.

             The whole process "stinks to high heaven."  Just now, sponsored researchers are noting that the proposed merger guidelines would harm the credibility of both DoJ and FTC, apparently before the court of public opinion and judges.  Of course, these very same pundits have the financial incentive to impeach the credibility of these government agencies and deem the proposed guidelines harmful, ill conceived, and bullying.

             It's a racket as my wife would say.  I am certain that so-called consumer stakeholders also have financial underwriters singing the praises of the proposed guidelines. However, these groups have substantially less funding available, because few stakeholders can see the direct monetary harm that would result from implementation of the guidelines.

             I understand that sponsored researchers often have the ongoing financial burden of having to generate annually enough "soft money" to keep graduate students employed. Sadly, that necessity has become yet another reason for the rats to proliferate.  

 

Blog Catharsis

     Even recognizing that few people will ever come across my blog, some degree of catharsis and validation accrues.  I am glad to get something "off my chest," no matter how ineffectual.

    Toward that end, I have decided to share some of the minor and sometimes major irritants that result from living in a digital, mediated, ecosystem.  Here's a starting list of digital artifacts that drive me crazy:

1)    Comcast's customer service bot includes background typing sounds ostensibly to make subscribers assume the bot is thinking and working hard at customer care.

2)    Verizon's PagePlus reseller, uses low paid, off shore customer service reps who do nothing more than read from scripts.  They have no ability to solve most problems and lie to subscribers that someone more qualified will call back within the hour.  PagePlus also lies in emails to subscribers about how a rep  tried to call, but no one answered.  I have an answering machine and only once got a recorded message from Pageplus.

3)    Mastercard refused a credit card application based on my lack of "credit experience."  Apparently, I have not been in debt enough times.

4)    On line orders for a new magazine subscription may take 4-6 weeks for "processing."

5)    Toll free calls to various customer service reps often get cut off.  Lately an algorithm predicts the likely holding time. Is 90 minutes too long?

To be continued.

Vanguard Saves Millions By Requiring Most Clients to Print Out Statements

 The money crunchers at Vanguard Investments recently changed their rules to make their mailing of hard copy documents an expensive option.  Previously, one could avoid a $25 fee for each account (I have four) by investing over $1 million, until VG raised the figure to $5 million.

This change in customer care has nothing to do about the environment. VG really, really wants to avoid the substantial cost in printing and mailing documents.  Just unbundle that task from the concept of service and, tah dah, VG saves millions.  In doing so, they also tick off just about every one of their customers. 

VG obviously has no clue about the expense and hassle in home-based document printing.  As a retiree, I have no convenient way to print lengthy documents at the expense of an employer.  My HP inkjet printer guzzles ink, and HP makes every effort--including likely illegal ones--to prevent the use of reused cartridges.

Contrast VG's sneaky and ham-handed environmentalism, with what Fidelity and T. Rowe Price do. They gladly send statements pre-punched for easy insertion into a loose leaf binder.  

This process may seem old school, but maybe Fidelity and T. Rowe Price know something about investor behavior that VG wants to ignore: investors like hard copies of their statements and they also like to compare performance by referencing different monthly statements.

Try toggling monthly statements on line and you might see the benefit in having hard copies.  

Vanguard has increased my printing duties substantially.  Would it be over reacting to take my business elsewhere?

The Making of a Digital Curmudgeon

             OK, I recognize that I have never been this old and the elderly—bless their hearts—tend to stick with the reliable and proven. They (we) typically appreciate frugality, but willingly pay a premium when the value proposition seems fair. On the other hand, we realy, really resent getting nickled and dimed by bogus new billing line items.

             With that benchmark, I retain my wireline (Verizon) phone service, have a prepaid (Pageplus/Verizon) monthly wireless subscription, and have a grandfathered, slow, broadband (Comcast) monthly plan.  My wife and I used older smartphones, typically with the data capability off.  We both use tablets and personal computers at home.

             We make do just fine, except for traveling instances where a data plan would come in handy, e.g., to find an alternative route when unexpected construction blocks onramp access to an interstate.

             Increasingly, this strategy has become unsustainable, for reasons that, to me, do not come across as compelling.  Here are some examples:

             Several restaurants conserve waitstaff time and numbers, by requiring guests to scan a QR code for the menu and online ordering. No one is available to answer questions about the meals and beverages offered.  This strikes me as significantly reducing the value proposition in dining out.  Why bother when the restaurant unbundles elements of the dining experience?  Adding insult to injury, payment by phone or terminal defaults to a 22% tip which takes time and maneuvering across multiple screens to change or eliminate.

             Grocery stores have started offering discounts that one must "load onto your app" in lieu of bar code activation.  While I am ok with the compilation of a dossier building from analysis of all bar code scanned purchases, the app install strikes me as a trojan horse.  What kind of surveillance does the app generate, especially across multiple sites and commercial transactions having nothing to do with the grocery store?

             Comcast and Amazon, among other major ecommerce vendors, go out of their way to make it unduly complicated and time consuming to terminate or modify service.  The FTC recently sued Amazon for erecting an epic "Iliad" lengthy hassle to terminate a Prime subscription. See: https://www.ftc.gov/system/files/ftc_gov/pdf/amazon-rosca-public-redacted-complaint-to_be_filed.pdf; https://www.ftc.gov/news-events/news/press-releases/2023/06/ftc-takes-action-against-amazon-enrolling-consumers-amazon-prime-without-consent-sabotaging-their.

             Finding news ways to reduce customer care has become the prime mission of way too many ventures.  They route calls to unqualified, offshore staff equipped with nothing but mindless scripts to recite.  Now, some have eliminated any option of interacting with a live person. See https://www.cnbc.com/2022/11/25/frontier-airlines-gets-rid-of-telephone-customer-service.html.

             Vanguard Investments, which already accrues ample management fees from me, recently raised from $1 million to $5 million the amount required to secure a waiver of a $25 account servicing fee.  To avoid paying, clients must agree to receive all documents via email, including monthly statements.  How many of us maintain a file of hard copy statements for banking and other financial service transactions?  If not, are you content to have online access to prior statements?

             I guess Digital Natives and other non-curmudgeons have no affinity to paper.  I like reading the newspapers, magazine, and books on paper.  I consider it essential to maintain monthly hard copy statements of credit cards, etc. for budgeting and tax planning.

             Call me old, but also prudent.

 

 

 

 

Market Forces Preempted by Rising Risk and Regulation?

             This might not be the best time for the U.S. Chamber of Commerce to make the case that rising risk and regulation are harming the marketplace and consumers.  See Public Policy Risks Soar Amid Growing Trend to Regulate Rather than Legislate and Partisan Approach to Lawmaking.  A content analysis of companies' 10-K filings with the Securities and Exchange Commission quantifies a rise in risk disclosures, with increases in key works such as data privacy, immigration issues, labor, and intellectual property.

             The Chamber appears intent on persuading the court of public opinion that life is getting riskier and harder for business. 

             It appears to me that Business America has largely foisted risk onto consumers, and counterintuitively their profit margins have increased despite frequent complaints that regulation raises the cost of doing business, squelches innovation, and reduces employment.

             I cannot find an airfare or hotel booking that permits cancellation without a risk premium doubling the non-refundable rate.  Similarly, if risk is so harmful, how can businesses, in a variety of market segments, find it possible to increase revenues and profit margins?  Even the Wall Street Journal notes this anomaly.  See Why Is Inflation So Sticky? It Could Be Corporate Profits

             I was indoctrinated by my UPenn and UVa training that market forces are largely unimpeachable.  In most cases yes, but just now, even some people at the "Diary of the American Dream" (a former marketing slogan for the Journal) see companies able to game the system.  Apparently, we consumers can become numbed by the constant drumbeat that inflation is unavoidable when markets become disrupted by supply chain and other extraordinary circumstances. The Chamber of Commerce wants to include in the emergency rationale upward price pressure created by added risk and government regulation.

             No one in the Chicago School seems able and willing to concede that sometimes market self-discipline fails.  How can these true believers explain the success achieved in keeping prices and margins extraordinarily high by blaming risk and the government even when the underlying emergency triggers have ended?  Now there are too many truck drivers at west coast ports chasing after declining loads.  No bottleneck in the supply chain anymore.

             Sticky, slimy, unclean, but surely not invisible hands at play.

The Highly Questionable Assertion that Regulation Stifles Innovation

             Big Pharma and Big Telecom endless repeat as gospel truth the highly questionable assertion that government oversight stifles innovation.  Facing the prospect for Medicare administrators, newly authorized to negotiate or even set caps on the prices of a very few drugs, Big Pharma has launched an outreach offensive stating as a given that such action will "stifle innovation" and "harm consumers." See, e.g., Tomas J. Philipson, The Deadly Side Effects of Drug Price Controls, The latest Medicare guidance will stifle pharmaceutical innovation—and it’s worse than we thought, WALL STREET JOURNAL (April 5, 2023); available at: https://www.wsj.com/articles/medicare-drug-price-controls-will-make-america-sicker-research-innovation-negotiations-private-insurers-b503b4ba.

             Big Pharma's big fib reminds me that Big Telecom uses the same gambit.  In the case of telecommunications, incumbent carriers swore that mandatory network access neutrality would stifle innovation and reduce capital expenditures in new technology.  Some of their favorite legislators, now obsessed with mandating "fair treatment" by social media, conveniently forget about their virulent opposition to nondiscriminatory broadband network access.

             Does innovation disincentivization pass a reasonable person's "smell test."  Successful incumbent ventures will scrimp on developing and bringing to market new products and services, because the Big Bad Government acts in ways that might constrain upside profitability?  Incumbents simply will conserve capital and scrimp on research and development, apparently content to squeeze out profits from prior investment in now aging innovations?

             Does this strategy make any sort of business sense, particularly for industries that reward innovation with government-conferred monopolies in the form of patent protection and limits to competition?

             I concede that a tougher environment for price gauging does create new incentives, such as redoubled efforts to extend the patent monopoly of a soon expiring drug by reformulating it to provide extended release, or to coat it with something to reduce the risk of stomach distress.  Similarly, I can see how the potential, for harm to innovation, exploits anxiety about any adverse impact on global market share in industries with national security risks, such as telecom, broadband, and computer chips.

             On the other hand, does can anyone seriously claim that commercial ventures will deliberately handicap their future marketplace competitiveness and ability to introduce faster, better, smarter, and possibly more expensive new drugs and telecommunications services? If you believe that, then explain to me why wireless carriers plan the deployment of next generation networks, year end and year out, without regard to which political party has more FCC Commissioners and whether network neutrality obligations apply.

             Is 5G wireless the last innovation we can expect from Verizon, AT&T, TMobile, and Dish?

Premiumization: A New Word and Another Sneaky Way to Increase Profit Margins

             The Sat. March 4, 2023 edition of the New York Times introduces a new word describing another way companies can offer consumers a "gentrified," higher priced product or service that accrues a higher profit margin. See https://www.nytimes.com/2023/03/04/business/economy/premium-prices-inflation.html.

             While informative, the article missed a major point: the touted higher value proposition often results not from offering something truly better, and more expensive to provide.  Instead, the company finds a way to reduce its costs, by substituting a cheaper, inferior ingredient such as high fructose corn syrup.  Consumers can buy a "premium" version of the product with the restored, originally used cane sugar, albeit at a higher cost, far above the miniscule cost difference between the old ingredient and its cheaper replacement.

             How clever: ketchup, bread, and other common products now have two versions: 1) the inferior, high fructose option for price sensitive consumers; and 2) a more costly, "enhanced" product that simply continues to contain cane sugar that originally was offered to everyone.

             I am sure well trusted companies, such as Heinz, will claim, Covid-19, supply chain disruption, labor shortages, cane sugar shortages, inflation, higher operating costs, etc. necessitate its deliberate reduction in the value proposition of a long-treasured product.  Maybe they can get away with this brazen, sneaky strategy, particularly for products that consumers perceive as not substitutable ("Accept no substitutes.")

             I used to be brand loyal to Heinz ketchup, but have migrated to an organic option from another company that uses can sugar and manages to offer this enhanced product for significantly less than Heinz. My tastebuds are happy and I am pleased to "vote with my dollars."

             In the words of Nancy Reagan: "Just say no" to yet another ploy to goose profit margins.

 

           

 

           

Weaponization of Inner Space Column in the Cleveland Plain Dealer

You might have an interest in my "explainer" about the Chinese surveillance balloon and the likely dangerous repercussions:  https://www.cleveland.com/opinion/2023/02/china-balloon-surveillance-marks-new-worrisome-expansion-of-areas-where-provocation-could-spark-armed-conflict-rob-frieden.html