WASHINGTON-With technologies converging, telecom giants merging and entrenched networks discouraging new competition, there is growing debate over the role of antitrust law in the Digital Age.
In one camp are the Clintonites, lawyers and economists who emphasize the inherent power of embedded networks to keep and attract new customers-all to the detriment of new competitors.
In antitrust parlance, this kind of competitive leverage goes by two names: “network effects” and “network externalities.” It is about the huge advantage of being first to market with a network or operating system and the uphill battle faced by would-be competitors to unseat the incumbent.
“It’s why the FCC should take another look at [C-block personal communications services] debt restructuring,” said Reed Hundt, former chairman of the Federal Communications Commission.
Hundt, working on a book on the telecom revolution at the Aspen Institute, argued unsuccessfully before resigning last year that draconian debt restructuring would kill meaningful wireless competition and guarantee that AT&T Corp., the Baby Bells, AirTouch Communications Inc. and GTE Corp. remain dominant.
At the time, FCC Commissioner Susan Ness led the vote against a massive bailout for financially strapped C-block auction winners. Today, Ness is pushing to reaffirm last year’s C-block rescue plan.
Another possible change that could upset the uneasy competitive balance in the wireless industry is relaxing the 45 megahertz commercial mobile radio service spectrum cap.
FCC Chairman Bill Kennard recently announced plans to revisit the spectrum cap, an antitrust safeguard enacted by Hundt. The cap keeps any one or two carriers from holding all the mobile phone frequencies in any given market.
In fact, the “network effect” principle could explain why-despite pro-competitive and deregulatory provisions of the ’96 telecom act-local competition has not and may not soon become a reality-at least in the residential market.
Many believe that any local competition that emerges in the near term will likely come from wireless technology.
Robert Litan, a Brookings Institute fellow who teamed with former Justice antitrust head Anne
Bingaman to slap AT&T consent decree restrictions on PacTel spinoff AirTouch (subsequently lifted in the 1996 telecom act), believes there is no reason for alarm over the efficacy of antitrust law in the Digital Age.
“I don’t think it’s [high tech] anything unusual. The [antitrust] principles of past are applicable in the future,” said Litan.
At the same time, Litan, like Hundt, said “network effects” cannot be dismissed out of hand. “There’s no question it’s true,” said Litan.
But whether “network effects” requires government intervention is another story. One view is that “network effects” does not necessary translate into monopoly power. Another view says it usually does.
Litan said it is government’s job to “make the world safe for contestable monopolies.”
Other issues also make antitrust analysis challenging. Where a proposed multibillion merger involves combinations of wireless, wireline, video, Internet, satellite and other technologies, government regulators must determine the relevant market or markets at issue and identify present and future competitors in a fluid high-tech landscape.
In addition, antitrust authorities have to examine whether control of one or more key technologies can stifle other technologies in the same or different markets.
“It does complicate things somewhat,” said Joel Klein, chief of the Justice Department’s antitrust division.
Klein, a former White House lawyer, has come under fire by congressional Democrats for not imposing conditions of the Bell Atlantic Corp.-Nynex Corp. and SBC Communications Inc.-Pacific Telesis mergers and by conservatives for his intense scrutiny of computer software giant Microsoft Corp.
Indeed, while Congress and consumer groups express heightened concern about mergers between Baby Bells and other high-tech stalwarts and lack of competition since the passage of the 1996 telecom act, it is the Microsoft Corp. case that has become the lightning rod for fierce debate on antitrust law in the digitized world.
Microsoft Chairman Bill Gates is not the only one on the hot seat. Justice’s Klein and Federal Trade Commission Chairman Robert Pitofsky also are under the microscope.
Pitofsky, writing recently in The Washington Post, said high-tech is different from more monolithic industries of the past and antitrust law must take differences into account.
“Some limits must be placed on permissible corporate behavior, even in the most dynamic industries,” said Pitofsky. “If not, smaller companies will be driven from the market, monopolies will flourish and eventually consumers will pay. That was true in the 1890s, and it is equally true today.”
Yet, in a telecom industry that requires heavy capitalization, is being big necessarily bad? Is being big, in fact, essential in the long run? Is an oligopoly of one-stop-shop titans the best realistic hope for policy makers and consumers?
Strong free-market advocates believe capturing large market share through innovation and providing value to customers is good business and should not alarm government trust busters.
“Government is the only true monopoly that reigns,” said Paul Levy, senior fellow in constitutional studies at the Cato Institute here.
When asked whether the problem is outdated antitrust laws or misapplication of existing antitrust laws, Levy responded: “Neither.
“The antitrust laws were wrong when they were first enacted.”
Levy said some competitive barriers today are the result of special-interest legislation. “Markets assure that power can’t subsist.”
In addition, he pointed out that standardization is beneficial to consumers.
In the wireless industry today, there are several digital standards vying for subscriber allegiance.
Nevertheless, Levy and others who share his views believe the 1984 AT&T breakup was a good idea. Why? Because, in Levy’s words, AT&T was a government-sanctioned monopoly.
Tom Bell, a colleague of Levy’s at Cato who directs telecom and technology studies, is no different.
“Antitrust law is just too blunt a tool for the high-tech sector. Litigation is just not going to work,” said Bell. As far as the competitive power of “network effects,” Bell noted, “It’s just another form of capital.”
Gregory Sidak, an American Enterprise Institute fellow and a former FCC official, said the Clinton administration is mishandling classic antitrust law.
“The DOJ (Department of Justice) is gradually becoming a regulatory commission,” said Sidak. “Before the Clinton administration, there was not interest in using `network externalities’ to justify regulatory intervention.”
