Antitrust is Not the Only Medicine for What Ails the Digital Economy

This year’s presidential campaign has awakened a surge of both anti-monopoly and anti-government rhetoric. From candidates Clinton to Trump and every policymaker in between, we keep hearing that antitrust law should either break up Wall Street firms or that the government should kindly remove itself from business altogether. Although the increasing calls for stronger antitrust enforcement is music to our ears, immediately conjuring visions of lower cable bills (with no set-top box fees!), it’s time to ask if antitrust law alone can really solve all these problems. We think it can’t — just looking at the communications sector, it’s clear we also need targeted regulation to unleash competition and tame ongoing monopolistic practices.

First, antitrust cannot change the fundamental economics of markets. In the communications sector, the infrastructure required to support telephone, data, broadband and television services is extremely expensive demonstrating declining costs with size and scope. Antitrust cannot change these economic attributes and cannot “make” new technologies, like wireless, fully competitive with the dominant wired services.

Second, antitrust cannot fully make up for past regulatory policies or lax enforcement that allowed monopolies to arise and persist in the first place. Government-granted franchises for wired telephone, cable TV and the initial “free” wireless licenses granted to telephone monopolies resulted in regional behemoths Verizon, AT&T, Comcast and Time Warner (now swallowed by Charter). Less aggressive antitrust enforcement during the Bush Administration allowed these companies to solidify their dominance.

And third, antitrust cannot force monopolistic companies to compete with each other outside of their regional strongholds. If Comcast simply refuses to compete against Charter/Time Warner, and vice versa, there’s very little antitrust can do by itself to stymie these practices, let alone lower your cable bill without regulatory intervention. In twenty years since the passage of the Telecommunications Act of 1996, no telephone or cable company has overbuilt its neighbor to engage in head-to-head competition. They preferred to buy each other out and preserve their dominance of their “franchise” services.

That’s not to say that antitrust is a poor policy tool. There is much antitrust can do to prevent this situation from worsening, even if it can’t solve the problem alone. It can be used to block mergers, like it did when AT&T tried to acquire T-Mobile and Comcast tried to buy Time Warner. It can even stop Comcast and Charter from hindering online video growth by placing strong conditions upon allowed mergers, enabling more innovation and competition in industries with few players.

In general, antitrust needs to ensure the maximum amount of competition, where the underlying economics will support head-to-head competition. The rule of thumb should be, four competitors is few, six is enough and ten is vigorously competitive. Where monopolistic communications platforms are involved, regulators should declare clear and strong general principles that free entrepreneurial experimentation from both the threat of “hold up” by network operators and the “chilling” effect of regulatory pre-approval.

Yet the persistence of regional dominance by Verizon, AT&T, Comcast and the now combined Charter/Time Warner Cable cannot be fully tackled by antitrust enforcement alone. Targeted regulation is equally necessary if we hope to open these markets to smaller rivals and increased innovation.

But why regulation, and who should wield the whip? It’s now obvious that these communications companies engage in business practices that tend to keep out new market entrants — like online streaming services — or on limiting opportunities for smaller upstart companies challenging the status-quo, preventing “the new guy” from gaining a foothold. They often refuse to sell or lease access to their communications infrastructure to “outsiders” at a fair rate, stopping would-be competitors in their tracks.

This is exactly the approach the Federal Communications Commission took to create the conditions for the digital revolution. The agency opened the telephone equipment market to competition in 1968 by allowing anyone to design equipment that connects to the network. It also supported the creation of Wi-Fi by granting access to radio spectrum without a license.

The model is simple, but powerful: Adopt rules to control the market power of the network operators and create a space for innovation and entrepreneurial experimentation, but do not regulate behavior in the space. Last year, the Commission continued this pro-competitive tradition in its Open Internet Order which drew some bright lines and reaffirmed the core principle of nondiscriminatory, seamless interconnection and carriage, without regulating the offer of services.

This combination of strong antitrust enforcement and the targeted regulation described above is necessary to begin addressing the rising public concern about excessive monopoly power and concentration in communications and many other markets. Antitrust alone won’t do the trick and antitrust with further communications deregulation would be a disaster for consumers. This is not radical, but good old American progressive capitalism.

Today’s challenge may be larger, because a new technological revolution is taking place and the dominant social network platforms like Google and Facebook may become new choke points in the communications sector because they’re only lightly regulated. But the response should be the same, vigorous antitrust first with targeted regulation to unleash new opportunities for competition and freedom of expression in the digital age.

Gene Kimmelman is President and CEO of Public Knowledge. Mark Cooper is Director of Research at Consumer Federation of America.

Morning Consult