Distinguishing between edge content provider market power and natural monopoly of telecom distribution infrastructure

The Tech Antitrust Problem No One Is Talking About | WIRED: 

After years of building political pressure for antitrust scrutiny of major tech companies, this month Congress and the US government delivered. The House Antitrust Subcommittee released a report accusing Apple, Amazon, Google, and Facebook of monopolistic behavior. The Department of Justice filed a complaint against Google alleging the company prevents consumers from sampling other search engines. The new fervor for tech antitrust has so far overlooked an equally obvious target: US broadband providers. “If you want to talk about a history of using gatekeeper power to harm competitors, there are few better examples,” says Gigi Sohn, a fellow at the Georgetown Law Institute for Technology Law & Policy.

When it comes to antitrust, it's important to distinguish between FAANG edge content providers and commercially owned and operated advanced telecommunications infrastructure. The major difference is the former isn't a natural monopoly. However, landline telecom infrastructure that connects to customer premises functions as a natural monopoly due to high capital cost barriers and long duration return on investment that tends to keep would be competitors out. Moreover, competition among multiple sellers isn't economically rational as Investopedia describes:

Multiple utility companies wouldn't be feasible since there would need to be multiple distribution networks such as sewer lines, electricity poles, and water pipes for each competitor. Since it's economically sensible to have utilities operate as natural monopolies, governments allow them to exist. However, the industry is heavily regulated to ensure that consumers get fair pricing and proper services.

In other words, competitive market forces cannot function to ensure access and value in a natural monopoly market. Both are frequently missing in advanced telecom distribution infrastructure, with uneven access due to sell side market failure.  

Antitrust assumes competition is possible and thus is intended to check a seller from attaining too much market power and promote competition. But it's an impossible undertaking in natural monopoly market like advanced telecom distribution infrastructure where competitive market forces don't come into play.

Incumbent telcos, cablecos should reconsider shunning wholesale open access fiber networks

Incumbent telephone and cable companies that enjoy a natural monopoly over last mile Internet infrastructure connecting customer premises have been loath to offer services over open access, wholesale fiber to the premise (FTTP) networks like the Utah Telecommunications Open Infrastructure Agency (UTOPIA) system. In some states, they’ve even successfully supported legislation outlawing or making the creation of publicly operated open access networks difficult. As monopolies, they want control over both the “pipe” serving customer premises and the services provided over it. Having control over the premise connection is essential to this business model since it puts the incumbents in the dominant position with regard to selling their proprietary services.

But with a growing chorus of calls for competition for Internet service from the White House, members of Congress, the U.S. Federal Communications Commission and consumer advocates, the threat of federal antitrust litigation to break up the incumbents’ last mile monopolies has increased. 

Given that possibility, incumbents might want to reconsider their flat refusal to do business with wholesale open access fiber networks. If they chose to purchase access to wholesale networks to sell retail services to customer premises, they’d likely appear to be far less insular and monopolistic in the eyes of the government. Doing business with wholesale, open access fiber networks would also spare the incumbents –largely reliant on metal wire and cable last mile infrastructure – from the expense of having to upgrade their last mile plants to fiber in areas where these networks exist and allow them to reach customer premises outside their limited footprints.

Back to the future: How Title II litigation could spark antitrust actions against AT&T and Verizon

In 1984, AT&T was split into seven regional companies under a consent decree to settle a 1974 antitrust lawsuit brought by the U.S. federal government, United States v. AT&T, aimed at busting Ma Bell’s monopoly over local and long distance telephone service. Three decades later, AT&T has through a series of mergers and acquisitions reassembled itself into a telecommunications behemoth, rivaled in size only by Verizon, which was formed out of NYNEX and Bell Atlantic, two of the AT&T regional operating companies.

Now as the U.S. Federal Communications Commission considers classifying Internet-based telecommunications as a common carrier utility service under Title II of the Communications Act, the stage is being set for another potential massive antitrust court case.

Here’s how it might play out. Both AT&T and Verizon vow they will litigate to block the FCC if it opts to put in place common carrier regulation as recently urged by President Barack Obama. If that happens, it could spark complaints to Obama’s Justice Department from core content providers like Netflix and transport layer providers like Level 3 Communications that the monopolies that AT&T and Verizon enjoy over residential Internet service in their respective service territories violate the Sherman Antitrust Act and restrain interstate commerce. The Justice Department could then opt to initiate antitrust lawsuits as logical counter actions to the telcos' lawsuits against the FCC.

In the antitrust actions, the complainants could conceivably point to disputes with the two big telcos over interconnection arrangements and allege the telcos are engaging in anti-competitive behavior by deliberately degrading services delivered to their end user consumers while wholly denying other consumers services by redlining landline-delivered Internet services in selected neighborhoods and streets. They could demand the courts order the FCC to require the telcos to open their last mile networks to competitors pursuant to the 1996 amendment of the Communications Act. Or sell them off to smaller regional providers or local governments or telecom cooperatives.