Archives For tech companies

Senator Mark Warner has proposed 20 policy prescriptions for bringing “big tech” to heel. The proposals — which run the gamut from policing foreign advertising on social networks to regulating feared competitive harms — provide much interesting material for Congress to consider.

On the positive side, Senator Warner introduces the idea that online platforms may be able to function as least-cost avoiders with respect to certain tortious behavior of their users. He advocates for platforms to implement technology that would help control the spread of content that courts have found violated certain rights of third-parties.

Yet, on other accounts — specifically the imposition of an “interoperability” mandate on platforms — his proposals risk doing more harm than good.

The interoperability mandate was included by Senator Warner in order to “blunt [tech platforms’] ability to leverage their dominance over one market or feature into complementary or adjacent markets or products.” According to Senator Warner, such a measure would enable startups to offset the advantages that arise from network effects on large tech platforms by building their services more easily on the backs of successful incumbents.

Whatever you think of the moats created by network effects, the example of “successful” previous regulation on this issue that Senator Warner relies upon is perplexing:

A prominent template for [imposing interoperability requirements] was in the AOL/Time Warner merger, where the FCC identified instant messaging as the ‘killer app’ – the app so popular and dominant that it would drive consumers to continue to pay for AOL service despite the existence of more innovative and efficient email and internet connectivity services. To address this, the FCC required AOL to make its instant messaging service (AIM, which also included a social graph) interoperable with at least one rival immediately and with two other rivals within 6 months.

But the AOL/Time Warner merger and the FCC’s conditions provide an example that demonstrates the exact opposite of what Senator Warner suggests. The much-feared 2001 megamerger prompted, as the Senator notes, fears that the new company would be able to leverage its dominance in the nascent instant messaging market to extend its influence into adjacent product markets.

Except, by 2003, despite it being unclear that AOL had developed interoperable systems, two large competitors had arisen that did not run interoperable IM networks (Yahoo! and Microsoft). In that same period, AOL’s previously 100% IM market share had declined by about half. By 2009, after eight years of heavy losses, Time Warner shed AOL, and by last year AIM was completely dead.

Not only was it not clear that AOL was able to make AIM interoperable, AIM was never able to catch up once better, rival services launched. What the conditions did do, however, was prevent AOL from launching competitive video chat services as it flailed about in the wake of the deal, thus forcing it to miss out on a market opportunity available to unencumbered competitors like Microsoft and Yahoo!

And all of this of course ignores the practical impossibility entailed in interfering in highly integrated technology platforms.

The AOL/Time Warner merger conditions are no template for successful tech regulation. Congress would be ill-advised to rely upon such templates for crafting policy around tech and innovation.

It’s easy to look at the net neutrality debate and assume that everyone is acting in their self-interest and against consumer welfare. Thus, many on the left denounce all opposition to Title II as essentially “Comcast-funded,” aimed at undermining the Open Internet to further nefarious, hidden agendas. No matter how often opponents make the economic argument that Title II would reduce incentives to invest in the network, many will not listen because they have convinced themselves that it is simply special-interest pleading.

But whatever you think of ISPs’ incentives to oppose Title II, the incentive for the tech companies (like Cisco, Qualcomm, Nokia and IBM) that design and build key elements of network infrastructure and the devices that connect to it (i.e., essential input providers) is to build out networks and increase adoption (i.e., to expand output). These companies’ fundamental incentive with respect to regulation of the Internet is the adoption of rules that favor investment. They operate in highly competitive markets, they don’t offer competing content and they don’t stand as alleged “gatekeepers” seeking monopoly returns from, or control over, what crosses over the Interwebs.

Thus, it is no small thing that 60 tech companies — including some of the world’s largest, based both in the US and abroad — that are heavily invested in the buildout of networks and devices, as well as more than 100 manufacturing firms that are increasingly building the products and devices that make up the “Internet of Things,” have written letters strongly opposing the reclassification of broadband under Title II.

There is probably no more objective evidence that Title II reclassification will harm broadband deployment than the opposition of these informed market participants.

These companies have the most to lose from reduced buildout, and no reasonable nefarious plots can be constructed to impugn their opposition to reclassification as consumer-harming self-interest in disguise. Their self-interest is on their sleeves: More broadband deployment and adoption — which is exactly what the Open Internet proceedings are supposed to accomplish.

If the FCC chooses the reclassification route, it will most assuredly end up in litigation. And when it does, the opposition of these companies to Title II should be Exhibit A in the effort to debunk the FCC’s purported basis for its rules: the “virtuous circle” theory that says that strong net neutrality rules are necessary to drive broadband investment and deployment.

Access to all the wonderful content the Internet has brought us is not possible without the billions of dollars that have been invested in building the networks and devices themselves. Let’s not kill the goose that lays the golden eggs.