Tag Archives: monopoly

PG&E cancels competitive dark fiber business plan

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That didn’t take long.

Four days after informing the California Public Utilities Commission that it couldn’t reach agreement with a grab bag of protesting organisations, Pacific Gas and Electric threw in the towel. It’s ending its plan to become a competitive telecommunications company. It won’t put its extensive inventory of surplus dark fiber, and potentially other services, on the open market.

In its request to withdraw its application for certification as a competitive telecoms company, PG&E said the world has changed since it began the process more than a year ago…

Given PG&E’s present circumstances, it is in the public interest that PG&E make current informed decisions in light of the new environment before investing significant resources in launching the new [competitive telecoms] business. PG&E and parties have diligently engaged in settlement negotiations to expeditiously make progress towards full resolution of the issues in this proceeding. However, as more time passes, the uncertainties of PG&E’s current circumstances outweigh the potential economic and busines benefit of the proposed [competitive telecoms] business. Therefore, the public interest is protected by allowing PG&E to exercise its prudent business decision-making to not continue to pursue the [competitive telecoms] business, at this time, given the significant change in circumstances since the filing of the…Application in April of 2017.

PG&E didn’t say exactly which circumstances had changed, but top of the list has to be the estimated $12 billion in damages it might have to pay out as a result of last year’s wildfires. When a company faces an existential financial threat, it’s time to scrap diversification plans and focus on the core business.

But that’s not the only circumstance that’s changed. The CPUC seems to be intent on killing the competitive dark fiber business in California. Last year’s decision to wave through CenturyLink’s purchase of Level 3 Communications took the last major source of independent dark fiber in California off the market, and its savaging of Southern California Edison’s plan to do a bulk dark fiber deal with Verizon sent a clear message that electric companies that want to compete in the telecoms space need not apply.

When California’s utility regulator lines up – wittingly or not – on the same side as big, monopoly model telecoms companies like AT&T, Comcast and Charter Communications, it’s game over. Retreat was PG&E’s only option.

As TV subs cancel, monopoly control of broadband pipes is Comcast’s best hope to grow business

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As TV subs cancel, monopoly control of broadband pipes is Comcast's best hope to grow business

Comcast offered the perfect example last week of why big, monopoly broadband companies hate the idea of network neutrality, and are stuffing politician's pockets with cash arguing so eloquently against it.

Comcast's traditional cable television business is bleeding subscribers and revenue at an increasing pace, but its broadband business is booming. The company reported its second quarter 2018 financial results last week. It gained 260,000 broadband subs, but lost 140,000 video customers, which led to a 1.9% decrease in video revenue. Losing video subs is nothing new, but declining revenue is. It's the first time that's happened, according to a story by Ben Munson in FierceVideo.

The reason is Netflix and its over the top kin, according to Comcast CEO Brian Roberts, who spoke on a conference call with analysts

Continuing competition from virtual contributed to our 140,000 video customer net losses in the second quarter. We remain focused on segments that we can serve profitably as part of a broader relationship with the customer centered on a whole home experience.

One way of creating that “broader relationship” with a “whole home experience” is to manipulate customers' Internet traffic so the video content Comcast sells comes first and the bandwidth used to carry it is cheaper.

That's what paid prioritisation is all about. There are different ways to game it and Comcast lobbyists have tied themselves up in semantic knots trying to redefine paid prioritisation so that Comcast can claim to be against it while building fast lanes for itself. But it comes down to the same thing: use monopoly control of Internet service to make, say, Netflix's video streams slower and more expensive for consumers than Comcast's.

The potential, and the reality, of that kind of abuse of market power is the reason that the concept of non-discriminatory access and open pricing for critical infrastructure came in being – the common carrier principle. It's as applicable to broadband today as it was to ferries four hundred years ago.

T-Mobile’s purchase of Sprint has to clear a Californian hurdle

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T-Mobile, the third largest U.S. mobile carrier, needs the California Public Utilities Commission’s blessing to buy Sprint, the fourth largest. Sorta.

The Federal Communications Commission has jurisdiction over mobile carriers and is doing the heavy lifting in the regulatory review of the transaction. But Sprint has a subsidiary – Sprint Communications Company, or “Sprint Wireline” as it’s referred to – that sells services to business customers in California. As a result, the company has a certificate of public convenience and necessity (CPCN) granted by the CPUC, and needs its approval to transfer ownership to T-Mobile.

In the joint application submitted by the two companies, Sprint Wireline’s business is described as limited “exclusively to enterprise and carrier customers”. It’s no big deal, they claim…

This transfer will not have any impact on the provision of [competitive telecoms] service or competition in that market. T-Mobile does not currently provide such services and neither it, nor any of its California operating subsidiaries, are certificated [competitive telecoms service] providers. Moreover, because this is a parent-level only transaction, with no change in day-to-day operations of Sprint Wireline, the Commission will retain exactly the same regulatory authority over Sprint Wireline that the Commission possessed immediately prior to the Transaction. In addition, the Transaction is transparent to Sprint Wireline’s customers as Sprint Wireline will continue to honor its existing contractual obligations.

The key question is whether the CPUC looks at all the business that Sprint does in California – including mobile – or focuses on the much smaller wireline portion. Going large means closer scrutiny and, perhaps, conditions attached to the sale. A narrow focus on just the wireline business would likely be much less fraught.

In the past, the CPUC has either sidestepped the question, as it did with CenturyLink’s purchase of Level 3 Communications, or based its review on the big picture, and the tougher standards that entails, as it did with Charter Communications’ acquisition of Time Warner Cable’s Californian systems.

The T-Mobile/Sprint deal is different, because there’s a clearer regulatory distinction between wireline and mobile companies, and the certifications and licenses they’re required to have. The CPUC has to decide whether it’s a big enough difference to justify waving the deal through.

Judge ignored fundamental economics in approving AT&T, Time Warner deal, justice department says

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The judge who unconditionally blessed AT&T’s purchase of Time Warner’s content companies “rejected fundamental principles of economics”, according to a motion filed by the federal justice department as it launched its appeal of that decision…

The “assumption” the court criticized was the fundamental economic principle, recognized in case law, that the merged firm would maximize its corporate-wide profits (rather than instruct Turner and DirecTV to operate independently at the expense of overall profits to the parent corporation). This basic economic axiom of corporate-wide profit maximization forms the basis for much of corporate and antitrust law.

The brief opened with a stark warning about the danger of allowing AT&T to use its monopoly/duopoly control over broadband access to maximise its return on its Time Warner investment…

The government’s lawsuit challenging AT&T’s acquisition of Time Warner concerns the future of the telecommunications and media industries in the United States. Its outcome could determine whether the participants in these industries will be permitted to merge into vertically integrated firms that control valuable programming content as well as the means of distributing that content directly to end-customers in a manner that hurts competition and therefore consumers. If AT&T is permitted to control Time Warner’s most valuable media assets, the merged firm will have both the incentive and the ability to raise its rivals’ costs and stifle growth of innovative, next-generation entrants that offer attractive alternatives to AT&T/DirecTV’s legacy pay-TV model—all to the detriment of American consumers.

The Washington, D.C. appeals court agreed to the justice department request to put the case on a fast track. It set out a schedule for written arguments, with the final briefs due in mid-October. That’s just for the first round, though. If the appeals court decides to take up the case, a decision will likely be many months away.

Google’s Android bundling strategy whacked by EU

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Google set two records yesterday: it was hit with the largest fine ever assessed by European Union anti-trust enforcers, which didn’t scare Wall Street because its stock price – actually, its nominal parent company Alphabet’s share price – hit the highest level ever.

The $5 billion fine was accompanied by an order for Google to radically change the way it markets the Android mobile phone operating system, according to a tweet by Margrethe Vestager, the EU’s competition commission and a former member of the Danish parliament…

Fine of €4,34 bn to @Google for 3 types of illegal restrictions on the use of Android. In this way it has cemented the dominance of its search engine. Denying rivals a chance to innovate and compete on the merits. It’s illegal under EU antitrust rules. @Google now has to stop it.

Google CEO Sundar Pichai shot back, also via Twitter, saying that the company will appeal.

The three business practices that Vestager says are illegal are:

  • Requiring mobile phone manufacturers who install the Google Play store to also install the Chrome browser and Google Search apps.
  • Paying manufacturers to give Google Search exclusivity, by not preinstalling other search apps.
  • Requiring manufacturers who preinstall Google apps to pledge not to make, or even develop, devices that run alternate Android versions, aka Android forks.

Big manufacturers have tried to launch their own app stores and operating systems, notably Samsung with Bada and Tizen, but could not compete with Google Play’s ecosystem of apps, services and content. The only company that’s made any headway with an Android fork is Amazon, which installs the Android-based Fire OS on its own devices, and uses them to sell its own services. Amazon has also attracted Vestager’s attention and, like Google, hit a record high valuation yesterday.

2018 is shaping up to be a rough year for tech giants. Lawmakers in Washington, D.C. and regulators in Brussels are taking aim at them. Politics and protectionism might be behind it, but big, dominant companies are properly the concern of trust busters. They need to move cautiously and prudently, though, else the cure will be worse than the disease.

Not so fast, doc. Justice department appeals AT&T Time Warner decision

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In a terse filing, the federal justice department gave notice last week that it is appealing a judge’s decision to allow AT&T to buy Time Warner’s content companies, with no strings attached.

The justice department didn’t outline a specific goal, but one possibility is that it wants AT&T to give up some of its new empire, perhaps Turner channels such as CNN. According to a story in Variety by Ted Johnson, it could turn out to be a risky maneuver…

Larry Downes, senior industry and innovation fellow at the Georgetown Center for Business and Public Policy, said that the Justice Department’s appeal carries risks for the government. Leon’s decision does not hold precedent, he noted, while the D.C. Circuit decision likely would.

“The court could use the opportunity to comment generally on the legal standards for opposing vertical mergers, for example, or reaffirm in broad terms the general principles of consumer harm that have guided antitrust law for the last forty years — rejecting, in effect, recent calls for expanding antitrust to take into account the economics of online platforms that don’t charge consumers and therefore don’t raise prices when they acquire other companies,” he said via email…

“The DOJ is really gambling — and could wind up losing not just this case but its ability to challenge future deals in a wide range of industries currently undergoing disruption,” he said.

Perhaps. But federal trust busters won’t get anywhere by rolling over and playing dead either. Immediately after the decision, Comcast saw daylight and moved to add Fox to its menagerie of captive content. AT&T followed up with a price hike for its Internet video service, DirecTv Now, repudiating lawyerly claims it made during the trial that consumer costs would come down.

Vertical mergers – where a company acquires its supply chain – aren’t always anticompetitive. But it always will be when dominant, monopoly model Internet service providers like AT&T and Comcast can manipulate broadband traffic to favor in-house content, as the end of network neutrality allows them to do.

AT&T sees Frontier’s two buck phone suck, then raises TV prices by $5

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It might be the least surprising telecoms story of 2018: AT&T is raising prices in a sneaky cash grab similar to what Frontier did last year. AT&T raised the “administrative fee” it tacks on to bills from 76¢ to $1.99 per month. That’s on top of whatever price it tells consumers they’re going to pay.

According to a story by Aaron Pressman in Fortune, AT&T’s explanation is that it pays for “items like cell site maintenance and interconnection between carriers”. In other words, standard costs of doing business. Which is what your monthly rate supposedly covers. But AT&T can tack two bucks onto your bill by burying it in the taxes it’s obligated to collect, so you think it’s something they’re required to do.

They’re not. AT&T figured out that that by scamming customers out of a couple of dollars a month they can add a billion dollars a year to the bottom line.

Some of AT&T’s price increases are upfront. The company just raised the price of its DirecTv Now online subscriptions by five bucks. AT&T’s explanation to Brian Fung at the Washington Post was “we’re bringing the cost of this service in line with the market — which starts at a $40 price point”.

In other words, if they raise their price to match the competition, no one can really do anything about it. That’s the kind of pricing strategy that monopolists use in a duopoly or similarly restricted market. They can’t extract the maximum rent from customers because there is some choice, but if everyone keeps ratcheting up their rates, they’ll still be clocking up profits above and beyond what they can get in a truly competitive market.

The DirecTv Now price hike is 180 degrees away from what AT&T told a federal judge would happen if it was allowed to buy Time Warner. The company trolled lower prices past the judge, who obliged with a green light and no conditions. Which means AT&T is free to do what it wants with its much bigger video business.

And pretty much everything else it offers, including broadband service, which it operates in a cosy duopoly with cable companies. Except where it doesn’t and it’s a monopoly.

Keep a close eye on your bill.

Judge allows AT&T to buy Time Warner, no strings attached

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A federal judge decided yesterday that AT&T may buy Time Warner’s video and motion picture content companies, including HBO, CNN and the Warner Brothers movie studio. Judge Richard Leon, who was appointed by president George W. Bush, put no conditions on the acquisition. He simply ruled “the government’s request to enjoin the proposed merger is denied”.

The 172 page decision does an excellent of outlining the current state of the video distribution market. AT&T wants to buy Time Warner so its DirecTv and other video services – delivered via satellite and mobile and wireline networks – can better compete with the likes of Netflix, Comcast (which also owns an extensive stable of content companies) and Amazon. Leon’s decision picks apart, and ultimately rejects, the federal justice department’s claim that the deal would “substantially lessen competition in the video programming and distribution market”.

What the decision doesn’t do is examine AT&T’s ability to use its monopoly/duopoly control over consumer Internet access in the U.S. to freeze out competing programming and online content distributors, and to raise prices for captive subscribers. That concern is particularly high this week, with the end of federal network neutrality rules that might have prevented that kind of harm.

AT&T will use its online muscle to make the most of this $85 billion purchase, as Leon’s decision makes clear

AT&T witnesses testified that they believe the company’s future lies in the use of online and mobile wireless connections to access premium video. As John Stankey, the AT&T executive who will be tasked with running Time Warner should the merger proceed, explained, AT&T acquired DirecTV in 2015 not in an effort to double down on the satellite business—a concededly mature and indeed declining asset—but to “pick up a lot of new customers that we could work on migrating” to new, innovative products necessary to compete in the future.

It’s possible that the federal justice department will challenge Leon’s decision, and could ask an appeals court to put the deal on hold while it’s under review. That’s all speculative, though. As of now, AT&T and Time Warner can close the sale next week as planned.

If you don’t stop it, fix it, justice department tells AT&T-Time Warner trial judge

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It’s up to a federal judge to decide whether or not AT&T can buy Time Warner, and all the content and video channels that come along with it. The federal justice department tried to make the case that the deal would be anti-competitive and should be blocked. AT&T, naturally enough, claimed it wasn’t.

Some experts who followed the trial closely thought AT&T made the better case. The justice department has to prove that a vertical merger – when a company buys its supplier – would have the same destructive effect on competition as a horizontal one, when a company buys a competitor. That’s a tough sell, and it seems that justice department lawyers aren’t counting on total victory. In its closing brief, the justice department offered Plan B: a “targeted divestiture” – either allow AT&T to buy some of Time Warner’s content assets (HBO and Warner Brothers, but not Turner channels) or force it to give up ownership of DirecTv.

Usefully, the justice department argued strongly for a “structural”, rather than a “behavioral” remedy. The difference is that a structural solution involves a permanent change – divesting DirecTv or not acquiring Turner, for example – while a behavioral change only involves a promise not to do bad things in the future…

While structural relief eliminates the risk of harm, behavioral relief assumes regulatory conditions can effectively constrain a business’s natural incentives to maximize profits…Behavioral relief is also less effective at protecting competition than structural market-oriented remedies because it “can hardly be detailed enough to cover in advance all the many fashions in which improper influence [over the acquired company] might manifest itself.”

Just so. Behavioral remedies require ongoing oversight by regulators with little experience or interest in the business at hand, and lead to perpetual evasion by corporate execs and lawyers with all the incentive and resources in the world.

A decision is expected by mid-June.

T-Mobile, Sprint combo is anti-competitive, but that’s the feds’ call

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The $26.5 billion dollar proposed purchase of Sprint by T-Mobile can’t go forward unless it’s given a pass by anti-trust watchdogs. As a practical matter, that means the federal justice department’s anti-trust unit sits on its hands and doesn’t challenge it in court, and the Federal Communications Commission signs off on the license transfers involved.

In theory, the California attorney general could jump in. In practice, that’s unlikely. So let’s set it aside for now. Unless there’s some obscure wireline telephone asset involved – anything is possible, but I don’t think so – the California Public Utilities Commission isn’t in the game either.

It’s down to the feds. And the likeliest source of opposition is the justice department’s anti-trust unit. It took on AT&T’s acquisition of Time Warner, although its lawsuit appears to be on the ropes.

The question is whether combining T-Mobile and Sprint into one company makes the U.S. mobile telecoms market significantly less competitive. Right now, they are two of the four mobile carriers that are worth worrying about (the other two are AT&T and Verizon, but you knew that).

T-Mobile has 17% of the U.S. mobile broadband market; Sprint has 13%. Both are in the habit of making significant market gambles – unlimited data plans, for example – that the big boys, with roughly a third of the U.S. market each, are forced to match. That’s a significant benefit to consumers, even if it doesn’t warm shareholders’ hearts.

When you’re in imminent danger of falling off a market share cliff at any moment, you assess risk differently than someone with a comfortable third of the pie. Which is what the new T-Mobile would have. Allowing it that level of comfort would decrease the competitive pain of its new peers, as well as consumer’s competitive market pleasure. We’ll see if the federal justice department arrives at the same answer.