Category Archives: Technology

When Christine Varney took over the Justice Department’s antitrust division, she promised an era of vigorous enforcement. She is beginning to deliver. Intel, Google, airlines, pharmaceutical companies, and now telecoms are all facing close scrutiny.

There are two issues in play for telecoms. One is firm size. AT&T and Verizon together account for 60% of cell phone subscriptions. But as attorney Donald Russell told The Wall Street Journal, “You don’t have any firm that’s in a dominant position.”

It’s hard to make a case that a company is abusing market power if it doesn’t really have any. And Verizon and AT&T are not exactly Standard Oil.

The other issue is networks making exclusive deals with equipment makers. If you want an iPhone, you have to use AT&T’s service. If you want a Blackberry Storm, you have to use Verizon. Smaller competitors allege that exclusive deals for coveted phones are shutting them out of the market. Antitrust enforcers tend to agree.

I don’t; the iPhone has spawned more than 30 competing devices. And the iPhone itself has dropped in price from $500 to as low as $99. Where’s the lack of competition?

Justice is only investigating telecoms so far. Consumers should hope that Justice’s fishing expedition doesn’t result in further actions. Antitrust policy hinders the competitive process far more than it helps it.

All data are not treated equally on the Internet. There is only so much bandwidth to go around, so service providers give higher priority to certain types of data. Internet telephony and other time-sensitive applications like video games are sent through the Internet’s “express lanes,” while less urgent data sit in traffic. Comcastdoes this with BitTorrent file-sharing, for example. Prioritizing data is an efficient way to use the Internet’s limited resources.

But ISPs may one day offer express treatment for an additional charge. Such arrangements could benefit consumers and therefore should be legal, regardless of whether they materialize. Under such arrangements, YouTube, Amazon Unbox, or Apple’s iTunes Store could pay money for providers to give their sites the express-lane treatment. This would give service providers an incentive to build more and faster broadband infrastructure–where there is money to be made.

Congress thinks this is a problem. An antitrust problem, specifically. Reps. John Conyers (D-MI) and Zoe Lofgren (D-CA) have introduced a bill that would amend the Clayton Antitrust Act to “ensure competitive and non-discriminatory access to the Internet.” Providers would still be allowed to prioritize different kinds of data. But service providers would be barred from charging money to do it, in the name of what is called net neutrality.

The ban, of course, would reduce incentives for providers to expand and improve bandwidth. The result: a slower Internet for everyone. This consequence may be unintended, but it is not unforeseeable. Reps. Conyers and Lofgren should know better.

The faster that infrastructure is built, the faster that even the lowest-priority data will reach its destination. But new infrastructure won’t be built unless companies have an incentive to build it. Conyers-Lofgren hurts that incentive.

It gets worse. The Conyers-Lofgren bill is not the only game in town. It joins a similar, though less extreme effort by Reps. Ed Markey (D-MA) and Chip Pickering (R-MS). Net neutrality is a bipartisan issue, unfortunately. Rep. Jim Sensenbrenner (R-WI) is another Republican who has publicly favored net neutrality. Every year it seems more and more likely that Congress will pass some kind of net neutrality bill.

All of these politicians have good intentions. Equality is a desirable thing in many cases, after all. But policies should be judged by their consequences, not their intentions. The long-run effect of net neutrality bills–particularly Conyers-Lofgren–would be to slow the growth of broadband. As in so many other areas, Congress would best serve the country by leaving well enough alone.