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.
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AT&T and Verizon may not be "exactly Standard Oil", but Standard Oil
was hardly the antitrust demon most folks believe it was. SO had many competitors and, more importantly, oil prices were going down when it was hauled before the dock. The antitrust action against SO had nothing to do with protecting consumers from predatory practices. It was based solely on the theory that SO was sufficiently large that it could, in theory, harm consumers or prevent competitors from competing. SO was prosecuted not for crimes committed, but for crimes it theoretically could commit.
I do agree that the antitrust zealots at Justice should leave the telecoms alone. But they won't.
You're absolutely right, Steve. The same thought passed through my head as I typed the post, but I decided not to go into it so I could keep it short. Thanks for calling me out on that. The Standard Oil myth deserves its own post, really.
The "big = bad" mentality is a relic of the Progressive Era. But it's still very much with us, I'm afraid.
Standard Oil was too big to fail?
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