Corporate & Securities Law

Hazlett on Net Neutrality and Antitrust

My colleague Tom Hazlett has an interesting piece in the Financial Times chiming in on the network neutrality debate.  Hazlett makes the point that if “competitive harm” is the concern, isn’t antitrust the answer rather than regulation of this sort?  Hazlett writes:

But rather than enforce such [disclosure] rules, the FCC launched regulatory attack by asserting that Comcast?s network management choices evinced anti-competitive intent. The operator disrupted access to video streams to protect Comcast?s own cable products. The assertion was supported by nary a wisp of evidence or analysis in the 34-page FCC Order. Were the regulators the least bit serious, they would have seen their rationale for intervention as worthy of support. Surely, it needs some.

Hazlett dismantles the competitive threat story in more detail and concludes that antitrust courts, which require a more rigorous proof of competitive harm, are preferable to FCC-style regulation:

The FCC writes that video-on-demand is the ?particular competitive threat? which Comcast fears. But the company counts high-speed data revenue of over $7bn per year, a quarter of the company?s total. VOD brings in an estimated $350m. Is the government?s theory that Comcast materially degrades the broadband subscriber?s experience to protect revenues only 1/20th as large? Not arithmetically impossible. But the story is of interest.  Perhaps after a federal court orders it (Comcast has already filed a suit that even staunch net neutrality proponents believe will overturn the order on jurisdictional grounds), the FCC will produce one. They should explain how, with cable operators free to set prices, they gain by thwarting their customers. Why not free them up and simply charge to capture lost VOD demand? Some potential reasons lurk, but not likely compelling. One clue: were the FCC holding such evidence or arguments, we would presumably have seen them….

The FCC ignored these realities. The venerable Alfred Kahn, professor emeritus at Cornell and the dean of US regulatory economists, anticipated this result in arguing that net neutrality rules are best left to antitrust courts.  Such proceedings, imperfect though they are, require evidence, economic analysis, and a verdict on consumer welfare.  Noted telecommunications attorney Jon Nuechterlein?s recent article nicely explains why such standards are preferable to ad hoc agency rulings.  As we stumble forth in the mist of duly and unduly squelches, this argument will become more and more compelling. 

Read the whole thing.  I’m no expert on network neutrality, but my general sense is that the answer to the “why not antitrust?” question from net neutrality proponents is that they do not like the state of monopolization law after Trinko.  I’m not sure if this is an implicit admission that this is not an antitrust problem in the first instance (e.g. a Section 2 suit will fail because there is no competitive harm), but my instincts are to agree with Hazlett that the minimal discipline imposed by antitrust courts in terms of requiring some proof that consumers might be harmed by the conduct at issue is at least some safeguard against abusive regulation that might result in much greater welfare losses to consumers.

Full post as published by Truth on the Market on October 05, 2008 (boomark / email).