March 1, 2016
Looking backwards makes it hard to see what’s right in front of you.
Looking backwards at 1934-era Title II telephone utility law, the FCC concluded in its 2015 Open Internet Order that only broadband providers could be “gatekeepers” warranting net neutrality regulation to “protect and promote the “virtuous cycle” that drives innovation and investment on the Internet.”
That’s because the FCC is apparently oblivious to the very different 21st century communications “gatekeepers” right in front of them that command dramatically more potential “gatekeeper” market power than any broadband provider.
The FCC should listen to what one 21st century communications provider, which commands well over a billion social and communications users globally, has to say about the dominance of edge platforms.
Facebook-WhatsApp blogged last week, and stated that after 2016 it will no longer support the competitive mobile operating systems from Nokia, Blackberry and Windows Phone 7.1, in order “to focus our efforts on the mobile platforms the vast majority of people use.”
Tellingly, Statista’s reporting of this, spotlighted the reality of Facebook-WhatsApp’s decision:
“WhatsApp’s plan to focus on fewer platforms is the latest of many signs pointing in the same direction: the mobile platform war is over and there are two big winners. Last year, Android [81.6% share] and [Apple] iOS devices [15.9% share] accounted for 97.5 percent of global smartphone sales, up from just 38 percent in 2010. As Android and iOS gobbled up market share, all other platforms have sooner or later been caught in the same vicious circle: publishers and app developers prefer platforms with large audiences and users choose platforms based on the availability of their favorite apps. Once the users jump ship, app developers soon follow and vice versa.” [Bold added for emphasis and to contrast the FCC’s assumption that there can be an edge “virtuous cycle,” if gatekeepers must be neutral.]
Mobile operating systems may be the ultimate, non-neutral, Internet network gatekeepers. They control if their preferred content and apps are used by default or positioned best on a device homepage for maximal adoption. They also can block images; block apps from loading; throttle display advertising traffic from loading; offer mobile content fast lanes; or engage in paid prioritization to favor their preferred content.
Facebook-WhatsApp and Statista are not the only ones capable of seeing that edge platforms can be dominant gatekeepers.
Widely respected Silicon Valley insider Om Malik triggered the discussion of the dominance of edge platforms with a blunt, must read, year-end, New Yorker op-ed entitled: In Silicon Valley Now, its Almost Always Winner Takes All, in which he concluded “most competition in Silicon Valley now heads toward there being one monopolistic winner.”
Then the New York Times technology columnist, Farhad Manjoo, strongly confirmed Mr. Malik’s overall assessment in his column, “Tech’s Frightful Five Will Dominate Digital Life for Forseeable Future,” in which he concludes the five “inescapable” platforms are Google, Apple, Facebook, Amazon and Microsoft, and which represent “the basic building blocks on which every other business, even would be competitors, depend.”
If the FCC would only look forward to what is happening right in front of them, the FCC could see that they have been totally ignoring the gatekeeper risks of the dominant edge communications platforms, which are vastly greater in both horizontal and vertical market power.
Since Google, Facebook, Amazon, Apple, and Microsoft, generally command ~billion+ user, global scale and scope, compared to broadband providers’ more limited national or regional scale and scope, of at most ~125 million users, the dominant edge platforms thus command ~10-25 times more users than broadband providers.
However, that understates their relative dominance, because of the well-known ‘network effects’ of Metcalfe’s Law. It posits that the “value of a network is proportional to the square of the number of connected users of the system (n2).” Thus the network-effect value-differential of the global dominant edge platforms relative to national broadband providers is ~102 to ~252 times more, or a staggering ~100 to ~625 times more relative horizontal market power.
Moreover, while the FCC and DOJ have held broadband providers to a ~33% horizontal market share limit in blocking AT&T-T-Mobile and Comcast-TWC, and threatening to block Sprint-T-Mobile, the FCC, DOJ and FTC have routinely ignored transactions and non-neutral network behavior by dominant edge providers, which command vastly more problematic, 75-90+%, horizontal market shares.
And since the FCC predicates much of its net neutrality policy on the notion that vertically-integrated “gatekeepers” have a commercial incentive to not be neutral, it is arbitrary and hypocritical that the FCC has no concerns about obvious non-neutral behavior by the two dominant and maximally-vertically-integrated smartphone OS providers, Android and Apple, which command 81.6% and 15.9% global market share respectively.
If the main antitrust case of the last two decades was Microsoft’s anticompetitive abuse of its operating system market power, why is the FCC willfully blind about the threats to an Open Internet from non-neutral, dominant edge mobile operating system platforms?
Given that the FCC has produced an arbitrary Open Internet Order that regulates ISP upstream traffic as a Title II utility, but nonsensically leaves unregulated the alleged “terminating monopoly” downstream traffic to the ISP, it should be no surprise that, the FCC arbitrarily would over-regulate competitive broadband providers as non-neutral gatekeepers based on scant evidence of a problem, while turning a total blind eye to obviously-dominant edge platform gatekeepers who routinely operate vastly larger Internet networks non-neutrally.
To paraphrase the great American philosopher, Forest Gump: Arbitrary is as arbitrary does.
Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.