Issue 57

Antitrust, Bernie Sanders and the Hollywood experience

Delivered on 10 December 2019 by Justin Pyvis. About a 6 min read.

It's just so simple, isn't it:

Bernie Sanders unveiled a plan Friday to expand broadband internet access as part of a push to boost the economy and reduce corporate power over Americans.

In his sprawling “High-Speed Internet for All” proposal, the Vermont senator and Democratic presidential candidate calls to treat internet like a public utility. His campaign argues that the internet should not be a “price gouging profit machine” for companies such as Comcast, AT&T and Verizon.

Sanders’ plan would create $150 billion in grants and aid for local and state governments to build publicly owned broadband networks as part of the Green New Deal infrastructure initiative. The total would mark a massive increase over current funding for broadband development initiatives. The proposal would also break up what the campaign calls “internet service provider and cable monopolies,” stop service providers from offering content and end what it calls “anticompetitive mergers.”

Regular readers will be aware that I'm extremely sceptical of grand plans to "fix" anything by effectively nationalising it. Down here in Australia we're still paying the price for such ill-conceived plans, hastily drawn up on the back of a bar napkin without so much as a cost-benefit analysis.

Sure, the current broadband situation in the United States could be far from optimal. But when determining how to improve the current arrangement, more care needs to be taken than simply looking at the number of firms in a given market (or perceived lack thereof) and concluding that they're all part of a "price gouging profit machine". Given the specificity of broadband infrastructure, large up-front capital costs and ongoing regulatory factors that broadband providers must overcome, it's likely that the optimal number of providers is actually relatively small.

But back to Sanders. How is he planning to achieve his plan to nationalise broadband? Our old friend antitrust, misapplied yet again:

Sanders’ plan also outlines a broader antitrust effort against internet and cable companies. If elected, he would use existing antitrust law to “bar service providers from also providing content and unwind anticompetitive vertical conglomerates.”

This policy could potentially impact every major US carrier, particularly Comcast’s ownership of NBCUniversal, AT&T’s ownership of WarnerMedia, and Verizon’s ownership of AOL. “We will break these monopolies up and closely regulate them to ensure they are providing consumers with acceptable service, and eliminate hidden fees, surprise bills, and other consumer-gouging practices,” Sanders said.

It's not obvious that these companies are monopolies or that antitrust should apply to them. It's not even clear that the mergers cited above have moved the market away from what could be called the 'optimal' structure, once prices and non-price variables (e.g. quality) are considered. There is no way that Sanders has done the huge amount of background legwork necessary to support his claims. He's just applying his ideology to a sector that every other Democratic candidate seems to be hating on. When you're Bernie Sanders, any perceived problem can be solved by making it "free".

But Sanders' ideology is not the issue here; it's the use of antitrust, yet again, to tackle the supposed problem. Antitrust is woke again and is being horribly abused across the developed world to beat down everything from Facebook to Comcast, with a complete disregard of the unintended consequences that will inevitably ensue.

On that note, there was an excellent Bloomberg article last week about Hollywood's experience with antitrust and how it ultimately "replaced the diverse ecology of working actors, staff writers, B-movies and cheap tickets at second- and third-run theaters", with a "winner-take-all system of star talent and blockbuster bets":

Today, as a resurgent left, sometimes joined by the populist right, demands a return to punitive taxes and blunderbuss enforcement of U.S. antitrust laws, the Hollywood experience offers a timely reminder of how economic crusaders can destroy what they don’t understand. By hampering creativity and increasing risk, ill-informed antitrust action can ultimately harm the consumers it is supposed to protect.

“Today, not only do our metropolitan areas have many multiplex cinemas showing films from different distributors, but much of our movie-watching is not in theaters at all,” said Delrahim, who oversees the Justice Department’s antitrust division.

“It is important,” he said, “for antitrust enforcers to recognize the risks of misapplying antitrust law in creative fields that experience significant change.”

Do read the whole thing. One outcome of Sanders' plan, if implemented, will be to stifle innovation in the broadband sector. Once the fixed-line broadband network becomes utilitised, it will provide an incentive to regulators and politicians (the de facto new owners) to prohibit competition with that network, for example from wireless broadband. The United States is already well behind the likes of China in that space because "the broadband spectrum needed to create a successful network was reserved not for commercial purposes but for the military", making it "significantly slower and more expensive to roll out than just about anywhere else", and Sanders' plan will set it back even further.

Uber banned in London

This actually happened two weeks ago but it's still newsworthy, as Europe is ground zero in terms of misapplying antitrust toward digital technology. Unfortunately, the rest of the world is either retaliating or copying the European model. Consumers everywhere will be worse off as this populist movement plays out.

Learn more:

Supply chains can move quickly

Trump's trade war and subsequent Huawei sanctions have only been in place for around 7 months yet already the company is American-free. Is Huawei worse-off without American components? Absolutely. Shifting supply chains is not costless. But with its hand forced, it has done exactly that, and in the process has eroded some of the US' first-mover advantage in the market for high-tech components.

Now China's government - worried about another Huawei-type situation - is banning all government offices and public institutions to remove foreign computer equipment and software within three years. It's willing to bear the cost of such a move to remove the uncertainty of US policy. Essentially, the United States government has inadvertently accelerated the very process it was trying to thwart.

Learn more:

This is disturbing

China as a technological superpower is not a good thing. At the end of the day the state still dominates many aspects of people's lives, especially on the social end of the spectrum. If you think Chinese companies will be able to say no to the Communist Party of China, think again.

Learn more:

Other bits of interest

This week's data breaches

"Although surveillance tech companies tout anecdotal evidence about hundreds of lives saved through flagging students’ online searches or private emails about self-harm, there is still no independent evaluation of whether this kind of surveillance technology actually works to reduce violence and suicide."

The breaches:

Issue 57: Antitrust, Bernie Sanders and the Hollywood experience was compiled by Justin Pyvis and delivered on 10 December 2019.