Analysis

[Commentary] Economists see market concentration as the culprit behind some of the US economy’s most persistent ailments—the decline of workers’ share of national income, the rise of inequality, the decrease in business startups, the dearth of job creation, and the fall in research and development spending. Can Big Tech really be behind all that? Economists are starting to provide the evidence.

David Autor, the MIT economics professor who famously showed the pernicious effects of free-trade deals on Midwestern communities, is one. A recent paper he co-wrote argues that prestigious technology brands, using the internet’s global reach, are able to push out rivals and become winner-take-all “superstar” companies. They’re highly profitable, and their lucky employees generally earn higher salaries to boot. They don’t engage in the predatory behavior of yore, such as selling goods below the cost of production to steal market share and cripple competitors. After all, the services that Facebook and Google offer are free (if you don’t consider giving up your personal data and privacy rights to be a cost). However, academics have documented how these companies employ far fewer people than the largest companies of decades past while taking a disproportionate share of national profits. As they grow and occupy a bigger part of the economy, median wages stagnate and labor’s share of gross domestic product declines. Labor’s shrinking share of output is widely implicated in the broader economic growth slowdown.

In 1956 the US forced Bell Labs to license its patents to all comers. The result was a deluge of innovation (semiconductors, solar cells, lasers, cell phones, computer languages, and satellites) commercialized by new companies (Fairchild Semiconductor International, Motorola, Intel, and Texas Instruments) and the formation of Silicon Valley. Why not require the tech superstars to do the same? Who knows what forces that might unleash.

[Commentary] Investors do not put high values on the infrastructure over which all the data travels. Telecom operators, which often control the backbone of their local broadband networks, mostly trade at enterprise values of about six times their earnings before interest, tax, depreciation and amortisation. Data, for them at least, does not pay. Tech trades on at least double that ratio. While no one expects to see the valuations of telecom operators roaring back soon to their highs of the early millennium, the infrastructure of the internet deserves a higher rating.

The average South Korean can choose between three major private internet providers –SKT, KT and LG U+ – and pay less than $30 a month for the fastest internet in the world. That’s $17 less than what the average American pays for a much slower internet hookup. But why? How is it possible that the citizens of the last developed democracy have a faster and more affordable internet than Americans? The simple answer to this question is that in the 1990s South Koreans decided that their country needed a fast and affordable internet provided by a vibrant private sector, and there was the political willingness, and a national plan, to achieve that goal.

As the repacking of the TV band proceeds after the Incentive Auction, the Federal Communications Commission has issued some guidance as to what comes next for TV stations. Obviously, in the near future, TV stations that agreed to surrender their spectrum in the auction will get notice from the FCC to expect their payments from the proceeds collected from the wireless companies that purchased the repackaged surrendered TV spectrum. For stations that are remaining in operation, who last week were required to file construction permit applications for their repacking to the smaller TV band, and their estimates of the expenses that they will incur in the repacking process, the FCC published an article on its blog, setting out what is next. The article notes that 25 stations will be filing soon in a new window for stations that either cannot construct on the channels that they were assigned by the FCC, or need expanded facilities to replicate their existing coverage. After that window, there will be another window when the remaining repacked stations can file to maximize their facilities on their new channels. Following those two windows, there will be a window for LPTV stations and TV translators who were displaced by the auction to file for new channels.

When the Federal Communications Commission classified broadband Internet service providers as Title II common carriers in the 2015 Open Internet Order (2015 OIO), it argued that emerging industries had thrived under “light touch” variations of Title II regulations and that broadband would be no different. This argument does not hold up to scrutiny, write Thomas Hazlett, H.H. Macaulay Endowed Chair in Economics at Clemson University and former Chief Economist of the FCC, and Joshua Wright, Executive Director, Global Antitrust Institute at George Mason University and former FTC Commissioner, in their article “The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC’s 2015 ‘Open Internet’ Order.”

This blog post is the fifth in a series featuring the contents of a recent special issue of the Review of Industrial Organization, organized by the Technology Policy Institute and the University of Pennsylvania’s Center for Technology, Innovation, and Competition.

According to our preliminary research, there is some form of zero-rating in 20 out of 28 European nations. Zero-rating spans European Union economies of all sizes, from the United Kingdom to Romania, Germany, and Spain. This finding is consistent with Digital Fuel Monitor’s reports: in 2014, European Internet Service Providers offered at least 75 zero-rated apps; in 2015, they offered at least 35 zero-rated apps; and in 2016, they offered at least 62 zero-rated apps. Our preliminary research has found that today, in 2017, there exists at least 73 zero-rated apps across the continent.

As a result of the speed of information and communications technology convergence, the concept of the business ecosystem has been adopted for understanding the business value chain. Within the business ecosystem, keystones play a central role. Currently, Google and Apple are the keystones of the mobile ecosystem, and they have been quite active in acquiring firms over the past years. This study empirically examines the effects of these two firms’ mergers and acquisitions (M&As), especially the different effects on the acquirer and the rival depending on the type of target firm. After the target firms are classified according to the businesses of the acquiring firm that each target firm is related to, the study examines the effects of different types of M&As on the values of the acquirer, the rival, or both. The results provide a basis for understanding the complex relationship between two keystones within the mobile business ecosystem.

[Commentary] There are differences between what tech giants (Google, Facebook, Amazon, Netflix) of the internet and their smaller counterparts are saying. More importantly, there’s a difference in how the most powerful internet companies are incentivized to act. It’s a fine line, but an important distinction for those who want the existing net-neutrality rules to stay. The protests from big tech companies themselves were more subdued than past demonstrations, and few of the major companies involved explicitly demanded the legally enforceable, Title II-based net-neutrality rules stay in place today. And that leaves the major tech firms a small but significant bit of wiggle room.

Tech giants' relatively meager actions on July 12 serve as a reminder: Net neutrality is about the small, not the big. If the (still mostly hypothetical) fears of Title II advocates come true, and ISPs are able to set tolls for access to better quality, the companies with better funding will more easily be able to pay them.

The Federal Communications Commission’s 2015 Open Internet Order follows years of advocacy to implement network neutrality rules, which appears to contravene Congress’ intention that the internet be free of regulation and the people’s will for a free market for broadband. The application of the Title II regulatory framework to the internet has harmed consumers and innovators. While proponents claim they want competition in the broadband market, the objective of Title II is to create a system of government-owned broadband networks under FCC control and to significantly reduce, if not eliminate, private-sector provision.

[Commentary] A curious thing happened on a day that many internet companies and public policy groups had christened a “Day of Action” aimed at protesting the Federal Communications Commission’s plan to overturn so-called net neutrality rules. The curiosity was that several broadband companies — the very same companies that pushed to rewrite the rules that undergird net neutrality — put out statements suggesting that they, too, supported the aims of the protesters.

So why, now, are broadband companies suggesting that they support the aims of the other side? There are two possibilities: A cynic might argue that it’s just puffery, that the broadband industry is simply trying to present a friendly image to an outraged online horde. Or you might take them at their word. Here’s one idea for longtime proponents of network neutrality: Call the broadband companies’ bluff, if that’s what it is. Maybe it is time to push Congress, rather than the FCC, to take up the neutrality fight — and maybe, finally, end the debate for good. Internet giants control the world’s most important channels for information, from your Facebook feed to Google results to your phone’s home screen. They are more than capable of applying enormous pressure to members of Congress to push for what they want. And then, if nothing else, we’ll be able to see where the broadband companies really stand.