On the ATT-T Mobile merger‚ and SKYPE

    The Department of Justice recently filed suit against the merger of AT&T and TMobile companies, with a historical whiff similar to their break-up of  AT&T during the 1970s and 1980s.  For those who may know little of the subject, AT&T was singlehandedly one of the world's largest corporations in 1970, with nearly a million employees and assets hovering around $60 billion dollars. In 1970, this was tantamount to a nation without any legislative oversight, and hence to the abuses of power one may expect under such given circumstances.  Although an American legacy, the Department of Justice did well to split up what had become a monstrous behemoth.

    The question of the day is the following: Are today's (2011) circumstances the same as those of 1974?  Certainly there are enormous differences, which  may lead the Department of Justice to mistakenly repeat correct decisions of the past, or--worst yet--to fail to perceive moments when it should act but when it isn't.

    In the telecommunications world of 1970, there were little alternatives to the telephone.  There were some innovative technologies as the telex (a telegraph with a keyboard), but these were expensive and typically used by large institutions: corporations and governments.   When one claims today that AT&T had a monopoly, one truly meant it: there were NO ALTERNATIVES to the technology AT ALL. FINITO. NONE. ZIP.  One either accepted the terms, or forfeited the benefits of modern communications (ie the telephone).  

    Today's conditions have indeed greatly changed.  We have multiple means of communications aside from multiple companies in each of these realms: cellular phones, the internet, satellite, and WiFi.[1]  Not only that, there is software that enables computers to become communication devices, the most well known amongst these being Skype, Facebook, and Twitter.  Strictly speaking, we are nowhere near to having a monopoly in the telecommunications sector.  The only monopoly that actually still exists is in an industry which ironically was one of the most competitive in the 1970s: Microsoft, which still owns some 92% of computer market share with its operating system Windows.  

    What does this mean, in actual practice?  

    The emerging complexity of the modern technological arena means that there are multiple layers embedded in the telecommunications field, and therefore  that a 'horizontal' monopoly over one particular layer does not in-and-of-itself necessarily imply a 'monopoly', in the hard-core 1970s sense.  We certainly don't want to get close in any way to this system, but the fact of the matter is that horizontal control does not necessarily imply 'vertical' control as it did four decades ago.  And it is this 'vertical control' across multiple technological realms that you should be most concerned about--similar to the vertical integration which occurred with traditional monopolies at the beginning of the 20th century, Carnegie's steel companies or Rockefeller's oil.  Standard Oil, if you may recall, controlled extraction, refining, and distribution facilities.  

    One of the most 'shocking' dynamics of the weird world of telecommunications of the last 20 years have been the creations of tunnels within tunnels.  Because telecommunications was rightfully denominated as a 'common carrier', without wherewithal on the internal contents of its messages (akin to the highways which do not generally control the cars that participate in the system), telecom companies lacked in principle the jurisdiction of what actually went on inside its lines. The merger of computers with telecom, therefore, led to the anomalous situation of a 'telecom within a telecom', as is the case of Facebook for example.  The growth of Facebook, essentially a mechanism to easily create webpages without any technical know-how, is tantamount to an internet within the Internet.  The same for telecommunications.

    It is here--in this vertical integration--where the Department of Justice should be most closely focusing its attention, but which for some strange reason is not. A few weeks ago, Microsoft purchased Skype for some $8 billion. 

    Skype is actually perhaps one of the best examples of telecom within telecom--of the tunnels within tunnels. If you think about how it actually works, you are creating a communications channel or tunnel within all and any existing telecommunications companies.  You can use it to make a call anywhere in the world, for the price of a local phone call.  In effect, Skype operates basically as a universal phone company, without advertising itself as such--in spite of the fact that it actually operates 'within' the networks of any existing telecom carriers.  While it may not be a monopoly in a 'horizontal sense', there are many other programs that actually do this, it is certainly the case that it has 'vertical leverage'--operating effectively though all and any telecom carrier, be it hardline, celling, or  WiFi. It is the most well-known.

    The merger of Microsoft and Skype is of much greater significance than that of ATT and TMobile, as this is a de-facto vertical integration of different companies in adjacent realms.

    Given Microsoft's proven record of abuse of power in the world of computers, given its still predominant market share of 92%, and given the essential role that telecommunications plays to the functioning of any society, the Department of Justice should step in immediately to that case as well.  

 

NOTE

1.  Home WiFi in principle could  provide universal service if everyone had wifi in a location close enough to one another.   Also, remember that Google was going to provide city-wide internet service using the technology.