The Corner Newsletter, July 26, 2018: Trying to Turn Moby Dick into a Minnow — How T-Mobile and Sprint's Pending Merger Could Hurt Rural Americans — The EU's Google Shopping Fine One Year Later
In this issue, we ask whether the EU's $2.7 billion fine on Google last year has fixed online shopping in Europe, identify some of the facts left out of a recent Wired article about Amazon, and examine how T-Mobile's takeover of Sprint merger would likely harm rural Americans.
Need to Check Power of Technology Corporations Remains
After the European Union’s top antitrust enforcer, Margrethe Vestager, fined Google $5 billion last week for abusing its market power, the Open Markets Institute joined other civil society groups in a letter supporting the decision.
You can read the letter here.
While the fine was a good step, OMI also encouraged European and American antitrust enforcers to continue to investigate Google and other technology giants like Facebook.
In the same vein, OMI Executive Director Barry Lynn wrote an op-ed for The Guardian that highlights one of most pressing threats posed by Google and Facebook – the mass diversion of ad revenue away from trustworthy sources of journalism. “Vestager’s move against Android does nothing to protect the free press in Europe or America,” Lynn writes. “This means it’s time for other regulators and legislators in America and in Europe to speed the process of bringing Google to heel.”
You can read the op-ed here.
Billions in Fines Didn’t Work Before – What the EU’s Antitrust Action Against Google in 2017 Tells Us About Their Latest Slap On the Wrist
Last week, the European Union’s top antitrust enforcer, Margrethe Vestager, announced plans to fine Google €4.34 billion ($5 billion) for exploiting the dominance of its Android mobile operating system “as a vehicle to cement the dominance of its search engine.”
That sounds like a lot of money. But Google today has more than $100 billion of cash in the bank. Which is why it may be instructive to look at the result of a separate antitrust case last year, in which Vestager’s agency – the Directorate General for Competition, or DGComp – finedGoogle $2.7 billion for promoting its own comparison shopping services over those of European shopping sites like Foundem and Kelkoo.
Seven months after Google presented DGComp with a plan to fix theproblem, a coalition of 19 European shopping services wrote, “The harm to competition, consumers and innovation caused by [Google’s behavior] … has continued unabated.”
The original case dates back to 2010 when the European Commission first investigated allegations that Google was abusing its dominant position in the search market. The body did not conclude its case until June 2017 when Vestager announced the decision to fine Google for “abus[ing] its market dominance as a search engine by giving an illegal advantage” to its own comparison shopping service. Google did so by making sure that searches on its site led first to its own shopping service, rather than those of rivals, the EC found.
In its decision, the EC required Google not only to pay a fine, but to come up with a system to ensure “equal treatment to rival comparison shopping services.” In response to Vestager’s decision, Google last September rolled out a scheme under which different shopping services would bid against each other, and against Google itself, for top placement in Google’s search results.
The Open Markets Institute, among others, criticized the plan when it was first announced, writing in a statement that: “this proposal falls far short of what is necessary to address Google’s abuse of its dominant position in search.” In particular, OMI criticized the plan as favoring richer corporations, such as Google, over less well-capitalized corporations with less money to spend on the auctions.
Several months after the Google implemented the “fixes,” research from the European marketing company Searchmetrics shows that Google indeed wins the bidding wars for top billing on its own search results. In the UK for instance, Google has won more than 99 percent of the space that it has auctioned off.
There is little reason to believe DG Comp’s latest decision will have any greater effect on the search giant. The EU this year did mandate specific changes in Google’s behavior, requiring for example that the corporation no longer require all Android phone to pre-install Google search. But thejudgment does nothing to restructure the corporation in any way that would effectively reduce its monopoly power.
But Luther Lowe, the Senior Vice President of Public Policy at Yelp, a company which has for years fought to reduce Google’s power over online search, says the decision may prove its importance over the longer run. “It establishes the finding of dominance in general search,” he says, This “sets up the Commission to establish the finding of guilt in other [areas], like local search.”
Foundem, the European comparison shopping site that filed the first complaint against Google for its shopping abuses, was less sanguine. Thecompany this month offered its own potential solution to limit Google’s power over online shopping and other markets: “If Google elects to continue down this destructive and non-compliant path then perhaps it is time to heed the growing calls for Google to be broken up.”
ANTI-MONOPOLY RISING:
New York Daily News Editor-in-Chief Jim Rich tweeted Tuesday, after news broke that half of the paper’s editorial staff would be laid off:“I’ll say it again: Unchecked Facebook (and Google) are the enemies of journalism & democracy. If we take our democracy seriously, we need legislation to undo copyright evisceration/anti-trust violation. Now.”
At a recent speech to the National Endowment for Democracy, Rep. David Cicilline (D-RI) said that “applying tougher standards to … mergers that harm potential competition is a promising way to reverse this trend,” and that “Congress should take steps to ensure that American companies do not amplify violent and demonstrably false speech at home or around the world.”
As part of his 2018 Nelson Mandela Lecture, President Barack Obama said that progress toward universal freedom and social justice “is going to depend on an inclusive market-based system…that breaks up monopolies to encourage competition in small and medium-sized businesses.”
Last week, during a hearing of the House Committee on Energy and Commerce, in response to a question by Rep. John Sarbanes (D-MD), Federal Trade Commissioner Rohit Chopra said he wants the FTC to “bring the hammer down” on publicly traded companies, in thesame way that it targets “small-time” scammers.
WHAT WE’VE BEEN UP TO:
Barry Lynn argues in The Guardian that the New York Daily News‘ cutting half of its staff is a direct result of Facebook and Google taking advantage of its monopoly over online advertising. Instead, antitrust enforcers ought to apply anti-monopoly communications policies from American history and use them to neutralize these technology monopolists’ power.
Sarah Miller was quoted in Business Insider‘s profile of the Freedom From Facebook campaign saying, “Mark Zuckerberg has far too much power, his own shareholders called him a dictator…The set of positions that we’re offering are returning to a more responsible, reasonable status quo.”
Lina Khan’s new article in the Georgetown Law Technology Review, “Sources of Tech Platform Power,” examines technology platform’s sources of power, and how past legal approaches, like common carriage rules and structural remedies, addressed analogous historical episodes.
Joe Nocera wrote about Lina Khan’s “Amazon’s Antitrust Paradox,” and quoted Barry Lynn and Phil Longman in an articlefor Bloomberg pointing out the ways that President Trump’s tweets attacking Amazon on antitrust grounds are distracting Americans from an urgent conversation on the antitrust harms that Amazon poses to American society. The growing urgency of such a conversation was also covered by The Information and Investor’s Business Daily, which noted Lina’s recent move to the FTC.
Sandeep Vaheesan published “How Contemporary Antitrust Robs Workers of Power” for the Law and Political Economy blog. He shows that antitrust enforcers have both failed to control the market power of employers and attacked the organizing efforts of independent workers. If the DOJ and the FTC are to protect labor consistently going forward, Sandeep argues that they must renounce the consumer welfare standard.
Politico and NBC News quoted Sandeep Vaheesan saying that structural solutions, like breaking up Google, would be a great next step and that he is more optimistic now than in the past that theFTC might take action against the technology giant. HandelsblattGlobal and Investopedia quoted Barry Lynnapplauding the European Union’s $5 billion fine of Google and encouraging American enforcers to take note.
Lina Khan was quoted in a Vox article about Amazon’s recent Prime Day, saying, “Amazon’s dominance poses a question of how comfortable we are with more and more of our commerce going through a single company…If Jeff Bezos wants to tax all of our economy, are we okay with that?” Vice, meanwhile, quoted Matt Stoller in their article on the issue. Amazon, he said, is “becoming central planners of the American economy … they’re becoming the Soviet States of Amazon.”
The Sacramento Bee, Paste, and The Riverdale Standard cited Matt Stoller’s tweet in response to Facebook CEO Mark Zuckerberg tellingThe New York Times that he would not remove Holocaust denials from Facebook. “My general point,” Stoller wrote, is “that no one should be doing the filtering of news for 2.1 billion people. But Mark Zuckerberg defending the sincerity of Holocaust deniers suggests that we may have picked the single worst person to do what is an impossible job.”
How Wired Tried to Turn Moby Dick into a Minnow in Six Easy Steps
Last week, Felix Salmon wrote an article for Wired titled “The False Tale of Amazon’s Industry-Conquering Juggernaut.” Salmon thinks that concerns about Amazon’s monopoly power are overblown and argues that Amazon is “really nothing to be scared of… Just because Amazon is successful, doesn’t mean it’s particularly harmful to anybody else.”
Such a contrarian take would make for compelling reading if Salmon’s evidence was sound, but sadly it’s not. Here are six ways that Salmon’s attempt at an argument tries, and fails, to make you think that Moby Dick is really a minnow.
1. Salmon claims Amazon has failed to achieve domination in any market besides book publishing.
Actually, Amazon has astronomical market shares in many sectors, with more than 90 percent of all online sales of home improvement tools, skin care products, batteries, golf products, cleaning supplies, and Kitchen & Dining products. Beyond that, ever heard of cloud computing? Last year, Amazon had more than three times the market share of any other provider of cloud computing infrastructure and services.
2. According to Salmon, when Amazon bought Whole Foods, “it merely went from having 0.2 percent of the groceries market to having 1.4 percent.”
Even before it was acquired by Amazon, Whole Foods already had 1.7 percent of the U.S. grocery market. Meanwhile, Amazon in 2017 controlled 18 percent of a U.S. online grocery market projected to hit nearly $18 billion this year, more than twice the share of its next closest competitor, Walmart. So at the most basic level, Salmon’s math is wrong. Worse, Salmon misunderstands the local nature of many food markets, especially in high-end, organic, non-commodity markets. That’s why Whole Foods, even before the Amazon deal, was already able to exploit monopsony power over small, organic farmers and food companies. After buying Whole Foods, Amazon further raised the fees it charges small food businesses , even driving some out of business.
3. Salmon writes: “…while the so-called retailpocalypse has decimated theranks of American shopping malls, it’s hard to blame Amazon for that when in-store retail sales continue to rise.”
It’s hardly surprising same store sales are up since there are fewer and fewer physical stores and the general economy continues to recover from the sharp drop-off in purchasing during the Great Recession. Meanwhile, Salmon’s own link shows e-commerce sales are growing much faster than physical retail sales, and Amazon’s share of e-commerce reached 49 percent in 2018. Perhaps even more damaging, when Wall Street investors look at Amazon’s growth rate, about the last place they want to park cash is in other physical retailers. To get some idea of how the real world works, Salmon might want to study more closely the effect the news of Amazon’s purchase of Whole Foods had on the stocks of retailers like Target, Supervalue, and Kroger, which all fell roughly 4 to 8 percent within minutes of the takeover being announced.
4. “By opening up its platform to third-party sellers,” Salmon writes, “Amazon has ensured that it will nearly always face competition, even on its own website.”
This statement, if we take it at face value, reveals a touching naivete about how corporate relationships actually work. Amazon makes money off these third-party sellers, charging them a 15 percent or higher fee (or more accurately, “tax”) on most categories of sales. Amazon also profits by mining market data from its third-party sellers, and in some cases, using that information to manufacture copycat products which it uses to undercut their products and steal their business. The Amazon platform is not an open market; it’s a rigged market. The reason third-party sellers don’t go elsewhere is that Amazon already controls such a giant share of online sales that there really is no choice.
5. “Amazon famously reinvests almost all of its profits into its own business, which is one of the reasons Wall Street loves the company so much.”
Salmon apparently doesn’t understand Wall Street. Investors pour their cash into Amazon because a) they believe Amazon is well on its wayto becoming a monopoly that can charge monopoly prices and shower its stockholders with riches, b) they increasingly believe Amazon’s competitors are not long for this world (see #3 above).
6. “E-commerce still accounts for less than 10 percent of total sales,” writes Salmon, “and Amazon is a minority of that 10 percent.”
Amazon’s public relations team enjoys deploying these stats. But they are based on a sleight of hand often favored by monopolists: redefining themarket so their market share appears much smaller. Amazon isn’t in thebusiness of running malls and department stores; it’s in the e-commerce business and it controls almost 50 percent of that sector and counting. Meanwhile, e-commerce itself accounts for a higher and higher share of all retail sales, especially if you don’t lump in sales that can’t be traded online, like gasoline and restaurant meals. You can’t make a molehill out of a mountain.
One could go on and on (see Salmon’s specious take on Diapers.com), but perhaps the point is made. The only real question is why the editors at Wired would publish an article so manifestly erroneous.
WHAT WE’RE READING:
“The Truth About Big Business” (Washington Monthly, Stacy Mitchell): An explanation of the failures of Robert Atkinson and Michael Lind’s new book, Big is Beautiful: Debunking the Myth of Small Business, as well as a nuanced defense of small business.
“A Policy Framework for an Open Internet Ecosystem” (Georgetown Law Technology Review, Gigi Sohn): A promising start to a discussion of what regulating broadband providers and technology platforms to ensure an open Internet would look like.
“Health Insurers Are Vacuuming Up Details About You And It Could Raise Your Rates” (ProPublica and NPR, Marshall Allen): A chilling, important report on how health insurers are using data to study you and even charge you different rates based on hundreds of different attributes, including your financial and criminal histories.
T-Mobile and Sprint Merger Would Harm Low-Income and Rural Americans
Much of the initial opposition to T-Mobile’s planned takeover of Sprint has focused on how the transaction would affect people who rely on “prepaid” wireless plans. Such plans are typically used by lower-income consumers who either can’t afford or lack the credit scores necessary to obtain a conventional “postpaid” plan in which customers pay after using theservice. The combination of T-Mobile and Sprint would put some 54 percent of the prepaid market in the hands of one corporation.
“It would be an absolutely huge mistake if the Federal Communications Commission and the Department of Justice gave a green light to this,” says Peter Adderton, founder of prepaid wireless provider Boost Mobile, in an interview with The Washington Examiner. “[T]his is definitely not pro-consumer.”
But a growing number of people in rural areas are also coming out in opposition to the deal. Although Sprint has a strong track record of working collaboratively with independent rural wireless carriers, T-Mobile – which would be in charge of the merged corporation – has a much different reputation. “T-Mobile’s coverage is focused on cities and thehighways connecting cities,” says Carri Bennet, General Counsel for theRural Wireless Association. “If T-Mobile bothers to come to a rural county it builds a cell [tower] in the county seat and ignores the rest.”
To get a sense of how T-Mobile approaches service to rural areas, consider the $40 million fine that the FCC recently levied on thecorporation. Although the penalty received little news coverage, the FCC found T-Mobile guilty of what is perhaps the most extreme case of corporate fraud to be prosecuted in America since Volkswagen was convicted of cheating on diesel emissions.
In this case, T-Mobile was found to have routinely presented callers with a fake ring signal rather than actually pay connection charges for calls placed to rural areas. This meant, for instance, that if you were a T-Mobile customer in Chicago trying to call your family in rural Wisconsin you would hear a ringtone, but your family would never receive the call.
Bennet says that independent rural wireless carriers rely on their existing spectrum leasing agreements with Sprint to serve certain rural areas. Should T-Mobile’s acquisition of Sprint be approved, these carriers would now depend on T-Mobile, which has refused to enter into similar agreements. “[T-Mobile] has plenty of nationwide spectrum to serve rural America,” says Bennet, “but has chosen not to do so.” So when you call your uncle in rural Wisconsin and he doesn’t pick up, now you’ll know why.
VITAL STAT: 39.21%
The difference in productivity growth from 2001 to 2013 between the top five percent of service firms and the bottom 95 percent, according to a recent article from The Wall Street Journal. The analogous figure for manufacturing firms is 26.12 percent. The Journal reports that researchers suggest that one reason for the difference is that “bigger firms are better at protecting their technological advantages by patenting them.”
WHAT WE’RE WATCHING:
Walk the Walk: After the EU fined Google $5 billion for leveraging the power of its search, browser, and operating system, FTC Chairman Joe Simons said he was “very interested” in the EU action. We’re watching to see if the FTC acts to curb the power of the technology giant, and closes the gap in American and European antitrust enforcers.
Countervailing Powers?: Yesterday, shortly after Facebook announced plans to establish a presence in China, the corporation’s listing on China’s business registry page disappeared. We’re watching to see if and how Facebook makes concessions to the Chinese government in its efforts to gain access to China’s nearly 1.37 billion people. The Wall Street Journal reports that Facebook has already “internally developed a tool that … would have allowed third parties—including governments such as China—to block content before it could be posted on Facebook.”
Too Fast, Too Hungry: Earlier this week, Grubhub bought the mobile payment platform LevelUp. We’re watching to see how this acquisition might hurt local restaurants and liquor stores who, as Food & Power reported in April, face an increasingly-consolidated food delivery industry.
Photo by IconicBestiary via iStock.