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Big tech regulators can learn from the AT&T break-up

Antitrust strictures need a rethink in the digital age regulators need a scalpel, not a broad sword
Big tech regulators can learn from the AT&T break-up
  • Defining a monopoly situation is a little more slippery in the digital age
  • Technological change, rather than antitrust provisions, can effectively level-up markets 

Some economists and social theorists take the view that unfettered markets invariably tend toward monopoly situations, or oligopolies at best – cartels by any other name. Perhaps this is one of the internal contradictions of capitalism; that the resounding success of a company (or a group of companies) in a marketplace could eventually snuff out competition and elasticity of price, perhaps the two most important determinants of a market’s efficiency.

Many governments are keen to avoid over-concentration in industry, and regulate accordingly. But this raises the possibility of another internal contradiction; in that free markets can only be maintained through government intervention. The 1984 break-up of AT&T provides a case in point.

By the 1980s, the group – which had its genesis in the Bell Telephone Company – controlled 90 per cent of the US phone market and virtually all the country’s long-distance traffic. It is thought that this level of market dominance, whether in private or public hands, is not only anathema in terms of price discovery, but also stifles innovation.

A decade after the AT&T break-up, US authorities successfully pursued antitrust cases against Microsoft Corp (MSFT) after the tech giant had attempted to obstruct competition in the new area of web browsing by exploiting industry dependence on its computer operating systems. The intervention of US authorities served as a catalyst for the development of the now familiar online digital platforms, but, as ever, innovation has given way to an unbridled quest for market dominance. Around three-quarters of all internet referrals make their way through sites either owned or operated by Alphabet's (US:GOOG) Google or Facebook (US:FB.), while Amazon (US:AMZN) accounts for roughly half of the US e-commerce market.

A succession of antitrust lawsuits was filed against Google through 2020, citing various practices employed by the group to ward off competition. It has been accused of giving priority in its search results to its own products over the listings of rivals, while critics also suggest that it has used its control of the Android operating system to coerce partners to bundle Google's apps into their product offerings. Google’s hugely profitable online advertising function is also under the microscope, having attracted a €1.49bn (£1.34bn) fine from the European Commission for market abuses.

Perhaps that last point is overly critical or simplistic in nature. After all, it was not difficult to appreciate why AT&T’s complete dominance had negative implications for consumers and any potential competition. The group held a stranglehold on local telephone systems and equipment supplies prior to its breakup – there simply wasn’t any space for rivals. The group was eventually split into seven independent regional telecom providers, the so-called ‘Baby Bells’. It was also forced to sell its Western Electric subsidiary, which meant that the split-off providers did not control telephone equipment the way that AT&T did – prices duly headed south.

Meanwhile, Amazon has provoked the ire of regulators through an alleged practice whereby it copies the goods produced by third-party companies that sell on the Amazon Marketplace, as a prelude to selling its own branded versions. The use of proprietary marketplaces to stymie competition is an area of concern for regulators, but perhaps an even more blatant assault on free trade and innovation comes from Big Tech’s use of M&A. Google, Facebook and Amazon have simply bought off the competition down through the years, a process helped along by a lax regulatory regime that failed to keep pace with technological change.

The break-up of AT&T was certainly justified from an antitrust perspective, but with the benefit of hindsight we can see that the playing field would have been levelled-up anyway, through the advent of mobile telephony and digital communications – analogue providers were already going the way of the dodo.

Whether the Biden administration decides to pursue outstanding antitrust lawsuits against the Silicon Valley giants is essentially moot given inadequate provisions under the law – any legal initiatives through the courts will be tied-up in knots for years. Defining a monopoly situation is a little more slippery in the digital age. One imagines it will take a slightly more nuanced approach from the US Department of Justice, although we can say with certainty that it will be a bonanza for the legal fraternity.

And with a Democratic majority in Congress, it is doubtful whether we will witness outright revocation of Section 230 of the Communications Decency Act, which provides immunity from civil liabilities for information service providers, although Twitter's persistent editorialising has raised the hackles of some politicians. At any rate, they will put old Joe out to pasture a long time before the courts ever pass a ruling on the legality of any proposed break-up. If the influence of Silicon Valley is to be reined in, it may be more effective to take a harder line on mergers, or to simply implement stricter controls on how social media companies use data. As with the example of AT&T, technological change could eventually render existing digital business models redundant, but only if smaller start-ups remain independent.