Exporting Telecommunications Regulation: The U.S.-Japan Negotiations on Interconnection Pricing

Since 1997, the U.S. government has attempted to use the World Trade Organization (WTO) agreement on telecommunications services as a vehicle for 'exporting' American principles of telecommunications regulation to other nations. The United States took the position in 1997 that the WTO telecommunications agreement requires its signatory nations to follow the practices of the Federal Communications Commission (FCC) on telecommunications regulatory policy. Subsequently, the Office of the U.S. Trade Representative (USTR) has sought to influence, under the implicit threat of trade sanctions, Japan's domestic regulatory policy on the pricing of mandatory competitor access to the unbundled elements of the local network belonging to the operating companies of Nippon Telegraph and Telephone Corporation (NTT). In this Article, we examine the substantive difficulties of engrafting the FCC's interconnection policy onto the telecommunications marketplace of another nation. For more than five years, many American experts on telecommunications policy have disagreed whether American consumers have benefited from the very FCC policies that the USTR would have Japanese regulators emulate. The USTR's initiative appears to ignore that the transition to costoriented rates for interconnection and retail telecommunications services has been a difficult and unfinished process in the United States; that the cost models used by the FCC to set interconnection prices have significant deficiencies; that actual interconnection prices both within and outside the United States diverge considerably from the estimates of the FCC's cost models; that variations across countries in the prices of inputs have a significant effect on the costs of interconnection; and that, with respect to depreciation in particular, regulators treat this cost differently'and, from an economic perspective, more reasonably'in Japan than in the United States. Such substantive economic considerations suggest why the FCC's policy in this area has generated continuous litigation, including two Supreme Court cases, since 1996 and consequently is too unresolved at this point in the American experience for the United States to force on its trading partners. Next, we ask whether the USTR has the detailed knowledge required to negotiate trade agreements on interconnection pricing. We question the propriety of using the USTR to influence the domestic regulatory policy of another country on a topic as complex as the efficient pricing of mandatory access to unbundled network elements. The USTR's power to formulate trade policy on this subject resides in officials who are unlikely to possess the economic expertise and resources necessary to evaluate the consumer-welfare implications of the policies that they would have Japan and other nations adopt. For these reasons, the USTR cannot credibly make the interconnection pricing policies of another nation a legitimate concern of U.S. trade policy.

Incentives for Anticompetitive Behavior by Public Enterprises

We examine the incentives that public enterprises may have to undertake anticompetitive activities. These activities include setting prices below marginal cost, raising the operating costs of existing rivals, erecting entry barriers to preclude the operation of new competitors, and circumventing regulations designed to foster competition. We find that public enterprises often have stronger incentives to pursue these activities than do their private, profit-maximizing counterparts.

Assessing the Network Neutrality Debate in the United States

Over the last decade in the United States network neutrality has evolved from a primarily technical concern to a national debate about the future of American communications regulation as well as technology and innovation policy in general. In October 2009 the U.S. Federal Communications Commission (FCC) issued a notice of proposed rulemaking (NPRM) to codify six principles of network neutrality. This proceeding which is unlikely to be completed before mid-2010 could have profound economic consequences for consumers content and applications providers and network operators.Network neutrality is a shorthand for a series of policy prescriptions that would restrict the ability of broadband internet service providers (ISPs) to manage network traffic. These restrictions include barring network operators from charging content and applications providers (as opposed to end users) for entering into business-to-business transactions for quality-of-service (QoS) enhancements for packet delivery. Although the initial objective for advocates of network neutrality regulation was to secure regulation of wireline networks the debate has expanded since its inception to include wireless networks

Do Free Mobile Apps Harm Consumers?

Google distributes proprietary applications for its open-source Android mobile operating system (OS) free of charge. Some of those applications (apps) are offered together as a suite of apps known as Google Mobile Services (GMS). Manufacturers of mobile devices can agree, pursuant to Google\u27s Mobile Application Distribution Agreement (MADA), to install the suite of apps on their devices at a price of zero. Some theorize that Google\u27s policy of offering some applications together as a suite of apps harms competitors or menaces consumer welfare. In April 2015, the European Commission expressed such concerns when it initiated a formal antitrust investigation that will scrutinize Google\u27s licensing practice with respect to Android, mobile apps, and mobile services. In April 2014, an antitrust class-action complaint filed against Google by individual mobile device owners in the U.S. District Court for the Northern District of California presented similar allegations. However, the theory that the MADA\u27s requirements have anticompetitive effects is wrong. As a matter of economics, Google\u27s practice of distributing free mobile apps in the GMS suite benefits consumers -- as well as manufacturers, mobile carriers, app developers, and advertisers -- by stimulating demand, by reducing the risk of fragmentation of the Android OS, and by preventing Google\u27s competitors from free riding on its investment to make the Android OS and mobile apps a viable open-source competitor to closed and proprietary -- walled garden -- platforms for mobile devices. As a matter of antitrust law, Google\u27s distribution of apps as part of a larger whole -- GMS -- is lawful under the Supreme Court\u27s four-part test for such arrangements. Google does not force consumers to pay for apps they do not want, and the MADA\u27s requirements enhance competition overall. The same conclusion holds with even greater certainty under the rule-of-reason analysis for software integration that the D.C. Circuit adopted in its historic Microsoft decision. Although European competition law differs in some respects from American antitrust law, the pertinent economic analysis does not vary by jurisdiction. Google\u27s licensing practice has invigorated competition among mobile platforms and mobile devices. Google\u27s distribution of free mobile apps in GMS has produced a market success, not a market failure, and should not be considered anticompetitive

An Antitrust Rule for Software Integration

What is the proper legal standard for product integration involving software? Because software is subject to low marginal costs, network effects, and rapid technological innovation, the Supreme Court\u27s existing antitrust rules on tying arrangements, which evolved from industries not possessing such characteristics, are inappropriate. In this Article, I ask why firms integrate software products. Next, I review the Supreme Court\u27s tying decisions in Jefferson Parish and Eastman Kodak. I propose an approach to judging the lawfulness of product integration in technologically dynamic markets that supplements the Supreme Court\u27s current standard with four additional steps in cases of tying of computer software. Thereafter, I examine the D.C. Circuit\u27s approach to software integration, which arose from that court\u27s 1998 interpretation, in Microsoft II, of an antitrust consent decree between the US. Department of Justice and Microsoft Corporation. I argue that the D.C. Circuit\u27s rule has general applicability and should be recognized as the appropriate standard for software integration under antitrust law. I show how my approach imparts greater clarity to the D.C. Circuit\u27s rule. I examine the competing product integration rule proposed in 2000 by Professor Lawrence Lessig as amicus curiae in the government\u27s subsequent antitrust case against Microsoft, concerning the integration of Internet Explorer and Windows 98. My approach enables Professor Lessig\u27s analysis to be reconciled with the D.C. Circuit\u27s rule, but Professor Lessig\u27s rule, on its own, would contain serious shortcomings. Thereafter, I evaluate Judge Thomas Penfield Jackson\u27s April 2000 findings of law on the integration of Internet Explorer and Windows 98. I conclude that Judge Jackson\u27s approach, in contrast to the D.C. Circuit\u27s rule as refined by my approach, would harm consumers in the technologically dynamic market for computer software