Last week, while we were all busy with Network Neutrality and other things, the Department of Justice quietly told the Wall St. Journal that it was ending its investigation into text message rates that it had begun after a Letter from Senate Antitrust Subcommittee Chair Herb Kohl pointedly asked why text messaging prices did not come down the way we would expect in a competitive market. Folks who wonder how the industry can charge what amounts to $1,300/MB do not see how the DOJ could come to this conclusion. But under the existing law, DOJ came to the right conclusion. This follows the dismissal of a private antitrust action against wireless carriers last month.
No one will call me an industry shill for the wireless companies (I hope), but this seems exactly right under existing antitrust law. Does this leave consumers helpless? No. As we occasionally remind the FCC (and anyone else who will listen) we have a PENDING PETITION TO CLASSIFY SMS TEXT MESSAGING AS A TITLE II “TELECOM SERVICE” that we filed way back in DECEMBER 2007. If the FCC granted this Petition, it would require that carriers charge only “reasonable rates” and engage in “reasonable” practices under Section 201 of the Communications Act. This would not require the FCC to impose “heavy handed regulation” or any of the other usual nonsense that gets brought up whenever someone suggest the FCC actually look at the legal criteria in the statute and do its job. (Just ask the folks over in Special Access land how “closely regulated” special access providers are these days.) But it would make any unreasonable practices and charges per se illegal and subject to FCC oversight. If nothing else, the FCC could finally do something about the annoying problem that most people can't shut off text messaging, so that if you don't have a text messaging plan you end up paying enormous prices when someone sends you a text message you don't want.
DOJ Is Right
Antitrust law is not a general, all purpose, “promote competition and make things good” law. Under antitrust law, the government acts when a company (a) uses illegal means to achieve monopoly, (b) if it has legally achieved market power/monopoly status, if it then uses it's market power to preserve its status rather than compete, and (c) if competitors get together to fix prices and thus avoid competition.
Last year, I wrote <a href=http://www.wetmachine.com/totsf/item/1245″>how I did not believe the cellular market fell into these categories. There is no evidence that the cellular carriers got into a room together and said “hey, lets all fix prices at something ridiculous.” Nor did it appear that they use existing market power to keep prices up. Indeed, much as it pains some of my colleagues to hear me say this, if we look at just the universe of wireless carriers in the wireless carrier voice market, it looks — by modern antitrust standards — at least modestly competitive. This does not mean there are no competition issues, or that companies (particularly the vertically integrated companies like AT&T and Verizon, which can totally mess with their competitors through their advantages in spectrum, special access, and termination fees on their landline networks) can't leverage their assets to make life heck for competitors and screw consumers. But it does mean that antitrust law is a highly limited tool for dealing with markets that are more complicated than the fictional, simplified, willing buy/willing seller friction-free markets with perfect information that form the stuff of neocon models and have informed the thinking of conservative judicial activists (wave to the D.C. Circuit) who have spent so much time whittling away at antitrust for the last 20 years.
Indeed, for <a href=http://www.wetmachine.com/totsf/item/1245″>reasons discussed at great length over here, cell phone providers will invariably end up charging boatloads more for SMS Text messaging than can be justified on cost (especially as the service is virtually free to provide). This is a function of the peculiar economics of communication networks combined with how the SMS Text service fits in a bundle of goods. Put another way, it is impossible for me to subscribe to Verizon's phone service but T-Mobile's SMS Txt. Heck, I can't even use AIM, because Verizon requires me to have SMS built in and, until relatively recently, hasn't been big on letting me download a rival text messaging ap. So it's not like the Verizon txt messaging service competes with other text messaging services. And, over time, it appears that text messaging alone is not a major point of competition for choosing the total package, in the same way things like total bundle of minutes (or pre-paid v. non-pre-paid) is a big competition point. So each cellular provider arrives, without collusion, at about the same ridiculously over-expensive price. Because there is no competitive reason to charge a lower price for text messaging alone.
Enter the FCC
This is why we have an FCC, and why it's regulations don't depend on the level of competition or on antitrust. Sure, as a matter of policy these days, we look to see whether competition does a better job than regulation. But back in the old days, when the old American Telephone and Telegraph Co. managed to eliminate any serious competition by simply refusing to interconnect with rivals (what we would now call leveraging network effects), Congress understood that you can have a competitive market that produces utterly crappy, anti-consumer results. And given that telecommunications is a critical infrastructure that makes all sorts of commerce, emergency communications, etc. possible, Congress did not want to tell consumers “take what the market gives you or go live in a cave.” So Congress passed Section 201 and 202 of the Communications Act, which make it illegal for telecommunications providers to charge “unreasonable rates” or engage in “unreasonable practices.”
The trick, of course, is that this only applies to “telecommunication services.” The FCC has never classified what sort of service SMS text messaging is. Critically, it is not the same as internet text messaging — as we covered at great length in our Petition, which I will again point out has been PENDING FOR TWO YEARS!!!
Part of the problem, of course, is that people keep getting this mixed up with “network neutrality” — not helped by the fact that the lead thing that caught everyone's attention was Verizon denying NARAL a short code. So everyone keeps saying “the problem is solved” and blah blah blah blah because no one is denying NARAL a text code anymore.
But the issue is not network neutrality, and it's not about blocking. The fact is that if the FCC or Congress wants to provide some relief for consumers on the high cost of text messaging, it needs top GRANT OUR PETITION AND DECLARE SMS TEXT MESSAGING A TITLE II SERVICE. With that, any unreasonable rate or practice (such as charging 15 cents a message for a service that costs nothing to provide) would become illegal. This wouldn't mean that carriers would be subject to price control, but it would mean they would no longer have freedom to price gauge.
So don't blame the DOJ for giving up on trying to cram text message pricing into antitrust. It simply doesn't belong. This is what the FCC is for, for gosh sakes. And if consumers are going to have any relief from ridiculous text message prices, then the FCC needs to act and grant our Petition.