Information and the Public Interest: The Fear of Monopoly
Sometime in the not too distant future, your home could be just a fingertip’s touch away from instant intimacy with a universe of electronic information. But should the phone company control access to your home? That is the public-policy question now before America.
Some homes already enjoy a taste of the new Information Age, through services like Prodigy and CompuServe, but they’re nothing compared to the envisioned gala future that includes everything from high-tech shopping to comprehensive home management. These are exciting prospects, to be sure, but with every new breakthrough, it seems, comes some major, unforeseen risk. And so it is with the brave new world of electronic information services.
U.S. District Judge Harold Greene, who originally ruled that phone companies ought to be prevented from monopolizing electronic information services, put the danger this way: “If the regional (Baby Bell) companies were permitted both to generate information and to transmit it, they would . . . appear to be the only entities in the developed world to have this kind of stranglehold on information.”
THE FEAR: The worry that phone companies will come to possess that “stranglehold on information” surfaced last summer and rumbled throughout America when the seven so-called Baby Bells were told by the federal courts that the flat ban against their involvement in the information business had been lifted. They had won the right to enter America’s homes not only as the transmitter of electronic messages, through their control of those phone lines, but also as the provider of that information. What happened was that an appeals court overrode the reasoned objections of Judge Greene, who personally oversaw the 1982 breakup of the AT&T; monopoly into seven companies and thus realized the danger of permitting the medium also to deliver the message.
That ruling stirred no one more thoroughly than the U.S. newspaper industry, which has launched a major counterattack in Congress. Hearings begin today on a bill to address some of the concerns of the newspaper industry--which has been joined by other interested parties, including consumer groups. It should be noted here, without equivocation, that this newspaper could be affected financially if a powerful competitor monopolized the electronic-information business. The Times offers electronic information services--sports scores, weather updates and the like--and plans to do more in this area.
However, what the newspaper industry fears is not competition but a stacked conglomerate deck--a fear based on two facts peculiar to the telephone business. One is that, economically, the profits of Baby Bells are guaranteed by government-established rates of return. With these guaranteed profits, paid for by consumers, they can divert some of this money and compete against companies whose profits are not guaranteed. As Greene said, “The consequence of such diversion would be to enable the company to undersell its independent rivals . . . long and effectively enough to drive them from the market.”
The second fact is that, historically, the business practices of some phone companies have been monopolistic. “In the opinion of this court, informed by over 12 years of experience with evidence in the telecommunications field, the most probable consequences of such entry by the regional companies . . . will be the elimination of competition and the concentration of the sources of information . . . in just a few dominant, collaborative conglomerates, with the captive local telephone monopolies as their base.”
THE RESULT: That’s precisely what could happen if the Baby Bells descend to business tactics to underprice their information services and drive other providers out of business. How could they do that? They could divert some of the money you pay on your phone bill to subsidize this budding new business. Or they could make it difficult, if not impossible, for other information providers to use their lines--the only way into your home. Or both. In addition to using some of the proceeds from your monthly phone bill money to lower their costs and drive many competitors out of the business, they could erect technological barriers to prevent those that remain from being able to operate effectively.
To fight this prospect, Congress is being urged to write a new pro-competitive, consumer-friendly law that will stop the Baby Bells from squashing competition. The proposed legislation--the Telecommunications Act of 1991 (H.R. 3515)--would not prohibit phone companies from entering the business. But it would provide for wise rules and fair regulations to maintain a level playing field. The phone companies, owning the wires and living off guaranteed profits, can tilt the playing field and roll everyone else off the edge. That’s why it’s noteworthy that Greene so fiercely criticized the mysterious retreat of the U.S. Justice Department, which recently withdrew its support for the phone company ban. Even then, when all but forced by an appellate court to lift it, Greene strongly argued that America was heading for serious trouble--because of, as he put it, “the elimination of competition” and “the concentration of the sources of information of the American people into just a few, dominant collaborative conglomerates.”
Defenders of the Baby Bells insist that such “protectionist fears” are simply excuses for standing in the way of progress. The issue isn’t progress but the concentration of power--basically it’s an antitrust issue. The questions for Congress are: Does America really want the Information Age handed to the phone companies on a silver platter? Is that what’s best for democracy?
There is a better way to handle this crucial information issue--passage of legislation that opens doors and windows, rather than closes them.
