I've written a long article this morning for CNET (See "Privacy panic debate:  Whose data is it?") on the discovery of the iPhone location tracking file and the utterly predictable panic response that followed.  Its life-cycle follows precisely the crisis model Adam Thierer has so frequently and eloquently traced, most recently at the Technology Liberation Front.

In particular, the CNET article takes a close and serious look at Richard Thaler's column in Saturday's New York Times, "Show us the data.  (It's ours, after all.)" Thaler uses the iPhone scare as occassion to propose a regulatory fix to the "problem" of users being unable to access in "computer-friendly form" copies of the information "collected on" them by merchants. 

That information, Thaler assumes, is a discreet kind of property and must, since it refers to customer behavior, be the sole property of the customer, "lent" to the merchant and reclaimable at any time.

Information can certainly be treated as if it were property, and often is under law.  Personally, I don't find the property metaphor to be the most useful in dealing with intangibles, but if you're going to go there you need to understand the economics of how information behaves in ways very different to physical property.  (See my chapter on the subject in "The Next Digital Decade.")

Thaler's "proposed rule" is wrong on the facts (he doesn't seem to know how cell phone bills really look, and he certainly doesn't understand how supermarket club cards operate--and these are his leading examples of the "problem"), wrong on the law, and even wrong on the business and economics.  (Other than that, it's a pretty good article!)

This kind of intellectual frivolity is par for the course with many academic economists.  Thaler is at the University of Chicago's business school, and describes himself as an economist and behavioral scientist.  That means instead of throwing around calculus all day, he devises toy experiments with a few subjects--or reads the findings of other behavioral scientists who have done the same.

Not only is the article bad privacy policy, it's bad economics.  The latter is certainly the more serious concern.  Nearly 70 years after Ronald Coase called on economists to put down the pencil and paper methods and do actual empirical research in how markets actually work, the profession has if anything become more insular.  There are exceptions, of course, but they stand out in a field of mediocrity.

Which is too bad.  We need good economists now, more than ever.




Following AT&T’s announcement last month of its planned acquisition of T-Mobile USA, pundits and other oddsmakers have settled in for a long tour of duty. Speculation, much of it uninformed, is already clogging the media about the chances the $39 billion deal—larger even than last year’s merger of Comcast and NBC Universal—will be approved.

Both the size of the deal and previous consolidation in the communications industry lead some analysts and advocates to doubt the transaction will or ought to survive the regulatory process.

Though the complex review process could take a year or perhaps even longer, I’m confident that the deal will go through—as it should. To see why, one need only look to previous merger reviews by the Department of Justice and the Federal Communications Commission, both of which must approve the AT&T deal.

Critics of the deal argue principally that a reduction from four national wireless carriers to three will create grave risks to competition. But Justice and the FCC have consistently rejected such simple-minded analysis. Instead, as consent decrees for several wireless mergers over the last decade--under Democratic and Republican administrations—make clear, both agencies approach the unique economic features of mobile communications with more subtle tools.

For example, both Justice and the FCC have consistently concluded that wireless markets are essentially local. Their competitive analysis—the key in reviewing horizontal mergers of this type—therefore focuses on the choices available to consumers where they buy wireless service; typically where they live, work or shop.

In today’s dynamic mobile industry, some national wireless carriers are strong in some cities or rural areas and weak or absent from others. Beyond the national carriers, lower-priced providers including MetroPCS and Cricket, as well as established regional companies including US Cellular, are strong in local markets. The Justice-FCC market analysis will consider market structure at the local level, counting all providers who are genuinely competitive.

The discussion so far about market concentration levels—measured by the Herfindahl-Hirschman Index, or HHI—ignores the more detailed analysis that the DOJ and the FCC have performed for past mergers including Sprint-Clearwire and Verizon-Alltel (both in 2008).

HHIs are commonly used as starting screens to identify markets where anti-competitive effects might result. But the two agencies have historically concluded that anti-competitive effects will occur only where concentration is especially high--at levels of the HHI well above the published estimates for the AT&T-T-Mobile deal in most markets. In particular, the focus has historically been on local markets where the merger would result in too few remaining competitors. In those markets, local divestitures have been required.

On that analysis, AT&T probably will be required to divest some consumers in some local markets, but fewer than would result from strict application of the high-level HHI screens.

The FCC must also consider potential benefits of the deal that improve the ‘‘public interest."  Here, the agency will take into account serious capacity constraints both AT&T and T-Mobile are already experiencing on their networks. AT&T argues the merger will allow it to optimize scarce spectrum, improve network performance and quality, and accelerate deployment of nationwide mobile broadband using LTE technology, including expansion into rural areas.

The FCC and DOJ will require evidence to support these claims, of course. But assuming AT&T can back them up, they constitute strong public interest benefits.  After all, these are all goals the FCC itself established as part of last year’s National Broadband Plan. Likewise, as part of its evaluation, the DOJ will consider these and other claimed synergies as pro-competitive efficiencies produced by the merger.

Finally, that the deal is being vigorously opposed by some competitors—notably Sprint—actually helps AT&T’s case. Antitrust enforcers are understandably skeptical of claims by competitors that a merger will hurt them. Why? If a merger leads to higher prices for consumers, competitors such as Sprint would actually benefit. So when a competitor complains a merger is anticompetitive, the agencies take that as evidence the deal will in fact produce a stronger rival. And a stronger rival is good for consumers.

In the end, Justice and the FCC will have to weigh the competitive risks of further consolidation against the benefits for American consumers of improved service and accelerated deployment of nationwide mobile broadband. If history is any guide, the merger will ultimately be approved with specific conditions, including divestitures, to ensure that local competition is preserved even as national benefits are achieved.

That, of course, assumes the agencies follow their own best practices and not naysayers who can only count down from four to three. Let’s hope they do.

Reproduced with permission from Daily Report for Executives, 69 DER B-1 (Apr. 11, 2011). Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033)


On Forbes this morning, I analyze the legislative and judicial challenges to last year's FCC Open Internet rules, the so-called net neutrality order.

Despite the urgency of Friday's budget machinations, the House took time out to pass House Joint Resolution 37, which "disapproves" the FCC's December rulemaking. If passed by the Senate and not vetoed by President Obama, HJR 37 would effectively nullify the net neutrality rules, and ensure the FCC cannot pass alternate versions of them absent new authority to do so from Congress.

Most commentators believe that the House action was merely symbolic. Passage in the Senate requires only a simple majority, but the neutrality fight has turned violently partisan since the mid-term elections and getting a few Democratic Senators on-board may be hard. More to the point, the White House last week pre-emptively threatened to veto the resolution.

As I've noted before, however, net neutrality could still become a casualty of more important compromises between the White House and Congress. Last week, Politico reported that undoing the FCC order was one of the policy riders Republicans were still pushing. Today's draft budget bill doesn't mention that provision, but the budget fight isn't over.

Still, it seems more likely that the real challenges will come in the courts. On that front, the D.C. Circuit last week rejected lawsuits filed by Verizon and MetroPCS as premature (the new rules are still not published in the Federal Register, and the reasons for the delay are unclear).

The two companies will surely try again, though the dismissal of their first efforts means the case could wind up somewhere other than the D.C. Circuit. Given the strong decision against the FCC in the Comcast case last year, the general consensus is that the D.C. Circuit is the court most likely to rule against the FCC's thin arguments for authority to issue the rules in the first place.

Larry will participate in a Congressional staff briefing on COICA and domain name seizures next week at the National Press Club.  The event, "What Should Lawmakers do About Rogue Websites?", is sponsored by the Competitive Enterprise Institute and TechFreedom.

The topic is especially timely.  The Department of Homeland Security continues its legally-dubious seizure of domain names as part of "Operation in Our Sites" and other efforts, and Congress seems poised to re-consider the COICA bill, which would give the Department of Justice new powers to seize foreign domain names and force third parties, including ISPs, domain name service look-up providers, and credit card companies to block sites deemed to be "rogue."

While copyright and trademark abuses are significant problems on-line, suspending the U.S. Constitution to fight them is no solution.

Details are available here.  Attendance is free and open to the public, but RSVP is required.