Regulators cannot foresee the future: they have to do the best they can, without knowing how the economic context surrounding the industries they regulate will change.
So it is not surprising that it sometimes is said that regulators are “behind the market,” or “behind the technology,” no matter how hard they try to stay current.
A couple of recent developments illustrate the problem. In the U.S. market, where Comcast wants to acquire Time Warner Cable, Comcast has proposed concessions to keep its video market share at 30 percent, the traditional level of market share beyond which market concentration and antitrust issues are raised.
Some argue that is the wrong test. Combining the nation’s two largest cable and Internet providers would create a company with 57 percent share of the market for high speed access service, now defined by the FCC as 25 Mbps or higher.
That matters because the linear video business widely is viewed to be under threat, while high speed access has emerged as the key or strategic service for any access provider.
In other words, if the video business is declining, it makes little sense to worry too much about market share in that business. If, on the other hand, high speed access now is the crucial service, it makes lots of sense to watch market share developments for that product.
To be sure, “defining the market” always is a key premise and assumption. In this case, one might argue it is video, voice, Internet access or triple play services that constitute the relevant market. Some might argue the market is “fixed network” services only, while others might look at all providers--whether mobile or fixed.
Regulators have been surprised before by fundamental changes in markets. In the period leading up to passage of the Telecommunications Act of 1996, the thinking was that the relevant market was fixed network voice.
Within four years, the voice market peaked, and has declined steadily ever since. Instead, it was the Internet, and services, business models and apps based on the Internet, that has become strategic.
To a significant extent, U.S. antitrust regulators have to make choices about what drives future competition: video or high speed access?
European Union regulators face a related problem: namely perceived Google dominance of the search market, and possibly the mobile operating system market as well.
Some of us would say Google’s search market share is a trailing indicator, not a leading indicator.
In other words, as was the case earlier when Microsoft was similarly investigated and fined, action assumed a linear continuation of alleged market dominance, instead of a market that already was peaking and headed for massive change.
In other words, a shift is likely already to be underway, rendering the danger of Google antitrust danger quite moot.
Whether the relationship was causal or simply correlated, the decade-ago investigation by the EU of Microsoft’s similar antitrust threat coincided with the emergence of a new era of computing, and computing industry leadership.
The problem faced by regulators and business leaders often is that strategies deemed vital at one moment in time can seem almost irrelevant a decade later.
Consider the launch of the Android mobile operating system by Google, seen in 2005 as an insurance policy against complete dominance in the mobile realm by Microsoft, with the danger that could pose for Google apps on mobile devices.
That was before the emergence of the Apple iPhone. A decade later, the strategic rationale arguably no longer has such potency. For starters, Microsoft Mobile is not a huge factor. Nor has Android proved to be the boon many might have expected. Android doesn’t directly generate revenue for Google, and “forked” versions of Android even are proving to be the foundation for new rival ecosystems (Amazon now, and possibly Microsoft and others in the future).
The Telecommunications Act of 1996 likewise was the first major revision of the Communications Act of 1934. Aiming to introduce competition in the telecommunications market, the Act focused on enabling voice competition.
More than a decade later, it is clear what really happened. Voice was about to reach its peak of adoption in 2000, to begin a steady decline. The Internet, meanwhile, emerged as the vital source of telecommunications-delivered applications and value.
The Act made sense at the time. But policymakers could not have foreseen the maturation of voice and its replacement by Internet apps as the source of innovation and growth.
It is very hard to make the right strategic decisions today, and have them remain relevant after a decade. Both the Telecommunications Act of 1996 and launch of Android were aimed at problems that did not materialize, or arose from unexpected directions.
