Daniel F. Spulber Northwestern University From the MFJ to Trinko: Regulation versus Antitrust and the Essential Facilities Doctrine Daniel F. Spulber Northwestern University

Trinko Compelling access to essential facilities reduces dynamic efficiency Division of authority between regulators and antitrust courts -- rejects the court’s capacity to oversee mandated access

Regulation versus antitrust In the wake of the MFJ, there is a confusion of roles Regulation of telecommunications becomes a method of actively promoting competition – FCC and Telecomm Act Antitrust policy and consent decrees as a form of ongoing regulation

Regulation versus antitrust Promoting of competition differs from deregulation because policy makers try to influence the outcome of competitive markets – effects of Telecom Act 1996 Regulation by antitrust can impede entry and innovation in competitive markets -- development of telecom industry

Shift of regulation to access regime Access to networks of incumbent carriers in telecom Creates “incumbent burdens” MacAvoy and Spulber Leads to “deregulatory takings” Sidak and Spulber Jeremy Rifkin, The Age of Access (2000). Parallels: trackage rights in rail, access in transport in natural gas pipelines, compulsory licensing of intellectual property

Transactions-based approach to access – Spulber and Yoo Retail access – transactions between network firms and retail customers Wholesale access – transactions between network firms and resellers Unbundled access – transactions between network firms for leasing network elements such as lines and switches Platform access – the set of transactions between network firms and suppliers of complementary services, such as programming on cable networks or Internet content providers Interconnection access – transactions between network firms for origination, termination and transit of transmissions.

Classification of types of regulated access to networks Retail access (final customer A) B Interconnection access (Reciprocal connection of networks I and II) Wholesale access (wholesaler B and final customer A) Unbundled access (for competitor C) Platform access (for final customer A and supplier of complements B) I II Classification of types of regulated access to networks Spulber & Yoo, Networks in Telecommunications: Economics & Law, Cambridge University Press

Access and antitrust Classification of types of access is useful in sorting out regulation and the 1996 Telecom Act Classification of types of access yields insights into antitrust – particularly the essential facilities doctrine Each type of access has implications for network design, operating costs, and transaction costs

Access and antitrust Retail access Wholesale access No application of essential facilities doctrine or antitrust generally Wholesale access Manufacturers can enter into exclusive contracts with retailers Trinko Court on Aspen Skiing – no duty to sell to competitors at wholesale prices Interconnection access MCI sought to connect to AT&T After Trinko, little support for interconnection access in antitrust

Access and antitrust Platform access MCI-AT&T involved platform access to local network for complementary services Equal access to local phone system part of the MFJ At issue in the Internet network neutrality debate Mandating platform access will reduce efficiency and innovation Multiple transmission modes should limit application of antitrust

Access and antitrust Unbundled access Network elements as essential facilities Disruptive form of access in managing a network Difficult for courts to administer Trinko Court: Compelling telecomm “firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.”

Coasian analysis Networks can be structured through coordination of physical facilities owned by the firm or market contracts between network firms Boundaries of networks depend on the relative costs of internal coordination versus the transaction costs of access

Overview Access should be based on market contracting Mandated access through regulation or antitrust affects efficiency of access contracts between network providers Access regulation and antitrust affect efficiency of the structure of networks