August 6, 2009 5:40 PM

The FCC's Inscrutable "Screwtape" Letters

Last Friday, it was reported that the FCC sent a series of letters to Apple, AT&T, and Google reacting to an item reported in the New York Times that Apple, through its iPhone Apps Store, had refused to carry "Google Voice" (a call management application).  "Google Voice" (GV) is still available to iPhone customers by using the Google search engine on their iPhones, so I'm not completely sure what the disadvantage is to Google by not being allowed to "retail/give away" this application in the Apple "Apps Store" (but we'll assume there is some disadvantage because Google asked for "retail" placement, and was denied).  Nonetheless, as TeleComSense noted only a few weeks ago, in the unregulated world, the Supreme Court has only reluctantly found a duty to deal, even by dominant firms

Each letter asked different questions, depending on the firm being asked, about the episode in question--Apple's refusal to carry the GV application, AT&T's relationship to Apple and the decision to not carry the application, and Google's efforts to get its GV application placed in the iPhone Apps Store.  Now for the context that makes me "complexed" (so completely perplexed that I have an inferiority complex) about the FCC's letters--the explanation of why they are so inscrutable (we'll get to the Screwtape reference later).

As an initial matter, I'm confused about agency jurisdiction: is the FCC trying to assert jurisdiction over the consumer electronics/applications/mobile operating systems industries?  Based on the agency-to-agency precedent, this seems like a losing bet.  After all, there is no doubt that the FCC has some authority to regulate the Internet, and browsers are central applications for navigating the Internet, yet the Commission correctly chose to play no role in the late '90s Microsoft case in which browser access was a critical component.  In short, if the government cares about the issue, the other enforcement agencies have much more powerful medicine to deal with the problem. Moreover, right now, both the United States (USDoJ Antitrust Division) and the Federal Trade Commission have each asserted jurisdiction over the practices of one, or both, applications providers.

First, the FTC is in the middle of a well publicized investigation into interlocking directorates between Apple and Google (a potential violation of Section 8 of the Clayton Act).  Despite the fact that Google CEO, Eric Schmidt resigned from the Apple board on Monday (possibly as a consequence of these letters), another director still remains on both boards.  Moreover, the FTC's investigation was ongoing on the date the letters were sent. 

Second, the August issue of Wired Magazine had an extensive article describing the concerns of the Antitrust Division about Google's growing market dominance, both under the Bush and Obama administrations.  Christine Varney, the current AAG for Antitrust, expressed concern about Google's growing market power both before she was AAG, and after becoming AAG.  Similarly, the article even described (former Bush AAG) Tom Barnett's concern about Google's market power in the context of the proposed Google-Yahoo joint venture.  This in itself is astounding, because this is one of the precious few--if not the only--deal that Barnett challenged when acting as AAG (though this was hardly a bold move, as 15 states also supported the decision).  In short, when Tom Barnett tells you your deal raises anticompetitive concerns, it's a little like Amy Winehouse telling you that heroin might not be "right for you" (to use the parlance of the prescription drug TV ads).  In other words, the deal would be downright toxic for any normal antitrust enforcer. 

So, jurisdictionally, I don't really understand the basis for the letters--as they, at least explicitly, claim to be concerned about a potentially exclusionary practice in the consumer electronics/wireless applications/mobile operating systems industries--industries that are normally policed by the Antitrust Division or the FTC.  It seems unlikely that the FCC cleared its letters with the FTC or Antitrust Division, because the letters appear to take a pro-Google slant, and it is doubtful that the Antitrust Division would believe Google needs another federal agency to act as a "bully-boy" for Google to ensure that Google's applications were supported by an operating system that pre-dated Google Voice's entry into the mobile operating systems market, especially given that Google's success in getting its own Android operating system on entire mobile networks (e.g., T-Mobile and Sprint) vs. particular handsets will quite possibly allow Google's Android mobile operating system to surpass Apple's in the near future.

But, here's where the "Screwtape Letters" analogy comes in to further "complex" and confound me.  As those of you who went to Catholic high school might know, the Screwtape Letters were a work by the famous author C.S. Lewis, who describes the counseling of a senior demon (Screwtape) to his nephew, Wormwood, a junior tempter in Hell.  Screwtape provides advice on how Wormwood might succeed in persuading humans to orient toward sin and away from their faith in God. 

What does this have to do with the FCC letters?  I don't know, but, if you game it out--from each letter recipient's standpoint--none of the letters can be what they claim to be.  They seem to be a "temptation" to lead toward an outcome other than the stated interest of the letters.  Perhaps classification of VoIP traffic, at least for some purposes?  What's so puzzling about the letters is that each recipient's response seems predictable, except Google's response--and, if you think about Google's possible responses, there doesn't seem to be a lot of upside for Google; though at first blush, one might think the letters were sent at Google's urging.  Let's go through the scenarios quickly.

AT&T will, presumably, say what they have always said--and been criticized for--that Apple controls the Apps Store and makes all the money off of the apps sold through the Apps Store.  See, previous post on the "tao" of handset exclusivity and consumer welfare.   This same debate has also arisen in Europe between operators and device manufacturers.  Apple will either not answer, because they are under no compulsion to do so, or they will provide a curt response explaining that they have no obligation to deal with a larger competitor in the market for mobile handset operating systems--especially when Apple, as a relatively recent entrant into the market for mobile operating systems, was essentially tied for fourth place (with Linux) in 2008, well behind Symbian, Research in Motion, and Microsoft Windows Mobile.  See table 4 in the highlighted link.  Additionally, it would be fair to assume that the 2008 mobile operating system market shares undercount the current position of Palm OS with the success of its Palm Pre, and, of course, the Google Android system, which was only released in the last two months of 2008.

So, this leaves us with Google's response.  Since the FCC appears to be the only sympathetic regulator to Google, Google will respond.  But, however, Google's response must stay consistent with its advocacy at the FCC.  Just two weeks ago, Google told the Commission that it should assure the public that the software applications marketplace (including, presumably, Apple's App Store) would remain unregulated, and that it would be unlawful for the FCC to even attempt to regulate this market.  See pp. 24-25.

The Commission, in its letter, presumes GV to be an "application" (which would imply the Commission believes GV to be an "information service" and not a "telecommunications service").  Google itself describes GV as an "application" that offers, among other things, "a service to make low priced international calls."  The Act defines a "telecommunications service" as the offering of telecommunications for a fee to the public.  So, Google doesn't have a good way out--other than to go along to get along, and describe their service as a VoIP application--part of a market (in which Apple also participates), but that Google has said should not be regulated by the Commission.  So, unless GV is an unregulated application, then Google gets stuck with its product  regulated as a "telecommunications service" and their "low priced international calls" just got a little higher priced (access charges . . . they do take a bite, don't they?)  Given that Google must walk a very delicate line in its answer, it seems puzzling, if not downright implausible, that Google would have encouraged the FCC to send it the letter it received.

So, if there is no "win" (improvement over the status quo) available to any recipient of the letters,  what is the FCC's real interest in sending out the letters?  To apply the FCC's Broadband Policy Statement to the wireless Internet ecosystem writ large?  Maybe, but even for wireline, the broadband principles were heavily caveated.  After all, if you wanted to use Safari as your browser in 20054, then everyone knew you should probably be buying a Mac and not a Windows computer.  In other words, it wasn't the network operator's fault if your preferred application worked best on one piece of hardware vs. another.  Why didn't the FCC send letters to the much larger Nokia/Symbian and Microsoft/Windows?

As I said, I'm complexed out on this--an embarrassing position to be in for a self-proclaimed smart-guy.  But, while I don't know the purpose of these letters, I refuse to believe that the purpose is what the FCC says it is.  If it is, then the juice was not worth the squeeze. 

No, no, I prefer to attribute a higher, more noble (though more conspiratorial) purpose to the letters.  It is much more comforting for me to believe that some "Uncle Screwtape" had his "Wormwood" send out a temptation for all the high-tech lords to declare Google Voice to be a wireless information service, and then apply this definition to the wired broadband network in solving the classification of VoIP to eliminate this nasty obstacle to the creation of the national broadband plan. 

So, smartguy, you were wrong about Apple -- they did respond. And who knows if you were right about Google, since they didn't think the rest of us have any right to know their answer. But given AT&T's response, I'd say T is a definite buy. AT&T's innocence should put net neutrality on the back burner, unless they decide to extend it to hardware and software providers.

F. Zappa | August 25, 2009 9:21 AM | Reply

Leave a comment