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Does SBC Have "Market Power"?

By now, everyone has read SBC CEO Ed Whitacre’s comments in Business Week, where he states that Google, Yahoo, and presumably all of the other providers of Internet services out there, should have to pay a toll to use SBC pipes.  Tom Evslin’s Don’t Buy DSL From This Man is the latest broadside.  Tom makes the point that we, and those services providers, have already paid for access.  Why does Ed Whitacre think we should pay again?

If SBC were to setup a toll booth on the Internet, would that be anti-competitive?  It certainly feels a lot like the situation in the 1800’s that led to the creation of US anti-trust laws.  At the time, railways were demanding steeper prices from some customers to transport their goods than others — specifically companies that were owned by those railways.  That was the genesis of anti-trust doctrine.  It seems logical that if SBC were to demand a premium to transport Google packets versus SBC packets on their network , that would be anti-competitive.

Of course, this is all moot unless it can be demonstrated that SBC is a monopoly — that they have "market power".  Market power is a fuzzy concept, but it basically boils down to an asssessment of whether control of a utility gives a vendor this ability to distort competition.  Consider the facts:

  • Historically, the telecom industry was considered a natural monopoly and regulated as such. Consequently, levels of market concentration and corporate behavior that would raise concerns in other industries were accepted outgrowths of this "natural monopoly;"
  • The industry is highly capital intensive. The large capital requirements associated with construction and operation of facilities served as a natural barrier to entry.  The Telecom Act demanded that others be given competitive access to those facilities.
  • Traditionally, the industry has been vertically integrated, with a single company serving within its boundaries as the sole or primary provider transport, access, and services. 

I’m just an armchair lawyer, but from my vantage point Whitacre’s statements appear to be those of a monopolist intent on using market power to price advantage vertically integrated services from SBC.

Update: more points of view on Tom’s post from

  • Richard Stastny  Note Richard’s choice of language, calling Ed Whitacre a "Robber Baron".  The same language was used to describe Rockefeller when Standard Oil was broken up. 
  • Jeff Pulver.  Jeff’s sanguine viewpoint is that Yahoo may not want to endanger their relationship with SBC by pushing too hard. 

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