Chapter 9: Antitrust and Information Policy

Antitrust and Information Policy

 Antitrust refers to government policy to regulate or break up monopolies in order to promote free competition and attain the benefits that such competition can provide to the economy and to society as a whole.

 Since the government’s rules inevitably affect industry participants, no executive in the network economy can afford to be ignorant of government information policy. As Jim Barksdale, CEO of Netscape, puts it: “Netscape joined the Technology Network because as an Internet company, we’ve observed first hand how government can help or hinder the technology industry. We’ve learned that working with the government is far more productive than trying to ignore it.”

Policy Overview

 There are three major themes, each of which raises questions for government policy:

 Differentiation of products and prices :The high first-copy costs of information and information technology inevitably lead to price and product differentiation. Strategies involving mass customization, differential pricing, personalized content, and versioning are natural outcomes in such industries. However, these strategies raise antitrust issues about fair competition. Is it discriminatory to charge different users different prices for essentially the same product?

• Strategies involving mass customization, differential pricing, personalized content, and versioning are natural outcomes in information industries. 
• Is it discriminatory to charge different users, different prices for essentially the same product?

 Lock-in : Since information products work together in systems, switching any single product can be very costly to users. The lock-in that results from such switching costs confers a huge competitive advantage on firms that know how to take advantage of it. This leads to concerns about the nature of competition. What tactics are counted as “fair” and “unfair” competition with lock-in? Will you be branded an aftermarket monopolist under antitrust law if you are the sole supplier to some locked-in customers? If you are such a “monopolist,” how will your strategic choices be limited?

• The lock-in supports a huge competitive advantage on firms that know how to take advantage of it. 
• What tactics are counted as “fair” and “unfair” competition with lock-in?

 Positive feedback : Positive feedback based on network externalities is ubiquitous in the information economy. Winner-take-all competition and standards battles are common as rivals vie for temporary market control. If you agree to cooperate with your rivals to establish standards, you run the risk of violating laws against cartels and of collusion. Alternatively, if you compete and win, you may be guilty of monopolization, depending on the tactics you employed to gain or keep control over the market. Even if you avoid antitrust entanglements, you may have to deal with regulatory agencies such as the NTC.

• Winner-take-all market. If you agree to cooperate with your rivals to establish standards, you run the risk of violating laws against cartels. 
• If you compete and win, you may be guilty of monopolization, depending on the tactics you employed to gain or keep control over the market.

Price Differentiation

 Differential pricing was a natural way to recover the high fixed costs of information and information technology. However, the Robinson Patman Act of 1936 says that such price discrimination is illegal if it “effectively lessens competition,” and many antitrust cases have been brought on these grounds. For example, a group of pharmaceutical drug manufacturers has been facing a massive antitrust action the past several years in part because they each set drug prices lower for hospitals than for retail drug stores. The Robinson-Patman Act has been widely criticized on both legal and economic grounds, but it’s the law.

 Don’t panic. Clearly, differential pricing is standard operating practice for information products. There are three primary legal arguments that render the vast majority of price differentiation immune from successful legal challenge:

 • You are allowed to set lower prices that result from lower costs.
 • You are allowed to set differential prices to meet the competition.
 • Differential pricing is only questionable if it “lessens competition.”

• Robinson-Patman Anti-Price Discrimination Act, “Price discrimination is illegal if it effectively lessens competition.” 
• The Act prohibits sales that discriminate in price on the sale of goods to equally-situated distributors when the effect of such sales is to reduce competition.
• It protects small businesses from being driven out of the marketplace by prohibiting discrimination in pricing, promotional allowances, and advertising by large franchised companies.
• From the economic point of view, the critical question to ask is whether differential pricing allows the producer to sell to markets that otherwise would not be served.
• If film producers had to set one price for first-run movies in all countries, only the high-income countries could afford to go to the movies. When they can set high prices for high-income countries and low prices for low-income countries, they are able to serve groups of consumers who would otherwise not be able to purchase the product.

Competition policy

 Most competition laws are pretty vague. The Sherman Act (1890) makes it illegal to “monopolize” a market. The Clayton Act (1914) prevents mergers likely to “substantially lessen competition.” FCC regulations refer to the “public interest.”
 The underlying principle guiding antitrust law is the protection of competition as a process. If a single firm is victorious and gains monopoly position based on offering low prices and superior product quality, the competitive process has worked just fine.

• First, the government can sit back and do nothing, recognizing that there are economies of scale on the supply and demand sides of the market and hoping that market forces will in time erode the monopoly power. Remember, it is not illegal to have a monopoly, only to “monopolize.”
•  Second, the government (or private parties) can attack the monopoly as illegally obtained. Monopolies obtained through acquisition, predatory pricing, exclusive dealing, or tying and bundling can be subject to challenge. In extreme cases, the monopolist can be broken up; more likely the suspect practices will be prohibited in the future or an acquisition or merger blocked.
• Third, the government can directly regulate the monopoly. This is the approach that has been taken for decades to the local telephone business as well as other utilities such as electricity. Regulation makes the most sense when the monopoly is unlikely to be eroded by entry or technological change.

• The Sherman Act (1890) makes it illegal to “monopolize” a market.
• The Clayton Act (1914) prevents mergers likely to “substantially lessen competition.”

• • Price discrimination, selling identical goods to different customers at different prices.
  • Tie-in contracts in which the buyer must agree to deal exclusively with one seller and not to buy goods from competing sellers. 
  • Interlocking directorships in which memberships of boards of directors of two or more firms are almost identical. 
  • Buying stock in a competitor’s company when the purpose of buying that stock is to reduce competition.

Telecommunications Regulation And Policy In Nepal

Telecommunication Policy, 2060 (2004)

Objectives

• The main objective of the Telecommunication Policy is to create favorable environment in order to make the telecommunication service reliable and accessible to all people at the reasonable cost throughout the Kingdom in collaboration with the private sector et.al in order to support the social and economic development of the country. The following objectives have been determined in order to give support for accomplishment of this paramount objective.
• In order to bring the access of general public of rural and urban areas of the Kingdom to the telecommunication service, arrangement shall be made in a manner that the telecommunication service shall be available within the shouting distance in the inhabitated areas.
• The telecommunication service shall be made available to meet the demand in the urban areas of the Kingdom. Arrangement shall be made in a manner that the corporate telecommunication service shall be available to the business areas.
• Opportunity shall be provided to the consumers of the urban areas to choose service from various providers. Arrangement of opportunity to choose service accordingly shall be gradually extended in the rural areas also.
• Arrangement shall be made for getting opportunity to use appropriate information and communication technology for areas.

Strategy

• Universal Access to the Telecommunication Service: The telecommunication service shall be extended for universal access. The telecommunication service shall be made available to the consumers through the medium of shared telephone. For this, emphasis shall be given for the extension of telephony as fixed, mobile, etc. For extension of service, satellite system may also be used. Other services relating to information and communication technology shall be made available through the medium of Community Centres.
• Universal Service Obligation: The telecommunication service providers shall be required to provide service to any consumer of the urban areas on demand.
• Development of Corporate Service: In the urban areas, arrangement shall be made to provide the leased line, data and other similar corporate services to the government entities and private business enterprises through more than one service provider.
• Liberalization of the Telecommunication Sector: The telecommunication sector has been fully opened for the service providers. However, the number of the service providers may be limited due to the radio spectrum. While providing directory service, the service provider shall be required to provide such service incorporating all consumers using the service.
• Open Licensing Regime to be Applied: The open licensing regime shall be applied for providing opportunity to all service providers to enter into the telecommunication sector. Transparent procedures shall be applied for granting such license. Moreover, an environment for healthy competition shall be created.
• Private Sector’s Participation to be encouraged: The private sector’s participation shall be encouraged for the telecommunication sector. Foreign investment shall be attracted. Arrangement shall be made to regularly inform the private sector about the particulars of reform undertaken in the telecommunication sector and about the opportunity available in this sector.
• To Enter into Information Society: By arranging other necessary prerequisites such as extension of telecommunication service and drafting of Cyber Law, Nepal shall be made to enter into the Information Society in an effective manner.
• Appropriate Information and Communication Technology for the Users of the Rural: Areas Appropriate information and communication technology shall be made available as per the capacity and need of the users of the rural areas. In this connection, the information and communication technology that do not require special training and literacy based on radio, television and telephone shall be made available in collaboration with the private sector et.al.
• Persons Who Are Engaged in the Development Activities Shall be Caused to Use Information and Communication: Technology Fully In developmental activities such as rural development and infrastructure building work in order to bring effectiveness, the governmental and non- governmental person and entity shall be made obligated to extensively use the information and communication technology such as Internet by developing necessary capacity up to the district and village level.
• Commercialization of the Nepal Telecommunication Corporation: In connection with the commercialization of the Nepal Telecommunications Corporation, the Corporation has been converted into a company and the ownership of His Majesty’s Government shall be gradually decreased. In order to enable it to face the increasing competition, various reform programmes shall be conducted to make the company proficient.
• Institutional Development for Implementation of Policy: The institutional development shall be gradually set up by increasing human resource and economic capacity of the Ministry of Information and Communication and the Nepal Telecommunications Authority for successful implementation of the Telecommunication Policy. In connection with the formulation and implementation of policy and law pertaining to the information and communication technology, role and responsibility of the Ministry of Information and Communication and the Ministry of Science and Technology shall be clearly defined by avoiding duplication.
• Economic Efficiency of the Telecommunication Sector: Emphasis shall be given to increase economic efficiency of the telecommunication sector by creating an environment that promotes healthy competition among the telecommunication service providers.

Telecommunications Rules/ Regulations, 2054 (1997)

Chapter – 3 Provisions relation to License

 Application to be submitted for License: (1) A person having capital, technical expertise and occupational competency within the time-limit set forth in a public notice published by the Authority shall submit an application also setting out the matters referred to in the notice, to the Authority, accompanied thereby the financial and technical study report on the telecommunication service which he/she desires to operate and operation plan.

• Capital, Technical Competency and Professional Efficiency Required to Obtain License:
• Matters to be Set Out in Financial and Technical Study Report and Operation Plan: The applicant shall mandatorily set out, the following:

(a) Amount required to operate the telecommunication service, (b) Investment capacity, (c) Telecommunication system, its quality standards and capacity, to be used for the telecommunication service, (d) If the land is to be acquired while operating the telecommunication service, that matter, and if compensation (muwabja) is to be provided, the amount of compensation, (e) If any agreement it to be made with any person or organisation, the matters of the agreement, (f) Mode of operation of the telecommunication service, (g) Amount of fees to be collected from the customers for the operation of the telecommunication service.

• Then the telecom provides or Issues the License:

Chapter – 4 Renewal, Amendment and Transfer of License

• Validity and Renewal of License- the license can be valid for the tenure of 5 years along with the facility of renewal on the basis of some fines and charges
• License may be Amended: The Licensee who deems it necessary to amend any matter mentioned in a License shall submit an application to the Authority in a format and amend accordingly.
• Sale or Transfer of License: (1) A person who desires to give or receive a License by conveying the title by way of sale or otherwise shall have to make a joint application to the Authority in a format for approval, setting out the mutually settled terms and restrictions.

Chapter – 5 Terms to be Abided by Licensee:

(1) The Licensee shall have to abide by the following terms, in addition to the terms set forth in the Act and these Rules:-

• (a) To provide telecommunication service to the customers by using machine and equipment on telecommunication of the quality standard specified by the Authority.
• (b) To operate telecommunication service in accordance with the minimum standard specified by the Authority from time to time.
• (c) Not to use the telecommunication machine and equipment installed by another Licensee without the consent of such Licensee.
• (d) To provide the telecommunication service in conformity with the agreement made with the customer, while distributing the telecommunication service to the customer.
• (e) To operate telecommunication service by using only the frequency specified in the License for the telecommunication service in which frequency is used.
• ( f) If the telecommunication service provided to the customer suffers disorder due to any reason, to repair and maintain it free of cost in conformity with the standards prescribed by the Authority.
• (g) To publish materials on telecommunication, including telephone directory for the convenience and information of the customers.
• (h) To operate the telecommunication service in conformity with the minimum standards prescribed by the International Telecommunication Union (I.T.U.) regarding the operation of the telecommunication service.