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sense as a matter of economic policy to foreclose the largest possible market for ISP competition,

particularly when doing so serves no good end.

C.

The Importance of Acting Now

66.

As we describe more fully below, there are those within the FCC who have

expressed the view that there is no reason for the FCC to address the open access question in the

context of this merger. The merger itself will not change the bundling policy of the existing

AT&T Cable Services network. Thus any problem with open access, some would claim, is not

exacerbated by the merger.

67.

This view misunderstands the potential for strategic action. If there are five

broadband cable networks, each acting independently, then the threat to innovation is less than if

these five broadband cable networks could act in unison. If they were independent, then the

decision of some networks to block certain kinds of Internet services would not necessarily

influence any other networks. Thus the threat to innovation would not be as great. Once the cable

monopolies can act together, however, and decision to discriminate would affect a larger section

of the market. The risk to innovation would therefore be much greater. Further, AT&T is

implementing its bundling policy now, and a firm stance in favor of open access by the FCC

could have a beneficial effect on AT&T’s policy, not only regarding MediaOne, but in other

markets as well.

68.

The “wait and see” approach also discounts the cost of regulating ex post. In its

present state, the ISPs that AT&T would rely upon are independent business units. If the merger

were completed, they could easily be folded into the resulting entity. Once integrated, the

IMAGE lem-les.doc06.gif

13Further, if bundling of broadband service is permitted for every network except those based on classic telephone
wires, eventually xDSL providers will have a strong moral case that they should not be subject to a restriction that

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regulatory costs of identifying non-discriminatory rates would be much higher than they would

be under the existing structure. Rather than the complexity that DSL regulation involves,

imposing a rule of open access now would be relatively less costly. The same is even more true

of independent ISPs. If the vibrant market for ISPs in narrowband access is weakened or

destroyed because they cannot provide broadband service, those ISPs and their innovative

contributions will disappear. If they do, we won’t magically get competition back by deciding

later to open the broadband market to competition.

D.

A Comparison to United States v. Microsoft1 4

69.

To see the significance of the threat in the context of broadband, it is useful to

compare the nature of the bundle at issue in this merger with the threat that the government has

alleged in United States v. Microsoftthat Microsoft poses. Obviously the two cases are different

in many ways. Microsoft’s operating system is far more dominant than is cable broadband

service. But the point of the comparison is not to equate the competitive threat of the two

services. It is to see the structural equivalence between the threats.

70.

The government’s primary claim against Microsoft is a charge of monopoly

maintenance. The argument is that Microsoft bundled its browser with its operating system, so as

to foreclose effective competition in the browser market, and thereby protect its monopoly

returns in the operating system market. The threat that the government claims Microsoft was

avoiding was the development of a robust application platform, built around Java technologies.

As the browser was the platform within which such applications could develop, it was important,

the government argues, to keep control of the browser market.

IMAGE lem-les.doc06.gif

does not burden any of their competitors.

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71.

The issues in United States v. Microsoftare extremely complex. No fair

consideration of the real issues in the case could conclude that either side has an easy argument.

But what is clear is that the behavior alleged against Microsoft is far less controlling than the tie

alleged here.

72.

In this matter too, the claim of those supporting open access is that

AT&T/MediaOne would be in a position to maintain monopoly power, at least over the video

market. Like the Microsoft case, this maintenance would be affected by keeping control over the

source of potential competition. In the Microsoft case, that was the browser; in this case, that is

ISP competition.

73.

But importantly, the level of control exercised by AT&T in this case is far greater

than the control Microsoft is alleged to assert. The government has never argued that Microsoft

totally disabled the ability of competing browsers to be installed on client machines; the most the

government alleged was that Microsoft made it difficult, or uneconomical, to load a competing

browser. Once properly installed, a competitor browser on the Windows platform works just as

well as Microsoft’s. Or more precisely, the government has not alleged that the platform disables

competitor browsers.

74.

In the case of cable broadband, however, the architecture does disable the relevant

competition. One simply cannot choose a competitor ISP as the primary ISP in the cable

broadband architecture, and thus one cannot choose a competitor to provide the primary ISP

services.

14 We note that Lessig served as special master in a prior proceeding between the United States and Microsoft, and
Lemley has served as a consultant to the Antitrust Division of the United States Department of Justice on the current
case. It is not our attention to offer here any opinion on the merits of either case.

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