What does Trump's Antitrust chief want? (Big issue 6-18-2019)

Who is Makan Delrahim? Is he for real?

Hi!

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Today I’m going to write about Makan Delrahim, the Trump administration’s Assistant Attorney General for Antitrust, and the man from whom much of the recent chatter over Google is emanating. He’s a relevant figure for the politics of monopoly, not just because of his position leading one of two key enforcers, but because he’s been recently making noise about big tech in a key speech last week in Israel.

Delrahim is an unusual enforcer, because he’s not really a litigator by training. He’s a lobbyist and a highly political operative. His formative work was probably in the late 1990s, when he worked as a Senate staffer for Orrin Hatch, who held an important committee hearing on Microsoft that helped damage the company as it was under pressure from antitrust enforcers. Delrahim was, unlike most Republicans from big law firms, an early Trump endorser, and he pursued the controversial AT&T-Time Warner case (which I thought was both a good case and dubious at the same time). Before he became the antitrust chief, he was in the White House and he was responsible for moving Neil Gorsuch onto the Supreme Court. And while the political staff he’s brought in is fairly libertarian, he himself has no clear ideology.

So this is the guy at the center of the big tech debate, or at least, at one center of the debate. Because if there’s one thing Delrahim is good at, it’s appearing like he’s the one making things happen.

I’m going to highlight the product markets he noted in Israel.

“The current landscape suggests there are only one or two significant players in important digital spaces, including internet search, social networks, mobile and desktop operating systems, and electronic book sales.  This is true in certain input markets as well.  For example, just two firms take in the lion’s share of online ad spending. 

Those product lines belong to Google, Facebook, Apple, Amazon, and Microsoft. And all of these product lines represent the business model of the post-1980 era, which is the capture and exploitation of bottlenecks to exclude competitors, achieve extra high profit levels, and gain the potential to leverage power into adjacent markets.

In this speech on big tech, Delrahim discussed three cases - Standard Oil, AT&T, and Microsoft, two of which resulted in a break-up and one of which resulted in significant structural changes in the industry. Alluding to these three cases is a strong hint that the division is gearing up to do something aggressive against the current gatekeepers to the economy, Google, Amazon, Apple, Microsoft and/or Facebook.

But this speech was also profoundly… weird. Because Delrahim has been a huge booster of big tech for most of his time in office. He’s given a series of speeches praising large technology companies. For instance, last year, also in Israel, he made the case that “Big Data does not systematically cause harm and can actually result in significant gains for consumers.” In February, he talked up the consumer benefits of big tech. And the DOJ, through its program where it gives advisory opinions to judges, has tried to shape the law in ways favorable to powerful technology companies.

The Pro-Delrahim Case

I was a proponent of Makan Delrahim when he was put into office, and I supported the case against AT&T buying Time Warner. While I didn’t think AT&T could achieve market power because it is a big lumbering company without obvious competitive advantages in the online advertising space, clearly the goal of buying Time Warner was to do just that, either through its cable network or the content it was buying. Challenging such a vertical merger was aggressive, and could lead to useful precedents. I also believed, and still believe, that the alternative to Delrahim would be a libertarian arsonist who would pour gasoline all over the Antitrust division, burn it down, salt the earth, and then, to add insult to injury, mock the mixed metaphor I just used in this sentence.

It’s also clear the division has been engaged in learning, with a series of workshops on online advertising. Delrahim noted in May that the big data model “circumvents content providers and targets individuals directly for advertisements,” which is a sophisticated way of recognizing anti-competitive behavior by Google and Facebook.

The last reason to be hopeful for Delrahim is that he is ambitious and wants to leave a legacy that is more assertive than that of the limp Obama-era enforcers. He wants to say that he is tougher, stronger, better, and more meaningful. He wants to mock their attempts to come up with technocratic settlements of antitrust cases and say he wants strong break-ups or merger prohibitions, the true conservative way to do antitrust. So maybe he gets it and is preparing to act.

The Anti-Delrahim Case

But there’s the ample room for skepticism. It’s pretty clear that Trump gave Delrahim room to go after AT&T-Time Warner, whether such room was explicit or implicit. And Delrahim’s argument that he’s concerned about vertical integration, which was his supposed rationale for the merger, falls apart when you realize he didn’t also challenge the CVS-Aetna vertical merger, and that he’s trying to retract the historic Paramount Consent decrees, which were a resolution to the famous vertical case in the 1940s that broke up the Hollywood ‘studio system.’

Another problematic aspect of Delrahim’s behavior at DOJ is the division’s support of Qualcomm, a former client of his. The Federal Trade Commission, the other antitrust enforcer, recently won a case against Qualcomm on its abuse of patents. Delrahim’s DOJ intervened in the case, or at least tried to, against the FTC. The DOJ has also filed a brief in favor of Qualcomm in another antitrust suit. Let’s just say that such actions induce… deep skepticism.

But the biggest reason for skepticism is the timing of Sprint-T-Mobile. First, while I don’t do a lot of telecom, this tie-up is a comically anti-competitive merger. There’s nothing complex about this one, it’s purely taking out one competitor in a market with four competitors, so that the combination can raise prices and cut output. Classic monopolization, not hard to prove, and in a market - cell phones - everyone understands. The DOJ Antitrust division staff is highly professional, and they’ve recommended to the front office that they oppose the merger. 10 state attorneys general are suing.

But Delrahim is likely to approve the merger, if Sprint and T-Mobile agree to sell off enough assets to create a fourth mobile competitor. This is, again, very weird. There are already four competitors. So the DOJ is willing to allow a merger to three if… that merger produces four competitors. This doesn’t make sense, until you realize that Softbank, which owns much of Sprint, is a big Trump ally, and that T-Mobile executives have been staying at the Trump hotel an awful lot. There’s a strong case to make that Delrahim gave his powerful speech on big tech to distract from him potentially clearing this outrageous merger. So that’s the case for real cynicism around Delrahim. I’m not saying it’s proven, but it’s also not unreasonable. But the real question is not whether one supports Delrahim or not, but how relevant he really is.

Is Delrahim in Control?

At the end of the day, I think the answer to this question is that Federal enforcers, including Delrahim, are losing control of antitrust enforcement. It’s not just that the main action is in Europe, where enforcers keep bringing suits, which upsets the insiders at the antitrust bar in the U.S. to no end. Oh the gnashing of teeth that they are no longer the cool kids in antitrust conferences and that Europeans look down on them, but this time with somewhat deserved snobbery.

The gears are moving domestically as well, finally. There’s a strong case that Delrahim’s speech in Israel on big tech, referencing Standard Oil and AT&T and Microsoft and the Greatest Hits of the Eagles: Antitrust Edition, is largely a defensive maneuver to retain his relevance in the face of several other important actors.

First, there’s new Attorney General William Barr , who understands antitrust, understands corporate power, and is a skeptic of big tech (or least was at his nominating hearing). That’s Delrahim’s boss.

Second, there’s Congress. Jerry Nadler and David Cicilline in the Judiciary Committee and its Antitrust Subcommittee, have launched Congress’s most far-reaching corporate investigation on technology in my lifetime, one that harkens back to the 1950s and Emanuel Celler’s great anti-monopoly subcommittee. This is putting enormous pressure on enforcers, who increasingly lack credibility as it has become obvious they only enforce the laws on Tuesday between 2-4pm, and then only the laws against teachers trying to come together to get raises or something.

But the most important reason Delrahim has lost control is because state enforcers are now coming together to act without him. The Sprint-T-Mobile case is largely led by Democrats in New York and California, but big tech is drawing concern from Republicans attorneys general. Last week, the Federal Trade Commission had a roundtable with state attorneys general, in which many of them attacked the power of of big tech, particularly on grounds of privacy and monopolization of ad markets.

The rhetoric was assertive. Nebraska AG Doug Peterson put it, “"What we need to do as attorneys general is, to steal a motto from a company, I think we need to move fast, I think we need to be very thorough and thoughtful, and once we gather the information necessary, we have to consider whether or not to break things." In other words, bring a case, Delrahim, or we will do it without you.

So Delrahim now has to face losing his leadership as the head of antitrust in America. If the major merger case of Sprint-T-Mobile is led by Dem state AGs, and a case against Google is led by GOP state AGs, Federal enforcers will be humiliated. And rightfully so.

What’s the likely outcome? My guess is that Delrahim will try, as operatives do, to thread the needle, and bring a case or two against big tech. But these cases will be narrow and target specific anti-competitive practices, probably excluding competitors in certain markets. I doubt he’ll try to break up big tech, but the problem is going to keep getting worse until someone does just that. Delrahim will do more of a catch and kill, or an attempt to blunt the momentum others are offering in this debate. But he’s unpredictable. Certainly AT&T-Time Warner was aggressive, and he does go big, he will be remembered as one of the most important antitrust enforcers ever to occupy the office. And that has to appeal to Delrahim’s sense of self.

Anyway, that’s my sense of what he wants, and where he’s at. I’m hopeful, because he’s someone who can do the right thing and smart enough to know how to sell it politically. I don’t trust Delrahim, but he can earn my respect if he acts aggressively, as he did initially in his term. He’s not a bad Assistant Attorney General for Antitrust at this moment, he’s not in control of the environment anymore, and he knows it. Hopefully Delrahim reacts by showing leadership, and going big. That will help him, help our world, and help create healthy markets for all of us.

Thanks for reading, and if you have any questions or comments, email me at stoller @ gmail or DM me at @matthewstoller.

cheers,

Matt