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net.wars: A merger too far

The sort of people who were scrutinized in the 2001 novel (later movie) Up in the Air and obsess over every little perk to which the number of miles in their frequent flyer accounts entitle them - Did they just let that no-status gate louse board ahead of me? Did he get seven salted almonds and me only six? - have spent some months mulling over the likely ghastliness of the proposed merger between US Airways and American Airlines. It would reduce the number of major legacy US carriers from four (Delta, US Airways, American, United) to three. It would likely be attended with yet more whittling at the value of those frequent flyer miles (I discovered this week a "free" transatlantic ticket now costs miles plus about $200 cash per person). For average consumer flyers, life would likely continue to get more expensive and much worse. As the Washington Post noted this week the ever more luxurious seating, lie-flat beds, and even private suites being installed for first-class passengers are squeezing the space out of economy class seats even while the passengers themselves expand. This is the hollowing out of the middle class as seen through the peculiar lens of air travel.

Just as some had begun focusing instead on the wifi and power outlets on AA planes, the Department of Justice filed suit to block the merger, citing, among other things, the airlines' own internal emails to explain why. The complaint (PDF) makes fun reading if you want to know what these companies really think about us, their customers.

The DoJ rarely brings an antitrust case it doesn't win - most recently AT&T's blocked 2011 acquisition of T-Mobile's US operation. So, despite the airlines' vows to fight, it seems likely that either they'll have to make some big, currently unimaginable concessions, or wave good-bye to their vision of higher ticket prices and gee, can we get away with a $100 charge for a second checked bag? During the Carter administration, when fellow former Cornell Savoyard, Alfred E. Kahn, began deregulating the airlines he called them a cartel, as he told IEEE Spectrum in 2002. The emails the DoJ quotes suggest their thinking hasn't changed much. (You have to love an airline CEO who documents his inclusion of extra legroom in the category of "stupid stuff".)

The early years of deregulation certainly created low-cost airlines such as Jet Blue and Southwest; but in very much the same pattern as the one we've seen since the 1984 AT&T break-up, consolidation since has returned the business to something like the state it was in before Kahn got busy.

Classically, there are two kinds of antitrust actions. The first - as in Standard Oil or the movie studios - breaks up content and distribution because owning both gives one company leverage to control the market. The second, as in the US/AA merger, blocks the concentration of a market into too few hands. For years I've seen network neutrality as conflict of the first type: cable companies like Comcast and Virgin sell both access and content; telcos like BT want to get into content provision, and Google is working on becoming a broadband provider. When you view network neutrality this way, banning servers, as Comcast long has for residential customers and Google Fiber was lately castigated for doing, is a perfect example. Residential broadband customers' economy connections allow them only to be consumers; to be a content provider either you pay more for a business service or you upload everything to a host that does it for you. Ultimately, the whole package of distribution and content in our field will be hardware, pipes (wireless or fixed line), and content. Of the four main companies placed to do this - Google, Apple, Microsoft, Amazon - Google is the closest to having the whole package.

But here's a question: what does damage look like in an antitrust action of the second kind with respect to the Internet? Take, for example, email. If average consumers can't run servers (imagining a world in which running your own mail server was a lot easier than it is right now), then they must rely on third parties. Chiefly, at the moment, that's Apple, Google, Microsoft, and Yahoo!. Consumers aren't paying in money for these services; they're paying in data - that is to say, privacy and control. While this week's fuss over Google's comment in a court filing that users have no expectation of privacy when they hand their data to third parties was probably overblown, there's a real issue there. Also this week, two privacy-protecting email services - Lavabit and Silent Circle were killed off, apparently to avoid having to comply with government demands. While that's not Google-Apple-Microsoft-Yahoo!'s fault, it means the opportunities for alternatives to pay-with-data services continue to shrink.

In the case of the airlines, anyone who flies can see what's happening to ticket prices and in-flight comfort. On the Net, will antitrust authorities understand that the price of free services must be measured in other ways? Will they understand the opportunity cost to consumers? We can only hope.

Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.