Ad Blockers, AT&T and Weird Antitrust Questions

Chrome’s new ad blocker raises antitrust concerns; a new consumer right to control grounded in an old AT&T rule may help

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On February 15, Google’s Chrome browser began blocking certain types of advertisements. Many news outlets have raised legitimate concerns about the limited scope of Chrome’s new ad blocking efforts in addition to the “process” through which Google arrived at its implemented solution (the process was basically this: Google creates “Coalition for Better Ads”; Google performs research about most annoying types of ads for new Coalition; Google “forgets” to test annoying pre-roll YouTube ads in research; Google blocks 17% of ads tested; Google will not address issue of user tracking, raising privacy concerns).

Many of the reactions to Chrome’s ad blocker have suggested potential antitrust issues associated with the internet’s biggest advertiser using its market-leading browser (59% of internet users use Chrome) to dictate which ads are shown to users. And they’re right: Google didn’t test YouTube’s pre-roll ads in its initial “research” even though the Coalition has said these are “least preferred” and Chrome’s ad blocker has set out to block other such pre-roll ads. There’s an argument to be made that this is an anti-competitive move by Google, leveraging its market dominance to suppress competing advertisers.

If it looks like a banned ad and smells like a banned ad, it’s probably just one of those annoying YouTube ads that Chrome conveniently forgot to block.

But hey, I don’t really like ads and neither do you, so what’s the harm? Besides, Google is only banning the most egregious ads and gave advance notice to the offending websites. There’s clear consumer benefit to reducing the ad load on any given page, so good on Google for leveraging its market power true to its “don’t be evil” mantra. Still, Google’s move has the net result of restricting the overall supply of ads on the market, which could result in higher ad prices for advertisers. This is perhaps the most direct antitrust argument to be made, as U.S. antitrust law relies on a monopolist using its market power to raise prices or exclude competition to the detriment of consumers.

But there’s another, perhaps more insidious, antitrust claim to be made against Chrome’s ad blocker: that it’s attempting to suppress the business of other ad blockers that block ads more aggressively. For example, Ghostery prevents user tracking (snippets of code built into countless web pages that track your behavior across the internet so more personalized ads can be served), while popular Chrome Extension Ad Blocker Plus blocks 91% of the ads tested by the Coalition (remember Chrome blocks 17%). 26% of desktop users are already using ad blockers, but if Chrome comes with a default ad blocker, users may be less likely to download the more extensive blockers, protecting Google’s ad business.

What can Ma Bell teach us about ad blockers?

For much of the 20th century, the AT&T monopoly barred consumers from attaching anything but a Bell telephone to the network, claiming it could harm the network and result in a general deterioration of phone services.

This finally changed in 1956, when the D.C. Court of Appeals (a v big deal) said a telephone user had a “right reasonably to use his telephone in ways which are privately beneficial without being publicly detrimental.” Deregulation continued after this decision, as the FCC ordered AT&T to allow users to connect any devices that complied with basic rules.

Hush-A-Phone? Hush-A-No, AT&T says (until 1956 when a court said telephone user has the right to reasonably use his telephone in ways which are privately beneficial without being publicly detrimental).

This concept was further extended in 1968 with the Carterfone rule. In Carterfone, AT&T again wanted to prohibit users from connecting some device called a Carterfone to the network, claiming total control of all connected devices was necessary for a properly functioning network. The FCC struck down AT&T’s rule as “unduly discriminatory”, giving consumers the right to attach “any lawful device” to the network. This right to attach devices has been called the “fundamental consumer right in telecom” and has had tremendous consequences. It led to increased competition in the phone market, but, more importantly, spurred incredible innovations: the fax machine, the answering machine, and the modem. The ability to build a device to a standardized network interface (the phone jack) gave birth to a new market in home and business telecommunications equipment. The Carterfone rule spurred an era of decentralized innovation, removing AT&T (and Bell Labs) as the bottleneck through which all new equipment flowed.

Carterfone drew a line in the proverbial sand, over which AT&T could not cross and consumers had control. Tthe significance of decentralizing the ability to innovate on top of existing platforms cannot be understated: for instance, the development of the modem post-Carterfone led directly to the rise of the internet in the 1990s.

Out with Ma Bell, in with Ma Google

This brings us back to Google and its effort to dominate markets adjacent to its existing search and browser business. Unlike AT&T, Google is not arguing that it needs to be the only ad blocker on Chrome. In fact, pretty much anyone can create an ad blocker or Chrome extension, and save for isolated reports of Google removing ad blockers from the Chrome Store or Google Play Store, the market remains relatively open. But, by providing a free default option on the most popular web browser, Google can make it awfully difficult for other, more comprehensive (and thus, damaging to Google’s ad business) ad blockers to compete, perhaps achieving the same end result as AT&T. This is especially tricky because a default ad blocker makes Chrome better for users; those that want a better ad blocker can still download one. But this is essentially Google’s argument for every antitrust claim: “Bing is just a click away!”; “Firefox is just a download away!” etc. etc. Yet here we are, with Google building a monopoly in both search and browsers, leveraging the latter to further solidify its digital advertising duopoly.

This forced tying of products together is what often gets monopolies in trouble with the law, in one way or another. AT&T’s attempt to force consumers to buy its own phones and network attachments was eventually deemed unreasonable and unnecessary by the FCC. Similarly, Microsoft’s attempt to bundle Internet Explorer with the OS eventually caught the DOJ’s attention, leading to a landmark antitrust case. And now Google is attempting to leverage its browser to squeeze the ad blocker market. There’s a pattern here: in each case, the monopolist is attempting to leverage its market power to own the portion of the market the consumer interacts with directly. As technology evolves, this consumer-interfacing layer moves up the stack, increasingly abstracting itself from the physical world and leaving monopolists attempting to pivot to catch up. Meanwhile, consumers simply want a right to control the way in which they interact with the underlying network:

With phone networks, consumers wanted the ability to attach any physical device to the network

When Microsoft’s OS became dominant and the internet’s rise became apparent, consumers wanted the ability to download any browser (or more broadly, any application)

As Google’s browser became dominant, consumers wanted the ability to visit or use any site on top of it (including using any ad blocker)

Other examples can be given, but the pattern is clear: as technology advances, a new consumer-facing layer emerges, and monopolists in the previous consumer-facing layer attempt to leverage their market power to dominate the new market. In the end, this can stifle consumer choice and innovation.

A new consumer right of control

If the Carterfone decision really is the “fundamental consumer right” permeating telecom policy, it’s time internet users are granted a similar right providing open access to networks or platforms, guaranteeing choice. Carterfone provides a logical framework for crafting this consumer right, as it should stand for something larger than an “attachment right”. More broadly, Carterfone stands for the principle that consumers should have complete control and true choice in the consumer-facing layer of the technology stack. Existing monopolies should be deemed prime facie anti-competitive if they leverage an existing monopoly in an attempt to dominate an emergent consumer-facing layer.

In Carterfone, the FCC drew a line over which AT&T’s (Bell’s) monopoly could not extend. It’s time they do the same for Google, granting consumers a right to control the top layer of the technology stack.

Currently, this is a difficult standard to implement: AT&T was a government-sanctioned monopoly, and thus the government could determine the rules of the road. Microsoft’s anti-competitive behavior in the browser industry were only combatted by a multi-million dollar antitrust case. But, it’s absolutely critical that the consumer layer of any technology stack remains open and decentralized. Not only does it grant consumers choice, but it is effective innovation policy. After Carterfone, innovation was unleashed, leading to a boom in inventions leveraging the phone network in ways never dreamed of before. So it was for Microsoft OS applications: an open development environment led to a boom in third-party applications. But Microsoft’s anti-competitive move into the browser industry put all that in jeopardy, threatening to create “walled gardens” of internet content. Google’s move threatens the same, albeit by squeezing out other ad blockers.

Luckily, anti-competitive moves such as these usually signal a broader secular challenge to existing monopolies and their business models. They usually hint at a deeper inability of the monopoly to innovative or expand beyond its existing business model. For Google, this means an inability to generate revenue beyond its core advertising business. And why would they? Advertising has built a company with nearly $800 billion in market cap. But the next paradigm shift (decentralized networks/ blockchain?) will require a fundamental shift in thinking—a thinking that is orthogonal to Google’s current business model. This is the fundamental nature of disruption: new startups are able to pursue emerging technologies by aligning their business models to the new paradigm, unseating monopolies previously thought impervious to competition.

Additionally, there’s been increased pressure on these advertising-driven monopolies (namely Google and Facebook) to change their ways. Perhaps consumers will lead to the demise of today’s centralized monopolies before the government gets to them. In the meantime though, it’s worth contemplating the benefits of a new consumer right to control the top layer of the technology stack.