Compelled Disclosure of Internet Interconnection Agreements Creates Anticompetitive Risks

by

Daniel A. Lyons * 

Federal Communications Commission Chairman Tom Wheeler recently announced that the Commission had requested, and received, copies of interconnection agreements signed between Netflix and Internet service providers Comcast and Verizon. Going forward, the agency intends to review copies of similar agreements "across the board" between content providers and ISPs. The Chairman explained that the Communications Act gives the Commission "broad authority" to review interconnection markets, although he stressed that for the moment, the Commission is merely "collecting information, not regulating."

This announcement has prompted renewed calls for the Commission to make these agreements public. Since Comcast and Netflix announced their interconnection agreement in February, some advocacy groups and technology reporters have asked that all network interconnection agreements be filed with the Commission and open to public inspection. Only by exposing the details of such agreements, they argue, can the public determine whether ISP business practices are reasonable or anticompetitive.

While transparency is often a laudatory policy goal, this proposal is misguided and may ultimately harm the very competition that proponents seek to protect. Requiring ISPs to disclose the terms upon which they sell broadband access to consumers, as the net neutrality rules do, is very different from mandating detailed disclosure of specific, confidential business-to-business agreements negotiated between sophisticated parties in a highly competitive interconnection market. It is a basic tenet of economic and industrial organization literature that sharing competitively sensitive information among rivals can facilitate tacit collusion.

The Supreme Court, antitrust authorities, and even the Commission have stressed that disclosure of price and cost information can be harmful to competition, especially in markets marked by significant barriers to entry. Because of this potential effect on competition, the Commission should reject calls to mandate the public disclosure of interconnection agreements and instead limit itself to investigating actual instances of suspected consumer harm.

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Economic theory, antitrust authorities, and empirical evidence all suggest that mandatory disclosure is unlikely to remedy potential anticompetitive conduct in interconnection markets. The publicly available evidence shows this is a vibrant, competitive marketplace in which content providers have myriad opportunities to bring their goods to consumers. Moreover, federal authorities have ample authority to investigate and, if necessary, prosecute specific interconnection practices that they believe may be anticompetitive. And antitrust law allows private plaintiffs harmed by allegedly anticompetitive practices to seek civil relief.

These judicial proceedings are a far superior method of unearthing and punishing anticompetitive interconnection practices. Through the discovery process, the relevant plaintiff will get access to the terms of the interconnection agreement and whatever other information it deems necessary to prosecute the case. But the judicial process provides significant protection, backed by the threat of contempt, to minimize the risk that competitively sensitive information will be made public. More importantly, it does not run the risk of being misused for anticompetitive purposes. The Commission should trust that process to police abuses. It should avoid the temptation to ignore basic economic theory, antitrust authorities, and its own prior conclusions in pursuit of a public disclosure regime that is likely to harm the very competition that it seeks to protect.