displaying 6 - 8 blog_post in total 8

Android antitrust should be seen from careful, multifaceted views

2016-08-06 13:53:55 0 comments

Jung-Haeng Lee (Co-Founder and Developer, VCNC)*


I am an Android developer. I developed an Android-based social networking service called “Between”  in 2011, which became a very popular service in Japan, Singapore, Taiwan and Thailand, etc. I, as a developer who has grown with the expansion of application market, feel frustrated with the recent discussion about Android monopoly.

Last month, the European Commission made headlines in many media with its antitrust charges against Google. Google was also brought to a similar inquiry by the Fair Trade Commission of Korea in 2013, which was later cleared by the commission. The news from Europe has triggered voices advocating re-investigation in Korea, but this needs a cautious approach.


Declared open source for everyone, Android has continued rapid growth by attracting a number of manufacturers and telecommunication service providers to its ecosystem, and now it is the mobile platform with the most number of users. Android’s open policy served as a stepping stone for manufacturers to enter the smartphone market faster with lower costs, and telecommunication service providers have taken advantage of Android to offer mobile internet services to many users. Such openness has served as a driving power for Android to grow as a global mobile platform. On the other hand, fragmentation is a serious problem for developers. Open platforms like Android are prone to fragmentation, or the proliferation of several incompatible versions of the same operating system. Google has made huge strides to solve some of the jarring fragmentation issues facing developers since 2011 and the pain from the fragmentation has been actually relieved. It is irony and even sympathetic, though, that the efforts with a good intent has brought Android antitrust issue to Google. I’d like to elaborate what it means to Android developers, including myself.  Let’s take a closer look at the fragmentation issue here.


Fragmentation: A headache for users and the ecosystem

If Android apps do not run the same way on different Android devices and cause various problems, it does not only mean a headache to the developers and manufacturers: Users themselves also face the challenge of checking if an app runs smoothly on their devices. Fragmentation was an issue in Android’s early days. Developers used to spend a lot of efforts to test their apps on various Android devices, sacrificing precious time to develop functions that really matter. Fragmentation hindered them from developing better Android apps.


This would not only pose challenges to developers. With continued fragmentation, Android app developers would not be able to test their apps for all Android devices, hence give up on minor devices with a smaller number of users. This would in turn encourage users to choose popular devices that run well with many Android apps, ultimately leading to only few, widely-used survivors in the market. Smaller Android device manufacturers would be in trouble, and technical innovation through competition among various devices would be hindered. This would not only interfere with manufacturers but also obstruct users’ freedom of choice.


In addition, if users keep experiencing troubles in using Android apps on their devices, they would end up choosing another, non-Android platform. If this continues, it would result in overall decreases in the number of Android users and developers will have less incentive to develop Android apps. Reduced market size for Android would damage Google, as well as all developers, manufacturers, and telecommunication service providers involved in the Android ecosystem. As such, fragmentation is a serious problem that may significantly impact the entire Android ecosystem.


Anti-fragmentation agreements: a god-send for developers

One of the efforts Google has made to resolve the fragmentation issue has been to give  manufacturers the choice to adopt the anti-fragmentation agreement (AFA) and the compatibility definition document (CDD). They serve as guidelines for manufacturers to apply Android to their devices, thereby making stable devices that would allow Android developers to develop apps without facing the fragmentation issue. Thanks to years of efforts, Android has made its ecosystem, which used to experience serious fragmentation, more stable


Google’s such actions have raised antitrust issues, claiming that Google uses the AFA to force manufacturers to preload its apps in Android devices, which would constitute abuse of the market-dominant position of Android. But even signing the AFA, Google allows manufacturers to simultaneously preload other apps that have the same functions. In addition, users are allowed to substitute for Google apps by downloading other basic apps by themselves.


Android enhances consumer choice through allowing multiple app stores

Questions around Android’s app store, Google Play, are also worth addressing here. To developers, having only one big app store covering the whole world is more beneficial, as they would be able to sell to Android users worldwide rather than only to Korean customers. A big app store like Google Play Store is needed for the Android ecosystem. But this does not necessarily mean that Google is blocking other markets. Google allows other businesses to run Android app stores. Devices marketed through telecommunication service providers have their own Android markets, and ones sold by Samsung contain Samsung’s own Android market app. In other devices, Android market apps can be downloaded on the web. Considering various aspects, many developers often use other companies’ Android app stores rather than Google Play  iStore.


In this way, Google has been striving to resolve the fragmentation issue and at the same time to keep Android’s distinctive openness. Google’s endeavors geared towards resolving fragmentation should be seen from a separate viewpoint from antitrust. Android’s antitrust issue should be approached in consideration of many aspects. A wrong choice may greatly affect the Android ecosystem. It requires a prudent decision that comprehensively considers the opinions of all interested parties in the Android ecosystem including developers, telecommunication service providers, and manufacturers.

*VCNC develops Between, a social network service for couples and other applications.

Read More

Understanding Online Markets and Antitrust Analysis

2016-07-15 22:35:26 0 comments

D. Daniel Sokol (University of Florida)*

Antitrust analysis of online markets is a hot topic around the world.  In a number of jurisdictions, online markets already have been subject to antitrust review in merger or conduct cases.  In other jurisdictions, these issues are in a nascent stage of policy.  A number of lessons can be learned from the cases to date involving online markets with regard to optimal antitrust policy.  What these cases tend to share are some basic features as to how online markets work.  I identify four areas in which online markets may be different from traditional markets for antitrust purposes. 


1.      Market definition is more complicated and competition online is not always like for like


Online markets challenge traditional antitrust analysis because online services are often available to users for free. That is, consumers do not pay a monetary price for a free service.  Instead, consumers provide attention and information that is often used to direct relevant advertising to consumers. The economics literature refers to markets with more than one “side”.  A firm (or “platform”) that brings distinct types of economic actors together to interact (e.g., online auctions, dating, search engines, payment systems) operates in a multi-sided market.


In a multi-sided market, very different kinds of services may compete for business.  For instance, social media companies like Facebook and Twitter offer users a very different service as compared to gaming app Candy Crush or search engines like Google and Bing. Yet, they all compete directly for ad budget. Indeed, Facebook also competes for offline advertising budgets such as TV and print ads fact. In this way, competition is not always like for like online. Often the free service being offered to the user may differ, while the advertising being sold is close substitutes.


Market definition is the first step of traditional antitrust analysis.  In one-sided markets, an increase in price or decrease in output provides guidance on how to undertake antitrust analysis using a traditional SSNIP test.  However, market definition is more complicated in a multi-sided market because the traditional tools are more limited due to how the different sides of the markets interact with each other. For example, one side of the market may see no price increase while another will.  Thus, in multi-sided markets, the use of market shares for market definition purposes is something that should be carried out very cautiously.  Understanding the multi-sided nature of internet markets is very important to market definition analysis. 


2.      Success may be ephemeral because entry barriers are low


Online markets are constantly transforming.  Indeed, online markets typically have innovative challengers against incumbents.  Challengers may overtake incumbent firms through new ideas and technologies.  User data can be a powerful driver of these innovations, however as an input it is plentiful and easily accessible by new entrants: consumers can share information with as many services as they like. 


To succeed, these new entrants must develop valuable products and services in order to attract consumers. In some cases, more data does not translate into a better product as data is most relevant when it is about how a company and its consumers use its own product. It is the quality of the insights and not the quantity of data that will inform success. The success of taxi apps like Uber and Kakaotaxi are a clear mark of this: they had the insight that consumers want to order taxis on demand and thus were able to challenge traditional taxi companies, in spite of the fact these incumbents possessed large amounts of data about their users.


3.      Users multi-home and have low switching costs


Traditionally, antitrust analysis is concerned about switching costs from one platform to another.  However, in online markets, competition is often only a click away resulting in low switching costs and  multi-homing.


For instance, take the example of someone who needs to book a flight from Hong Kong to Madras.  A consumer can easily switch from a general search engine (e.g., Naver) to another search engine (e.g., Google or Baidu), a social network (Facebook or Tencent), a specialized travel search engine (Ctrip, Expedia, or Kayak), via website and/or app.  Thus, any incentive that a firm may have to bias its search results would be significantly limited. As Alex Chisholm, Head of the UK Competition and Markets Authority recently put it “The barriers to switching for consumers is very low in online markets. If I am unhappy with my search engine, I can stop using it at a click of a button."


4.      There is a need to analyze all sides of a market when examining a multi-sided market


Indirect network effects take place in situations where additional users improve the use of a product or service better, though not due to direct interaction across users. Rather, additional users allow a platform to determine what its users want via trial and error in search results.  This in turn improves the quality of search results. 


In a multi-sided market, all sides of the market need to be analyzed because the benefits of indirect network effects can only be achieved when multiple agents are coordinated, and participation of each agent is ensured.  For example, in a one-sided market, consumers and producers are often considered as a whole, whereas in multi-sided platforms consumers with different preferences could be separated and treated as independent groups. The increasing use of the platform of one consumer group would create an externality to other groups; therefore, particular attention has to be paid to the indirect network externality at the demand side. Without a multi-sided platform, the “value-creating” interaction among multiple agencies could be extremely costly.



5.      Conclusion


The case for antitrust intervention in online markets requires great caution because of a number of factors: proper market definition, accounting for possible low entry barriers, multi-homing and low switching costs, and the need for a proper analysis of all sides of a market.  Often, multi-sided markets produce significant benefits to consumer welfare in what are dynamic and fast moving markets. Mistaken antitrust intervention in such markets threatens innovation.  Given these significant concerns, antitrust authorities and courts should closely examine the facts of a particular case to ensure that facts and economic analysis align well with legal theories in multi-sided markets before bringing such cases.  Further, the nature of multi-sided markets suggest that before deciding on potential remedies, an antitrust authority should reexamine the market to see if its particular dynamics have already changed. 

Daniel Sokol is a Professor of Law at the University Of Florida Levin College Of Law. Sokol is also a Senior Of Counsel in the Washington, D.C., office of Wilson Sonsini Goodrich & Rosati, where his practice focuses on antitrust counseling. 

Read More

Kakao’s Acquisition of Loen Entertainment and Online Music Service Market – a déjà vu?

2016-06-05 23:35:37 0 comments

Dae-Sik Hong (Professor, Sogang University)

Kakao’s Acquisition of Loen Entertainment


In January 2016, while merger between SK Telecom (“SKT”) and CJ Hello Vision (“CJHV”) was still an on-going debate issue in broadcasting and communications market, another huge M&A news came out and covered front pages of media – “Kakao acquiring Loen Entertainment.”  The value of takeover was 1.87 trillion won, exceeding 1 trillion won of SKT’s acquisition of CJHV. Loen Entertainment provides online music service with a brand named MelOn. CJHV, however, is the number one cable TV company in Korea, providing high-speed internet service, internet telephony service and MVNO (mobile virtual network operator) service. The change in industrial structure does not give a full explanation to difference in values of two companies, when considering customers’ needs to such services. Compared to the endless debates on validity of SKT-CJHV M&A, Kakao’s acquisition of Loen Entertainment ended without much argument, and Korean Fair Trade Commission (KFTC) stands on the same side.

Then, why did Kakao pay, compared to SKT-CJHV merger, almost double price to acquire Loen? It is beyond my ability to analyze the complicated strategies and plans of a company running its business. As a professional of competition law and regulation law, my concerns are how such acquisition might affect the related markets and the legal implication of the acquisition. Business owners might dislike the idea of connecting every single matter with legal point of view, but it is not our goal to pick out the problems (so don’t worry!). Korean government already has various legal methods to intervene and regulate any business, so our ideas might minimize the side effects of such regulations.


Loen, SKT and MelOn Services


M&A between Kakao and Loen reminds me of an old case. Loen is originally a record company named “Seoul Record” and started MelOn Service after SKT acquired it. After changing its main business to online music service, it became an affiliate of SK group and was named Loen in 2008. In 2013, Star Invest Holdings, Inc. became the largest stockholder of Loen, then Kakao became the largest stockholder in 2016 (Click here for the history of Loen).


MelOn Service which SKT started after the acquisition of Loen greatly affected the market and KFTC investigated and imposed sanctions to SKT. Before the launching of MelOn service, domestic online music service market was in fierce competition, having no company with market dominant power. The market was formed by several companies such as Soribada and Bugs Music in early 2000s which enabled customers to listen to the music for free through their personal computers that are connected to internet or provide P2P services to download MP3 files.. These enterprises induced people to visit their websites to use free music streaming services or to download MP3 files for low prices, while earning profits from advertisers. It was a typical two-sided platform business model using advertisements as the source of profits. The problem was, the methods to induce customers (which mean to provide customers music contents) were protected by copyrights of song writers and the infringement of copyright became a big issue. That explains why the history of Soribada (which would have become the Korean Napster) is the history of copyright infringement (Click here to see further information of Soribada).


Online Music Service Market and the invention of MP3 Phone


Dramatic change in online music service market is related to the development of devices. While customers had to download MP3 files via PC and used MP3 players to play the music in the past, using cellphones to listen to the music became possible. In 2004, LG Electronics Inc. (be sure it was not Samsung nor Apple) became the first company to equip MP3 players in the cellphones. However, LG Electronics were severely attacked by groups and people working in music copyright industry. MP3 files were almost impossible to control by copyrights since there was no protection at all and LG’s attempt to install MP3 players in cellphones made the situation even worse. It was the time I wrote this paper in the magazine named “Copyright Culture” while practicing Korean competition law at a law firm (the paper is not provided in online anymore, but my personal experience did help writing this paper).

KFTC’s decision on MelOn service cannot be explained when not considering this situation. SKT, compared to LG telecom, chose the business model considering the interests of copyrighters. While allowing MP3 phones to use music services, it technically locked the MP3 files with Digital Rights Management (“DRM”). DRM controls the copyright of digital contents and enables copyrighters to find out how the sources are downloaded or spread throughout internet. Music contents with DRM helped copyrighters to earn profits as more people downloaded their songs. SKT, when starting MelOn service, adapted DRM with their own technology and it was used to music files and MP3 phones. Customers using SKT mobile communication services could join MelOn service and use DRM contents downloaded from PC with their cellphones. It was even possible to download with mobile internet service (which was not that fast at that time) just like Apple’s iTunes service.


Market Dominant Enterprise SKT’s Attempt to Enter Market and Resistance


SKT was the market dominant enterprise in Korean mobile communication service market. Then, when SKT tried to enter online music market, competitors in the market started to react. In September 2005, AD2000 Entertatinment, which provided music streaming service with the brand named MAX MP3 (it was the second largest enterprise in such market and was later acquired by CJ Media in July 2016), complained against SKT for the allegation of violating Korean  competition law to KFTC. Other enterprises followed AD2000 due to the fact that customers could not use MP3 files downloaded from the service provided by them with SKT’s MP3 cellphones. When customers want to use Non-DRM MP3 files which were not provided by SKT with their SKT MP3 phones, they had to join MelOn service and convert such files to DRM files. Complainants were afraid that customers might prefer using MelOn service and their attempt to minimize customers inconvenience by providing various services were not enough to attract customers. At the same time, a dispute between a French company Virgin Mega and a US global company Apple was going on, intensifying controversy in Korea as well. A bill was even submitted to French Congress ordering compatibility of DRM, and it was against Apple’s stand (click here for a translated version of such situation by an expert, click here for the original version).

I was personally engaged in the case on behalf of SKT so it might be hard to remain neutral to such issue. However, the followings are the opinion of a person who reviewed the case from the beginning (of course, that’s me). Several issues related to competition of online platform business model and its effects to customers are hidden in this case. Debates arose as the merger process continued as to concerned types of behavior such as tying and bundling and refusals to access to patented technology and legal reasoning for judgment such as essential facilities doctrine, network effects, tipping effects, leveraging of market power doctrine, and technological innovation as justification. SKT was imposed fines after reviews of KFTC (first review was based on the tying as unfair trade practice, second one for the acts of coercion of disadvantages and appreciable harm to interests of consumers as abuses of market dominance) but later on won the case in Seoul High Court. Supreme Court, despite people’s expectations of bringing the clear answer regarding important competition law issues, ended the case saying the decision of Seoul High Court was right. In October 2011, Supreme Court reconfirmed the legal principles from POSCO case (search for case number 8626 at Supreme Court English page). To look up for the SKT case, you can rather click Case information or Legal information service. Although we admit the fact that Supreme Court wasn’t able to review every single case with care due to the rush of cases, it is still sad to miss the opinion of Supreme Court. We hope there might be some chances to review issues of the case later on.


A déjà vu?


This case sure does remind us of old cases and I call it a déjà vu. When an enterprise trying to start a new business in ICT environment, which is consisted of C(Contents)-P(Platform)-N(Network)-D(Device), competitors always resist and customers have all different kinds of thoughts regarding their own interests. Enterprises with vertical integrations and without those, large business and small ones, and allied enterprises still in competition and tension in another area are all trying to grab customers’ attention, which leads to competition or co-operation among them.  As a result, there comes a winner (and of course the losers), co-operation ends with betrayal but there are some scenes that it is hard to allow enterprises to do so. Government, such as KFTC, decides whether to interrupt in such issues after analyzing each case. It is always interesting to view whether the government made the right choice or not with my own assessment.

What happens in real business area and disputes arising from events always catch people’s attention. However, are ordinary people, without much knowledge about competition law, given enough information about why the government is trying to interrupt in real cases? Unlike professionals, it is hard to find the answer for the question. Here is the Gatorade for your thirst, and you are now seeing the blog of Sogang University ICT Law and Economy Institute (“ICLE”) – Yes, you’ve found the right place to answer your question.


Read More