Interoperability is Important for Competition, Consumers, & the Economy

This is one of a series of perspectives CDT has been presenting on the promises and challenges of network interoperability. SEE ALSO: Sukhi Gulati-Gilbert & Mallory Knodel, Preserving the Open Internet Through Interoperability, July 21, 2022; and Sukhi Gulati-Gilbert & Michal Luria, Designing Interoperable, Encrypted Messaging with User Journeys, Aug. 16, 2022.

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Competition is a cornerstone of economic freedom and opportunity. It is instrumental in making a marketplace work for consumers, and for all who seek to reach them. It creates choices, the ability to look elsewhere for a better deal. That in turn increases the incentives for companies to offer that better deal – to be responsive to the interests of consumers in affordability, quality, and variety. And to be similarly responsive to the interests of everyone they deal with. This spurs innovation, and progress, benefitting the broader economy and society.

For online communication services, interoperability is key to competition. It creates the opportunity for competition by enabling different providers of an online communications service to interconnect with and seamlessly transfer data between each other, so that users of that service can communicate with each other regardless of which provider they choose.

Interoperability is essential for enabling an open internet, in which competition has a chance to take hold and offer users meaningful choices among high-quality, innovative alternatives. This in turn maximizes the opportunities for users to freely express themselves and innovate.

Interoperability means that a communications service can have universal reach without needing to be monopolized into the control of a single provider. It can enable the emergence of competing providers offering choices to users, instead of forcing users to choose among exclusive, self-contained silos that can’t communicate with each other.

The role of antitrust enforcement – and its limits

The U.S. antitrust laws are a powerful tool for safeguarding competition and all the benefits it fosters for consumers, businesses, and the economy – in the words of the Supreme Court, they are “the Magna Carta of free enterprise (1).”  But they are limited in what they can do to address market power that is already entrenched. In general, it is more accurate to say that the antitrust laws protect competition than that they create or promote it. So we cannot leave it to antitrust to remove the impediment to competition presented by non-interoperable platforms – although antitrust enforcement can help, and has. 

In most instances, the antitrust laws accept the status quo level of market concentration and the resulting market power. It is not unlawful for a company to have cornered the market by capitalizing on a first-mover advantage or otherwise successfully competing. It is also not unlawful for a company to take advantage of its dominant position to inflate prices charged to consumers, to force suppliers to accept lower payments, to cut corners on quality, or to otherwise force others up and down the chain to “take it or leave it.”

That’s because the antitrust laws are premised on reliance on the resiliency of a free marketplace – that as long as the marketplace is kept open to competition, then if one company tries to take advantage in any of these ways, that effort will soon be self-defeating, as other companies seize on the opportunity to offer a better deal. So the antitrust laws prohibit private conduct that interferes with those market forces, but otherwise, they step back and let those market forces work.

It is unlawful for a company to maintain its monopoly grip by sabotaging efforts by other companies to compete against it – such as by cutting off supply sources or distribution channels. That’s called monopolization, and it is prohibited under section 2 of the Sherman Act. Successful antitrust enforcement against monopolization has opened the marketplace for enabling interoperability twice in the past half-century. Those two instances are discussed below. But successful monopolization cases are rare, costly, and time-consuming. The two discussed below each took a decade or more from investigation to court judgment – and implementing the remedy took years after that.

It is also unlawful for a company to gain or increase market power by acquiring other companies. Section 7 of the Clayton Act prohibits acquisitions where the effect “may be substantially to lessen competition.”  Consistent with accepting the status quo, merger enforcement can stop an increase in market power, but it cannot be used to decrease already-existing market power. Indeed, that is why section 7 is forward-looking and anticipatory – it is designed, as the Supreme Court has noted, to arrest a trend toward harmful market concentration “in its incipiency,” before the concentration and the resulting harm to competition occurs and cannot be easily reversed (2).  Vigorous enforcement of section 7 can be important in preventing further concentrations of market power. It is just not very useful in correcting the anticompetitive effects of past mergers – including increased concentration and integration that has dampened incentives for interoperability (3).

In short, even when antitrust enforcement action is warranted, and even when it is successful, at the end we are typically left with the same market structure and level of concentration as at the beginning (4).

The promise of interoperability as a market opener

Thus, the antitrust laws alone cannot be relied on to alleviate persistent market power already entrenched in various parts of the digital marketplace. That requires directly addressing the current concentrated structure. And interoperability can be a key ingredient in the solution.

Interoperability mitigates or removes a major impediment to the emergence of new competition–network effects, the fact that, in a communications marketplace where providers’ networks are siloed, users naturally tend to choose the provider with the greatest number of users already in its network. And there’s a snowball effect – as the dominant provider increases the size of its network, providers with smaller networks find it ever more difficult to keep users, and new providers find it ever more difficult to get a foothold. Interoperability pulls down the silo walls, so that a user can choose among providers and still reach the users who have chosen the other providers.

Full interoperability includes horizontal interoperability between alternative providers of the same communications service, and vertical interoperability between each provider and those who use that provider to connect with other users.

Interoperability also makes it possible to add integrations with user agents that translate, aggregate, or process content, with and between communications services, which can enhance user experience and control.

Functionally, interoperability can be thought of as consisting of two kinds of convergence – physical convergence and language convergence. Physical convergence requires interconnection between providers at a convenient interface, so that communications can flow through. Language convergence requires that the standards for the technology used by the providers – the language protocols – be either uniform or at least compatible. The providers can agree on both kinds of convergence when they see it as in their mutual interest; or if they can’t agree, because one or more see it as to their advantage to pursue the silo approach, then government could require convergence – through regulation or, where justified by a proven violation, as an antitrust remedy.

Importantly, while interoperability helps set the stage for competition, it does not guarantee a multiplicity of choices. One impediment to users exercising choice is the “switching costs” faced by users who have been with one provider for an extended period, and have accumulated information, content, and contacts there that they regard as important to preserve. This impediment can be alleviated by making the information, content, and contacts list “portable” so that a user can keep them and continue to use them with the new provider.

Users may be disinclined to switch for other reasons as well, such as the brand reputation of the established provider they have been with, their satisfaction with and preference for it, or even just their inertia. In addition, built-in economies of scale often make it more difficult for newcomers to ramp up at first. But those are the kinds of challenges that new companies on the block must confront in any open, competitive marketplace, and must take on with a sustained, discerning effort to offer users something that will attract them away from the established provider.

Interoperability’s record as a catalyst for progress

Interoperability has already proven successful in helping open our communications systems, improve their functioning, and spur innovation, at key points in their evolution (5).

Forty years ago, the Justice Department’s antitrust enforcement action against the Bell System, which had held telephone service in its monopolized grip for most of the 20th Century, led to court-ordered structural separation. Ownership of the Bell System’s “last mile” local phone service, which was still an enduring monopoly, was separated off from ownership of related lines of business the Bell System had traditionally been engaged in, including long distance service, where competition was emerging but was being impeded by the Bell System to favor its own long distance service (6).  The local phone service monopoly was divided into seven geographical regions, each under the control of a different “Baby Bell” operating company. The court’s decree also imposed line-of-business restrictions maintaining the structural separation by confining the Baby Bells to providing only local phone service regulated by tariff.

This structural separation incentivized the local phone service monopolies to promote interoperability with every long distance service provider, as they no longer had a long distance service provider of their own to self-preference. And they had the same incentive to promote interoperability with providers of information services carried over telephone lines. The court’s decree spurred competition in long distance and information services. It also opened the marketplace more broadly, facilitating the emergence and widespread adoption of mobile phone service and the internet.

Fifteen years later, in the Telecommunications Act of 1996, Congress included a number of measures designed to crack open even the local part of telephone service to competition. Among them was a requirement that the seven “Baby Bell” regional local phone service monopolies interconnect with independent local phone service providers on fair, feasible terms, so that the independent providers could all interoperate with the Baby Bells’ local networks as well as with the long-distance service providers. 

The 1996 Act supplemented that requirement by also requiring phone number portability – that a user be able to keep the same number when switching phone service providers, thus eliminating that inhibiting “switching cost.”  This requirement was later extended to mobile phones as their use became more widespread.

Interoperability also figured prominently in the enforcement actions against Microsoft’s efforts in the 1990s to freeze out the Netscape Navigator browser – to “cut off Netscape’s air supply (7)” – the case brought by the U.S. Justice Department and states charging unlawful monopolization, and the European Commission’s case charging abuse of dominance. Microsoft had been motivated by fears that Navigator, combined with Sun’s Java programming language, threatened to end the dominance of Microsoft’s closed Windows operating system. Navigator and Java were both designed to interoperate with any underlying operating system, and Netscape had opened Navigator’s APIs so software programmers could write programs to run on top of Navigator (8).  

Both DOJ and the EC saw enabling interoperability as key to remedying the violations found and restoring competition in the affected markets (9).  Thus, the U.S. decree and the EC ruling required Microsoft to make available application programming interfaces and communications protocols needed for interoperating with its Windows operating system – i.e., physical convergence and language convergence, respectively – to be overseen, in the U.S., by a court-created Technical Committee (10).  While these requirements fell short of what some experts considered warranted, they helped open pathways for further independent innovations, including in search, smartphones , social media, and a proliferation of applications (11).

Email is another form of communication in which interoperability has proven feasible and successful in enabling competition and consumer choice. Users can send messages to each other even if they have chosen different email service providers. They don’t have to convince their friends and family to all sign up for the same provider – with one single set of features and policies – in order to have a group conversation. Indeed, this was one of the most prominent features of the early internet, and facilitated communication between different research, government, and corporate institutions (12).

Interoperability’s continuing potential

Each new evolution in communications brings its own technological challenges for making interoperability a reality. Always, a key challenge is ensuring that private communications are as reliably secure as possible. Those challenges can be particularly involved for online communications. The user may have less awareness of and control over who they are communicating with, how many others are receiving their communications, or with whom they are being shared. 

Each online communications service – email, texting, social media, group chat, other apps – can present unique technological challenges. So interoperability cannot be achieved by heedless blanket decree. It must be developed and nurtured for each service with appropriately individualized attention and care. At the same time, achieving interoperability as expeditiously as practicable for each service is a goal to which all need to be committed – including most especially the providers offering the service to users.

One area now getting greater attention where interoperability (combined with portability) could bring greater opportunities for competition, choice, and creativity is in social media networks. Recent changes at Twitter under its new leadership, with dramatic reductions in personnel and uncertainty regarding content moderation policies, are leading users to seek alternatives. This may create an opportunity for alternatives like Mastodon, which provides similar functionality to Twitter, but is open-source, and interoperates with other services, using the decentralized ActivityPub social networking protocol. The current lack of portability of “follower” relationships from Twitter may inhibit some users from switching who might otherwise do so.

Lawmakers have been working to advance interoperability. In the United States, the proposed Augmenting Compatibility and Competition by Enabling Service Switching Act (ACCESS Act) would require large communications service providers to enable interoperability and data portability. The proposed America Innovation and Choice Online Act would approach the goal from an antitrust law perspective, prohibiting large platforms from anticompetitive self-preferencing in access (13).  And in the European Union, the newly-enacted Digital Markets Act, now in the early stages of implementation, also takes an anti-self-preferencing approach to strengthening interoperability and data portability requirements. Implementing these requirements successfully will involve carefully addressing the technological challenges referenced above.

One important question for lawmakers is how far to go. The chief impediment to competition is resistance among dominant providers who stand to lose market share – and profits – in a more open marketplace. But it is possible that some new entrants and smaller service providers would see benefit in building their own silos, and would take selective, strategic advantage of the interoperability the dominant providers are required to offer. The costs of technological changes required to make a communications service interoperable may be easier for larger providers to absorb, and therefore easier for lawmakers to justify imposing on them. But to the extent that smaller providers do not see it as in their self-interest to adopt those changes, lawmakers will have to consider whether to impose them universally, or to accept a marketplace where interoperability is incomplete. One potential solution, if it is feasible, might be reciprocity – to condition the availability of the benefits of interoperability to a provider on its willingness to make its own services interoperable (14).         

Independent standards development organizations, drawing on a broad range of experts and stakeholder perspectives, should ideally be at the heart of efforts to promote workable interoperability. When properly constituted, they are likely to be relatively independent and resistant to falling under the sway of a dominant participant or sub-group seeking narrow self-advantage at the expense of an open internet (15).  Government engagement, when warranted, should be informed by active interaction with those kinds of organizations – being appropriately mindful to ensure that the organizations are indeed independent and broad-based. (Indeed, self-interested capture of a standards development organization can warrant antitrust scrutiny and enforcement.)

Interoperability can help to ensure that online communications systems are universal, extend their reach to everyone, and allow all to participate. It is an essential ingredient for making online communications services open to competition, and to all the benefits that provides to users and to the economy.

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1. United States v. Topco Assocs., Inc., 405 U.S. 596, 610 (1972).
2.  Brown Shoe Co. v. United States, 370 U.S. 294, 317-18 (1962).
3.  As section 7 is written, there is no time limit on challenging a merger, even years after the fact, if the harm to competition is manifest. In practice, the difficulties in unwinding a merger long after it is completed – “unscrambling the eggs” – along with the uncertainties in how the courts would react, and the need for devoting resources to address new mergers – have kept antitrust enforcers from pursuing this avenue much in the past. The Federal Trade Commission is currently pursuing a case against Facebook involving a merger – but it is not a section 7 case, but rather a section 2 monopolization case, based in part on Facebook’s strategic acquisitions of Instagram and WhatsApp among other acts to maintain its monopoly power, on an ongoing basis.
4. EU competition law prohibits “abuse of dominant position” – which is similar to U.S. antitrust law, but can potentially reach further in addressing conduct by a dominant company that impedes competition. See, e.g., Andrew Gavil and Harry First, The Microsoft Antitrust Cases: Competition Policy for the Twenty-first Century, MIT Press, 2014, at 203.
5. An earlier-era illustration of the benefits of interoperability can be found in the eventual adoption of standardized gauges for railroad tracks in the United States. Until the mid-1880s, trains in the Southern states were cut off from the rest of the country, and vice versa, significantly hindering commerce. See, e.g., Daniel Gross, The Ties That Bind: Railroad Gauge Standards and Internal Trade in the 19th Century U.S. (Harvard Bus. School 2016), https://www.stern.nyu.edu/sites/default/files/assets/documents/TTTB.pdf.
6.  The separation order was further reinforced with prohibitions against preferencing AT&T over others in terms of interconnection with the local phone networks, and with requirements to expedite replacement of old interconnection infrastructure designed for AT&T’s long distance technology with new infrastructure that would give equivalent interconnection to all long distance service providers.
7. Testimony of Steven McGeady of Intel, quoted in DOJ Proposed Findings of Fact, U.S. v. Microsoft Corp., 91.3.1(i), at p. 201, Sept, 10, 1999, www.justice.gov/atr/us-v-microsoft-proposed-findings-fact.
8. See Andrew Gavil and Harry First, The Microsoft Antitrust Cases: Competition Policy for the Twenty-first Century, MIT Press, 2014, at 51-55, 61-65, 85, 99-100.
9.  Id. at 122, 191, 194-195, 198-201, 205-210.
10. Id. at 126, 191, 239, 268, 278. The remedy originally sought by DOJ and entered by the district court in its decision was a structural remedy, breaking Microsoft into two companies, one with the operating system and the other with the applications, which would have removed Microsoft’s incentives to block interoperability. That decision was reversed on appeal.
11. E.g., id. at 242, 267, 278, 303, 326; Roundtable: The Legacy of the Microsoft Case, Antitrust, Vol. 35, No. 2, Spring 2021, https://www.clearygottlieb.com/-/media/files/vol35_no2_spring2021_copyright_roundtable-pdf.pdf; Richard Blumenthal and Tim Wu, What the Microsoft Antitrust Case Taught Us, NY Tines, May 18, 2018, https://www.nytimes.com/2018/05/18/opinion/microsoft-antitrust-case.html; Victor Luckerson, ‘Crush Them’: An Oral History of the Lawsuit That Upended Silicon Valley, The Ringer, May 18, 2018, https://www.theringer.com/tech/2018/5/18/17362452/microsoft-antitrust-lawsuit-netscape-internet-explorer-20-years.
12. See Abbate, Janet. Inventing the Internet, MIT Press, 2000. In contrast, a similar move toward interoperability has not taken place in instant messaging. As a result, IM networks are largely incompatible and siloed, so the choice for users is more about picking the network that people with whom the user wants to communicate are already using, rather than based on the network’s competing features or policies.
13. Neither of these bills became law in the previous Congress, but they are expected to be proposed again in the new Congress just getting underway.
14. See Ross Schulman, How to Make the ACCESS Act a Success, New America Foundation, Aug 25, 2022, https://www.newamerica.org/oti/briefs/how-to-make-the-access-act-a-success/.
15. Cf. Nick Doty, Changing Governance at W3C, Center for Democracy & Technology, Oct. 21, 2022, cdt.org/insights/changing-governance-at-w3c/.