COMMENTS OF ENRON CORPORATION
Enron Corporation ("Enron") appreciates the opportunity to submit these comments in response to the Federal Trade Commission's ("FTC") request for comments concerning competition policy in the world of business-to-business ("B2B") electronic marketplaces. Enron is a global energy and communications company that produces electricity and natural gas; develops, constructs and operates energy facilities worldwide; delivers physical commodities and financial and risk management services to customers around the world; and is developing an intelligent network platform to facilitate online business.
Enron strongly encourages the rapid move towards internet-based commerce as it continues to result in tremendous economies of scale and scope for both Enron and other businesses worldwide. Enron shares the FTC's concerns, however, that the transition to electronic commerce ("e-commerce") may result in anti-competitive activity as individual companies employ illegal tactics in an attempt to protect and extend their monopolies into new markets. As a result, Enron cautions the FTC to monitor e-commerce developments to ensure that individual Internet business proposals are truly pro-competitive.
On November 29, 1999, Enron launched EnronOnline (www.enrononline.com), an electronic transaction platform that offers free, real-time pricing information for approximately 850 commodities, including electricity, natural gas, coal, pulp and paper, clean air credits, bandwidth, weather and credit derivatives, petrochemicals and plastics, and oil and refined products.
Unlike other Internet commodity service providers, EnronOnline does not match buyers with sellers. Instead, commodity consumers and producers around the world are able to instantaneously conduct transactions directly with an Enron company as principal. EnronOnline is simply an extension of what occurs within the various Enron companies via the telephone on a daily basis.
EnronOnline runs on an Oracle database and WebLogic Java application servers that run on Windows NT. Portions of the site take advantage of Macromedia shockwave, and transactions are secure using SSL encryption.
Efficiency gains made possible by dynamic pricing and trading are especially well suited to Enron's on-line business because electronic trading can match the speed with which commodity pricing changes. Transactions that used to take up to three minutes to complete over the phone now take just a second or two, including complex processes such as credit checks. Further, EnronOnline has largely removed the company's traders from the order process so that they focus solely on formulating and posting offer prices for products based on Enron's own purchase or production costs, greatly reducing transaction costs in the process.
The Web site lets buyers and sellers act on prices that can change by the minute. Buyers or sellers can also see real-time price spreads of both the sell price and the buy price. For example, on the telephone, a buyer previously would call to ask about gas prices for each of the next six months, but by the time the trader finished reciting the prices, some prices could have changed. EnronOnline allows everyone to see "the bid and offer prices" all the time and to make more careful decisions.
Enron has expanded customer reach through its e-commerce platform, while simultaneously enabling customers to receive more detailed and timely market information and greater flexibility in purchasing commodities. The availability of numerous commodities on EnronOnline provides customer choice and promotes liquidity and price discovery in the marketplace. Moreover, customers are able to access a competitor's portal while concurrently utilizing EnronOnline, and still speak on the telephone with a third party, thereby maximizing their access to the marketplace. The advantages derived from Enron's electronic trading platform - dynamic real-time pricing, informed price competition, transaction efficiency and timeliness, and convenience -- are encouraging the type of competition that e-commerce advocates anticipate and desire. Enron continues to research and develop new ways to use e-commerce to better serve our customers.
B. Other Internet Initiatives
Certainly, Enron is not alone in electing to become involved in Internet-based commerce. There is ample evidence of other companies that have recently chosen to pursue Internet business opportunities. The difference, however, is that many of these companies are forming Internet exchanges or consortia to provide a central platform for transactions among businesses. Further, many of these Internet exchanges or consortia will combine the buying power of the respective industry's largest competitors. In contrast, EnronOnline is the result of a single company's efforts, without the assistance of any underwriters, to create an electronic trading platform with Enron as principal in the transactions.
For example, Ford, General Motors Corp., DaimlerChrysler AG, Renault SA, and Nissan Motor Corp. recently joined together to form a single linked exchange that the big automobile companies will use for purchasing parts. At least ten of the largest industries in the U.S. - from steel to paper to aeronautics - have recently announced plans to pool their resources to establish B2B Internet exchanges.(1)
The exchanges or consortia assume a variety of forms and sizes. Some are owned and operated by industry competitors, while others are owned by outside parties. Enron submits that an important consideration for the antitrust agencies is the actual organization or formation of a particular B2B exchange or consortium to determine whether its operators (e.g., industry competitors) have the ability and incentive to compete independently. To that end, it is also significant to assess the financial interests of the operators as such interests may affect the incentives of the operators to compete with each other. In general, Enron submits that the antitrust agencies should consider to what extent and in what manner the agreement involving joint operators of a B2B Web site permits such operators to continue to compete against each other.
While the development of Internet exchanges or consortia raises numerous antitrust concerns, the most important is the potential for collusion.(2) As David Balto, Assistant Director of the FTC's Office of Policy and Evaluation aptly stated:
Electronic communication of price is instantly transparent, and although that can be a boon to consumers in many settings, since it forces firms to bid more aggressively with one another, it also can facilitate collusion among rival buyers or rival sellers . . . . All of this suggests that firms must design very thorough firewalls to protect the sharing of competitively sensitive information that may facilitate more elaborate forms of coordination.(3)
In addition, in the FTC and the Department of Justice's recently released Antitrust Guidelines for Collaborations Among Competitors ("Antitrust Guidelines"), the agencies noted that: ". . .the sharing of information related to a market in which the collaboration operates in which the participants are actual or potential competitors may increase the likelihood of collusion on matters such as price, output, or other competitively sensitive variables."(4) Enron submits that joint operators of a B2B Web site should be required to properly construct firewalls or protective measures to ensure that information does not flow improperly. The information available to such competitors should not be used to reduce competition between them.
Finally, whether an Internet exchange/consortium or its operators will have the ability to unreasonably reduce input prices or unreasonably influence non-price factors such as compelling suppliers to adopt standards that only correspond to that exchange/consortium's interests presents an additional antitrust concern. Moreover, Enron submits that the antitrust agencies should be cognizant of whether other competitors (those not part of an exchange or consortium) might be disadvantaged by not having access to that particular exchange or consortium.
Enron commends the FTC for hosting a public workshop to address B2B electronic marketplaces and antitrust issues related thereto. Enron urges the antitrust agencies to carefully consider e-commerce developments to ensure that existing and emerging Web sites represent genuinely pro-competitive ventures.
Lara J. Leibman
Richard S. Shapiro
1. Andrea Foster, B2Bs Raise Antitrust Concerns, The National Law Journal, May 3, 2000 (noting further the FTC's current investigation of the Internet site planned by the automobile makers).
2. See U.S. v. Airline Tariff Publishing Co., No. 1994-2 Trade Cas. (CCH) 670, 687 (D.D.C. 1994) (settling a case alleging that the major airlines used their joint electronic fare system, ATPCo, to increase fares and discourage discounting ticket prices).
3. Id. (presentation to the American Bar Association in Washington, D.C., on April 4, 2000).
4. Antitrust Guidelines for Collaborations Among Competitors, Issued by the Federal Trade Commission and the Department of Justice, April 2000, at 15; see also Charles F. Rule, Mark E. Plotkin, and Michael J. Fanelli, B2B or Collusion? That Is the Question Antitrust Enforcers Will Ask of Business-to-Business Sites, Legal Times, April 7, 2000.