Award Winning Blog

Thursday, November 16, 2017

The Ambivalently Federalist FCC

            With all this talk about draining the Washington, D.C. swamp and its entrenched federal government occupants, the FCC remains quite enamored with federal preemption of state and local initiatives. I cannot see a coherent rationale for depriving non-federal actors of their role as laboratories for innovative regulation and better, on-site agents.  Instead, the FCC--with increasing frequency--seems to embrace preemption more often than deference to states and municipalities.

            On the federalist side, Chairman Ajit Pai fiercely endorsed the right of states to regulate inmate intrastate calling rates, even if the rates reach extortionate levels.  The Chairman gladly defers to states that have enacted barriers or prohibitions on municipal Wi-Fi and fiber optic networks.  

            On the federal preemption side, both Democratic and Republican majorities at the FCC frequently foreclose state and local initiatives.  Sometimes preemption prevents extortionate behavior, such as when cities delay or condition market entry.  But other times, I wonder if the FCC takes a partisan stance rather than a principled one.

            I am onboard when the FCC attempts to expedite state and local administrative procedures in granting franchises, access to rights of way and necessary permits.  However, the FCC also wants to constrain, if not prohibit, non-federal involvement in such diverse matters as privacy, universal service funding and tower siting.  

            If state and local regulators are closer to the people and perhaps better versed in the issues, why is the FCC so keen on preventing them for serving?

Tuesday, November 14, 2017

AT&T-Time Warner: More than a Vertical Merger

            Proponents of AT&T’s $85 billion acquisition of Time Warner simplistically frame the deal as vertical integration by a content creator and a conduit provider.  Such combinations of non-competing enterprises typically trigger less antitrust concern and regulatory scrutiny.  However, such a characterization ignores the potential for this combination to harm consumers and both competing content providers and carriers. 

            Even opponents to the deal miss a major harmful consequence having the potential for equal or greater impact than the usual reference to raising competitors’ costs and denying access to “must see” content.

            Consider a scenario where AT&T seeks to extract even higher content carriage payments from competing cable, satellite and streaming operators.  Even if the company could demonstrate that it is not gouging, but retaining existing profit margins, AT&T can accrue two benefits from having the Time Warner content inventory, coupled with multiple content delivery services.  First, AT&T can use its multiple conduit buying power to extract bulk discounts.  Having DirectTV, UVerse wireline broadband and wireless broadband offer three delivery options for “must see” content.  Second, AT&T has multiple carrier flavors to offer a service alternative to disgruntled subscribers of competing conduit operators.

            In a time when video content subscribers have grown weary of triple digit monthly bills, some facing even higher rates, will migrate from an AT&T competitor to an AT&T video conduit option.  Rather than lose revenues from cord shavers, AT&T stands to gain new subscribers when a Comcast or Cox subscriber migrates to AT&T’s DirecTV, UVerse or broadband streaming using an AT&T wired or nationally available wireless option.

            Note also that the FCC Republican majority has disclaimed any reason—or jurisdiction—to investigate the acquisition.  This stand offish FCC does have jurisdiction to investigate disputes about the availability and cost of content to AT&T competitors and also channel placement and tiering issues.  The Commission has displayed little interest and competency to resolve disputes.  Can you recall the last time the FCC conducted a full evidentiary hearing?  Did you know the full Commission reversed the findings of an Administrative Law Judge addressing program access issues?

            It looks like AT&T wins even if it has to make structural accommodations to secure regulatory approval.