Award Winning Blog

Tuesday, November 21, 2017

Regulation as a Manageable Cost Center: The Example of Network Neutrality and the AT&T Acquistion of Time Warner

            Moving in for the kill, incumbent carriers have stretched their home team advantage.  With millions in lobbying, campaign contributions and sponsored research, along with a like-minded FCC majority, the unpleasantness of the prior 8 year Obama stretch largely will evaporate very quickly.

            Money well spent.

            Rather than frame regulatory debates in terms of midlevel issues of economic theory and political philosophy, think lower tier: cold hard cash money. Follow the money.

            Regulation impedes businesses like AT&T and Verizon from achieving even greater profitability, unless of course a captive regulator can be persuaded to tilt the competitive playing field by disadvantaging one or more competitors.  Incumbents have convinced decision makers that when regulation prevents profit maximizing behavior, there better be a damn good reason.  Notions of equity and level competitive playing fields will not suffice even though the advocates for deregulation do not have to meet a similar burden when claiming existing rules “stifle innovation” and “kill jobs.”

            The incumbent camp waxes poetic how regulation has preempted billions in investment, hurt employment and reduced innovation. But how can they prove this?  Answer: they don’t have to.

            No decision maker—certainly not the FCC—has called upon AT&T, Comcast, Verizon and others to show how network neutrality singularly has prevented incumbents from making investments, or that there are fewer patent applications and workers because network neutrality has poisoned the ecosystem.

            Where are the economics, empiricism and analysis that FCC Chairman Ajit Pai claims his management will deliver?  It’s nowhere to be seen, unless you accept conjecture as sufficient.  From the FCC across to incurious, deadline worrying reporters, the prevailing network neutrality frame is that somehow eliminating it will “free” stakeholders to do more good than what they now can do.  Exactly how does a non-discrimination requirement stifle profitability?  How is this requirement resurrection of old school public utility regulation of a non-existent monopoly? 
            No one has to answer such questions.

            As to the other big issue of the news cycle today, no one asks whether AT&T’s acquisition of Time Warner’s content has impacts outside the vertical food chain of content creation and distribution. So this $85 billion deal is nothing more than your garden variety vertical merger which “everyone knows” is both benign and always permissible.

            Ask creators and distributors of content who compete with AT&T what the merger will do.  If they can overcome their fear of retaliation, you might see the AT&T mothership able to extract concessions from upstream content sources seeking access to AT&T satellite, cellular and wireline customers.  And you might see how raising costs of doing business for competitors makes it highly likely that churning customers might beat a path to one of the 3 content distribution flavors AT&T has to offer.

            But you have to ask.