Net Neutrality Merger Commitments Are Symptom of Excessive FCC Power, Some Argue
AT&T’s promise to commit to struck-down net neutrality rules as a voluntary condition for approval of its proposed DirecTV acquisition (CD May 20 p1) reflects strong FCC power to reject telecom deals, said industry observers in interviews this week. Some wish the FCC didn’t have that much power, which they say is far beyond what Congress intended. Others speculated AT&T’s willingness to so quickly agree to the condition means it probably doesn’t have much of an impact on AT&T’s Internet practices either way. Comcast said earlier this year its commitment to the struck-down net neutrality rules -- a condition of its NBCUniversal transaction -- would automatically apply to its proposed acquisition of Time Warner Cable.
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If antitrust authorities do nothing, a deal goes through; if the FCC does nothing, it doesn’t, said professor Christopher Yoo of the University of Pennsylvania Law School. That gives the FCC great power, as agency staff can “simply sit and wait for the parties to offer them concessions” -- so-called voluntary commitments -- to get the deal through, Yoo said: The FCC “never has to prove to anyone” that the transaction would be harmful. AT&T is offering to adhere to a condition the agency has no authority to impose because the telco thinks it will help get the deal cleared, said Yoo. Under “conventional principles of law,” the FCC “should not be in a position to use its merger review authority to impose a regulatory requirement which exceeds the power given to it by Congress,” Yoo said.
"They're trying to put their best foot forward,” Commissioner Mike O'Rielly told us regarding companies that agree to such voluntary conditions. More importantly, companies’ willingness to agree to nondiscrimination rules shows that broadband providers are “not interested in changing” the “experience that they provide to users,” O'Rielly said. “They recognize the users want certain things that happen to be along the lines that are beneficial to the end goal.” Users “want a positive Internet experience,” and “it’s in [ISPs'] best business model to have the consumer have the best experience, where they can generate revenue off of that,” he said.
Regardless of the Verizon v. FCC court decision throwing out most net neutrality rules, “I don’t get the impression when I talk to broadband [providers] that they're planning to change their behavior at all,” O'Rielly said. “That any particular companies want to extend a behavior that people thought is beneficial -- that they think is beneficial to their bottom line -- that’s a good thing I would imagine, notwithstanding ... the particulars of the FCC authority, or whether it should be imposed under particular rules."
Abuse of Authority?
"I have little doubt that the Commission intends to use the pending Comcast/TWC and AT&T/DIRECTV transactions to impose net neutrality conditions on the parties,” said Free State Foundation President Randolph May, a longtime opponent of the agency’s “abuse” of the transaction review process to “extract so-called ‘voluntary’ concessions.” Aware of how the “'voluntary’ commitment game is now played,” the companies “offer up certain net neutrality conditions at the beginning of the process, rather than waiting until near the end,” May said by e-mail. This may “avoid some of the unseemliness of the ‘midnight’ commitments volunteered at the end of the review of prior transactions, although I assume there will be plenty of last minute bargaining."
"Merger commitments are, at best, better than nothing,” said John Bergmayer, Public Knowledge senior staff attorney. “They're a haphazard, and difficult-to-enforce way to set policy,” he said: But “they are a very tempting mechanism for the FCC."
The FCC is using its power to extract commitments to rules the agency “can’t otherwise enact legally or politically,” and which sometimes have nothing to do with the deal itself, said Geoffrey Manne, executive director of the International Center for Law and Economics. “It’s a disturbing and dangerous trend,” an indication the agency is “abusing” its power to “fundamentally expand its authority in other areas,” Manne said. Can’t enact net neutrality rules? Have all the largest companies agree to them “voluntarily,” Manne said. The same could apply to stand-alone broadband offers, he said. “With the public interest standard and now [Communications Act] Section 706, practically nothing is beyond the authority of the agency,” Manne said. “I'm being hyperbolic, but only a little."
Paid Prioritization ‘Overhyped'?
"These offers to follow the old rules show how overhyped the debate around paid prioritization is,” said Guggenheim Partners analyst Paul Gallant. “If ISPs were actually expecting to make serious money doing QoS [quality of service], they wouldn’t be offering to wall it off for years. But given all the noise around net neutrality, it makes good political sense for companies to give the FCC some cover by offering to follow the stricter rules if their deals are approved."
Free Press Policy Director Matt Wood has a different take. Comcast’s and AT&T’s willingness to sign up for the 2010 rules, and for the Communications Act Section 706 theory of authority, “tells you all you need to know about how effective that approach would be,” said Wood, who prefers Title II reclassification. “AT&T and Comcast both signed up to support the 2010 rules for the same reason that they support Section 706 today. Whether their calculus is right or wrong, those big ISPs decided they can route around the open Internet rules that Chairman [Julius] Genachowski adopted.” Wood rejected the idea that the FCC can “wield excessive power to block mergers.” Other than when it followed the Department of Justice’s lead to reject the “obviously disastrous AT&T/T-Mobile takeover attempt, I'd be hard-pressed to list a bunch of deals that the FCC has squelched in recent memory,” he said.
Gallant cited three deals the FCC had planned to challenge over the past 15 years or so: Sprint/WorldCom in the late ‘90s, Dish/DirecTV-EchoStar in 2002 and AT&T/T-Mobile in 2011. Compared with DOJ and the FTC, “the FCC’s statute gives it more power in merger reviews than the antitrust agencies have,” Gallant said. “Companies today do everything they can to negotiate FCC approval upfront. Because going through an internal trial at the FCC and then beating the agency in court is improbable, to put it mildly."
An AT&T spokesman pointed to a May 15 blog entry (http://bit.ly/1nqYhxZ) by Executive Senior Vice President-External and Legislative Affairs Jim Cicconi, which said AT&T supported the FCC 2005 open Internet policy statement and 2010 rules codifying that policy. “Our network management practices are designed to comply with those rules,” Cicconi wrote. “Broadband customers throughout the United States have access to AT&T’s open broadband networks which comply fully with Open Internet principles that have been in place for almost a decade."
As AT&T has always supported the net neutrality rules, its agreement to follow them now “may not mean all that much,” said Manne. “As there aren’t any other rules yet to commit to, again, it may just be convenience” -- and a “desire to echo” what Comcast is doing, he said.