Broadband Cable Association of Pennsylvania

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May 27, 2014

A spate of telecom and media mergers is complicating the Federal Communications Commission's already controversial agenda. But it might also offer a solution. FCC Chairman is entangled in a difficult debate over net neutrality.

The FCC is hemmed in by a pair of court decisions that have shot down its previous attempts to require equal treatment on the Internet, but its efforts to split the difference with new rules that would allow carriers to charge Internet companies for priority service set off a firestorm of criticism. Merger review could in theory give the FCC a way around a divisive and risky policy debate. In negotiating approval of deals, the commission gets the opportunity to extract concessions that could advance its policy goals—like net neutrality.

AT&T's $49 billion offer to acquire DirecTV, Comcast's $45 billion acquisition of Time Warner Cable and a potential Sprint acquisition of T-Mobile give Mr. Wheeler an opening to impose terms that will govern a sizable chunk of the broadband Internet market. "You got two-thirds of the industry in front of you potentially by the end of the summer, which is enormously tempting to try to create an industry structure around that," said Harold Feld of Public Knowledge, an open Internet advocacy group. "But it's not as easy as it looks. You'll have a bunch of different companies, many of whom may not be willing to go that far."

Regulators have used mergers as a way to push policy goals in the past. Electricity regulators used conditions on deals to help reshape the power market last decade, and national security officials have used merger approval to gain access to telecom networks and block use of Chinese network equipment. Comcast agreed to follow net neutrality until 2018 as part of its 2011 purchase of NBCUniversal. AT&T has pre-emptively agreed to abide by the government's earlier, more stringent version of neutrality rules until three years after the DirecTV deal closes.

If the deal closes in 2015 as expected, the pledge would bring AT&T in line with Comcast. The cable giant has promised to extend net neutrality to Time Warner if it is able to complete the acquisition. Mr. Feld said the FCC would need to seek tougher rules that would stay in place for longer if it tries to achieve its neutrality goals through merger conditions. "The rule would have to be stronger and more explicit," he said. "This is your one shot."

The rules Mr. Wheeler proposed t ban paid prioritization, leaving the door open for Internet providers to strike deals with content companies to deliver traffic more seamlessly to users. That provision drew outcry from open Internet advocates, but Mr. Wheeler had little choice but to allow such deals due to the prior court rulings. Getting companies to voluntarily forgo such deals in exchange for merger approval could be a way around that. AT&T's deal and the possible bid for T-Mobile by Sprint could also offer a route to bringing net neutrality to wireless networks, which currently are exempted.

Regulators and the industry are generally wary of attempts to regulate via merger review, because it can leave companies and consumers on an uneven playing field. Mr. Wheeler has shown a preference for tackling divisive policy issues head-on through the traditional rule making. Democratic Commissioner said in an interview that merger reviews should be limited to the specific concerns raised by the transaction itself.

One shortcoming of using deal review to impose conditions is that it would leave out Verizon Communications Inc., one of the nation's largest wired and wireless broadband providers. Verizon recently closed a $130 billion acquisition of PLC's 45% stake in their wireless joint venture, but there were almost no antitrust concerns that would have given the agency leverage to impose rules. Verizon declined to comment on such a regulatory approach, but a spokesman said the company "has long been committed to an open Internet, and that commitment to an open Internet will remain regardless of what the FCC does in the future."

Before his appointment as chairman, Mr. Wheeler wrote in a blog post that the government should consider approving AT&T's $39 billion deal to acquire T-Mobile in exchange for regulatory concessions. He subsequently backpedaled from that view. On the sidelines of an industry dinner in Washington on May 19, Mr. Wheeler said only that he would give each transaction a full and independent review. Wall Street Journal

When it comes to the Internet's future, Rep. Marsha Blackburn continues to side with "service providers" like Comcast and Verizon against "content providers" like Google and Netflix. Internet service providers are also some of her largest campaign contributors. In questioning Tom Wheeler, Federal Communications Commission chairman, at a House hearing last week, Blackburn, a Republican who represents Tennessee’s 7th District, portrayed Google and Netflix as wanting regulatory benefits without paying for them. She particularly cited their lobbying for "Net neutrality," the idea that Internet service providers give equal access to different content and applications instead of discriminating through pricing or slower loading speeds.

Blackburn fiercely opposes the FCC imposing a Net-neutrality regime but noted Google and Netflix have been lobbying for one. "But they (Google and Netflix) free ride, because they are not paying the fees and bearing that part of the regulatory burden," Blackburn said. "So, since they seem so ready and willing to have regulation help them with their business models, how would you recommend that those entities share in the cost, pay their part of the cost, of funding the agency?" Wheeler replied such decisions are "above my pay grade" and that Congress itself sets which firms have to pay fees and which don't.

Since winning her seat in 2002, Blackburn, vice chairman of the House Energy and Commerce Committee, has received almost $180,000 from Internet service providers and their lobbyists, according to the Center for Responsive Politics. Blackburn's office declined to respond to phone and emailed questions about whether the contributions influenced her position. Some activists on technology issues said she was mixing apples and oranges. "Saying that every company who uses the Internet ought to pay FCC regulatory fees is kind of like saying that every company who uses a telephone should be subject to FCC jurisdiction," said Matt Wood of Free Press, an advocacy group on technology issues, including Net neutrality.

Meanwhile, cable lobbyists have been urging lawmakers to sign a letter to Wheeler that says, "In the years that broadband service has been subjected to relatively little regulation, investment and deployment have flourished and broadband competition has increased, all to the benefit of consumers and the American economy." Google and Netflix have joined dozens of other content companies - including Facebook, Twitter, Yahoo, Microsoft and LinkedIn - in sending their own letter to the FCC, saying they are alarmed by reports the agency might allow phone and cable Internet providers to discriminate "technically and financially" against content companies. Nashville Tennessean

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