Blocking AT&T-Time Warner and Repealing Net Neutrality Are Inconsistent

on December 1, 2017
Reading Time: 3 minutes

Within the past two weeks, the Department of Justice announced that it intends to block AT&T’s proposed acquisition of Time Warner, and the FCC’s new Chairman Ajit Pai announced its intention to repeal network neutrality. These actions, when looked at together, reveal a mixed, and inconsistent signal from our government. How so?

To begin with, let’s recall that Pai declined to review the merger, leaving it in the hands of the DOJ. Now, one of the concerns that the AT&T-TW deal has raised is that AT&T could potentially advantage its subscribers by zero-rating services such as HBO. But a strict application of network neutrality rules could be used to block such practices. Doing away with network neutrality does remove a potential check and balance to the sort of behavior that the DOJ is concerned about.

That said, the FCC, even with network neutrality in place, has not gotten in the way of zero-rating, whether from AT&T-DTV, T-Mobile BingeOn, and so on. And while zero-rating video content for AT&T customers who get DTV is a ‘feature’ that has undoubtedly led to some subscriber gains, there hasn’t exactly been an outcry from competitors, or much evidence that consumers are being ‘harmed’ by such practices. I think we recognize that this is just part of the rapidly altering telecom/media landscape, which is leading to much experimentation with business models. As an aside, how is AT&T zero-rating video services for its subs any different than Amazon offering certain content free to its Prime subscribers?

The DOJ makes a lot of assumptions about what AT&T would do if it acquires TW. If it’s concerned, why not impose conditions or some form of oversight? The two most valuable properties, CNN and HBO, are in tens of millions of homes on other pay TV services and cord cutter services. Plus, anyone with a broadband connection can get HBO on a standalone basis, which is a refreshing departure from the historic practice of it being tied to a pay TV subscription. This is evidence alone to the DOJ that the landscape has changed. If AT&T took any action on discriminatory pricing for HBO, or, in the most extreme case, blocked competing services from carrying it, the harm to HBO’s business would be much greater than the advantage gained by AT&T.

(With regard to the AT&T-Time Warner deal, I’m assuming that the DOJ is acting on its own and that there’s not any White House because-of-CNN influence that would affect a rational calculus. On that front, I’m sort of surprised Trump hasn’t made a similar case with HBO, since John Oliver has been far harsher on the president than CNN.)

Now, I’m not expecting the FCC and the DOJ to ‘coordinate’, since they have different charters. The DOJ’s primary mission here is antitrust, not setting telecom policy. But it’s antitrust ‘lens’ must take into account changes in the technology and media landscape. It did allow the Comcast acquisition of NBC Universal, with conditions on the sorts of potential practices it’s ostensibly concerned about with regards to AT&T-TW.  And what has happened since then? Tens of millions of consumers have cut the cord, there are now several viable competitors to the traditional cable ‘pay TV’ model, and there is no evidence that Comcast has engaged in any unseemly practice with regard to competitors carrying its content properties. Ever more so, whereas Comcast might view Netflix as the ‘enemy’, in that it’s one of the reasons some folks cut the cord or downgrade to a skinny bundle, the company has instead integrated Netflix quite nicely into its X1 interface, thank you very much.

This tells us that looking at telecom and media from a 1934 (Communications Act), 1996 (Telecom Act), or even a 2005 lens (pre-iPhone, pre-LTE, pre-streaming), is outmoded. Rather than appearing to be in-line with the ‘reverse everything Obama did’ motif of the Trump administration, perhaps it’s time for the FCC to take a broader look at network neutrality within the context of a broader revisit of the Telecom Act. This would allow the FCC to account for some of the massive changes occurring in telecom/media/internet, and as a byproduct enlighten other government agencies, from the DOJ to the FTC. The outcome would hopefully be sounder, more consistent approach that provides greater flexibility around industry structure, while preserving reasonable protections for consumers.