Thursday, February 04, 2010

Take Net Neutrality Out Of Merger Review

At the U.S. House of Representatives hearing on the proposed Comcast-NBCU joint venture, more than one member of Congress brought up the idea of having a network neutrality requirement imposed on the parties as a condition for merger approval. Let's hope that kind of ad hoc regulation never comes to pass. Regardless of the merits of net neutrality regulation, responsible administration calls for equal treatment by across-the-board application of rules. Genuine anti-competitive harms should be the focus of any and all merger reviews, not extraneous policy initiatives.

Currently, the U.S. Department of Justice is vetting the Comcast-NBCU merger for any anti-competitive concerns. And the Federal Communications Commission will be undertaking a public interest examination of the merger as part of the its process for approving the transfer of broadcast, broadcast auxiliary, satellite earth station, and business radio licenses. Presumably, some members of Congress have in mind net neutrality condition to be put in place pursuant to the FCC's approval of those license transfers.

Net neutrality regulation of advanced broadband technologies in dynamic markets poses no small or insignificant number of problems. (Some of the Free State Foundation's own work detailing those concerns can be found here, here, and here.) But aside from the detailed difficulties and potential consequences posed by net neutrality regulation, the scope of the issue requires a more direct and comprehensive examination. In fact, the FCC is already taking a broader look at net neutrality regulation in its current Preserving the Open Internet proceeding. (Last month, FSF filed comments with the FCC opposing the adoption of net neutrality regulation.) However undesirable such regulation may be, imposition of some kind of net neutrality regulation is only appropriate for across-the-board rules that apply equally to broadband marketplace competitors, not for an ad hoc application to merging parties in a particular transaction. Subjecting merging parties to uniquely onerous regulatory burdens puts them at a disadvantage vis-a-vis their competitors and potentially scares away mergers that enhance consumer welfare or which are competitively benign.

The FCC displayed an awareness of general rulemaking vs. specific conditioning concerns late last year when it rejected calls for adopting a handset exclusivity ban as a condition for approving the AT&T-Centennial merger. As I discussed in a blog post last fall ("FCC Keeps its Hands Off of Handset Exclusivity, For Now…"), the license transfer approval in the AT&T-Centennial merger constituted a laudable example of the FCC refraining from imposing significant conditions that would only be appropriate, if at all, in a general rulemaking. The FCC expressly recognized that the handset exclusivity raised broad, industry-wide concerns rather than merger-specific harms.

A time-limited net neutrality condition did make it into the FCC's order approving license transfers in the AT&T-BellSouth merger. However, the AT&T-BellSouth merger remains an anomaly in this respect and it should not be followed. No merger passing through the FCC since then has included any net neutrality condition. The net neutrality condition contained in the AT&T-BellSouth merger also appears to be a dubious instance of FCC "regulation by condition." In such instances, the FCC lets its informal 180-day shot clock on license transfer approval lapse and thereby puts merging parties into a precarious position. As merging parties grow increasingly desperate due to FCC delay, they end up engaging the FCC in further rounds of private talks. Those talks lead to parties' "concessions" concerning matters that may have little or nothing to do with supposed anti-competitive harms raised by the merger.

In Comcast-NBCU, the merging parties have proposed a number of initial concessions in their application and public interest statement. But a net neutrality condition would be unnecessary and irrelevant to the license transfer that the FCC will be considering. DOJ examination and future public comment at the FCC may shed light on the possible existence or scope of any video and online content distribution issues raised by the merger. Issues pertaining to retransmission consent, program access, program carriage, localism, diversity, PEG, and the like will certainly be up for public discussion as the merger application is considered. To be sure, however, the merger certainly involves no threat to last-mile broadband marketplace competition, as NBCU is not in the high-speed broadband service provider business.

So will the FCC's approach to the Comcast-NBCU merger be more like its disciplined approach in AT&T-Centennial than its undisciplined approach in AT&T-BellSouth? It's too soon to say for certain, but not too soon to hope the agency will not allow the process to run amok.