In an order
released on September 12, 2012, the Federal Communications Commission
terminated the remaining condition attached to the proposed AOL-Time Warner
merger when the agency approved the combination in 2000. The condition prohibited
Time Warner Cable, then a subsidiary of Time Warner, from discriminating
against any unaffiliated Internet service providers permitted to use TWC's
facilities to provide Internet service to subscribers.
I'm sure the order was little noticed, even though the
Commission said it was part of "our broader efforts to remove unnecessary
regulations." But it warrants some attention. The agency states "changed
circumstances have eliminated the rationale underlying the condition."
You can bet your house on the truth of that Commission
assertion.
The Commission's September 12 order dutifully observes that:
"At the time of the
merger, AOL was the world’s largest Internet Service Provider (“ISP”). Time
Warner was the second largest cable provider in the United States, possessed
one of the world’s largest content libraries, and controlled the nation’s
second largest broadband ISP, Road Runner….[C]orporate restructuring has
severed the ties among AOL, Time Warner, and TWC. In addition, AOL no longer
operates as a broadband ISP."
Changed circumstances?
Time Warner, Time Warner Cable, and AOL officially severed their
corporate ties in 2009, although as close observers recall, the chief corporate
components of the merged entity seemingly began falling apart not too terribly long
after the AOL-Time Warner merger was consummated – after an intensive FCC
review that lasted over a year.
The point of taking note of the FCC's order is not to poke fun
at the agency. There is a serious, important point to be made: The FCC's
experience in imposing conditions on the AOL-Time Warner merger based upon its
competitive assessment should cause the agency to adopt a more modest, perhaps
even humble, posture with respect to its ability to discern the future
parameters of the communications marketplace. The technological and marketplace
dynamism demand a high degree of regulatory modesty.
Of course, the Commission was under enormous pressure from
so-called consumer groups to reject the AOL-Time Warner merger proposal in light
of the claimed domination of the new "media giant."
A Consumers Union
representative claimed that the consolidated company "would be in a position
to thwart competition
in many markets across the country." A Media Access Project representative
stated "the sheer size of these two companies' assets and their inadequate
commitment to open access fall short of what the public interest requires and the law permits." A Consumer Federation of
America representative worried that by "[c]ontrolling both content and
distribution, the company [could] design interfaces that capture and lock in
customers, while they lock out competitors,
except on terms and conditions that are set by the entity controlling the choke
point." A Center for Media Education official noted that companies that
"control both conduit and content… wield tremendous power in the marketplace of ideas" and possess "the ability to shape the future
of the Internet and other digital media."
These groups filed a joint petition
to deny the merger, which described the "dangerous new dimension" being added to "the emerging structure of the cable
TV/broadband Internet industry… by extend[ing] the reach of two huge, vertically
integrated firms across the cable TV, broadband Internet and narrowband
Internets." Among the "findings" cited in their petition:
"The merger would allow two enormous firms to dominate the markets for
broadband and narrowband Internet services, cable television, and other
entertainment services, which could leave consumers with higher prices, fewer
choices, and the stifling of free expression on the Internet." The
petition claimed that the new "media giant" would "be able to
quickly capture the new product market for interactive TV."
Pretty alarming claims. But, of
course, they were all wrong. The consumer groups always have a new set of
claims, of course, concerning market dominance by "media giants." But
on the occasion of the FCC's elimination of a merger condition that long since
had made their market dominance prognostications look silly, is it too much to
expect some measure of regulatory modesty from these groups?
Perhaps so.
But the FCC is another matter
entirely. It shouldn't be too much to expect the agency to reflect on the
extent to which its own concerns about marketplace dominance were misplaced. A
good dose of regulatory humility would be in order.
Finally, while the Commission's
order refers to elimination of the AOL-Time Warner merger condition as part the
agency's efforts to remove unnecessary regulations – like the formal
elimination of the Fairness Doctrine
twenty-five years after the FCC had said it would no longer enforce it – this belated
action doesn't warrant deregulatory plaudits. Like the formal Fairness Doctrine
elimination, the Commission's AOL-Time Warner action is in the nature of a pro forma "cleaning up the books."
But the commissioners should
take solace. There is plenty of real regulatory reform work to be done.