FCC Approves CenturyLink/Level 3 Merger

Yesterday, the FCC issued a Memorandum Opinion and Order approving of the transfer of various licenses and authorizations from Level 3 Communications to CenturyLink, Inc. As FSF Scholars have explained in various blogs and Perspectives, merger reviews at the FCC often take too long and this one was no exception. However, this approved merger, valued at $34 billion, will enable CenturyLink/Level 3 to deliver pro-competitive benefits in the video and broadband markets.

It appears that some merger conditions were imposed but I will refrain from commenting on those until I have the chance to review them. For now, I will commend the Commission for its decision to approve this pro-consumer transaction. In his statement, Commissioner Brendan Carr said the merger will “promote the public interest and benefit consumers” by “allowing the merged firm to operate as a more efficient and stronger competitor against larger providers.”

For more on benefits of this merger, please read the following:

Seth Cooper, “CenturyLink/Level3 Merger Should Bring Pro-Competitive Public Benefits,” Perspectives from FSF Scholars, Vol.12, No. 3 (January 13, 2017).

Seth Cooper, “Focus on CenturyLink/Level 3 Merger Benefits Should Lead to Prompt Review in States,” FSF Blog (March 6, 2017).

Michael Horney, “FCC Should Complete CenturyLink-Level 3 Merger Review Soon,” FSF Blog (September 14, 2017).

Michael Horney, “California Public Utilities Commission Approves CenturyLink and Level 3 Merger,” FSF Blog (October 13, 2017). 

Randolph May, “CenturyLink Will Become More Heavily Business Focused,” FSF Blog (December 1, 2016).

California Public Utilities Commission Approves CenturyLink and Level 3 Merger

On October 12, 2017, the California Public Utilities Commission approved the proposed merger between CenturyLink and Level 3 Communications. California was the last remaining state to approve the merger and it now waits for the FCC to make a decision. In a September 2017 blog, I urged the FCC to move forward with this merger review as soon as possible and to improve the timeliness of all merger reviews. And in a January 2017 Perspectives from FSF Scholars, Senior Fellow Seth Cooper explains how a potential CenturyLink and Level 3 merger would bring pro-competitive public benefits in both the video and broadband markets.

FCC Should Complete CenturyLink-Level 3 Merger Review Soon

On December 21, 2016, the FCC issued a Public Notice  announcing that applications had been filed for the “transfer of control of Level 3 Communications, Inc. to CenturyLink, Inc.” Nearly nine months later, the FCC still has not made a decision on the potential merger despite the pro-competitive public benefits the transaction would create. The FCC should make a decision very soon.

On June 9, 2017, the FCC paused the 180-day shot clock at 170 days because it said additional data was needed to supplement the applications. Although the FCC may have had good reason to pause the shot clock, the FCC often takes more than 180 days to review transaction requests. In March 2017, Free State Foundation President Randolph May published a Perspectives from FSF Scholars entitled “A Proposal for Improving the FCC’s Merger Review Process.” In this proposal, he urges the FCC to improve the timeliness of its decisions and to refrain from imposing extraneous conditions when reviewing mergers. In some instances, the reason the FCC fails to meet its 180-day deadline is because it spends time considering the imposition of extraneous merger conditions, which, in effect, are company-specific regulations.

Currently, twenty states have approved the potential CenturyLink-Level 3 merger, and it’s possible the remaining states could be waiting on the FCC to make a decision. (See this March 2017 blog by Seth Cooper questioning whether, in any event, state regulators should be conducting duplicative merger reviews.) CenturyLink originally stated that the merger should be complete by September 30, but it recently revised that time frame to October 12, 2017, according to TRDaily (September 12, 2017). This goal is certainly in reach because on September 8, 2017, CenturyLink filed an ex parte with the Commission saying it will complete the submission of supplemental data “shortly.” Upon this submission by CenturyLink, the FCC should aim to complete its merger review promptly.

Most importantly, if approved, this merger would provide consumers with benefits in the markets of broadband, video, and business data services. In January 2017, Free State Foundation Senior Fellow Seth Cooper authored a Perspectives from FSF Scholars entitled “CenturyLink-Level 3 Merger Should Bring Pro-Competitive Public Benefits.” He explained how “any conceivable harm from the proposed merger appears less likely and less substantial than the likely benefits.” And he explained that the merger would not harm competition in the video or broadband markets:

Importantly, CenturyLink/Level 3 raises no vertical integration concerns related to the residential broadband or video services markets. Unlike CenturyLink, which serves 6 million residential broadband customers, Level 3 is not a residential broadband Internet service provider (ISP). Also, whereas CenturyLink serves about 318,000 residences with its PrismTV multi-channel video programming service and also plans to roll out an over-the-top skinny-bundle video offering, Level 3 is not a video service provider. The merger would nowhere reduce the number of ISPs or video service providers serving residential customers.

Additionally, the combined CenturyLink/Level 3 would enhance competition in the market for business data services. As Seth Cooper explains, the potential merger would create cost savings by reducing the number of business arrangements needed to effectively serve multi-location customers, and it would increase the direct knowledge of business data network functions, “enabling swifter response to network malfunctions and ensuring quality of service guarantees are satisfied.” Therefore, the sooner the FCC realizes the pro-competitive benefits of this merger, the sooner these two companies can combine their resources to better serve consumers with enhanced offerings and lower prices.

Because this potential merger would have no negative impact on competition, the FCC should not need 180 days to determine that the merger would be beneficial to consumers. And, in general, the FCC should be able to make timely merger decisions. One way to do that is to refrain from imposing unnecessary merger conditions.

Congratulations to CenturyLink

Happy to see CenturyLink's announcement that it will bringing 1-gigabit service to Las Vegas. This is another in a recent string of announcements by private sector telecom companies that they are investing huge sums of money to bring high-capacity, super-fast broadband to America's cities.

CenturyLink should be commended for the making the investment. 

The story in Bloomberg Businessweek News is here. The first two paragraphs follow.  

"Las Vegas residents will soon have access to Internet connections 100 times faster than the average broadband system.

CenturyLink announced Wednesday that it would bring 1-gigabit Internet service to the northwestern neighborhoods of Las Vegas before the end of the year. The company plans to expand it even further in 2014."

Forbearing from Broadband Regulation

I just came across one of those items that reinforces the impression that the FCC needs to move much more quickly -- say, on Internet time -- than it presently does if the nation is to realize the economic and social benefits of the necessary transition from a narrowband to a broadband world. In this instance, I have in mind a December 7 ex parte letter filed by CenturyLink in connection with a forbearance request it submitted almost a year ago. (Portions of the publicly-available letter have been redacted due to competitive considerations.)

CenturyLink seeks relief from "dominant carrier" tariffing and other regulatory requirements developed during the last century's Computer Inquiries (dating from the early 1980s). CenturyLink says it needs relief from the regulatory requirements so it can compete "on a level playing field against larger, established providers of enterprise broadband services, including AT&T, tw telecom and Verizon." Moreover, CenturyLink explains that its enterprise broadband services currently are subject to a disjointed set of regulatory requirements that, in light of past corporate acquisitions, vary depending on the CenturyLink affiliate that provides those services.

As CenturyLink puts it: "This disparate regulation frequently precludes CenturyLink from entering into the streamlined, customized arrangements that purchasers of enterprise broadband services demand in today's highly competitive marketplace." CenturyLink's letter explains in considerable detail why, in a competitive environment in which enterprise broadband customers seek to negotiate individualized specific commercial agreements, continued "dominant carrier" tariffing requirements put it at a competitive disadvantage relative to all of its competitors not subject to those requirements.

I find CenturyLink's case for forbearance relief persuasive, but you can review its ex parte letter and judge for yourself.

I really want to make these broader points which go well beyond CenturyLink's own forbearance petition:

• The "enterprise broadband" market, which is another way of saying "sophisticated business customers" is sufficiently competitive that none of the marketplace providers should be subject to "dominant carrier" regulation because there are no longer dominant carriers in this market.

• Broadband services, whether or not denominated "enterprise services," should not be subject to telephone-style narrowband legacy regulations. There should be a "wall of separation" that protects broadband services from such legacy common carrier regulations.

• There is no reason for the Commission -- just because it can -- to take a year, or even more, to decide forbearance petitions seeking regulatory relief. As then Commissioner Michael Powell put it back in 2000, "[o]ur bureaucratic process is too slow to respond to the challenges of Internet time." A dozen years later it's time for the FCC to act with greater dispatch.

It's not too early for the FCC to begin making some New Year's resolutions for reforming communications policy and the way it does business.