Inter Net Neutrality

What an interesting play on words.  According to the Merriam-Webster dictionary, “inter” is a verb that means “to deposit (a dead body) in the earth or in a tomb.”

Earlier this week, the Chairman of the U.S. Federal Communications Commission (FCC) outlined plans to bury the Internet rules promulgated under the Obama administration that required providers of Internet services to treat all web traffic equally.  Those rules, among other things, limit the ability of ISPs to favor content or customers, to block or slow down the online services they provide.  Under the proposed changes, ISPs (wired and wireless) would be allowed to offer web-based services at different speeds and differing quality of service.  In addition, they could enable more favorable speed or quality, or both, for websites that paid a fee – as long as that relationship was disclosed.

Over the years, a lively and heated debate over the nature and extent of regulation needed to protect consumers without stifling innovation has continued.  Proponents of eliminating the rules claim that allowing the market to create different financial and performance models will spur investment and the development of technology, while critics argue that consumer prices would increase and so would barriers to entry and start-up costs for new companies.  Critics point to the airline industry (where the FCC net neutrality rules have never been applicable) as an example of the potential for harm – one U.S. air carrier provides easy access to one online video service which has paid the airline for such priority status, while others are not enabled with the same speed or quality.

Under the previous administration, the Internet and ISPs (both wired and wireless) were treated as utilities, virtually excluding them from regulatory oversight by the Federal Trade Commission (FTC), whose fact-based, case-by-case, analytical approach to regulation is generally perceived as more suitable (and friendly) for emerging technology and evolving markets.  Based on Chairman Ajit Pai’s remarks, in another reversal of the prior administration’s approach, it appears the FCC is now willing to share oversight with the FTC and have the FTC be responsible for monitoring ISP disclosures, determining if consumers are being harmed and determining whether these firms are engaging in anti-competitive or unfair trade practices.  The FCC indicated it plans to enact the new rules early in the new year.  Stay tuned.

If you have any questions or want more information about this or any Legal Bytes’ post, don’t hesitate to contact me, Joe Rosenbaum, a New York based partner at Rimon, P.C., or any of the other lawyers at Rimon with whom you regularly work.

 

 

The Antitrust Division Finds the Nails

– By Stephen Díaz Gavin

Just yesterday (Monday, November 20th), as Stephen Diaz-Gavin’s article “For Want of a Nail: The AT&T – Time Warner Merger” was posted on Legal Bytes, the Antitrust Division of the U.S. Department of Justice (“DOJ”) filed a lawsuit opposing the merger in the U.S. District Court for the District of Columbia, asking that the proposed merger and related transactions be permanently enjoined.  The lawsuit is a significant departure from U.S. antitrust policy in recent years, which has generally permitted vertical mergers and, as we pointed out in our original post, highlights the problems in not having availed themselves of the FCC’s  public interest review to address the concerns about the merger, publicly.  AT&T  immediately responded that it will defend the merger, but win or lose, one thing is a sure thing – approval of AT&T’s $85.4 billion entry into the content production business — is no longer a sure thing. You can read the full text of the DOJ Complaint and again, if you have any questions feel free to contact Stephen Díaz Gavin directly. Of course, you can always contact me, Joe Rosenbaum, a Partner at Rimon in New York or any of the lawyers at Rimon with whom you regularly work.

 

For Want of a Nail: The AT&T – Time Warner Merger

– By Stephen Díaz Gavin

In Poor Richard’s Almanack, Benjamin Franklin included his own version of an old proverb : “For the want of a nail the shoe was lost, For the want of a shoe the horse was lost, For the want of a horse the rider was lost, For the want of a rider the battle was lost, For the want of a battle the kingdom was lost, And all for the want of a horseshoe-nail.” In the case of AT&T’s proposed $85.4 billion purchase of Time Warner Communications, for want of the Federal Communications Commission (“FCC”), the battle might now be lost.

When the merger was announced, AT&T confidently predicted that the deal would get the regulatory “green light”, from the FCC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) portraying the deal as a classic “vertical” merger that removed no competitors from any market. Mindful that AT&T was still smarting from its 2011 failure to convince the FCC to permit its acquisition of T-Mobile in a horizontal merger, AT&T wanted to avoid FCC review, if at all possible.  AT&T and Time Warner maintained this situation was different.  They pointed to the fact that both DOJ and FCC had allowed a large vertical merger to proceed in 2011 when Comcast was permitted to acquire NBC Universal from General Electric.  Just this past February, Time Warner reported to the Securities and Exchange Commission (“SEC”) that it did not plan to transfer any of its licenses to AT&T, so FCC approval would not be necessary. Curiously, few questioned AT&T’s suggestion that there was no role for the FCC because the licenses did not themselves provide service to the public, even though the Communications Act applies to all radio licenses, not just those intended to provide direct service to the public. Apparently a sure thing only weeks ago, the acquisition has  run into significant regulatory difficulties and the DOJ has now raised the prospect that AT&T will have to divest either the Turner Broadcasting unit, which includes CNN and other popular channels, or its DirecTV business.

So what is happening now and why? Consider the political landscape for one. There has been considerable bipartisan political opposition to AT&T’s acquisition of Time Warner. Both leading Republican and Democratic members of Congress have spoken skeptically of the merger. Indeed, despite some relatively benign requirements (not including any divestitures), the DOJ approved the Comcast/NBC Universal merger with no divestiture obligations on Comcast. It is no coincidence that opposition to the Comcast acquisition was largely from programmers and public interest groups, but not, as is the case here, politicians as well.

Comcast and AT&T already control 62.3% of U.S. high-speed internet broadband capacity – significant market power and the capability, as internet service providers, to engage in strategies intended to block competitors. Public interest groups and content providers have again raised the concern that like Comcast before it, AT&T will now itself be a programmer with an incentive for anti-competitive behavior. On the programming side, “competitors” like Google, Amazon.com Video, Facebook and others are dependent on ISPs like Comcast and AT&T to reach users. Some officials at DOJ are also apparently frustrated with AT&T trying to circumvent the regulatory process by creating a sense of “inevitability” around approvals and although behavioral safeguards were imposed in the Comcast/NBC approval, there has been growing concern these have not been successful in preventing abuses.

If the AT&T/Time Warner merger fails, it may well be for want of the FCC’s involvement at the very outset. For many reasons, this entire situation might well have been avoided if AT&T had bit the bullet and sought review by the FCC, along with DOJ. Not doing so, bypasses the public notice and comment procedures and disregards the “safety valve” provided by same public airing of the issues. Although impossible to know at this point, perhaps the public interest emphasis of the FCC might even had taken some pressure off the DOJ to look at more drastic alternatives, such as divestitures of key assets. Instead of the FCC that would have considered imposing “public interest” conditions on the merger, AT&T must now deal with a DOJ Antitrust Division head who believes only in structural remedies, such as divestitures.  We may never know if want of the FCC, like the want of a nail, will cause the battle to be lost, but it increasingly looks that way.

This posting was adapted and extracted from a more detailed Client Alert written by Stephen Díaz Gavin, a Partner in Rimon’s Washington, D.C. office and coordinator of Rimon’s Affiliation with Studio Legale Palmieri in Rome, Italy. You can read the entire alert, entitled “AT&T’s Multibillion Dollar Purchase of Time Warner Might Fail for Not Involving FCC,” and if you need more information, feel free to contact Stephen Díaz Gavin directly. As always, if you need any assistance you can always contact me, Joe Rosenbaum, a Partner at Rimon in New York or any of the lawyers at Rimon with whom you regularly work.