First, T-Mobile and Sprint argue that they need the deal to compete with the Big Two (AT&T and Verizon) – the combined firm would be able to take advantage of efficiencies and economies of scale to bring technological innovations (5th generation (5G)) to the market faster to provide customers with better broadband services at a lower cost.  Thus, customers would benefit from the merger through lower prices and investments to their network.  The parties basically acknowledge that it is a four to three deal.

Second, the parties argue that the wireless market is no longer as concentrated because an abundance of competition exists or will exist in the near future as cable companies, Google, and others are increasingly entering this space. Even using current technologies, Comcast has rolled out low-cost wireless service to its cable customers that rides on Verizon’s network.  So the argument goes that this isn’t a case of going from 4 to 3 wireless companies – there are now at least 7 or 8 big competitors in this converging market.  There is a lot of reasons why long time staffers at the FCC and DOJ might be skeptical of this claim.

Third, the merged firm is pledging to spend $40-50 billion to bring 5G to the United States.  Ultimately, the reasoning behind this transaction is to establish a “strong third” player.  Merging T-Mobile and Sprint would grant the combined company more scale, which could help it compete against AT&T and Verizon.  That is the argument that Sprint made to regulators in 2014 and it is part of the argument the companies are making today.  Promises, Promises?

In 2014, Bill Baer, then head of the Antitrust Division, told the New York Times: “It’s going to be hard for someone to make a persuasive case that reducing four firms to three is actually going to improve competition for the benefit of American consumers.”

But on June 1, 2018, the current head of the Antitrust Division, Makan Delrahim, declined to support the Obama administration’s firm backing of the need for four U.S. wireless carriers.  Delrahim told reporters, “I don’t think there’s any magical number that I’m smart enough to glean.”  He also said the DOJ would look at Sprint and T-Mobile’s arguments that the proposed merger was needed for them to build the next generation of wireless, referred to as 5G, but that they had to prove their case.

Besides new leadership at the FCC and the Antitrust Division in the form of FCC Chairman Ajit Pai and DOJ’s Delrahim, respectively, not much else has changed so as to make a deal more palatable this time around.  Like then as now, the Big Four still make up 98% of a wireless market that is important to just about all U.S. consumers.  Nevertheless, both Pai and Delrahim agree that there is no magic number.

Unlike the last time around, the Trump administration will hear the merging parties out before pre-judging the deal.  So third parties and consumer groups will have their work cut out for them.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Net Neutrality is a principle that allows for an open and free internet.  The Internet Service Providers (ISPs”) are the gatekeepers to all content on the internet.  Net Neutrality rules prohibited ISPs from unfairly discriminating against others by speeding up, slowing down, throttling, or blocking the delivery of internet traffic.  Net Neutrality is what gives users the freedom as they browse through web pages, apps or any other content available on the internet.

By scrapping the FCC’s Net Neutrality rules, ISPs will be free to act without burdensome regulations, which imposed substantial costs, chilled investment, and lessened innovation. ISPs, however, will be required to disclose information about their practice to consumers, entreprenuers, and the Commission, including any blocking, throttling, paid prioritization, or affiliated prioritization.  While the FCC is returning to a light touch approach, its action restores the FTC’s jurisdiction to act when ISPs or broadband providers get out of line through unfair, deceptive, or anticompetitive acts.

With the light framework, the ISPs could very well surprise us by providing us with better and less expensive service.  For instance, we pay a high fixed price to stream content and browse the internet.  This may all change as ISPs will have more control without any preemptive rules to burden themselves with so they will innovate and provide us with better service at lower costs.

It reminds some about how our local incumbent cable company offers packages of channels that you do not want to watch?  The ISPs will be in control and will have the ability to innovate and offer us cheaper and better service with bundles of web pages that we may or may not want.  Will the overall cost that we pay for ISP services go down or up?  Prices may go down, but it could be more confusing in terms of what web pages are you purchasing, which sites can you visit, what streaming services will work better with your ISP service?  It is too early to tell whether the FCC’s action today is good or bad, but there are strong opinions on both sides.

If the FCC is not going to regulate the free and open internet, who will police the broadband beat going forward?  The answer appears to be the FTC, but can antitrust be an effective safeguard?  Probably not.  What is really required will be legislation.  That being said, the FTC must be prepared to enforce the antitrust laws against any ISP mischief.  Acting Chair Ohlhausen put out a statement after the Order was adopted saying that “the FTC is ready to resume its role as the cop on the broadband beat.”

The FTC-FCC issued a Memorandum of Understanding (“MOU”) which discusses how the FTC and FCC will allocate enforcement of ISPs.  The FCC will investigate and take actions against any violations of the order’s transparency requirements, under which ISPs have to disclose any blocking, throttling, paid prioritization or congestion management. That means if they don’t disclose what they are doing, the FCC’s Enforcement Bureau will handle it.  The FTC will investigate ISPs for any divergence from what they say they are, or are not, doing, as well as any other practices the FTC deems unfair or deceptive.  That unfairness could include anticompetitive blocking or throttling or paid prioritization.

FCC Chairman Ajit Pai said in a statement that “instead of saddling the Internet with heavy-handed regulations, we will work together to take targeted action against bad actors. This approach protected a free and open Internet for many years prior to the FCC’s 2015 Title II Order and it will once again following the adoption of the Restoring Internet Freedom Order.”

FTC Chair Ohlhausen says that: “The FTC stands ready to protect broadband subscribers from anticompetitive, unfair, or deceptive acts and practices just as we protect consumers in the rest of the Internet ecosystem.” But, Commissioner McSweeny warns that the FTC may not be up to the task.  She says that the FTC lacks the tools, the expertise, and the resources to carry out such a charge on its own.

Today is a new day as the FCC scraps the 2015 net neutrality rules.  The FTC must be ready to quickly step up to the plate to protect consumers from any anticompetitive conduct or bad behavior by ISPs if and when it is discovered.   If and when, the ISPs engage in any anticompetitive acts to undermine the open and free internet, let’s hope that the FTC uses its dusty tools that have been left on the shelf for so long, the wealth of experienced competition and privacy lawyers, and its vast resources to be the new strong cop on the broadband beat.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

She said that antitrust enforcers adopted the Chicago School principles, which narrowed the scope of the antitrust laws and allowed mega-mergers to proceed resulting in many concentrated industries.  She believes that antitrust enforcers already have the tools to reduce concentrated markets and that they simply must start enforcing the law again.

Senator Warren’s recommendations included stronger merger enforcement, cracking down on anticompetitive conduct and increasing agency involvement in defending competition.

Senator Warren called for the blocking of mergers instead of negotiating weak settlements that allow deals to go through:

• The DOJ and the FTC need to block any mergers that “choke off competition” and take to court any large company that is impeding competition and innovation.
• “If we’re going to begin a new era of antitrust enforcement, we need to demand a new breed of antitrust enforcers. We need enforcers with steel spines who will stand up to companies with the best-dressed lobbyists, the craftiest lawyers, and the highest-paid economists.  Enforcers who will turn down papier-mache settlement agreements and actually take cases to court.”
• “To revive competition in our economy, vertical mergers, particularly mergers in already concentrated industries, should be viewed with the same critical eye that’s needed for mergers between direct competitors.”

Senator Warren called for a crack down on anticompetitive conduct:

• The DOJ and FTC should bring lawsuits against companies using anti-poaching and non-competition agreements among companies and franchises that prevent employees from obtaining jobs that could increase their pay.
• The DOJ and FTC need to “[g]row a spine and enforce the law.  No-poach agreements are a reminder that corporate concentration not only affects consumers by limiting choices and driving up prices. It also affects workers who can’t get the salary they would be able to get in a competitive economy.  It’s time to hold those corporations accountable for these competition-killing practices. And let’s be clear: holding everyone accountable means everyone….There is no exception in antitrust laws for big tech.”

Senator Warren called for all government agencies to participate in the protection of competition:

• “Sure, DoJ is law-enforcer-in-chief, but all government agencies should defend competition” and reduce monopoly power where they have the power to do so.  The FCC should enforce strong net neutrality rules.  The FDA can reign in pharmaceutical monopolies as it controls which drugs come to market and when.  The Federal Reserve and FDIC could make sure that banks are not to big to fail. The DOD could inject more competition in its defense contracting process by not limiting the number of bidders.

President Obama lists four bright-line rules:

• No blocking. If a consumer requests access to a website or service, and the content is legal, your ISP should not be permitted to block it. That way, every player — not just those commercially affiliated with an ISP — gets a fair shot at your business.
• No throttling. Nor should ISPs be able to intentionally slow down some content or speed up others — through a process often called “throttling” — based on the type of service or your ISP’s preferences.
• Increased transparency. The connection between consumers and ISPs — the so-called “last mile” — is not the only place some sites might get special treatment. So, I am also asking the FCC to make full use of the transparency authorities the court recently upheld, and if necessary to apply net neutrality rules to points of interconnection between the ISP and the rest of the Internet.
• No paid prioritization. Simply put: No service should be stuck in a “slow lane” because it does not pay a fee. That kind of gatekeeping would undermine the level playing field essential to the Internet’s growth… I am asking for an explicit ban on paid prioritization.

President Obama also stated that he believes the FCC should take strong steps to protect net neutrality by reclassifying consumer broadband services under Title II of the Telecommunications Act, and then forbearing from applying certain burdensome regulation available under that Title.

Obviously, the cable and phone companies will have a lot to say about this if Chairman Wheeler pushes through rules that require more regulation over the internet.  President Obama appears to be sending a message to Chairman Wheeler, but at the same time, acknowledges that it is the FCC’s decision on how to handle net neutrality.  While Chairman Wheeler’s more balanced middle of the road plan leaked a couple of weeks ago indicated that he does not mind if Comcast, AT&T or Verizon charge Netflix for using more bandwidth, President Obama’s plan would go further because he wants everyone on the internet treated equally.  President Obama’s call to ban internet fast lanes and block service providers’ ability to charge content providers for faster content delivery will certainly meet heavy resistance.  Indeed, Verizon warns that intense regulation of the internet would threaten harm to an open internet, competition, and innovation.  As the net neutrality regulation debate heats up, the Antitrust Division and the FCC are currently reviewing three of the big four gatekeepers that are involved in acquisitions:  Comcast’s acquisition of Time Warner Cable and AT&T’s acquisition of DirecTV. President Obama’s statements are direct at net neutrality and do not mention the transactions.  No matter whether Chairman Wheeler implements his proposed plan or President Obama’s plan, the FCC will likely be challenged in court.  Chairman Wheeler is in a difficult position, but he has to figure out a way to resolve the net neutrality regulation debate in a fair and balanced manner to avoid a court challenge.  Is more regulation the answer or should we rely on the antitrust laws to protect us?

To see President Obama’s statement: WH.gov/Net-Neutrality

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

·            Brad Burnham – Managing Partner, Union Square Ventures

·            Ruth Livier – Writer, Independent Producer, and Actress

·            Robert McDowell – Former Commissioner, Federal Communications Commission (FCC)

·            Jeffrey Eisenach – Visiting Scholar, American Enterprise Institute Center for Internet, Communications and Technology Policy

·            Nuala O’Connor – President and CEO, Center for Democracy and Technology

Members of the Senate Judiciary Committee disagreed about the need for the FCC to enact net neutrality rules.  Some, such as Sen. Orrin Hatch (R-UT) and Sen. Ted Cruz (R-TX), argued that additional regulation would inhibit the ongoing growth of the Internet and limit the freedom the Internet represents.  Other senators, such as Chairman Patrick Leahy (D-VT) advocated for the net neutrality rules to prevent the “paid-prioritization” of network traffic by a handful of “corporate gatekeepers” from turning the Internet into a “system of ‘haves and have-nots’.”

The witnesses disagreed with each other.  Mr. Burnham’s solution would be to classify last mile broadband access as a telecommunications service, which would give the FCC the authority to protect open access to the Internet without overly burdensome government regulation.  Ms. Livier also preferred reclassification as a telecommunication service to provide a basis for permanent regulation. She testified that an open Internet empowers minority communities, promoting better representation in media and in professional and creative settings.  Mr. McDowell disagreed. He testified that as a Commissioner, he voted against earlier attempts to enact net neutrality and continues to oppose net neutrality because, among other reasons, there is no evidence there is anything wrong in the Internet access market that needs fixing. He is concerned that regulation of fixed broadband would spill over into other areas, including wireless broadband, harming competition and innovation.

Dr. Eisenach also opposed net neutrality in his testimony. He saw net neutrality as protecting the status quo financial benefits to private parties rather than benefitting consumers or public interest.  Dr. Eisenach stated that existing antitrust laws are better able to preserve competition and to check anticompetitive behavior because they have exhibited the flexibility to address market power abuses. Ms. O’Connor expressed support for a light regulatory hand.  She testified that existing antitrust laws would be insufficient in the absence of net neutrality.

While opinions differ, no one disagrees that debate regarding net neutrality matters.  As the FCC determines how it will regulate the internet going forward in an effort to keep the internet open to everyone, various stakeholders and industry players will lobby and potentially litigate in an effort to keep the status quo.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Chairman Wheeler explained that access to a 25 Mbps connection is becoming essential (or “table stakes”) to consumers with a majority of Americans having access to 100 Mbps or higher connections. However, “just because most Americans have access to next-generation broadband doesn’t mean they have competitive choices.”  Indeed, Chairman Wheeler believes that most Americans really have no competitive choices.  Chairman Wheeler applauded Google and AT&T’s introductions and plans to introduce gigabit broadband to markets around the country, but worried that characterizing competition in many markets as a duopoly “overstates the case” because of the lack of competitive opportunities open to consumers.

To address these concerns, Chairman Wheeler explained the FCC’s Agenda for Broadband Competition, which includes four broad principles: (i) protect existing competition; (ii) encourage greater competition where possible; (ii) create competition where it does not exist in a meaningful way; and (iv) promote broadband deployment where competition cannot be expected to exist.  Through the application of these principles, Chairman Wheeler hopes to improve broadband performance, promote competition, and encourage innovation.

For more information see: Tom Wheeler, Chairman, Federal Communications Commission, The Facts and Future of Broadband Competition, (Sept. 4, 2014), available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0904/DOC-329161A1.pdf.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The settlement ending an investigating into Verizon’s alleged misuse of customer information. The FCC’s Enforcement Bureau was investigating Verizon’s alleged failure to notify approximately two million new customers of their privacy rights.  Specifically, Verizon allegedly failed to provide to  new customers instructions for how to opt-out from alleged Verizon’s use of their personal information for marketing purposes.  As part of the settlement, Verizon must inform all new customers of their opt-out rights on every bill for three years.

The $7.4 million settlement is the largest in FCC history for a settlement of an investigation related solely to the privacy of telephone customers’ personal information.

For more information see Press Release, Federal Communications Commission, Verizon to Pay $7.4 million to Settle Consumer Privacy Investigation (Sept. 3, 2014), available at http://www.fcc.gov/document/verizon-pay-74m-settle-privacy-investigation-0

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com