An easy way for the FCC to show respect for the President’s Executive Order to eliminate “outmoded” and “excessively burdensome” regulations would be to grant the NCTA’s petition for a declaratory ruling, that Section 652 of the 1996 Telecom Act, (intended to encourage incumbent local telcos and cable companies to compete in telephony and video) was not meant to prohibit pro-competitive mergers between cable companies and new entrant CLECs that didn’t exist in 1996 and thus have no market power.

The FCC Sect. 652 status quo is counterproductive in perversely thwarting a central competition policy goal of the 1996 Telecom Act: i.e. promotion of cable-telco competition.

  • By creating unnecessary regulatory uncertainty around actual and potential cable-CLEC mergers, at both the FCC and with local franchising authorities, the FCC effectively has created a regulatory barrier to more cable-telco competition.
  • We cannot “win the future” with a broadband Internet “excessively burdened” with anachronistic analog anchors like the FCC’s current interpretation of Sect. 652. 

Specifically, the NCTA’s petition exposes a dysfunctional local franchising authority review process that has no standards or time limits, which makes the overall regulatory review process for cable-CLEC mergers uncertain, arbitrary, and “excessively burdensome.”

Generally, there is no need for the FCC to prohibit or impede cable-CLEC mergers.

First, Section 652 is a redundant and unnecessary backstop of antitrust law.

  • Antitrust law is timeless as it focuses on prohibiting anti-competitive or monopolistic behaviors and practices in any industry or situation.
  • In contrast, Sect. 652 is woefully out-of-date, and focuses on prohibiting selected industry-specific merger combinations that may or may not over time be anti-competitive as technology transforms the competitive Internet marketplace. 

Second, prohibiting or impeding cable-CLEC mergers based on anachronistic assumptions of analog voice and video competition from 1996, ignores sixteen years of transformative technological change and innovation including:

  • The advent of robust facilities-based broadband competition using a wide variety of wireline and wireless technologies; and
  • A wide variety of competitive digital voice and video Internet applications like: Microsoft-Skype; Apple’s iChat & Facetime; Google Voice, Youtube, & Hangouts; Cisco Telepresence; Facebook Messenger; Vonage; and GoToMeeting.com — to name only the most widely-used competitive internet telephony and video products and services.
  • Given this veritable explosion of vibrant Internet voice and video competition, it is remarkable and befuddling that in the robustly competitive broadband Internet situation of 2011, the FCC appears stuck in a 1996 analog mindset concerning Sect. 652. 

In sum, the FCC should update its interpretation of Sect. 652 to:

  • Comply with Congressional intent to promote competition between incumbent local telcos and cable companies and allow cable-CLECmergers; and
  • Comport with the market realities in 2011 of vibrant multi-dimensional broadband Internet voice and video competition.

Simply, cable-CLEC mergers present no threat to competition that antitrust law or the FCC’s public interest standard cannot address if necessary.

FreePress with its “all complaints all the time” approach to advocacy has been caught once again “crying wolf” when there was no real problem or threat.

A new FCC study that shows ISPs are effectively delivering on the broadband speeds they advertise, exposes FreePress for crying wolf — yet again.

  • FreePress has to acknowledge Verizon’s FIOs far exceeds advertised speeds, Comcast and Charter exceed advertised speeds, and other ISPs are more than close enough to advertised speeds to show that there is not a problem here for the FCC to be concerned about.

FreePress also continues to cry wolf about its spurious tethering” complaint against Verizon because users are prevented from unauthorized tethering of additional devices trying to bypass users’ terms of service agreement.

  • FreePress continues to push its bogus charge before the FCC, despite obvious language in the relevant FCC Order that plainly shows that Verizon has the freedom to do what it is doing under the FCC’s special 700 MHz rules.
  • See this previous post for the FCC language that proves FreePress is crying wolf here — yet again.

Remember, FreePress also cried wolf last year with its spurious charges against Comcast for not allowing Level-3/Netflix to game the backbone market by trying to claim net neutrality meant that unregulated backbone peering arrangements should be treated like Title II interconnection agreements.

  • The FCC Chairman made it clear before Congress that the FCC’s Open Internet order “doesn’t change anything to existing peering arrangements” and that the FCC “hopes those parties settle and resolve it.”
  • Freepress was caught crying wolf — yet again.

In sum, like the proverbial boy who cried wolf  destroyed his credibility by screaming there was a big problem when one did not exist, FreePress has earned its reputation for not being credible by repeatedly claiming broadband actions were problems, when the facts showed they were not.

 

There’s more powerful evidence from Capitol Hill that the FCC’s beleaguered Open Internet/net neutrality regulations are in serious trouble. 

First, on July 27th, eleven GOP Senators on the Senate Commerce Committee requested in a letter, that the FCC conduct a cost-benefit analysis of the FCC’s Open Internet Order, given the President’s recent Executive Order directing independent agencies to reduce burdensome regulations.

  • From the Senators’ letter to the FCC: “Specifically, we concur that each executive and independent agency should propose or adopt a regulation only upon a reasoned determination that its benefits justify the costs.  …we respectfully request that before net neutrality rules go into effect, you honor the intent of the President’s Executive Order by applying a retrospective review towards the net neutrality order and pursuing a cost benefit analysis. If not please provide us with a detailed explanation.”
  • The great relevance of this letteris that it will become the most recent FCC justification and defense of their net neutrality regulations that surely will become a basis for the Senate’s consideration of the expected formal Resolution of Disapproval of the FCC Open Internet Order this fall.
    • The FCC’s response is very important as it needs to persuade 50 of the 53 Senate Democrats to oppose the upcoming Resolution of Disapproval. Many of them are up for re-election and need a very strong FCC defense to provide them political cover for supporting the FCC’s preemptive speculative regulation of a broadband sector that was not engaged in any proven problem meriting any new regulation.
      • Simply, in this environment the FCC needs to strongly justify that the benefits of the FCC regs outweigh the costs, a tall order given that the rules were preemptive by the FCC’s own admission, implying that they are by definition more cost than benefit.
    • If the FCC does not take the letter seriously, it could give wavering Democrat Senators an easy excuse to vote for the Resolution of Disapproval on process grounds.

Second, a day later, July 28th, House Energy and Commerce Committee Chairman Upton, and Subcommittee Chairmen Walden and Stearns, sent an oversight investigation inquiry letter to the FCC asking for all relevant FCC documents and communications in the six months leading up to the FCC’s Open Internet Order — to determine if:

  • … the FCC failed to develop an independent conclusion derived from a balanced fact-based record, which is incompatible with proper rule making.
  • The real import of this letter is that it is an appropriate Congressional oversight function that could also have the practical effect of putting into the public domain essential discovery facts and information that could prove very important to the expected upcoming appealof the FCC’s Open Internet Order in Federal Appeals Court.
  • If the facts indicate that the FCC did not follow appropriate FCC and legal process and procedure, or base its conclusions on substantiated facts of a real problem, this would greatly diminish the odds of the FCC’s Open Internet order surviving appeal.

In sum, both the Senate and the House acted wisely and responsibly last week, in different but complimentary ways, to ensure that the FCC’s net neutrality regulations are subject to all the due process and Congressional oversight requirements that such extremely controversial regulations deserve.

*** *** ***
Find links to the previous parts of this “Dead Regs Walking” research series below:

  • Part XI: New Evidence Administration Support for Net Neutrality Fading
  • Part VIII: FCC’s Net Neutrality Rationale Crumbling in US & EU — Dead Regs Walking?
  • Part VII: Net Neutrality Proponents are Hearing Footsteps
  • Part VI: How FCC Data-Roaming Order Undermines FCC’s Net Neutrality Regulations
  • Part V: The Net Neutrality Accountability Gauntlet
  • Part IV: FCC Out-Europe’s Europe on net Neutrality
  • Part III: FCC’s Net Regs in Conflict with President’s Pledges
  • Part II: Why Verizon Wins Appeal of FCC’s Net Regs
  • Post I: Why FCC’s Net Regs Need Administration/Congressional Regulatory Review

In the end, the U.S. Government is highly-likely to approve the AT&T/T-Mobile merger, despite the significant opposition, because of three over-riding realities: 1) market/financial realities, 2)DOJ legal/precedent realities, and 3) FCC public-interest realities.

I.    Market Reality:
T-Mobile’s leadership and owners have decided that they are unable and unwilling to invest what is necessary in order to compete going forward in the American 4G wireless market, and given that fundamental premise, the AT&T/T-Mobile merger is the optimal market outcome for T-Mobile’s customers and for competition.

  • T-Mobile shopped itself for a good while in order to fully test its market options and ultimately chose to merge with AT&T as the best outcome for all concerned from its perspective.

So the key baseline fact grounding the DOJ/FCC’s decision processes here, is that T-Mobile’s leaders/funders are effectively exiting this business one way or another long term via merger, sale or benign neglect.

  • While the U.S. Government has the authority to approve or disapprove this transaction, it has no authority or power to force T-Mobile’s German owners to invest the capital necessary to make T-Mobile a viable 4G competitor long-term.
  • The cold financial reality here of the European Union’s crushing debt crisis and Germany’s de facto role as the EU banker of last resort, means there is no reasonable prospect that T-Mobile’s German owners and investors will change their mind or find the very large amount of capital T-Mobile needs in order to build out to be a fourth 4G national infrastructure in the United States when they have so many overwhelming needs for German capital in Germany, and in the EU overall to support the solvency of Greece, Portugal, Spain, Italy, etc.
  • What is also driving home the cold financial reality of market forces not being interested in building out a fourth national 4G infrastructure in the U.S. is that both new U.S. 4G infrastructure players,  Clearwire and LightSquared, are partnering with #3 Sprintto create a stronger #3 competitor based on innovative new technologies and business models.
  • What is driving the U.S. wireless market to consolidate from 4 main national 3G competitors to 3 main national 4G competitors, is not the AT&T-T-Mobile merger, but the capital markets reality of a European debt crisis coupled with an anemic economy.

The other dimension of the market reality here is comparing the relative options available to T-Mobile.

  • An independent T-Mobile may look appealing to some that have an unrealistic view of the market and financial realities discussed above, but the reality is that T-Mobile would be less and less competitive quickly over time without the necessary large capital investments in 4G infrastructure upgrades; and the longer the company went without necessary capital investments would mean T-Mobile rapidly would fall further and further behind competitively.
    • Simply, T-Mobile knows it needs to consolidate, in order to best serve the long-term interests of its customers, employees and shareholders.

If staying independent is not viable long term, then which partner is best for T-Mobile’s customers, employees, and shareholders?

The overarching reason T-Mobile was not interested in being acquired by Sprint is the same reason Verizon logically was not interested in T-Mobile — i.e. technology incompatibility.

  • T-Mobile has the same GSM infrastructure technology as AT&T meaning that they are a company/network combination that is relativelyeasy, efficient, inexpensive, and quick to integrate and operate.
  • Sprint(-Nextel) on the other hand is a living and walking example of the extreme risk, complexity and difficulty of trying to merge, integrate, and operate different Sprint and Nextel technologies, infrastructures, and networks.
    • Simply, T-Mobile is worth dramatically less to Sprint, Verizon, or anyone else because of the much higher relative cost and difficulty of technological integration and operation.
  • T-Mobile combining with ClearWire or nascent LightSquared was also not a viable option for T-Mobile because those entities need massive capital at the same time that T-Mobile seeks to exit the U.S. market precisely because they do not have or want to supply the capital that these entities desperately need.

II.   DOJ:
Why the DOJ ultimately will not block the AT&T/T-Mobile merger (which at worst is a 4 to 3 consolidation and in many markets is a 6 to 5 or 5 to 4 consolidation), is that the DOJ knows that there is slim chance the courts would support a DOJ injunction to block the acquisition, because it would be viewed as capricious by the court based on the DOJ’s very long history of precedents (several) in evaluating these wireless markets on a local (not national) market basis, and also given the DOJ’s 2008 approval of the ostensible 2 to 1 XM-Sirius consolidation that has not proven anti-competitive three years later.

Moreover, given that the DOJ has a tried and true system of divestiture remedies that have worked in the past, and given that AT&T has signaled it would be amenable to divestitures in select potentially problematic markets in this merger, a DOJ attempt to block AT&T-T-Mobile in court would have a steep uphill argument to justify that the DOJ did not “move the goalposts” in the middle of the game, and act in an arbitrary and capricious way (given the facts of DOJ’s previously-approved wireless mergers, T-Mobile’s clear determination in exiting the market, and the fact that it was T-Mobile which reached out to AT&T to merge, not the other way around.)

Furthermore, this DOJ knows that the facts and precedents of this case make it a loser legally in court, if the DOJ were to somehow gamble and try to legally challenge this acquisition in Federal Court.

III.  FCC Reality:
This FCC has loudly and consistently declared that its highest priority is accelerating more and faster broadband to all Americans, when arguably the single decision the FCC could make to most quickly and effectively advance its top priority and broadband goals would be to approve the AT&T-T/Mobile merger.

Moreover, the Administration proposed a wireless broadband deployment initiative to reach 98% of Americans by ~2016 (that would require passage of new legislation and implementation of new government implicit subsidies), while this AT&T/T-Mobile merger would achieve virtually all of the President’s goal, in a similar or faster timetable, with much greater likelihood of timely success, and without any need for Government legislation or subsidy.

Furthermore, it will be extremely difficult for the FCC, which claims to be supportive of the President’s Executive Order to minimize government actions or regulations that would slow economic growth and hurt job creation, to regulate or effectively ban this merger’s economic growth and job creation benefits.

It is also hard to see how the FCC would be able to argue persuasively that blocking the merger would be good for the economy or jobs, when 26 Governors and the unions affected strongly support the merger.

The FCC reality is that they have already clearly defined this FCC’s public interest standard to de facto be promoting accelerated broadband deployment in their National Broadband Plan and that the Administration has defined a new de facto public interest standard for independent regulatory agencies in his Executive Order:

  • “Executive Order 13563 of January 18, 2011, “Improving Regulation and Regulatory Review,” directed to executive agencies, was meant to produce a regulatory system that protects “public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation.”  Independent regulatory agencies, no less than executive agencies, should promote that goal.”

IV.   Conclusion:
In sum, despite the false and unsupportable claims that this merger would create a duopoly, three key realities — severe market capital constraints, favorable DOJ legal precedents, and new FCC/Administration de facto public interest standards — all point to the AT&T/T-Mobile merger ultimately getting DOJ and FCC approval.