Tom Wheeler, former chairman of the Federal Communications Commission, told C-SPAN’s Peter Slen on last Monday’s segment of The Communicators that the absence of open internet rules tells content providing internet service providers that they can discriminate and favor their own content. Mr Wheeler also opined that on 11 June 2018, major local monopolies will be told that it is fair to discriminate. Over time we will see internet services discriminate in a way that benefits their bottom line. Mr Wheeler believed that an AT&T-Time Warner tie-up would present consumers that type of anti-competitive dilemma.
The United States District Court for the District of Columbia disagreed with the former Commission chairman, issuing an opinion yesterday in United States of America v. AT&T, Inc., that says that AT&T Inc.’s acquisition of the media giant did not violate anti-trust law. Vertical mergers rarely get denied by the courts. Given that AT&T and Time Warner do not play in each other’s space, in my opinion, finding the acquisition to be harmful to consumers would have been a bit much. What I always find fascinating is the expression of entitlement by consumers of media services; as if media consumption and the digital means by which content is consumed is a right.
Take for example the reaction to the merger by a leading member of the Fake Left, Senator Ed Markey, Democrat of Massachusetts:
“This ruling is an assault on consumers, choice, and innovation,” said Senator Markey. “The telecommunications market needs more competition, not more consolidation. We need a telecommunications market where pay-TV gatekeepers don’t favor their own content providers, but allow minority, diverse, and independent programmers to reach Americans’ screens. I fear this decision will only further fuel merger mania in the telecommunications and other markets.”
“Today’s decision underscores the need to restore robust net neutrality rules, so broadband providers like AT&T cannot use their gatekeeper role to harm competing services and content. Without net neutrality protections in place, AT&T will be free to block, slowdown, or charge fees to competitors like Netflix and Hulu to favor their own DirecTV Now streaming service and HBO content. Speaker Ryan should schedule an immediate vote on my CRA resolution to restore the FCC’s net neutrality rules.”
Both Mr Wheeler and Mr Markey come around and paint yesterday’s court ruling with the net neutrality brush while at the same time, unwittingly, making the court’s argument: that there should be a showing that this vertical merger would substantially erode competition. Bear in mind that United States of America v. AT&T, Inc. has nothing to do with net neutrality per se, but Mr Wheeler and Mr Markey have opened the conflation door by arguing that application of Title II-based net neutrality rules would mitigate AT&T’s gatekeeper role. This is speculation and fades further when you compare their speculation with the court’s description of how the industry works.
While I found the first 30 or so pages of the opinion to read like a script proposal for a Netflix docu-drama, the court’s description of how the video distribution industry works makes Mr Wheeler and Mr Markey’s assessments sound like paranoia. AT&T has no incentive to hoard content. On the contrary, part of the company’s reason for acquiring Time Warner is to create another stream of revenue: advertising fees. As more consumers cut or shave the cord at home and go mobile, AT&T’s lost subscriber fees must be recovered from other sources. AT&T decided to chase advertisement revenue. Time Warner’s content is traction for advertisement revenue. It is more efficient to get this new content on to as many distributor platforms as possible in order to maximize revenues. This means licensing content to a Netflix or Hulu or even using Time Warner’s production capacity to create content for these other platforms. Blocking or slowing down access to Netflix or Hulu would make no sense because AT&T would risk degrading the value of the content it provides to these platforms as a result of licensing or sales agreements.
Would Title II-based net neutrality rules increase competition in the production and delivery of content? No. Netflix and Hulu were spawned in a light touch, Title II free regulatory zone. They didn’t need permission to create the applications necessary for accessing content. They didn’t need permission to place those applications on the internet. The demand for content comes from consumers and the data on consumer tastes allows Netflix and Hulu to create even better more engaging content. A socialist-style, government approach to dictating how consumers access content and transmit their preferences about content is not what the consumer needs.
This is why the decision in United States of America v. AT&T, Inc., costs me nothing. I am not being compelled to buy content I don’t need because the light touch environment that went back into effect on Monday means that over the top platforms like Hulu and Netflix and the new AT&T will provide me with even more enticing offers to view the edgier content I suspect that will be spawned from competition. Consumers have put content providers and distribution platforms on notice that they can choose providers and distributors at the swipe of a smart phone screen and by allowing vertical mergers and the convergence it spawns, those screens will carry more interesting and diverse content.