Judge In AT&T Merger Ruling Had Zero Understanding Of The Markets AT&T Now Dominates

from the net-neutraliwha? dept

So, we already discussed how the Judge that let the AT&T merger proceed showed a comically narrow reading of the media and telecom markets when he approved AT&T's $86 billion Time Warner merger without a single condition. At no point in his 172-page ruling (pdf) did U.S. District Court Judge Richard Leon even utter the phrase "net neutrality," showing a complete failure to understand how AT&T intends to use regulatory capture, vertical media integration (ownership of must-have content like HBO) and its stranglehold over broadband markets in synergistically anti-competitive ways.

Leon focused almost exclusively on bickering between AT&T and DOJ-hired economists over whether the merger would result in higher rates for consumers (which, if you've watched AT&T do business should be a foregone conclusion). But because U.S. antitrust law is already ill-equipped to help police these kinds of vertical integrations, DOJ economists were locked into very specific confines of economic theory, even if it should be obvious to everybody and their uncle that AT&T will use its ownership of CNN, HBO, and other media properties to jack up licensing costs for streaming competitors.

Of course higher costs for licensing (which in turn means higher costs for consumers) is just one way AT&T intends to leverage its greater scale anti-competitively. It also couldn't be more clear that with net neutrality rules out of the way, AT&T has an absolute arsenal of creatively anti-competitive tools at their disposal, whether that means hijinks at interconnection points (something else Leon likely has never heard of), to the use of usage caps to "zero rate" AT&T's own content, while still penalizing competitors like Netflix.

Amusingly, even many of the Wall Street analysts that have routinely cheered on this kind of behavior were quick to point out how Leon appears entirely oblivious to these additional layers of potential pitfalls. For example Wall Street analyst Craig Moffett, who once heralded broadband usage caps as the pinnacle of modern technological achievement, was quick to point out in a research note to clients that Leon had completely missed the forest for the trees:

"The DOJ focused entirely on the risks that would arise from joint ownership of DirecTV and Turner’s cable networks (recall that they even proposed divestiture of one or the other as a preemptive remedy)," said Moffett. "And, therefore, so did Judge [Richard] Leon. Neither ever even raised the issue of whether there might be a more material competitive harm arising from the combination of Turner programming and an ISP." "The theoretical harm here is obvious," he says. "A wireless or wired ISP, now unfettered by net neutrality regulations, could, in theory, advantage its own content over the content of others, either by zero rating (that is, not counting owned-and-operated content against monthly data caps), by prioritizing (the old fast lanes/slow lanes chestnut), or even by adopting a regime of content exclusivity."

Many analysts believe Leon's myopic ruling set precedent that will result in the DOJ being less likely to police future, major deals in this space, whether it's T-Mobile's competition and job eroding merger with Sprint, or Comcast's latest $65 billion effort to acquire Fox. This slow but steady consolidation in both the media and telecom space will, slowly but surely, mean less overall competition in broadband, fewer diverse options in terms of local reporting, and higher rates for everybody in the chain.

ISPs (and their ocean of dollar per hollar policy folks) have been immensely successful in claiming that ISP oversight must be stripped away if ISPs are to compete on a "level playing field" with Silicon Valley in the ad and streaming wars to come. But as some were quick to note, this intentionally ignores ISPs hold a natural monopoly over the broadband last mile, making the regulatory approach to dealing with ISPs notably different than companies like Facebook (which you can, with a few minor exceptions, choose not to use):

"But neither Facebook nor Google owns the ultimate distribution layer of the consumer connection to the internet. They aren’t the world’s largest telecom company. Neither is Netflix or Amazon or any of the other companies AT&T and Time Warner are afraid of. (Yes, I know Google owns Google Fiber, but that has been more failure than success.) Tech companies might have vertically integrated the creation and production of content with consumer-facing apps and services, but they all depend on internet connections to reach their audiences. And those connections are increasingly wireless. AT&T and Time Warner aren’t trying to catch up to Netflix by merging; they’re trying to step ahead of them in line by marrying Time Warner’s content to AT&T’s network."

Again, this idea that natural broadband monopolies require different and tougher rules because they're different is something ISPs like to play dumb about. But again, the idea that the domination of media and broadband in concert could be a real problem (especially for startups and small businesses) isn't something Leon bothers to seriously think about at any point in his 172 page ruling. Despite the fact that the obvious harm caused by letting a handful of companies dominate the pipes to the home and the content running over it is becoming painfully apparent in the Comcast era.

As companies like AT&T, Comcast and Verizon beef up with media acquisitions in the hopes of challenging Google and Facebook in the media space, the rules governing the potential downsides of these deals are being routinely stripped away. Whether that's the death of net neutrality (which also gutted the lion's share of FCC authority over ISPs) or the steady assault on decades-old media consolidation rules, for too many are dumbly looking the other direction as these companies try and build a decidedly dystopian broadband and media future.

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Filed Under: antitrust, competition, consumer welfare, doj, merger, net neutrality, richard leon, zero rating

Companies: at&t