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ICLE Statement on the FCC’s Restoring Internet Freedom Order PDF Print E-mail

November 21, 2017

The following may be attributed to Geoffrey Manne, Executive Director, ICLE

Today, Federal Communications Commission Chairman Ajit Pai announced the restoration of the Commission’s historically light-touch, pro-innovation approach to regulating broadband Internet access services. The full text of the Restoring Internet Freedom Order will be available to the public here tomorrow.

Chairman Pai’s proposed Order rescinds the misguided 2015 Open Internet Order and reasserts the primacy of competition and consumer protection laws to govern conduct by Internet providers, just as they do everywhere else in the economy.

As Chairman Pai puts it:

"[A]s a result of my proposal, the Federal Trade Commission will once again be able to police ISPs, protect consumers, and promote competition, just as it did before 2015. Notably, my proposal will put the federal government’s most experienced privacy cop, the FTC, back on the beat to protect consumers’ online privacy."

Consumers are not left without government oversight. Not only does the Order return authority to the FTC, it also requires ISPs to disclose how they will treat traffic and be held accountable for any deviation from their claims. As under Section 5 of the FTC Act, deceptive disclosures or unfair practices — practices that have the actual effect of harming consumers — will be subject to FTC enforcement.

As Chairman Pai describes the proposed rules in today’s op-ed:

"[T]he FCC simply would require internet service providers to be transparent so that consumers can buy the plan that’s best for them. And entrepreneurs and other small businesses would have the technical information they need to innovate…. Instead of being flyspecked by lawyers and bureaucrats, the internet would once again thrive under engineers and entrepreneurs."

Chairman Pai must be commended for the process by which he has introduced the new rules. Today he shares his proposed rules with his fellow commissioners and tomorrow he will release the full text of the rules to the public, a full three weeks before the Commission will vote on them.

Sadly, this has not been the norm. Rather, since the 1970s the Commission has voted on proposed rules without public disclosure of the text until an undetermined time after the vote.

The last time around, under Chairman Wheeler, the text of the Open Internet Order wasn’t released until 14 days after the vote, and the Order itself had undergone a complete transformation from NPRM to Order.

Nothing about that process was open or transparent, and, not surprisingly, the 2015 Order evinces virtually no consideration of opposing views or rigorous analysis of complex and controversial issues.

Chairman Pai has changed all of that, and followed basic rules of good governance that actually facilitate discussion and debate over the proposed regulations.

A fuller analysis of Chairman Pai’s proposed Order will have to await its release (and the wearing off of the stultifying effects of L-Tryptophan and over-indulgence). But it seems clear that the Chairman’s office has taken a careful, rigorous, and humble approach to fixing the regulatory mess of the 2015 OIO.

Selected ICLE work on this issue:

  • ICLE Notice of Ex Parte on Restoring Internet Freedom, here
  • ICLE Economics and Policy Comments on Restoring Internet Freedom, here
  • ICLE Privacy Comments on Restoring Internet Freedom, here
  • US Telecom v. FCC, US Supreme Court Amicus of ICLE and affiliate Gus Hurwitz, here
  • The Feds Lost on Net Neutrality, But Won Control of the Internet, Wired, here
  • Net Neutrality's Hollow Promise to Startups, Computerworld, here
  • Since When Is Free Web Access a Bad Thing? The Wall Street Journal, here
  • How to Break the Internet, Reason Magazine, here
  • Net Neutrality is Bad for Consumers and Probably Illegal, Truth on the Market, here
  • Court strikes down Net neutrality rules but grants FCC sweeping new power over Internet, Truth on the Market, here
  • Thirty-two Scholars of Law and Economics Urge the FTC to Advise the FCC to Employ Case-by-Case Rules in Regulating Net Neutrality, Letter to the FTC , here

About ICLE:

The International Center for Law & Economics is a nonprofit, nonpartisan research center. Working with a roster of more than fifty academic affiliates and research centers from around the globe, we develop and disseminate academic output to build the intellectual foundation for rigorous, economically-grounded policy.

DOJ breaks with well-established economics in AT&T/Time Warner merger challenge PDF Print E-mail
Monday, 20 November 2017 15:35


November 20, 2017

The following statement is attributable to Geoffrey A. Manne, Executive Director, ICLE:

PORTLAND, OR -- Today the US Department of Justice filed suit to stop the proposed AT&T/Time Warner merger.

Under current antitrust law the DOJ’s challenge is likely to fail; the courts haven’t rejected a so-called “vertical merger” for decades. But the weakness of the DOJ’s case is also a matter of well-established economics.

According to the DOJ’s complaint:

"AT&T/DirecTV would hinder its rivals by forcing them to pay hundreds of millions of dollars more per year for Time Warner’s networks, and it would use its increased power to slow the industry’s transition to new and exciting video distribution models that provide greater choice for consumers. The proposed merger would result in fewer innovative offerings and higher bills for American families."

None of these claims holds water.

The bulk of Time Warner’s revenue comes from distributing its programming via every feasible means. Withholding content from competitors simply makes no financial sense — especially when AT&T is shelling out some $85 billion for the privilege.

A price hike isn’t in the cards, either. Under US antitrust law, any conceivable harm must be “merger-specific.” But there is nothing about AT&T owning HBO, CNN, or any other Time Warner content that suddenly makes that content more valuable. If a price increase did make sense, Time Warner would already have done it.

And even if AT&T were to withhold certain content from competitors, exclusive or preferential arrangements between input providers and distributors are virtually always beneficial for consumers. As one group of former FTC economists (including, oddly enough, the DOJ’s current chief economist) put it: “there is a paucity of support for the proposition that vertical restraints/vertical integration are likely to harm consumers.”

In the case of film and tv content, such arrangements lead to more content creation and more innovative means of distributing it. And as users are ever-more rapidly cord-cutting and unbundling their viewing, multiple distribution models — each with increasingly different collections of content — ably compete for viewers’ attention.

Of course, certain competitors are bound to complain — but US antitrust laws don’t protect competitors at the expense of consumers.

Finally, the government already has a mechanism for policing the distribution of content by cable networks. Under Section 628 of the Communications Act, the FCC prohibits cable companies from “unfairly” refusing to make their own content available to competitors.

Post merger, if AT&T were to offer HBO or other Time Warner content exclusively on DirecTV, competing cable operators could challenge that conduct under the FCC rules. And if the exclusion were found to have the “purpose or effect” of “significantly hindering or preventing” a rival from providing competitive service, the exclusive deal would be prohibited.

It is disingenuous for the DOJ to act as if there is no viable way for the government to ensure that Time Warner content is widely available to consumers absent merger enforcement. And there is certainly no valid economic rationale to prohibit or condition the merger.

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