Justice department picks up free market ball as FCC drops it

by Steve Blum • , , , ,

Cable and phone companies may soon be free of any obligation to meet common carrier standards of behavior, but that doesn’t necessarily mean they can exert their monopoly muscle on the broadband market without fear of consequences.

Last week’s other big broadband story offers hope of an even more effective counterweight to broadband monopolies: anti-trust law. When the federal justice department sued to block AT&T’s takeover of Time Warner, it made a clean break from recent practice and went after the root cause of the problem – pursued a structural remedy – instead of nibbling around the edges with temporary and often tangential behavioral restrictions on the companies. It’s a strategy – and philosophy – outlined in a recent speech to the American Bar Association by Makan Delrahim, the new assistant attorney general in charge of anti-trust enforcement…

Like any regulatory scheme, behavioral remedies require centralized decisions instead of a free market process. They also set static rules devoid of the dynamic realities of the market. With limited information, how can antitrust lawyers hope to write rules that distort competitive incentives just enough to undo the damage done by a merger, for years to come? I don’t think I’m smart enough to do that.

Behavioral remedies often require companies to make daily decisions contrary to their profit-maximizing incentives, and they demand ongoing monitoring and enforcement to do that effectively. It is the wolf of regulation dressed in the sheep’s clothing of a behavioral decree. And like most regulation, it can be overly intrusive and unduly burdensome for both businesses and government.

The justice department’s complaint called out the problem. When Comcast bought NBC-Universal – a similar deal – the justice department and the Federal Communications Commission extracted promises of good behavior. Some targeted direct, anti-competitive problems, while others went after unrelated side benefits, like discounted broadband rates for low income households. But it won’t matter much longer whether those promises did any good: they all expire next year. Comcast will be free to be, well, Comcast.

The justice department is taking a better approach with AT&T and Time Warner. It’s trying to avoid damage, rather than ineptly mopping up around the edges. The same thing happened with CenturyLink’s takeover of Level 3 Communications. The combined company is giving up dark fiber strands on 30 key long haul routes. It’s arguable whether that’s sufficient, but it is a structural cure aimed at preventing a monopoly from forming. The contrast with the weak and irrelevant behavioral conditions imposed by the California Public Utilities Commission is stark.

The broadband market in the U.S. is mostly a mix of outright monopolies and cozy duopolies, which are themselves collapsing into monopolies as cable companies outstrip telcos’ ability to deliver broadband at the federal advanced services standard of 25 Mbps download and 3 Mbps upload speeds. The Federal Communications Commission is determined to let that happen. With its new found zeal for trust busting, the justice department is the unexpected last line of defence.