A Federal Communications Commissioner said Monday his agency’s conditional approval of the AT&T-DirecTV’s merger includes the FCC’s first disguised attempt at regulating Internet prices since its net neutrality rules took effect in June.
Commissioner Ajit Pai released a statement Monday explaining his dissent over the deal approved by the FCC Friday, which he said includes a “regulatory wish-list that has nothing to do with the transaction at hand.”
“I cannot support the commission’s decision to place 17 pages of conditions on that approval,” Pai said. “The transaction’s benefits clearly outweigh any harms.”
“These conditions are the forced tribute that the company must offer to mollify the Capitol.”
Under the conditions announced Friday between the U.S.’s largest satellite video provider and one of its two biggest telephone and Internet service providers, AT&T-DirecTV will be prohibited from discriminating traffic for competing video content transmitted over its network, and submit its interconnection agreements with Internet content creators like Netflix and Amazon to the FCC for review — two of the major tenets surrounding the agency’s recently implemented net neutrality rules.
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The combined companies will also have to build out their high-speed, fiber optic broadband network to an additional 12.5 million customers, schools and libraries and offer discounted pricing to low-income Americans.
“Some conditions are nothing more than policymaking through the merger review process,” Pai said, pointing out that despite both the Justice Department’s review concluding “the combination of AT&T’s land-based internet and video business with DirecTV’s satellite-based video business does not pose a significant risk to competition,” and the FCC’s own economic model predicting “very little change in the price of AT&T’s standalone broadband post-transaction,” the agency still used the merger as an opportunity to regulate pricing.
“Notwithstanding these findings, the commission effectively decides to get into the discount broadband business, using AT&T as its agent,” Pai said. “For example, where technically available, the company is required to offer ‘qualifying households’ wireline broadband service with download speeds of at least 10 Mbps (which, according to the majority on a different day, isn’t broadband) for no more than $10 a month.”
“When the commission instructs a regulated entity that it must offer a particular service for no more than a particular price, there is a name for that. It is called rate regulation.”
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Though the rules reclassifying Internet service providers as public utilities state the FCC won’t engage in ex ante regulation (setting rates ahead of time through tariffs and other regulations), the agency gave itself the power to decide if the rates charged to consumers by providers are “unjust or unreasonable.”
“So notwithstanding the repeated claims by some over the past few months that the FCC has no interest in regulating retail broadband rates, the reality is far different,” Pai said, recalling FCC Chairman Tom Wheeler’s repeated promises not to use the rules to set consumer prices.
“When given the opportunity, the commission did not hesitate to impose rate regulation upon a broadband provider. This is merely a preview of coming attractions.”
Beyond the principle of engaging in price regulation, Pai said the pre-transaction regulation was unnecessary and the price chosen arbitrary, and used AT&T’s current $34.95 TV/broadband bundle in Austin Texas as an example, $14.95 of which covers the cost of 6 Mbps Internet service.
“Given these figures, how could requiring AT&T to offer a 10 Mbps standalone broadband service for no more than $10 a month possibly be necessary to remedy a harm caused by the transaction?” Pai said. “The commission doesn’t even make a cursory attempt to explain how it arrived at this $10 price point.”
Pai added the commission’s conditions prohibiting AT&T-DirecTV from discriminating the web traffic of competing video services are also unnecessary, as any throttling or slowing of service to customers would simply drive consumers elsewhere and result in lost broadband subscribers.
Both the FCC’s economic analysis and the Justice Department’s review found “AT&T benefits when its customers use over-the-top video providers, such as Netflix and Amazon, since ‘[o]nline video is a major driver of broadband demand, and desire to consumer online video leads consumers to purchase more broadband service, including higher speed tiers.'”
“Thus, it should come as no surprise that AT&T offers a promotional package in conjunction with Amazon Prime in four cities,” Pai said.
The commissioner voiced complaints about conditions forcing AT&T-DirecTV to submit for review every interconnection agreement it inks with video providers for the next for years, and the placement of an FCC compliance officer inside AT&T, who will have access to all of the company’s personnel and data.
“Virtually any transaction involving companies we regulate could result in the injection of a commission-selected solon with vast powers,” Pai warned. “Government-approved monitors placed throughout the communications industry would represent a pernicious intrusion into the affairs of private businesses and a dramatic expansion of the commission’s authority.”
Pai concluded by saying the year-plus review process itself took too long.
“When companies remain stuck in purgatory for over a year waiting for an answer from the commission, their business plans are placed on hold while their rivals move full speed ahead. That isn’t good for competition, it isn’t good for consumers, and it isn’t good government.”
Both Pai and Wheeler are scheduled to appear before the House Energy & Commerce Subcommittee on Communications and Technology Tuesday to discuss reforming the agency’s rulemaking process, which Republicans argue needs to be more transparent.
