In media deals, antitrust cops should follow FCC
As the Internet media industry consolidates — think AT&T-Time Warner, Verizon-Yahoo and smaller deals — the Federal Communications Commission has moved quickly to protect consumers and smaller firms. Too bad the government regulators who ultimately approve or reject mergers have not followed suit.
The FCC issued rules Thursday that require high-speed Internet providers like AT&T and Verizon to obtain permission from customers before using personal data like browsing histories and financial transactions for targeted ads. In the past, people had to specifically opt out of having their data collected.
The move follows this year’s FCC decision to
uphold net neutrality — the principle that Internet service providers should transmit all data at the same speeds, regardless of who provides it. Critics worried that those providers, without regulatory checks, would offer faster speeds to in-house services or large companies that could afford to pay tolls so that their apps run better and videos stream faster.
Taken together, the two decisions reflect a growing concern from the FCC that big telecommunications companies, many enlarged by mergers, are amassing too much power, whether it’s collecting vast amounts of consumer data or controlling toll gates to the Internet. Verizon and AT&T, two of the reassembled components of the old Ma Bell monopoly, want to spend billions getting bigger, with Verizon dropping almost $5 billion on Yahoo’s Web properties and AT&T splashing out a cool $80 billion for Time Warner.
“The FCC has done a good job but the rest of the government has not kept up,” said Mark Grabowski, a professor of communications at Adelphi University in New York who wrote a book on Internet law. “The world has changed a lot.”
For the most part, the job of determining whether merged companies would become too powerful falls to the Federal Trade Commission and Justice Department. The FCC only gets involved in policing deals when businesses it licenses get bought or sold.
But the two lead antitrust agencies in recent years have shown more interest in blocking what are known as horizontal mergers of companies that compete in the same industry: Staples and Office Depot, AT&T and T-Mobile and the parent companies of the Los Angeles Times and Orange County Register, to name a few.
Yet the feds have blessed technology-media combinations like Comcast and NBC Universal, AT&T and DirectTV, and AOL and Time Warner. These deals represent vertical mergers of two companies that may operate in ostensibly distinct business sectors. These sanctions, however, ignore a reality: The Internet flattens barriers between industries. In other words, mergers are no longer horizontal or vertical. They go in all directions.
It’s pretty clear the feds are still not sure how to consistently apply 19th century antitrust laws to this less-than-linear world.
To regulators, the harm from a Staples-Office Depot merger or newspaper consolidation in adjoining areas are pretty obvious: higher prices because of less competition.
“The framework is clear,” said Andre Barlow, a partner who specializes in antitrust matters for the Doyle, Barlow & Mazard law firm in Washington.
But the approach seems outdated. For example, even if a combined Staples-Office Depot entity raised prices on business customers, as the FTC had feared, those companies could have easily just switched to Walmart or Amazon.
The Justice Department sued to stop the former Tribune Publishing, now Tronc, which owns the Los Angeles Times, from buying the Orange Country Register because both newspapers are in Southern California. But geography means little in a world where people can access a variety of media over the Internet.
Glen Taylor, owner of the Star Tribune newspaper in Minneapolis, recently told a Minnesota magazine that he was interested in buying the rival St. Paul Pioneer Press but balked because of the Justice Department.
“Look at what happened in Orange County,” Taylor said. “Our lawyers say don’t waste your time on it until the government will allow you to do something like that.
“I think our big competition is not another regional newspaper but TV, the Internet.”
But when it comes to mergers like AT&T-Time Warner, regulators generally believe such deals are “pro-competitive,” Barlow said. The idea is that AT&T would invest its telecom profit in distributing Time Warner content online and on mobile devices. AT&T’s DirecTV, which will introduce a streaming service to compete with Netflix next month, would be stronger with easy access to Warner Bros. films and HBO series like “Game of Thrones.”
Fiona Scott Morton, a former Justice Department antitrust official who now teaches economics at Yale School of Management, said the feds are also less sure about how vertical mergers hurt competition and consumers. AT&T, for example, could charge competitors more for content owned by Time Warner. But it may just as well use Time Warner cable channels like CNN and TBS, which Comcast wants to carry, to make sure the cable giant gives it good terms for NBCU-niversal programs it owns.
That’s all speculative since the effects of the merger will unfold years after the feds bless the union — in ways that are likely hard to envision now, given the fast changes in technology and consumer behavior.
Yet recent research shows that mergers, even if approved with conditions by regulators, lead to higher prices for consumers. John Kwoka, a professor at Northeastern University, studied 46 mergers and found that prices rose an average of 7.29 percent.
The FCC has had to grapple with changes wrought by the Internet. Perhaps it’s time for the FTC and Justice Department to upgrade their antitrust algorithms, too.