A public filing released just before the holiday weekend reveals that the Federal Communications Commission (FCC) Cable Bureau has intensified scrutiny of the proposed AOL-Time Warner (AOL-TW) merger. This news comes in the midst of countless reports of price wars between cable modem, Digital Subscriber Line (DSL) service, and wireless broadband alternatives. With all of the price competition, why regulate?
According to the AOL-TW filing, FCC regulators demand that the merged company respond to a series of questions concerning plans for “open access” of their cable lines, which would entail a wholesale price guarantee to competitors for use of their cable lines. The FCC demands that, among other technical questions, the company explain:
How open access trials would work;
How the new company would provide the same level of high-speed data service to competitors;
How service levels would be monitored;
How interconnection prices would be set; and,
How the new company would bill customers and service providers.
The complicated nature of these questions hints that regulators, as opposed to the market, will determine how much AOL-TW can charge for leased lines as well as the primary business practices of the merged company. If regulators deem the AOL-TW responses unsatisfactory, the entire merger may be called into question.
The brinkmanship approach of the Commission is blind to developments in the broadband marketplace.
The FCC’s brinkmanship approach is blind to developments in the competitive broadband marketplace. First, MCI-WorldCom is in the application process for wireless broadband spectrum licenses in 60 markets. In addition, BellSouth does not charge consumers for a DSL modem, offers the first month of service free, and offers the first two months free for current BellSouth ISP customers who upgrade to DSL. SBC Communications recently announced that it is offering consumers several months of free DSL and is cutting prices on all levels of broadband service. Similarly, yesterday Verizon announced that it is dropping the charge for DSL modems and significantly cutting prices at all service levels. And finally, AT&T Broadband, AOL-TW’s biggest competitor in cable modems, will soon announce a 50 percent reduction in cable modem rates and several free months of service in major markets across the nation.
Given the abundance of good news for most high-speed data consumers, why is it that the FCC continues its antitrust inquisition? Concern about anticompetitive behavior is one thing, but holding a merger proceeding hostage when the alleged monopolist is rapidly losing ground is quite another.
FCC regulation would discourage the investment and consumer empowerment that benefits consumers. If competitors can get wholesale access to existing lines built by others, there is little incentive to offer consumers a wide array of choices. As a result of government regulatory zeal, consumers would pay higher government-dictated prices and be deprived of options provided by the marketplace.
The FCC’s policy of “un-regulation” of broadband should apply to the agency’s cable bureau and merger review activities as well.