America's top trust-buster and the FCC's #2 Republican commissioner offered different perspectives on how the government should treat antitrust cases - especially in the media industry - during their presentations at the America's Communications Association (née American Cable Association) Summit on Wednesday (March 20) in Washington.
Assistant Attorney General Makan Delrahim suggested that courts should "bifurcate trials," with one segment evaluating the transaction and another phase offering a remedy. He warned that, "Defendants, not the public, should bear the burden of proof of whether [a merger or acquisition] does likely harm to competition" and he urged that "courts should be careful in the future."
Delrahim's remarks came less than a month after the U.S. Court of Appeals tossed out the Justice Department's attempt to stop the AT&T merger with Time Warner. A chastened Delrahim acknowledged that, "Our market definitions change."
"There is a lot of convergence of different forms in your industry," he said. "We look at the facts of the market as well as the changes in technology." Delrahim cited an upcoming Department of Justice workshop on May 2-3, which will examine advertising in the digital age, noting that the goal is to identify how antitrust lawyers should look at the ways in which "advertising dollars are moving to different locations."
During a Q&A session with ACA president Matt Polka following Delrahim's formal remarks, the assistant AG emphasized that when it comes to competitive issues, "We look at it in conjunction with the FCC.
"We work closely with them based on statutory mandates," he said. "What we do is provide predictability for the business community."
O'Rielly Cites Standards that 'Stink,' Emphasizes Marketplace Changes
"His standards stink," said FCC commissioner Michael O'Rielly, describing Delrahim's approach when the six-year veteran commissioner sat down with Polka. "That's the issue. We have to modernize how we examine the marketplace, across segments. Everyone is in the same market. The big tech companies are trying to steal everyone's lunch."
O'Rielly contended that the DOJ's stance is: "We don't plan to change."
"I think that's wrong," O'Rielly continued. "My purpose in being critical publically is to get them to change their approach." In his conversation with Polka, O'Rielly amplified his view that, "Everyone is in each other's business. No one feels comfortable about the sand underneath their feet. Reprising an observation from his earlier prepared remarks, he said that, "Other than FAANG [Facebook, Apple, Amazon, Netflix, Google], everyone is under pressure.
"It's more dynamic and difficult going forward," O'Rielly added. " All types of providers are figuring out what they want to be in this business."
That was a theme of the Commissioner's speech to the group, in which he emphasized the need for better local awareness and oversight of new unregulated entrants competing entrenched cable operators.
"Your companies have invested heavily to meet the immediate and long-term commercial and consumer demand for broadband speeds and capacity, despite a vastly changing marketplace and revenue streams," he said. Playing to the ACA audience, O'Rielly lamented that, "You have been under constant attack by those pointy-headed liberal advocacy groups hell-bent on driving profit margins to zero."
He reminded the group that federal funds to facilitate broadband deployment, can be "used to bring an artificial, subsidized, government-blessed competitor to overbuild your network."
"This is much worse than a lack of coordination among government agencies...; it amounts to government agencies actively harming privately funded broadband deployment," he said.
O'Rielly's sweeping review of cable issues include retransmission consent and the C-Band spectrum reallocation plans.
Noting that ACA’s first three regulatory and legislative priorities are "Retrans, Retrans, and Retrans," he echoed his theme that the FCC is committed to "removing existing Commission rules and regulations that no longer make sense in the current competitive media environment."
"Now it’s time for more substantial reform to be done at a far quicker pace than previously imagined," he said, emphasizing that "the entire government oversight model for video services needs a complete overhaul from top to bottom."
"Except for the top one or two video providers, the days of selling traditional programming packages are evaporating, with little likelihood of returning. Some providers have already stopped offering video services altogether. To put a finer point on it, we are now at the point where the OTT marketplace is already maturing, which is likely to result in consolidation and aggregation within the so-called FAANGs," he said.
With that change looming, O'Rielly insisted that local franchising authorities must become more sensitive to the marketplace realities.
The Commission has an "urgent obligation" to identify issues in which local franchise authorities "should be appropriately preempted by federal law."
Citing the FCC's 2015 "Section 621" proceeding about LFAs' role, O'Rielly called for an evaluation of whether local agencies should be allowed to scrutinize mergers, transactions, modifications, or even renewals with the goal of enacting new or renewing old fringe benefits, especially if traditional video services are dissipating.
"How can local franchise authorities obligate the use of certain accounting practices or practice rights-of-way discrimination?" he asked. "What reasoning can be found to continue PEG [Public access, Education and Government] channels or institutional network mandates? It’s extremely unlikely that any of these burdens will ever be applied to OTT providers, and therefore they serve as discriminatory burdens and create unfair market distortions."
O'Rielly, in his discussion with Polka, said that the Commission should considering letting operators offer skinny bundles.
"Old burdens, old principles no longer do," he said. "You need flexibility in offering services to customers."
As for the ongoing review of C-Band spectrum, O'Rielly made "the same commitment to you that I made to broadcasters."
"If you don't get greedy, your needs will be fully addressed," he said. "The key is not having a knee-jerk reaction in opposition while the complex issues are being considered and resolved."
O'Rielly suggested that the process may lead to "an enormous opportunity." He said that the 3.7-4.2 GHz spectrum plus expansion of unlicensed services in the corresponding uplink band at 6 GHz "provides the best chance to expand current WiFi and other unlicensed operations."
"It will allow those of you who want to grow or introduce wireless offerings to do so without the expense of purchasing spectrum at auction," he said.
'96 Telecom Act Update 'Needed' But Unlikely; STELAR Process Underway
At a news media update during the ACA conference lunch hour, Polka elaborated on ACA's approach to the Satellite Television Extension and Localism Act Reauthorization and evaluated Congressional action to update the 1996 Telecommunications Act.
Polka pointed out the changed circumstances now that so many networks are providing direct-to-consumer online feeds, such as CBS All Access. He emphasized that, "The paradigm of the bundle is changing because there is more than one way to get the programming."
"I feel confident there will be changes this year," he said, without offering specific revisions.
In response to a query from Multichannel News about the prospects for an omnibus revision of the '96 Telecom Act, Polka said he "wondered if there is political will to update an out-of-date law."
Citing his other comments about the changing marketplace, he said that such a revision is "definitely needed" and vowed that "We won't give up," but he foresees no timetable.
Contributor Gary Arlen is known for his insights into the convergence of media, telecom, content and technology. Gary was founder/editor/publisher of Interactivity Report, TeleServices Report and other influential newsletters; he was the longtime “curmudgeon” columnist for Multichannel News as well as a regular contributor to AdMap, Washington Technology and Telecommunications Reports. He writes regularly about trends and media/marketing for the Consumer Technology Association's i3 magazine plus several blogs. Gary has taught media-focused courses on the adjunct faculties at George Mason University and American University and has guest-lectured at MIT, Harvard, UCLA, University of Southern California and Northwestern University and at countless media, marketing and technology industry events. As President of Arlen Communications LLC, he has provided analyses about the development of applications and services for entertainment, marketing and e-commerce.
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