^{Democracy & Technology Blog} Net neutrality doesn’t belong in AT&T/BellSouth merger

In the present merger review, Commissioner Michael J. Copps and Commissioner Jonathan S. Adelstein demanded that the FCC conduct what they euphemistically call a “thorough review” even though there is virtually no competition between AT&T and BellSouth. With practically no overlap in the present operations of the two companies, by definition there can’t be an increase in market concentration of any significance. That doesn’t matter to Copps and Adelstein, who view a leisurely review process as more likely to yield concessions from applicants AT&T and BellSouth.
This merger is about visceral impressions (Copps and Adelstein claim it would “represent one of the largest mergers in history”), plus it’s a chance to advance dubious proposals that probably couldn’t survive the process of notice, comment, public hearings, majority approval and judicial review. Reports indicate Copps and Adelstein are intent on using this merger proceeding to impose network neutrality conditions on the nation’s largest telecom provider and thereby establish a precedent, they hope, for spreading it throughout the rest of the industry.
Net neutrality doesn’t belong here. The Antitrust Division found the merger would neither significantly increase concentration in broadband markets nor in the Internet backbone. Nevertheless, the companies have pledged not to block access to particular web sites or degrade someone else’s services and applications. But consumer groups and their clients in Silicon Valley want more. In July, when some thought Congress might vote for tougher net neutrality, the FCC easily approved the Adelphia/Time Warner/Comcast merger by a vote of 4 to 1. But net neutrality regulation failed in Congress and this merger proceeding is currently the only game in town. Advocates of net neutrality mandates now desperately hope the FCC will impose an “additional fifth principle of non-discrimination” on AT&T and BellSouth as a condition of the merger. A merger condition wouldn’t be subject to the uncertainty of judicial review because the merger applicant would be ineligible to appeal it — technically, the condition was voluntary. A normal rulemaking process can be extremely lengthy and uncertain before it even gets to judicial review. By then it may be clear that net neutrality is unnecessary to protect consumers and may actually harm them.
But government makes many of its worst mistakes when it acts in haste.
If the FCC imposes a non-discrimination requirement on AT&T and BellSouth, it would outlaw the partnership, bundling and pricing strategies that are the basis for all advertising efforts. That would harm consumers, who benefit the most from advertising. Online advertising generated $12.5 billion in revenues last year, and is one potential source of new revenues to finance costly Internet upgrades. Network operators have relied mostly on flat subscription fees, but want to try adapting their business models to the new capabilities of advanced fiber-optic connections to homes and businesses. Advertising could be used to reduce broadband subscription fees (Google CEO Eric Schmidt sees a future where mobile phones are free to consumers who accept watching targeted forms of advertising, and the same model might work in the broadband market). Free or discounted broadband would clearly be pro-consumer and the market should be allowed to allocate ad revenues between Internet content and delivery.