Issues:  The AT&T/T-Mobile Merger

Background:  Earlier today, AT&T chief lobbyist Jim Cicconi complained on his company's blog about the treatment the company's takeover of T-Mobile received at the FCC.    That post is here. http://attpublicpolicy.com/wireless/att-response-to-fcc-staff-report/

 The following is attributed to Harold Feld, legal director of Public Knowledge:

 

"The FCC staff report explains in meticulous detail why AT&T's claims on every issue were simply not credible.  The staff went into exhaustive analysis of AT&T's economic models, engineering plans, financial data and public statements to come up with its conclusion that the takeover is not in the public interest.

"Indeed, as staff repeatedly noted in their analysis, AT&T's claims, repeated again in its blog post, were contradicted by AT&T's own internal documents.  For AT&T to say that it did not receive a fair hearing before the Federal Communications Commission is ludicrous.  The Commission staff went out of its way to give AT&T every opportunity to make its case before concluding that the company had not done so.  And, as we have said, the Commission was fully within its rights and authority to release the staff report.

"It is time for AT&T to move on."

 

Public Knowledge is a Washington D.C.- based public interest group working to defend consumer rights in the emerging digital culture.  More information is available at http://www.publicknowledge.org

 

 

It’s been a fun few days in AT&T/T-Mo land to say the least. I swear, this has become my favorite telecom reality show since Death Star Reborn: The AT&T/BellSouth Telenovella finished its series run back in December 2006.

On Monday, we at Public Knowledge filed our opposition to AT&T’s request to withdraw its application to acquire DT. We also urged the FCC to release the proposed Hearing Designation Order even if it granted AT&T’s motion to withdraw. We argued that AT&T sought to suppress an adverse decision by exploiting a procedural loophole. Given that AT&T has consistently tried to control the national debate and undermine criticism by declaring any potentially embarrassing information “highly confidential,” a practice we challenged during the course of this proceeding, we argued that the public deserved to see the questions staff raised about AT&T’s job creation claims, rural broadband deployment, and other public interest benefits.

You can see AT&T’s responses to our filings here and here. I do particularly want to commend Jim Ciconni’s blog post responding to our legal arguments. (As opposed to his most recent blog post responding to the staff report, about which I shall have more to say below and in a separate post).  Not all of AT&T’s success comes from lobbying muscle. Jim’s response is well argued legally and well written. As it happens, I disagree with him regarding the nature of the FCC’s discretion here (I think they have it) and read the case he cited, Environmental Services, LLC v. FCC as supporting FCC discretion, not dictating the outcome. Still, that’s what makes the legal profession fun. Different lawyers read the law differently and do their best to persuade the decision maker that his or her position is the right one.

(Mind you, this makes the current "response" to the staff report all the more disappointing. Guys, not only did staff meticulously analyze all your claims, but they pointed out that most of your claims were contradicted by your own internal documents. I know you are not used to getting called on that sort of obvious baloney, but when you are caught with your hand in the cookie jay and crumbs on your shirt it looks silly to say that it is procedurally unfair to send you to your room without your merger.)

Tuesday, the FCC allowed AT&T and Deutsche Telekom to withdraw their applications without prejudice. At the same time, it released the proposed hearing designation order as a staff report.  Not surprisingly, I consider this a major win for the public and the right thing to do. AT&T has spent millions of dollars to persuade the public that the merger will create jobs and bring other benefits while doing no harm to competition, but at the same time it refuses to submit these claims to an evidentiary hearing and uses broad claims of confidentiality to shield embarrassing admissions that undercut these claims from the public. In light of this, I find AT&T’s protests about procedural fairness a shade hollow.

Additionally, it is an act of profound political courage by Chairman Genachowski. It would have been easy to grant AT&T’s request and bury the report, lamenting that AT&T had defeated him with a procedural trick. Instead, he decided to let the public (and the district court considering the antitrust case) see what the agency’s expert staff thinks of the evidence AT&T insists supports its claims. Answer: The expert staff of the expert agency don’t think very much of it.

The staff report is so good, so comprehensive, so wonderfully vicious and snarky while simultaneously avoiding any suggestion whether the existing market might have some problems, that it is getting a post of its own as soon as I can manage. Seriously, I keep hearing the opening number from “Legally Blond – the Musical” (Omigodyouguys!) every time I read it. Oh, that I have lived to see this day! As others have noted, it basically says: "Do you think we are stupid? Not only are your models inaccurate and results driven, but your own internal documents show you don't believe this nonesense you expect us to swallow. Oh, and that EPI report on jobs you keep throwing around, it doesn't say this merger will create jobs. So please stop lying your ass off about this or prove it to an administrative law judge.

What Happens Next?

Beats the heck out of me. We are in serious terra incognito here, and everyone is pretty much making this up as it goes along. But let me run through a few basics so we are all guessing under the same set of understandings.

Legal Status of the Report: AT&T is right when they point out that the report does not have any legally binding authority. In this respect, it is like any other staff report. In legal terms, as set forth in United States v. Mead Corp., it is simply “persuasive authority” that a court should evaluate as the opinion of an expert but not a determination under the authority delegated by Congress to which a court must show actual deference.

Impact on Antitrust Case: Assuming AT&T continues its Black Knight v. King Arthur strategy, I expect them to show up at the next status conference all rarin’ to go. With this Order in their back pocket, I expect DoJ to be equally rarin’ to go. But I do expect Judge Huvelle to press both parties on whether there is any point in going on, given that AT&T has withdrawn its application and three Commissioners made it abundantly clear that if AT&T and DT come back with precisely the same application, they will vote the hearing designation order as soon as the FCC’s ULS database confirms receipt.

It is also entirely possible that if AT&T wants to buy time, either to work out some possible new deal or put pressure on DT to renegotiate the break up fee by dragging things out, will ask the court to hold the case in abeyance. And, of course, DoJ could ask for that as well – although I don’t see why they would at this point.

I do not expect Judge Huvelle to make any immediate decision at the status hearing. She may even ask the parties to brief the question of whether to hold in abeyance or not. My bet is, if no one asks the court to hold this in abeyance, then she probably won’t do it on her own. As I noted last time, nothing requires companies merging to go in any particular order and, until AT&T and DT officially call it quits, there remains a live controversy for the court to decide. So might as well stick to schedule and decide it now rather than wait to see if the parties restructure and go back to the FCC with something different.

The Eternal Rumors Around “Plan B”: At every set back, we see a new swirl of rumors of some sort of possible settlement or restructuring by AT&T and DT. I have written before here and here why I find this unlikely, and the odds don’t get better the more radical the restructuring that gets proposed. I shall have more to say about the latest rumors in a future post (I hope)

In the meantime, we should sit back and enjoy the show. With the mainstream media finally catching on that AT&T might have stretched the truth a bit, both about the benefits of the merger and the likelihood of closing, I'm not sure how long AT&T will continue to spin this out. But not to worry, I plan to sit through 'till the final episode. 

For many years, consumers were able to save some money on their cable bills by simply subscribing to a basic tier of programming.  For additional programming, subscribers had to pay for a set-top box provided by the cable company.  This worked fine when cable companies transmitted the programming in an analog format.  But times, and technology, are changing.  Now even the basic tier, like the more expensive ones, is going digital, and that means consumers will have to pay for a box even if they didn't have one before.  In response to these events, the Federal Communications Commission proposed a new rule.  Public Knowledge applauds the FCC for proposing the rule in response to digital cable technology and protecting subscribers from being hit too hard as a result of the digital transition. 

In the early 1990s, the FCC prohibited cable companies from encrypting basic cable digital signals so subscribers with analog televisions could view basic cable programming without a set-top box.  Because cable companies stopped transmitting television programming through analog signals and now transmit programming through digital signals, this rule is outdated.  Most cable companies want to encrypt the basic cable packages to prevent theft and improve customer service.  In 2009, as part of a move towards exclusively digital delivery, Cablevision requested a waiver to encrypt its basic tier digital signals. This would allow Cablevision to serve its subscribers remotely by simply activating an account from the home office instead of having to send out a technician.  The FCC granted Cablevision’s waiver in January 2010. 

Two concerns arose from the waiver, but the FCC is addressing each concern:

First, PK was originally concerned that the FCC would not propose a new rule to address the technological update.  In the past, a party (like Cablevision) could request a waiver from a rule that was no longer relevant because of technological updates.  The FCC granted the waiver if the party had a reasonable purpose for the waiver.  The problem was that if one party needed a waiver, it was inevitable that other parties also needed waivers.  The FCC granted waiver after waiver instead of nipping the problem in the bud with a new rule that addressed the new technology. 

When Cablevision requested a waiver, it did so because the old rule prohibiting encryption was outdated.  PK commented that the FCC should propose a new rule because many other cable companies would soon find themselves in the same position as Cablevision.  The FCC did just that, and cable companies and other commenters can now offer input to make a useful, generally applicable rule to encrypt digital signals.  This rule-based approach to change is much more reasonable than trying to cope with change through individual waivers. 

Second, PK is concerned about the small percentage of subscribers that still have analog televisions.  Previously, subscribers that didn’t want a digital converter box didn’t pay for one, but now, subscribers will have to pay for a converter box.  These subscribers should still be able to watch the television shows they receive as part of their basic cable package even if they cannot afford digital converter boxes.  PK and Media Access Project jointly filed comments supporting the FCC’s proposed rulemaking and suggested two minor adjustments to the rule to protect subscribers with analog televisions.  We asked the FCC to broaden the criteria used to determine who will qualify for assistance to obtain converter boxes.  Broadening the criteria will help cable companies predict which subscribers will need assistance.  We also want to ensure that subscribers do not experience “bill shock” by clarifying in the rule that converter boxes are free for a specified period of time and that cable companies notify the subscriber each month for three months before the subscriber will be charged for the box.

With these minor adjustments, Public Knowledge fully supports a rulemaking that will not only allow cable companies to develop and promote new services while protecting low-income subscribers, but also will create a new rule that addresses the current digital technology. 

Yesterday afternoon, the FCC released as a staff report the Commission's investigation of AT&T's application to take over T-Mobile. This was despite AT&T's efforts to suppress the results of the FCC inquiry by filing a motion to withdraw its petition on the eve of Thanksgiving. The report outlines the FCC's findings that the proposed merger's harms outweigh the benefits.

This morning's coverage on NPR, featuring PK president Gigi B. Sohn:

Some of you might be interested in reading all 157 pages of the FCC's analysis, while some of you may be, well, less inclined. And even if you are planning on reading the whole thing, maybe you'd like a primer before you dive right in.

More analysis is forthcoming, but here's our first-glance overview:

The Applicants (AT&T and Deutsche Telekom) failed to meet their burden of showing that the claimed benefits of the merger outweigh competitive harms. Not only would the merger violate antitrust laws, but there are substantial and material questions of fact as to the extent of additional harms that would impact the public interest.

Public Interest Analysis:

• The merger raises significant competitive concerns in the wireless market due to increased likelihood of unilateral and coordinated effects.
• There are concerns as to competitive effects on roaming, wholesale and resale services, and handset markets.
• AT&T's economic model is flawed in its structure and input assumptions, ignores potential competitive harms, and overestimates benefits.
• AT&T's engineering model is also flawed because it overestimates efficiencies that would result from the merger. This also weakens their proposed economic model because it is an unreliable input.
• AT&T hasn't shown that cost synergies would translate into lower costs for customers.
• AT&T hasn't shown that the merger would result in an increase in jobs or
• The merger isn't necessary for the promised LTE build-out.

Competitive Analysis:

• The merger would result in subscriber and spectrum concentration "unprecedented in scale".
• The merger would eliminate a nationwide rival that has been a "disruptive competitive force in the marketplace," in terms of price innovation, deploying HSPA+ first, co-founding the Open Handset Alliance, and showing interest in entering wholesale relationships. (For example, companies like Cablevision have shown interest in adding mobile to the services they already offer to their customers in bundles—TV, internet, and landline—by making wholesale deals with wireless companies.)
• Mobile telephone, broadband services, and retail mobile wireless services markets would suffer from less competition.
• 99 of the top 100 markets would be harmed by less competition.
• There would be an unprecedented concentration of spectrum covering 2/3 of the US population.
• Prices would increase up to 8% over the next four years as a result of the merger.
• The record does not assert that T-Mobile would fail without AT&T.

Job Loss Analysis:

• AT&T has failed to proved that the merger would not result in fewer jobs, despite their promise to bring 5,000 call center jobs back to the US.
• AT&T has asserted that the merger would result in less overall capital investment, which result .
• AT&T's claim that it would offer employees whose jobs are no longer required new positions doesn't say how similar the offered position will be, nor how long they can keep it. Nor does this promise apply to domestically-outsourced jobs.

Right now the Copyright Office is in the process of overhauling how it administers part of the Digital Millennium Copyright Act (DMCA), which has the potential to make the copyright notice-and-takedown process easier for service providers and copyright owners alike. The DMCA provides a safe harbor for online service providers that limits their liability for users’ infringement if they satisfy a number of conditions. One of those conditions is the agent designation requirement: the service provider must designate an agent to receive infringement notices from copyright holders so the service provider can take down the allegedly infringing content (subject to a counter-notice from the user). This week, Public Knowledge filed comments in the Copyright Office’s rulemaking to update its directory of service providers’ agents. PK’s comments were focused on making the new agent designation process as affordable and easy-to-use as possible. After all, the scope of eligible service providers is extremely broad, so we don’t want the agent designation process to be too burdensome on small businesses and hobbyists, and making it easier to register agents will benefit both service providers and copyright owners alike.

The Copyright Office currently has an interim agent directory under regulations that were set up mere days after the DMCA was enacted. These rules were intended to be a temporary makeshift solution while the Copyright Office thought through the relevant issues to come up with a more carefully considered process. Kind of like wrapping duct tape around a leaky faucet until you can get it repaired. Those “interim” rules have now been in place for 13 years, and they are long overdue for an update.

The current process is cumbersome and inefficient for both service providers and copyright owners. Right now, to designate an agent a service provider must fill out a form with all the information required by the regulations and pay a $105 filing fee (plus $30 for every 10 additional domain names). The service provider then prints out that word document, snail-mails it to the Copyright Office, and the Copyright Office scans it back into their computers as an unsearchable PDF. The Copyright Office uploads that PDF to its online database and links to it from an alphabetical list of service providers. The service provider list has a separate web page for each letter, but has no search function.

Besides being expensive for service providers, the directory is not nearly as useful as it could be for copyright owners. Since copyright owners can’t search for any of the text contained in the PDFs, the only thing they can work with is the list of names set up by the Copyright Office, which can make it hard to find a company if you’re looking for them under the wrong name. For example, if you look up Politico on the “P” page, you’ll get a different designation form than if you look up The Politico on the “T” page, and neither page alerts you that another form exists for the same organization elsewhere in the database.

Instead of this convoluted type-print-mail-scan-upload process, the Copyright Office’s proposed rules envision a system where service providers can submit an online form that becomes incorporated into the database in text form. The form would never be converted into an image, and all of the fields on the form would remain searchable for directory users. This may seem like a pretty obvious idea, but it is light years ahead of how our current system operates.

Of course, as flawed as the interim rules are, it’s important to remember that the Copyright Office set them up under a very short deadline and they were breaking new ground under the then-recently enacted DMCA. In any event, it’s great that the Copyright Office is now taking action to update the rules, ideally to create a system that is easier for service providers and copyright owners alike.

In our comments, PK urged the Copyright Office to use modern submission and database maintenance tools to make the agent directory much more useful for copyright owners while keeping the agent designation process as affordable and simple for service providers as possible. For example, one would hope that the $105 filing fee will drop significantly once a completely automated system is in place. We also objected to the Copyright Office’s proposals to make all service providers re-file their designations in the new directory. Instead, PK suggested that the Copyright Office simply migrate existing designations into the new database. Similarly, PK opposed introducing a new requirement that service providers periodically validate their designation. This obligation goes well beyond what is required by the DMCA, and service providers has plenty of incentive to keep their submissions up to date anyway, because their safe harbor status depends upon it.

It’s very encouraging to see the Copyright Office’s efforts to bring its agent directory into the 21st Century, and the new directory has the potential to help both service providers and copyright owners. We at PK hope the Copyright Office seizes the opportunity to streamline the agent designation process and maximize benefits for everyone in the notice-and-takedown process.

Issues:  The AT&T/T-Mobile Merger

AT&T has hired three former U.S. senators, four former members of the House and dozens of staff members of current and former legislators of both parties to push its $39 billion takeover of T-Mobile, according to a review of lobbying records by Public Knowledge.

In addition, PK also released information showing AT&T has spent $40 million in advertising to push the merger between May and October.  Of that total, about $14 million was spent in June alone.  The bulk of the spending was for TV ads, much of that concentrated in Washington and New York.

The roster of the AT&T All-Star Lobbying Team is here.

A spreadsheet of the advertising data is here. 

“This information gives us a more complete picture of the vast lobbying and advertising resources AT&T has dedicated to trying to ram through this takeover,” said Harold Feld, legal director of Public Knowledge.  “It is even more impressive that while many members of Congress have ignored the facts and are backing this takeover, the Justice Department and the Federal Communications Commission have not.  It is clear that the data the DoJ and FCC have compiled on this deal will negate all of the money AT&T has spent to mislead policymakers and the public.”

AT&T spent $12.4 million on lobbying for the first three quarters of this year, according to AT&T lobbying reports.  The former senators working for AT&T are John Breaux, Trent Lott and Don Nickles.  Breaux is a Democrat, the others are Republicans.  Of the former House members, the most prominent is ex-House Commerce Committee Chmn. Billy Tauzin, who retired as a Republican after starting his career as a Democrat.  The other former members are former Democrats Jim Davis, Ron Dellums and Vic Fazio.

The data shows that AT&T spent about $37 million for television ads.  The advertising data shows that AT&T spent $9 million on TV network ads,  $5 million on national cable ads, $4 million on ads in the Washington, D.C. market and $3 million in the New York City market.

This advertising information was derived from Competitrack.  While Competitrack makes every reasonable effort to ensure that reported ad attribution, classifications and occurrence data are as accurate as possible, several factors included in the capture and reporting of competitive advertising are beyond Competitrack’s control and the accuracy and completeness of that data provided cannot be guaranteed.

Public Knowledge is a Washington D.C.- based public interest group working to defend consumer rights in the emerging digital culture.  More information is available at http://www.publicknowledge.org

 

 

The Presidents Plan for Economic Growth and Deficit Reduction.

Act will put more people back to work and put more money in the pockets of working Americans.