Industry Trend Analysis - FCC & DoJ: Light-Touch Regulation With Different Impacts - JAN 2018

BMI View: The FCC is continuing with its pro-telecoms operators and light-touch regulation approach, which will culminate in the repeal of the Open Internet rules. On the other hand, the DoJ, also under the guise of light-touch regulation, is taking a stronger stance on vertical mergers and structural remedies. The contradiction could impact the future structure of the market.

The FCC has continued with its light-touch approach to regulation, favouring the telecoms operators over other stakeholders in the market. The regulator has adopted looser rules regarding local media consolidation, rolled back the Lifeline program offering cheap broadband to low-income households, reduced the number of conditions when operators discontinue their copper networks, and made plans to repeal net neutrality in a vote in December 2017. However, the DoJ is seemingly taking a harder stance on mergers, pushing for structural rather than behavioural remedies, a contradiction which will impact the regulatory environment in the US market.

Regulatory Contradiction Will Impact Indusry Risks Score
Industry Risks, Q118
Note: Scores out of 100, with high scores denoting low risks. Source: BMI

The FCC made decisions on four key issues:

  • Local Media Consolidation: the regulator weakened the rules which prevented one company from owning too many media assets, whether radio or TV, within one particular local market. This will have a big impact on smaller markets, and the current deal between Sinclair and Tribune, which the Democrats want to investigate, must be seen within that light;

  • Lifeline Program: the program allowed for the subsidies of broadband services to low-income households. The discounts will now be limited, meaning that access to the internet will be more difficult for poorer families;

  • Copper Networks: there were strict rules in place regarding how telecoms operators could decommission their copper networks, and how they made it known to consumers. The FCC has relaxed these rules, while at the same time not putting forward a plan where copper networks will be replaced by fibre, leaving that decision solely to the operator;

  • Net Neutrality: long-awaited, the vote to repeal the Open Internet rules will occur in December 2017. As we have previously argued, the rules did not hinder investment into broadband services, especially as all major mobile operators now offer unlimited data, nor did it come out of a vacuum, as the fragmented nature of the fixed broadband means that provider choice is often limited.

The pro-telecoms operators and light-touch regulation bias has been well established since Ajit Pai took over as FCC Chairman, but there has also been a change when it comes to antitrust scrutiny at the DoJ. The deal between AT&T and Time Warner is the test case for this new outlook, as it may have been expected to be approved concerning the vertical nature of the deal. This highlights two points. The first is that the DoJ will take a tough stance on vertical mergers, even if the deal does not directly impact one specific market. The second is the DoJ would prefer structural rather than behavioural remedies, which had been used by the previous administration. This would mean that companies wanting to gain scale would need to shed some assets to ensure its deal goes through, as opposed to promising to do certain things within a specific timeframe. Should this become the norm, it will reduce the attraction of trying to go bigger, as the regulation would look to prevent that outcome.

Related Articles:

  • ' Privacy The First Step In Greater Regulatory Pushback ' , March 30 2017;

  • ' Weakening Net Neutrality Helps Operators, Not Consumers ' , April 28 2017;

  • ' What Next For The US Telecoms Market? ' , November 14 2017