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Sallet Champions Gatekeeper Approach to ISPs in Merger Reviews - Broadcasting & Cable

Sallet Champions Gatekeeper Approach to ISPs in Merger Reviews

Makes case for Open Internet rules and investigating zero rating
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The FCC's former general counsel Jon Sallet made the case for FCC chairman Tom Wheeler's targeting of ISPs as the primary threat to internet openness. That came in a speech Friday (Dec. 16) at the Capitol Future of Broadband Competition Conference in Washington, D.C.

In what sounded like a farewell address, Sallet—who moved to the Justice Department's antitrust division as deputy assistant attorney general earlier this year—delivered a lengthy address on competition and broadband providers summed up in the first subhead in the transcript of his speech: "Telecommunications Network Providers Have Incentives and Abilities To Artificially Shape Competition And Have Long Been Associated With the Exercise of Gatekeeper Power."

The speech was about an approach to mergers that presupposes ISPs are going to use that power unless reined in.

Sallet said he wanted to be clear that he wasn't saying that ISPs "are the only players in the Internet ecosystem that can ever be capable of developing or exploiting this power." But that was essentially the only mention of the edge beyond talking about how online video could be discriminated against by ISPs.

Wheeler similarly did not use his bully pulpit to talk about the power of search engines to control where people go online—he consistently suggested there were choices not to go to Google of Facebook, while there was little or no choice of alternative providers, while suggesting the FCC didn't have the authority to regulate the edge anyway.

Sallet talked about the little choice most consumers have over high-speed broadband connections and the costs of switching service where there is limited choice.

Some have argued that internet video has been a boon to broadband providers, who can become part of the virtuous circle with their own online offerings. Nope, suggests, Sallet, who points to the fact that most of those providers are also supplying traditional video.

"The dual business lines of broadband provider/video incumbents shifts their incentives towards seeking to maintain the returns long enjoyed in video distribution," he says. "Online video – a major feature in the Internet ecosystem – threatens those returns.  That threat warps the incentives of broadband providers away from encouraging the virtuous circle."

He invoked the FCC's current inquiry into zero rating to suggest that AT&T's offering of co-owned DirecTV zero rating plans on similar terms and conditions to independent content suppliers deserved scrutiny, though he named no names.

Saying "consider sponsored data plans," which the FCC is currently reviewing under the Open Internet rule's general conduct standard, then offered a hypothetical: "Imagine that a broadband carrier sells to its own upstream programming affiliate and also to other independent programmers the ability to pay for their content to be exempt from a data cap or a consumer’s data plan. A fundamental principle in this area has been non-discrimination: The notion that similarly-situated entities be treated the same.  Assume in this hypothetical that the “price” charged to all programmers is the same but that one of the rivals asserts that the upstream programming affiliate is not really paying the same price because the transfer of money from it to the broadband provider is an intra-corporate transfer. This is the kind of issue that benefits from close economic and factual development."

The new Republican-headed FCC is not expected to see it the same way, or perhaps even enforce the general conduct standard while it works to reverse the Title II reclassification of ISPs, if not throw out the Open Internet order altogether—President-elect Donald Trump is on the record against the net neutrality rules.

It is unclear how a Trump Justice Department will treat merger reviews given the candidate's threats to unwind Comcast-NBCU and block AT&T-Time Warner, though most observers see that more as campaign rhetoric aimed at media outlets he famously derides rather than an antitrust policy statement.

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