14 years ago, DOJ said letting one broadband company run half the country was a bad idea

August 28

Remember the year 2000? We'd just gotten through worrying about the Y2K bug. The dot-com bubble was in full swing. Tuvalu joined the United Nations. Heady times!

The year 2000 also happened to be when federal regulators approved a merger between two tech titans that some now say should be instructive for the Justice Department and the Federal Communications Commission, as the two agencies review a current-day proposal by Comcast to acquire Time Warner Cable. The 2000 merger, known as AT&T-MediaOne, offers a precedent. But it also raises further questions about certain rules we've established to ensure competition in the marketplace. As a matter of fact, as communications technologies have begun to blend and overlap, it's no longer clear that those rules adequately address the problems they were created to solve.

The obscure case we're talking about dates back to the early days of high-speed broadband. It keeps coming up in filing after filing to the FCC. Netflix brought it up, as did Dish Network. It's been cited by Sen. Al Franken (D-Minn.) — an outspoken opponent of the Comcast merger — a handful of consumer groups, a D.C. suburb in Maryland, a group of antitrust lawyers and even by Comcast itself. What is everyone talking about, and why is a 14-year-old case that predates YouTube and Facebook still relevant?

You may not remember MediaOne, but back in 2000 it was one of the biggest Internet providers around. Comcast had initially planned to buy it before being outmaneuvered at the last minute by AT&T, which submitted a higher bid. So the merger became known as AT&T-MediaOne.

It so happened that through an ISP called Road Runner, MediaOne served a large chunk of America's broadband subscribers. AT&T, meanwhile, sold Internet through a Road Runner competitor called Excite@Home. A merger would've given AT&T control not only over MediaOne's operations, but also part ownership in Road Runner — and together with its stake in Excite@Home, AT&T would've controlled an estimated 40 percent of the country's access to broadband.

"Through its control of Excite@Home and its substantial influence or control of Road Runner," the Justice Department wrote in a complaint in 2000, "AT&T would substantially increase its leverage in dealing with broadband content providers, enabling it to extract more favorable terms for such services."

The Justice Department believed that if AT&T-MediaOne went through, AT&T's newfound position as a gatekeeper would let it dictate outcomes across a national market for broadband. While regulators have been wary of gatekeeping for decades, this marked the first time that the concept had been raised in the Internet industry, policy analysts say.

What does this have to do with the Comcast merger? According to Netflix, Dish and others, regulators currently face a similar situation where you have two major Internet service providers who don't compete against each other in local markets, but whose combination would create an entity that would be similarly empowered to dictate outcomes across a range of other industries nationally. (Where AT&T-MediaOne would've controlled 40 percent of the broadband market, Comcast-TWC's post-merger broadband marketshare would stand at 36 percent.)

In the case of MediaOne, regulators made AT&T sell off its newly acquired stake in Road Runner as a way to address the potential gatekeeping problem. But today's case isn't as simple, largely because the Internet has become far more than an information retrieval system. It's now a platform for a host of applications that were traditionally provided by distinct industries. These industries are now in the process of converging and moving online, and Comcast conveniently sits at the intersection of them all. Even if regulators thought that Comcast should sell off some part of its business to keep it from becoming too powerful, it isn't clear what it could spin off.

"The AT&T-MediaOne thing was in 2000," said Diana Moss, director of the American Antitrust Institute, a legal watchdog that's filed against the Comcast merger. "Here we are 14 years later; what we have in Comcast-Time Warner Cable is a supercharged, amped-up version of this gatekeeper story."

Like all analogies, this one isn't perfect. For one thing, while the Justice Department foresaw a national market for broadband in the MediaOne case, the FCC was much more reluctant to do so. So long as consumers could choose among a number of different ISPs in the same market, the FCC reasoned, a merger wasn't necessarily problematic for competition. The FCC said much the same thing in a different order in 2002.

Those findings bolster Comcast's position, which is that a merger with Time Warner Cable doesn't change the number of ISPs you have access to where you live.

"The FCC approved the acquisition of Media One in June 2000 but never analyzed in that order whether there was a broadband Internet market at all, let alone the geographic scope of such a market because it found the broadband market was just 'emerging,'" said Sena Fitzmaurice, a Comcast spokeswoman. "The relevant question is whether consumer choices for broadband services will be diminished, and this transaction will not diminish competition or consumer choices anywhere." (Cynics at this point might object that in many parts of the country, choices are limited to just a few providers. And in any case, there's often a high cost to switching providers, as a one infamous customer service call has shown this year.)

At one level, Netflix and its allies are right to portray MediaOne as a precedent; there are some interesting parallels there. But at its heart, what the MediaOne case illustrates is a very old idea about market power. There's nothing especially new about the MediaOne case that qualifies it to be the precedent the FCC should hang its hat on.

"I don't think the FCC has to adhere to DOJ's order," Moss acknowledged. "What they have to worry about is not getting crosswise with other orders that they've issued in previous cases."

What's more, the remedy in MediaOne was a simple fix for a simpler time. It's hard to see how you could implement the same solution in Comcast's case without mucking about in what's become a very complicated and interconnected business, leaving aside the question of whether it would even be enough.

In any case, it's clear that Comcast's position in content and distribution creates incentives for it to get the best deals that it can in negotiations with other cable and Internet companies. And it's those relationships — not the one between consumers and their local ISP — that could create the most serious harms.

In part to mollify those concerns, Comcast has voluntarily offered to sell off 3.9 million subscribers. After those divestitures, Comcast would control around 30 percent of the pay-TV market. If that figure sounds weirdly specific, it isn't an accident.

When Congress wrote the laws governing cable in 1992, it specifically asked the FCC for a limit on cable ownership. The agency tried a number of times to implement a formal rule. Those efforts kept falling apart, but it had the long-term effect of creating a norm about cable ownership. Now, the 30-percent cap on cable marketshare has become something of an unspoken rule at the FCC.

As we've seen, however, cable isn't just about cable TV anymore. It's broadband. It's content. It's access, and distribution, and not just for consumers, but also for other businesses, too. A merger with TWC would give Comcast control over, again, some 36 percent of the country's broadband subscribers. But there's no unofficial cap on broadband marketshare like there is in pay-TV, simply because broadband was never regulated like cable was. If that distinction strikes you as somewhat arbitrary now, you're probably not alone.

A 30-percent cap on pay-TV marketshare made sense when the big concern was about horizontal integration, or when two companies in the same industry decide to merge. But when large incumbents become involved in a range of adjacent industries — a process known as vertical integration — suddenly that cap stops looking like such a powerful hedge against market power.

"The concept of a horizontal limit is not obsolete, and very relevant, but what has changed dramatically is the product people are looking for," said Gene Kimmelman, the former top lawyer on antitrust issues at the Justice Department who now leads the consumer group Public Knowledge. "It's a very significant piece of a larger set of limits that are necessary if you want a competitive market."

The MediaOne case showed regulators that high-speed Internet, like other industries, could be subject to a gatekeeper problem if one company gained too much leverage over the others. That early realization prompted the government to intervene. Since then, broadband's not only matured — it's become a central part of the economy. Unfortunately, that's only made today's questions more difficult, not less. Comcast is now a key actor at every level of the Internet and media ecosystem, making it hard to draw any specific prescriptions from the MediaOne episode. Opponents of the Comcast-TWC merger want to convince the FCC that MediaOne offers a major precedent. But due to the scale of this transaction and the way it implicates so many industries and companies at once, it might be more accurate to say we're in completely uncharted waters.

Brian Fung covers technology for The Washington Post.
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