anti-competitive behavior

The FCC is launching an investigation into anticompetitive practices that are keeping broadband from coming to apartments and other multi-tenant buildings. They have issued a Notice of Inquiry in Docket in GN Docket 17-142 looking into the topic and are expected later this month to formally release it to the public. The docket specifically looks at barriers to competition in what the FCC is calling MTEs – multiple tenant environments, which includes apartments, condominiums, shopping malls and cooperatively owned buildings.

This is not the first time that the FCC has tackled the topic. Back in 2008 the commission banned some contractual arrangements that gave incumbent ISPs unfair advantage over competitors. However, that order didn’t go far enough, and ISPs basically shifted to arrangements that were not banned by the FCC. The FCC is looking into the topic because it’s become obvious that exclusive arrangements are harming the introduction of faster broadband into a sizable portion of the market. There are cities where half or more of residents live in apartments and don’t have the same competitive choices as those living in single family homes.

The FCC has an interesting legal challenge in looking at this issue. This docket specifically looks at the potential for regulating broadband access in MTEs, something that the FCC has the authority to do under Title II regulation. But assuming that the FCC moves forward this year with plans to scrap Title II regulation they might also be eliminating their authority to regulate MTEs in the manner suggested by the NOI. If they decide to act on the issue it will be interesting to see how they define their authority to regulate anything that is broadband related. That might be our first glimpse at what a regulatory regime without Title II looks like.

Further, Chairman Ajit Pai has shown a strong preference to lighten the regulations on ISPs and you have to wonder if he is willing to really tackle a new set of regulations. But he’s faced with the dilemma faced by all regulators in that sometimes the market will not automatically produce the results that are beneficial to society and sometimes regulations are the only way to get corporations and others to behave in the way that benefits everybody. It’s clear that residents in MTEs have little or no competition and choice and new regulations might be the only way to get it for them.

The NOI looks at specific issues related to MTE broadband competition:

It asks if the FCC should consider overriding state and local regulations that inhibit the deployment of broadband in MTEs. Some jurisdictions have franchising and other rules that make it hard for a smaller competitor to try to serve only MTEs or parts of markets.
It asks if the FCC should prohibit exclusive marketing and bulk billing arrangements by ISPs.
It asks if the FCC should prohibit revenue sharing and exclusive wiring arrangements with ISPs.
It asks if there are other kinds on non-contractual practices that should be prohibited or regulated.

The NOI is interesting in that it tackles all of the topics that the FCC left untouched in 2008. When that order came out I remember thinking about all of the loopholes the FCC had left available to ISPs that wanted to maintain an exclusive arrangement with apartment owners. For example, bulk billing arrangements are where a landlord buys wholesale connections from an ISP and then includes broadband or cable TV as part of the rent, at a mark-up. Landlords under such arrangements are unlikely to allow in another competitor since they are profiting from the exclusive arrangement. The FCC at the time didn’t feel ready to tackle the issues associated with regulating landlord behavior.

The NOI asks for comments on the non-contractual issues that prohibit competition. I’ve seen many such practices in the marketplace. For instance, a landlord may tell tenants that they are pro-competition and that they allow access to multiple ISPs, but then charge exorbitant fees to ISPs for gaining access to buildings or for wanting to collocate electronics or to run wiring. I can think of dozens of different roadblocks that I’ve seen that effectively keep out competitors.

I am heartened a bit by this docket in that it’s the first thing this new FCC has done to solve a problem. Most of the work they’ve done so far is to dismantle old rules to reduce regulation. There is nothing wrong with that in general and I have my own long shopping list of regulations that are out of date or unnecessary. But there are industry issues like this one where regulation is the only way to provide a needed fix to a problem. It’s clear that large ISPs and many landlords have no interest in bringing competition to their buildings. And if that is a goal that the FCC wants to foster, then they are going to have to create the necessary regulations to make it happen – even if they prefer to not regulate.

The Federal Trade Commission (FTC) recently clarified a long-standing policy specifically defining, for the first time in history, how it is going to judge anti-competitive behavior.

As a little background, the FTC has always been tasked with enforcing the Sherman Antitrust Act and the Clayton Act. But those laws are aimed at stopping anti-competitive behavior at the national level when a company is stifling a whole market. It has been exceedingly hard to apply those laws to a smaller market or to the actions of a large company stifling only a single tiny competitor.

In the telecom industry there are numerous cases where the large cable companies went after a small competitor, but these small companies have never had any legal recourse. I don’t think there are any examples of a small company using the law to stop anti-competitive behavior by the big cable companies. In every case I have ever worked with, the smaller company has gotten legal advice that it’s almost impossible to win an anti-competition claim against a big cable company.

And that has been a shame since there are cases where the behavior of the incumbents has been egregious. I’ve seen large cable companies cut rates significantly in a market to try to harm a new competitor while jacking up the rates in surrounding communities to make up for the losses in the one market. Those are the kinds of things that monopolies aren’t supposed to be able to do, but there has never been a mechanism for stopping this anti-competitive behavior.

I’m not a lawyer and I don’t know if the new FTC language fixes this problem, but my layman’s interpretation is that it offers hope. Here is how the FTC now defines how it will look at anti-competitive behavior:

The commission will be guided by public policy behind antitrust law, namely, consumer welfare.
An act or practice challenged by the FTC must cause or be likely to cause harm to competition or the competitive process, while taking into account related efficiencies and business justifications.
The commission is less likely to challenge acts or practices on the sole basis that they constitute unfair competition if the Sherman or Clayton Acts would be enough to address them.

It’s the second bullet point that I think holds out hope. It’s clear that the actions of large companies can cause harm to competition and the competitive process, and this makes it clear that the FTC feels they have the right to oversee such practices. As that second bullet also notes, sometimes small competitors get crushed inadvertently when a large company implements a nationwide practice for efficiency or business reasons. The FTC is not likely to tackle those cases, but should be open to investigating cases where a large company specifically goes after a small company in one market.

The timing of this is interesting for our industry. For many years the place to take a complaint against a large cable company would have been the FTC since the FCC didn’t regulate the cable companies as carriers. The FCC has regulated cable practices and requirements for being a cable company, but not issues like anti-competitive behavior.

But recently, with the changes coming from the net neutrality rule, the FCC has turned the cable companies into carriers under its jurisdiction. The FCC has always heard complaints from small telephone carriers against the larger telcos, so perhaps now the FCC might also be willing to entertain complaints from small cable providers against the larger cable companies.

It would be ironic that now the FTC is willing to perhaps hear such anti-competition claims that they might no longer hold the jurisdiction over the cable market. Those two agencies are certainly engaged currently in an arm-wrestling match over this issue and it might take a while to figure out which agency would be the one to take an anti-competition claim.

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