How an Obama FCC will deal with major telecom issues

Net neutrality, M&A issues loom for Obama’s FCC

With new leadership soon to take over at the Federal Communications Commission, observers say the FCC is likely to be more skeptical of big telecom mergers and to embrace network neutrality rules.

Although President-elect Barack Obama has yet to nominate anyone to chair the FCC when he takes office next year, telecom analyst Jeff Kagan says that a Democratic-led FCC is going to be reminiscent of the Clinton FCC in the 1990s, when government was more willing to intervene in the telecom market. Similarly, Brookings Institute senior fellow Robert Crandall says that the FCC under an Obama administration is likely to be "more populist and more concerned about concentration in media."

On a practical level, this makes it likely that major mergers comparable to the AT&T-Bell South merger of 2007 and the Verizon-MCI merger of 2006 will face more intense scrutiny and will be less likely to go through without more stringent conditions. Kagan sees this as a double-edged sword: On the one hand, he thinks it's probably a good idea to slow down telecom consolidation, but on the other hand he doesn't want the government to get into the habit of micromanaging the industry and slowing growth.

"The industry was held back by Democrats in the 1990s, but I think that it's gone too far, too fast with Republicans without any restrictions," he says. "We've seen a lot of mergers, but although they seemed healthy at first, companies are slower to innovate."

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With new leadership soon to take over at the Federal Communications Commission, observers say the FCC is likely to be more skeptical of big telecom mergers and to embrace network neutrality rules.

Although President-elect Barack Obama has yet to nominate anyone to chair the FCC when he takes office next year, telecom analyst Jeff Kagan says that a Democratic-led FCC is going to be reminiscent of the Clinton FCC in the 1990s, when government was more willing to intervene in the telecom market. Similarly, Brookings Institute senior fellow Robert Crandall says that the FCC under an Obama administration is likely to be "more populist and more concerned about concentration in media."

On a practical level, this makes it likely that major mergers comparable to the AT&T-Bell South merger of 2007 and the Verizon-MCI merger of 2006 will face more intense scrutiny and will be less likely to go through without more stringent conditions. Kagan sees this as a double-edged sword: On the one hand, he thinks it's probably a good idea to slow down telecom consolidation, but on the other hand he doesn't want the government to get into the habit of micromanaging the industry and slowing growth.

"The industry was held back by Democrats in the 1990s, but I think that it's gone too far, too fast with Republicans without any restrictions," he says. "We've seen a lot of mergers, but although they seemed healthy at first, companies are slower to innovate."

Free Press policy director Ben Scott, however, thinks that the Obama administration must not only be wary of new telecom mergers, but also be active in promoting new competition within the industry.

"If you have a national broadband policy whose primary goals include promoting competition, then permitting vertical and horizontal mergers would be completely counterproductive," he says. "Were I on the FCC, I would start with an examination of what other nations have done to make their markets more competitive than ours. Particularly, I'd look at whether more spectrum can be opened up to create a new broadband pipe."

Dr. A. Michael Noll, a telecom historian and a professor emeritus at the Annenberg School for Communication at the University of Southern California, thinks an Obama FCC should consider looking at entirely new models for delivering broadband to more consumers that would involve both encouraging consolidation and competition.

"I would like to see them take a real good look at the extent to which telcos and cable companies are or aren’t competing," Noll says. "Some people have suggested having a government-regulated monopoly company that controls the infrastructure and puts fiber into the home and then have competing firms that rent space on the infrastructure and provide services to people."

Another hot topic for the Obama FCC is certain to be network neutrality, which is the principle that ISPs should not be allowed to block or degrade Internet traffic from their competitors in order to speed up their own. Several consumers' rights groups, as well as large Internet companies such as Google and eBay, have led the charge to get Congress to pass laws restricting ISPs from blocking or slowing Internet traffic, so far with little success. The major telcos, meanwhile, have uniformly opposed net neutrality by arguing that such government intervention would take away ISPs’ incentives to upgrade their networks, thus stalling the widespread deployment of broadband Internet.