AT&T's Court Win Shows America's Consumer Protection Standards Are Ridiculously Broken

America's antitrust rules have no good mechanism for dealing with what will happen when big telecom uses the end of net neutrality for uncompetitive practices.

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Jun 13 2018, 7:32pm

Image: Shutterstock

AT&T scored a massive victory when a federal judge ruled the company’s $86 billion Time Warner merger could proceed without conditions. The ruling is a major win for AT&T’s quest to dominate broadband, media, and advertising, and it highlights how U.S. antitrust law and consumer protection standards have become a decidedly unfunny joke.

It’s difficult to overstate just how bad the AT&T merger will be for American consumers, especially in concert with the recent repeal of net neutrality and consumer privacy protections governing American broadband connections.

AT&T’s ownership of Time Warner will give AT&T exclusive ownership of “must have” content like HBO, giving the Dallas-based telecom giant the ability to jack up the licensing costs of such content for companies trying to compete with AT&T’s own TV services.

During the trial, the DOJ specifically provided internal company e-mails making it clear this was a motivation for the merger from the start. Based on those emails, the DOJ believed “Time Warner would be a weapon for AT&T because AT&T’s competitors need Time Warner programming.”

But when AT&T owns not only the content coming to your home, but the wireless and fixed-line connections this content travels over—higher prices are only part of the problem. With the death of net neutrality, AT&T has been given a green light to abuse this power to disadvantage competitors in an ocean of new, obnoxiously-creative ways.

For example, AT&T could exempt its own content (like HBO) from the company’s usage caps while hitting Netflix users with limits and overage fees, a practice (known as “zero rating”) the previous FCC stated was clearly anti-competitive. Or AT&T could strike “paid prioritization” deals that give AT&T (or a deep-pocketed partner’s content) a distinct network advantage.

But throughout his decision, U.S. District Court Judge Richard Leon examines AT&T’s latest merger in a vacuum far from the confines of common sense. At no point is net neutrality even mentioned in the 172-page ruling, and reporters who attended the entirety of the multi-week trial tell Motherboard the phrase wasn’t mentioned by either side at any point during the legal battle.

AT&T lawyers obviously didn’t want to illustrate how its domination of broadband and media consolidation could be synergistically anti-competitive, and DOJ lawyers likely didn’t want to highlight the inconsistency of suing AT&T to protect consumers while the Trump FCC was busy gutting extremely popular consumer protections with the other hand.

Antitrust experts on Twitter were quick to argue that Leon’s ruling demonstrates an arguably flimsy grasp of the broader impact of AT&T’s growing power, routinely takes AT&T lawyer claims at face value, and fails utterly to examine the merger in the context of AT&T’s long history of uncompetitive behavior.

"The Government has failed to meet its burden of proof to show that the merger is likely to result in a substantial lessening of competition," proclaimed Leon.

But the idea that AT&T would use its greater size and leverage to harm competitors shouldn’t have been a tough case for the DOJ to make. After all, AT&T’s history of bad behavior on numerous fronts is absolutely legendary.

In 2012, the FTC sued AT&T after it was found the company was ignoring credit card fraud occurring on systems designed to aid the hearing impaired (AT&T got paid regardless of whether completed calls were scams or honest conversations.)

In 2014, AT&T was forced to pay $105 million after investigators discovered the company was actively making its bills harder to understand so scammers would have an easier time ripping off the company’s own customers. In 2016, AT&T was again fined $7.75 million for turning a blind eye as drug dealers ran a directory assistance scam on the company’s subscribers.

AT&T has also routinely been caught behaving anti-competitively on the net neutrality and privacy front, whether that was blocking user access to Apple Facetime to drive users against their will to more expensive wireless plans, or charging its broadband users hundreds of additional dollars annually just to opt out of the company’s internet snoopvertising.

As such, the idea that AT&T won’t use the greater leverage from the Time Warner deal to behave anti-competitively seems naive in the context of AT&T’s history.

Wrist-slap fines tend to be a pittance in comparison to the money AT&T made off of each of these scams, and AT&T’s immense lobbying power has ensured that regulatory oversight has been gleefully stripped away, as the net neutrality repeal made clear.

Between the neutering of regulatory agencies like the FCC—and the intentional erosion of U.S. antitrust enforcement authority—American consumers and small businesses have found themselves adrift in an accountability and consumer protection vacuum.

The government and activists have long seen this day coming. As long as eight years ago, the FTC had warned that the weakening of U.S. antitrust law via the Supreme Court’s Trinko (2004) and Credit Suisse (2007) decisions left consumer protection enforcement in a lurch, and government leaders unable to use antitrust law to hold companies accountable when necessary.

“Perhaps the most illustrative way to explain Trinko’s effect is this: had the decision been in place 40 years ago, the government’s ability to pursue the antitrust suit that led to the break-up of AT&T...would have been in question,” the FTC argued at the time.

Things haven’t improved since, and activists, lawyers and consumer advocates have been discussing for years how modern (read: antiquated) U.S. antitrust law is particularly ill-suited to policing vertical integration mergers or ideas like net neutrality in the new media era.

"Public interest advocates and the FTC itself warned Congress and the FCC for years that the Supreme Court cases Trinko and Credit Suisse have made the FCC's role in overseeing the industry absolutely critical,” notes EFF lawyer Ernesto Falcon.

Yet you’ll recall that the Trump FCC and ISPs repeatedly claimed that the neutering of FCC authority and the death of net neutrality was no big deal because antitrust law could be used to protect consumers instead. As Leon’s ruling shows, that’s clearly not the case.

“We are seeing that argument completely laid bare as an empty promise of protection,” Falcon notes. “It is clear that when it comes to vertical mergers that represent real net neutrality threats the antitrust doctrines are not equipped to protect consumers from massive ISPs. And if a private citizen or the Department of Justice wants to file an antitrust lawsuit against an ISP, they will likely fail as well because the courts will say the FCC is responsible for handling this and not antitrust law."

As such, consumers and smaller competitors find themselves stuck between growing industry giants and a government that’s often all-too happy to tie its own hands behind its back at the behest of deep-pocketed campaign contributors like AT&T.

As AT&T attempts to dominate the broadband, media, and advertising sectors, its lobbyists have been immensely successfully in eliminating government oversight of its businesses on both the state and federal level. First by lobbying to scale back the FCC’s authority over ISPs, then by threatening to sue any states that dare step up to defend consumer welfare.

And while AT&T’s quest for absolute power is clear to anyone with common sense, the last line of defense for consumers—in this case our nation’s antitrust laws—have also proven to be feebly ill-equipped to actually do much of anything about it.

Meanwhile, thanks to Leon’s bizarrely narrow reading of market realities, AT&T’s victory this week was absolute, and the precedent will likely trigger a wave of additionally problematic deals the DOJ will be wary to intervene on, whether it’s Comcast’s $60 billion bid for Fox, or Sprint and T-Mobile’s latest attempt at a job and competition eroding megamerger.

The Judge didn’t just hand the FTC its first antitrust loss since 2004, he refused to impose any harm-mitigating conditions to the deal whatsoever. Leon even sternly warned the DOJ against appealing its court loss—a favor to AT&T since any delay beyond the companies’ June 21 deal completion goal would trigger a $500-million break up fee.

There’s an ocean of ways this merger and the death of net neutrality will collectively harm american consumers, diversity in media, and streaming video competition. And unless voters challenge the country’s overall trajectory and demand meaningful reform, giants like Comcast and AT&T will be the ones defining what the future of the internet is going to look like.