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Abstract
For much of the past decade, U.S. communications policymakers have been debating the need for net-neutrality regulation of “dominant” communications-carrier platforms. One of the reasons advanced for regulating these carriers derives from a fear that carriers could reduce competition in the production and distribution of video media through their ownership of media companies, but is there any evidence supporting the notion that vertically integrated communications companies have successfully used such a strategy? This paper provides evidence from the financial markets that carrier integration into video production has not redounded to the benefit of these companies’ stockholders. In fact, this integration appears to reduce the value that investors place on such carriers, a result that suggests that the difficulties in managing a large, vertically integrated media and communications company more than offset any benefits (if any) that may derive from anti-competitive behavior induced by vertical integration.
Introduction
In most U.S. communities, there is only one traditional wireline telephone company and one cable television carrier. Both compete with wireless carriers, which may or may not be affiliated with the wireline telephone company. Today, all three types of carriers offer Internet, video, and voice services to consumers, and some own content that is delivered over the video and Internet services offered by these platforms. This vertical integration of video content and the video distribution platform raises a fear that the platform owner may reduce competition in either the content or the video-distribution market by favoring its own content and denying this content to rival platforms.
In 2015, the Federal Communications Commission (FCC) imposed anti-discrimination, “net neutrality” regulation on communications carriers that offer broadband Internet service, purportedly to prevent such discrimination, a decision that was strongly urged by President Obama (FCC, 2015). After a change of leadership in 2017, the FCC reversed course, repealing the 2015 rule (FCC, 2017), but it is possible that net neutrality regulation will re-emerge under President Biden’s FCC.
The issue of broadband carrier integration into media ownership extended into the antitrust arena when AT&T moved to acquire one of the country’s largest producers and distributors of video content, Time Warner, six years ago. The acquisition was challenged by the Department of Justice, which filed suit under the Clayton Act to block the merger (D.D.C., 2018a). The government’s economic witness, Carl Shapiro, provided a theoretical model that concluded that AT&T could use its ownership of Time Warner to raise the price of Time Warner content to rival video distribution platforms (Shapiro, 2018), a theory that was emphatically rejected by the court, which ruled in favor of AT&T (D.D.C., 2018b) and was upheld on appeal (D.C. Cir., 2019). An earlier acquisition by Comcast, the country’s largest cable company, of NBC-Universal also survived an extended antitrust inquiry (DOJ, 2011).
* Robert W. Crandall is a Nonresident Senior Fellow, Technology Policy Institute, Washington, DC.