Policy Documents

Research & Commentary: Section 652 and Cable-CLEC Mergers

November 8, 2011

On June 21, 2011, the National Cable and Telecommunications Association (NCTA) filed a petition of regulatory forbearance with the Federal Communications Commission (FCC) regarding Section 652 of the Communications Act. The petition requests the FCC not block mergers between competitive local exchange carriers (CLECs) and cable companies.

If granted, the petition would allow cable companies to buy failing local phone companies in competitive markets. Imposed 16 years ago in a very different and much less competitive marketplace, Section 652 allows the FCC to deny these mergers, granting an exception only when the commission is given both formal evidence that consumer benefits outweigh “anticompetitive effects” and that the local franchising authority (LFA) has given approval. LFAs, often with no defined process for merger review, are thus allowed veto power.

Opponents of the petition claim large cable companies would gain too much market power in rural locations with limited options. Proponents say this argument is flawed for three reasons. First, the market for telephony has grown beyond the traditional wireline carriers. AT&T must now compete with voice over Internet Protocol (VoIP) providers such as Skype and Vonage, mobile carriers like Verizon, and cable companies providing new access to landline services. Second, the proposed changes would allow cable firms to buy only telephone companies located in already-competitive markets, not ones with limited options. Third, antitrust concerns are already handled by several other executive agencies.

By using Section 652 to prevent or limit cable-CLEC mergers, the FCC creates unnecessary regulatory uncertainty in the market and empowers local franchising authorities to pick winners and losers in local utilities. This regulatory burden and uncertainty cause consumers to receive lower quality, inferior services, and higher prices.

 

The following articles offer more information on the proposed regulatory forbearance.

 

FCC Needs to Update Sect. 652 to Conform with Market Reality & Congress’ Intent

http://netcompetitionblog.org/2011/08/22/fcc-needs-to-update-sect-652-to-conform-with-market-reality-congress-intent/

This blog post at NetCompetition concisely argues in favor of rule clarification and regulatory forbearance on Section 652, calling the current regulatory environment “anachronistic.”

ACA Calls on FCC to Remove Regulatory Barriers to Cable-CLEC Combinations

http://www.americancable.org/node/3133

The American Cable Association argues, “Alliances between cable companies and CLECs can promote greater facilities-based competition with the big telcos and other providers, encouraging lower rates, higher quality, and more innovative service offerings.” 

Outdated Merger Regulations Holding Back Competition

http://www.theamericanconsumer.org/2011/10/18/outdated-merger-regulations-holding-back-competition/

Writing for the American Consumer Institute, Zack Christenson uses the Microsoft antitrust case to illustrate the government’s inability to understand the future evolution of technology firms. “Without a foot in the door, large carriers and cable providers don’t invest in the small markets served by these CLECs and a burdensome regulation meant to protect consumers becomes the single biggest obstacle to improving consumer outcomes,” he writes.

NCTA: Petition for Declaratory Ruling with FCC on Section 652

http://heartland.org/policy-documents/ncta-petition-declaratory-ruling-fcc-section-652

This brief filed with the FCC by the National Cable and Telecommunications Association argues the FCC should clarify that Section 652 does not apply to cable-CLEC mergers or, at the very least, limit the power of local franchising authorities to stop or slow the mergers.

Section 652 Cross-Ownership Ban Shouldn’t Apply to Cable Operators and CLECs

http://heartland.org/policy-documents/section-652-cross-ownership-ban-shouldnt-apply-cable-operators-and-clecs

Seth Cooper of the Free State Foundation reviews the evolving problems caused by Section 652. He concludes, “If Chairman Julius Genachowski is serious about regulatory reform and directing the FCC’s resources to ‘identifying outmoded or counterproductive rules,’ the Commission should address Section 652 without delay.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at http://www.heartland.org, Budget & Tax News at http://www.budgetandtax-news.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org. 

If you have any questions about this issue or the Heartland Web site, contact Legislative Specialist Marc Oestreich at 312/377-4000 or moestreich@heartland.org.