Proposed AT&T-Time Warner Merger Highlights Need to Stop Concentration

As officials AT&T and Time Warner made the rounds last month seeking to build support for their proposed merger, CFA Director of Research Mark Cooper issued a warning that any such merger would be bad for consumers and that more needs to be done to address excess concentration in the digital communications market. “The AT&T-Time Warner merger must be stopped,” Cooper said, “but that’s only part of the problem.  Today’s concentrated digital communication network is putting a stranglehold on distribution, preventing free market delivery of content, and costing consumers billions of dollars.”

In a new issue paper released late last month, Cooper describes the current digital communications market as a “tight oligopoly on steroids,” because four massive firms (ATT, Verizon, Comcast, and Charter) control 60 percent of the digital communications industry, including video, broadband, wireless, and business data services. Because ATT has a strong position in three of the four product markets, adding video content would increase its incentive and ability to undermine competition from online video distributors, Cooper said. But even if the merger is rejected, the underlying tight oligopoly on steroids will exist, imposing excess cost and restricted choice on consumers, he said.

Policy options for addressing this excess concentration are limited, Cooper warned. “Public policy cannot force firms to compete and the prospects of a new distribution network entering the market are slim to none,” he said. “Breaking up the dominant firms requires decades of litigation and may not succeed. Our only option is to ensure these mammoth network operators cannot use their power over the pipes to frustrate competition for the content and applications that ride over them.”

Fortunately, he said, the Federal Communications Commission currently has four active rulemakings underway that will contribute to that goal, including proposals to:

• open up the control of set top boxes to both consumers and the free market;
• prevent network operators from giving their affiliates a pricing advantage;
• strengthening privacy protections to give consumers more control over the network operators who can see everywhere the consumer goes on the network (see below); and
• provide businesses, which need high volume, high speed transmission pipes to move large quantities of data to consumers, with more options, thereby preventing those companies from passing network overcharges on to beleaguered customers.

“Stopping dangerous mergers is often not enough to open markets to effective competition. Regulatory action to open markets must go hand in hand with tough antitrust enforcement to deliver the innovation and lower prices that consumers deserve,” said Cooper.

 

FCC Broadband Privacy and Security Rules a Win for Internet Users

In an important win for consumers, the Federal Communications Commission (FCC) voted late last month to approve a rule that would apply the traditional privacy requirements of the Communications Act to broadband Internet access service.

“The Commission recognizes that when broadband internet users go online, the personal information that can be gleaned from their activities belongs to them, not to their internet service providers,” said CFA’s Director of Consumer Protection and Privacy Susan Grant in a press statement praising the rule. “For the first time, ISPs will be required to get their customers’ consent before using that information for purposes other than to connect them to the internet.”

The new rules will also require ISPs to be clear about what data they collect, how they use it, and with whom they share it, to keep the data reasonably secure, and to notify customers if it is compromised, Grant said.

During the Notice of Purposed Rulemaking, several privacy advocates, including CFA, urged the FCC to pass strong rules and reject industry calls to weaken the proposal. The groups wrote, “In particular, the Commission must not to yield to calls from CTIA, TechFreedom, T-Mobile, AT&T, and others to severely limit the scope of covered “sensitive” information, nor otherwise weaken the privacy proposal as outlined in the fact sheet,” the groups wrote in a letter to the Commission.

The groups also stated the FCC should not replicate the FTC’s approach. “The FTC’s privacy approach stems from its broad consumer protection authority and its general mandate. […] In contrast, the task before the FCC is not to set a baseline for all consumer privacy across the entire information ecosystem, but to enact strong and specific privacy protections for telecommunications customers.”

 

Groups Voice Continued Support for Computer and Monitor Efficiency Standards

As the California Energy Commission (CEC) works to finalize proposed energy standards for computers and monitors, Consumer Federation of America (CFA), Consumers Union, Consumer Action, and Consumer Federation of California filed a second set of comments late last month in an effort to ensure that the energy savings for consumers promised by the standards are realized.

In initial comments to the CEC, CFA concluded that the standards proposed would deliver significant benefits to consumers, the economy, and the environment. Computers and monitors are an increasingly important factor in consumers’ electricity bills, constituting 2.5 to 4.4 percent of a typical bill including uneconomic waste. Equally important, they account for seven percent of electricity consumed by commercial businesses, the cost of which is passed on to the consumer.

The energy inefficiency of these devices costs consumers money, but it is not an easy problem for the market to solve, the groups explained. Consumers have little knowledge of or say in how manufacturers choose to factor energy efficiency into their products. The electricity consumption of these devices is generally invisible to consumers, and even if it were visible, consumers would find it difficult to adjust their behavior because the information is either unavailable or the transaction cost of obtaining it is high. The CEC standards will solve these market inefficiencies, the groups wrote.

“The standards proposed will offer significant cost savings for consumers. And, as they are long-term and technology- and product-neutral, producers will have an easier time complying,” said CFA Director of Research Mark Cooper. “In fact, industry has come to support the standards, further undermining the justification for ill-considered legislative efforts that would weaken the CEC’s ability to arrive at a pro-consumer, pro-environment outcome that will help industry.”

The groups offered additional comments in order to make sure that the standards work as intended. They suggested that the CEC adopt an aggressive market monitoring program that estimates and subsequently tracks the “normal” rate of increase in niche or exempt products and those entities that have been afforded flexibility. They also urged CEC to consider requiring the proper sales data from industry in order to effectively monitor the market trends, and react accordingly in case market shares increase significantly beyond the expected trend.

 

DOE’s Draft for PACE Programs Needs Improvements

Financing energy improvements through a surcharge on property tax assessments can help reduce energy consumption, but such efforts must include strong consumer protections, particularly for low income consumers, according to a recent letter to DOE from CFA and other consumer and civil rights groups.

The Department of Energy (DOE) is drafting new guidelines for states, who are responsible for creating Property Assessed Clean Energy (PACE) programs, which allow consumers to finance solar and energy efficiency improvements by adding the cost to their property tax assessment.

In their letter, the groups argue that the current draft does not do enough to highlight the serious risks that some PACE programs can pose or to emphasize the responsibility of state and local governments to address risks created by government-sponsored PACE programs.

“As structured today, most PACE programs eliminate existing legal protections for home improvement loans and for contractor misrepresentations and fraud; often do little to validate claims of energy savings for the homeowner or the cost-effectiveness of the improvements; and can impose substantial costs on lower income and older homeowners, who may have access to free or lower cost energy efficiency improvements,” the groups wrote.

The groups urge state and local governments to incorporate a number of additional elements into PACE programs to protect homeowners and to ensure that energy savings are real and cost-effective, including:

• Requiring assessment of ability-to-repay consistent with the Truth in Lending Act Qualified Mortgage standard.
• Requiring loan contracts to incorporate the FTC’s Holder Rule notice to protect consumers from contractor misrepresentations and fraud.
• Limiting PACE financing, with narrow exceptions, to cost-effective projects reasonably expected to pay for themselves as confirmed by an energy audit.

“We support greater energy conservation and home retrofitting,” said Barry Zigas, CFA’s Director of Housing Policy, “but it should not come at the expense of sensible consumer protections.”