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Why net neutrality supporters are cringing at the AT&T-Time Warner merger

Oh, maybe because they think it could destroy the internet?

Net neutrality supporters say that the loss of the 2015 rules coupled with megamergers like AT&T and Time Warner will destroy the internet.
Chip Somodevilla / Getty Images

Historians may look back on this week as a turning point in the evolution of the internet.

First came the end of net neutrality rules, which were officially taken off the books on Monday. These rules of the road ensured that broadband and wireless providers couldn't act as gatekeepers picking and choosing who succeeds on the internet and who doesn't.

Then came a federal judge's decision to allow AT&T, one of the largest broadband and wireless providers in the country, and Time Warner, a major media company, to merge without any conditions. The deal officially closed on Thursday.

The judge's ruling immediately prompted Comcast to bid $65 billion for 21st Century Fox's film and TV studios. The deal, which was announced a day after AT&T's victory in court, is an attempt to pry Fox's marquee franchises like  X-Men and Deadpool; along with animated films like  Ice Age; and TV assets, such as The Simpsons, from Disney, which had already offered $52.4 billion for the assets.

That's just the start of what's expected to be a cascade of deals between broadband and media companies, both of which are anxious that they aren't powerful enough to compete against the likes of Facebook and Google. While consumer advocates have long feared this scenario of greater consolidation, they're downright apoplectic that it's happening without any restrictions to protect people and innovators.

"Merging AT&T, one of the largest cable, satellite and mobile broadband companies, with Time Warner will lead to higher prices, fewer choices and perhaps more importantly, fewer voices," Gigi Sohn, an adviser to former FCC Chairman Tom Wheeler said. "Coupled with the demise of the 2015 net neutrality rules, AT&T will be free to favor Time Warner content over its cable and its fixed and mobile broadband networks."

AT&T, which owns satellite TV provider DirecTV, had already gotten dangerously close to skirting the former net neutrality rules with its zero-rating deals, allowing customers to stream DirecTV content without hitting data caps. Now without any restrictions on throttling or offering paid prioritization, it could offer even broader deals to pick and choose the content it serves to consumers.

To help put this all in perspective, CNET brings you this FAQ to explain how the vertical integration of media giants coupled with the demise of net neutrality could leave consumers with a very different internet.

What exactly happened this week?

On Tuesday, a federal judge ruled that the government had failed to prove that AT&T's proposed $85 billion merger with Time Warner would harm consumers, paving the way for AT&T to complete the acquisition. The US Department of Justice had argued that the mega-merger would create unfair competition for other TV providers, which might need to pay more for access to AT&T's content. But Judge Richard Leon disagreed.

He sided with AT&T, which argued that it needs Time Warner's content to compete against online video rivals, such as Netflix, Facebook and Google.

One of the biggest surprises in the judge's decision is the lack of conditions he put on the deal. There was no divestiture of assets from AT&T or Time Warner. And there were no behavioral conditions, like the ones Comcast agreed to in order to get its NBC Universal deal approved.  

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Remind me again what net neutrality is?

Net neutrality is the principle that all traffic on the internet should be treated equally, regardless of whether you're checking Facebook, posting pictures to Instagram or streaming movies from Netflix or Amazon. It also means companies like the combined AT&T-Time Warner, or Comcast, which owns NBC Universal and is trying to buy content from Fox, can't favor their own content over a competitor's.

The FCC, led by Ajit Pai, voted on Dec. 14 to repeal the net neutrality regulations, established in 2015, which prohibited broadband providers from blocking or slowing traffic and banned them from offering so-called fast lanes to companies willing to pay extra to reach consumers more quickly than competitors.

Those rules officially came off the books on June 11.

How is net neutrality related to the AT&T-Time Warner merger?

AT&T already owns one of the largest broadband networks in the US and is the second largest wireless provider in the nation by subscribers. Now with the Time Warner deal, it also gets popular media properties such as DC Entertainment and HBO.

Net neutrality supporters fear AT&T will use its tight control of this content to discriminate against competitors.

"Without net neutrality protections in place, AT&T will be free to block, slow down, or charge fees to competitors like Netflix and Hulu to favor their own DirecTV Now streaming service and HBO content," Sen. Ed Markey, a Democrat from Massachusetts and a staunch defender of net neutrality, said following the judge's decision.

A big danger: so-called zero-rating plans, in which AT&T exempts certain content on its network from data caps. For instance, the company already allows unlimited streaming of its DirecTV Now service to AT&T wireless customers without having those streams count against a monthly data cap. Meanwhile, services like Netflix still count against a data limit.

Now that the deal has closed, AT&T could expand zero-rating to other Time Warner-owned streaming services, like HBO Now, while still excluding streaming services from other companies.

Why is zero-rating bad for consumers?

I hear you. Zero-rating sounds like a pretty sweet deal if you're an AT&T subscriber, right? But experts say it creates an unlevel playing field for AT&T's competitors, such as Netflix or Sling TV. Exempting some content from data caps encourages people to watch more of that particular content.  Meanwhile, people are less likely to stream other services that eat up their data plans.

As AT&T gobbles up more popular content, it could use its dominance to force competitors to pay it fees to also exempt them from data caps or to deliver their services faster to consumers.

Did the 2015 net neutrality rules prevent this kind of behavior?

The former net neutrality rules specifically banned broadband and wireless providers from slowing or blocking access to certain sites. And it also banned paid prioritization or allowing network operators to charge companies, like Netflix, to deliver their services to customers.

But the rules didn't specifically ban zero rating. Instead, the regulation included a so-called general conduct rule that allowed the FCC to look at suspected anticompetitive behavior on a case-by-case basis.

That said, the Democrat-controlled FCC issued a report in January 2017, just before Republicans took control of the agency, that concluded AT&T had violated this general conduct rule by exempting DirecTV Now from its data cap. But when the Republicans came to power later that month, they dismissed the report and took no further action against AT&T.

The thing to keep in mind is that zero rating itself is not a violation of net neutrality, according to Ernesto Falcon, a lawyer with the Electronic Frontier Foundation. "It crosses the line when providers prefer their own content and drive consumers away from alternative services."  

I thought the Federal Trade Commission was going to police the internet. Why can't antitrust law handle these issues?

The FTC can file lawsuits against companies for anticompetitive or deceptive practices. And the antitrust division of the DOJ can also bring cases against companies.

But some experts like Hal Singer, an economist and adjunct professor at Georgetown University, say that antitrust cases are hard to prove when a company is vertically integrated.  

"There are a whole bunch of harms that fly under the radar and are difficult to prove under antitrust case law," he said.

In fact, the government tried to argue in its lawsuit to block the AT&T and Time Warner merger that the combined company would shut out competitors and harm innovation, but the judge said that didn't meet the standard for harm, according to antitrust law.

"Antitrust has been sold to us by some Republicans as the thing that can be used to police the internet," Singer said. "But there's a fundamental gap in protections for broadband."

So it sounds like we're pretty much screwed. Right?

Not necessarily. There are efforts to preserve the 2015 net neutrality rules. Senate Democrats, with the help of a few Republicans, passed a resolution to use the Congressional Review Act to throw out the order dismantling the 2015 rules. It still needs to pass the House and get the signature of President Trump, which is unlikely.  And states like New York and California are considering legislation to make net neutrality law in their states.

But experts like Singer say what's really needed is new federal legislation to address the gaps in regulation to ensure broadband companies can't abuse their power, especially as more broadband companies gobble up entertainment assets.

He suggests amending the Communications Act by adding a new section to require broadband providers and other dominant online platforms like Google and Facebook to offer access in a nondiscriminatory way to competitors' content and services. He suggests using the 1992 Cable TV Consumer Protection and Competition Act as a framework. This law requires cable operators to carry programming from other cable network owners.

But given the political divisiveness of net neutrality, it's unlikely Democrats and Republicans will be able to find a compromise before this year's midterm Congressional elections.

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