Following Donald Trump’s victory in the US presidential elections, Ovum has looked at the impact it could have on key issues related to policy and regulation of the telecoms and media sector in the country.
In particular, Trump’s stance on net neutrality appears to be in stark contrast with the previous administration, and with the Democrat candidate Hillary Clinton. However, his position on competition and consolidation across industries is more complex, and, in some respects, even similar to Clinton’s.
During the campaign, both parties pledged to make efforts to improve broadband infrastructure, particularly in rural areas. Trump’s statements on the matter have been vague, whereas Clinton’s plans were set out in more detail and had more realistic targets in terms of broadband speed. If the Republicans’ plan coincides with the one outlined by Federal Communications Commission (FCC) commissioner Ajit Pai, the idea to bring gigabit broadband to rural areas could be overambitious and financially hard to sustain.
US election result creates uncertainty for TMT sector
The FCC could now refrain from adopting a more “hands-on” approach
Defining the FCC’s regulatory approach as “hands-on” could be misleading because the regulator continues to have a light-touch approach compared to other regulators in the world. The FCC has never implemented most of the processes used by European regulators, which regularly review markets and impose remedies including price controls – mainly on wholesale markets – on operators found to have significant market power.
Nonetheless, the FCC’s activity in recent years can be considered more prone to regulating than before. An example of this includes the re-approval of net neutrality rules in 2015, which required the reclassification of broadband as a telecoms service. More recently, in October 2016, the FCC strengthened the safeguards for consumers’ privacy when signing up to a broadband contract, by regulating the methods used to obtain customers’ consent to collection and use of personal data.
Similarly, in April 2016, transparency requirements for broadband services were introduced by means of “broadband labels,” which help users understand the key features of a broadband service they want to take up.
A Republican-led FCC will tend toward forbearing again, but it may not be able to completely overturn the direction of the current FCC
In the context of a relatively light-touch approach to regulating, it is very likely that Trump’s victory will mean that the gap is widened between the US and other developed markets, such as the EU, in terms of regulating communications. However, this will be more apparent once a new head of the FCC is appointed; the current chairman’s mandate is set to expire toward the end of 2018. Therefore, it could take up to two years for the FCC to have a new direction.
The reclassification of broadband as a telecoms service, which was necessary to minimize the likelihood of legal challenges to the Open Internet Rules of 2015, opens up the possibility for more regulation for broadband. The reclassification could empower the FCC to impose access obligations that would make the US regulatory approach closer to the one adopted in the EU, where wholesale access obligations are a common remedy to stimulate competition at the retail level.
In recent statements, FCC commissioners have also hinted at potential regulation on wholesale broadband access if competitive conditions in the market require it; however, no action has been taken and there is currently no sign that the regulator is seriously considering going down that route.
Advocates for a repeal of the reclassification of broadband have not gone quiet since the FCC’s decision in 2015 and could take the opportunity to deal with a regulator that is more willing to listen to their arguments. Donald Trump has, at times, defined the Open Internet rules as an “attack on the internet” by the current administration, and expressed fear that the rules would be used to target conservative media. By contrast, Clinton supported the FCC’s Open Internet rules and described the Title II reclassification of broadband as “the only hook” for the FCC to impose net neutrality rules; she also hinted at the need to update the Communications Act.
However, proponents of a new approach will have to come up with convincing arguments to back up their stance. US consumers will be reluctant to see their level of protection decreased, particularly if the recently approved measures on privacy and transparency prove to be successful and popular. Even if the regulator ends up repealing some of these rulings, operators in the market may have to continue to ensure customers are granted the standards of service to which they will have become used to.
Consolidation is expected to be easier under Trump, but both candidates promised tougher antitrust enforcement
It is expected that a Republican administration, and in turn a Republican-orientated FCC, will be potentially more lenient toward mergers and acquisitions compared to the current FCC. However, this may be less obvious in practice than it is in principle.
For example, the positions taken by both candidates on a significant cross-market merger, such as the ongoing deal between AT&T and Time Warner, suggest that candidates were both mindful of competition concerns. Donald Trump explicitly stated that he would not approve the deal, and opposed further consolidation in the media industry, stating that he would favor a breakup of the likes of Comcast and NBC. Clinton was more cautious, but her running mate stated that it is something regulators should certainly investigate.
Nonetheless, it remains to be seen whether such statements will end up reflecting the stance of an administration once it takes power. Also, the AT&T–Time Warner merger is likely to fall within the powers of the FCC because Time Warner holds some broadcasting licenses. Given that the deal is expected to be completed during 2017, it will be the current head of the FCC to decide on the matter. The US Department of Justice (DoJ) is also likely to review the merger.
M&A in the mobile market is now likely to be easier
There could be more efforts toward consolidation within the mobile market during 2017, as the currently ongoing “incentive auctions” for spectrum in the 600MHz band come to an end (talks of mergers are prohibited when spectrum auctions are ongoing). These will inevitably come under the spotlight of the FCC, and the DoJ if it sues in federal court against a merger.
Although it is hard to predict the stance of a Republican FCC on mergers, there are strong signals that further consolidation in the market is now more likely than it would have been with a Democrat administration. The current head of the FCC has repeatedly issued statements about the need to have a mobile market with four operators; also, T-Mobile’s attempt to take over Sprint was blocked in 2014, as was AT&T’s attempt to buy T-Mobile in 2011. Mobile operators looking to merge should now expect a more favorable political environment; however, they should consider waiting until the mandate of the current head of the FCC expires.
Trump’s commitment to improving broadband infrastructure is more vague than Clinton’s would have been
During the campaign, both presidential candidates made statements showing willingness to improve broadband infrastructure in the US, particularly in underserved areas. However, Trump’s commitments were more vague than the objectives set out by Clinton.
Trump announced his intention to pursue an “America’s Infrastructure First” policy that supports investments in transportation, water, electricity, telecommunications, and security infrastructure, and any other pressing domestic infrastructure needs. However, he has not set out any specific targets related to broadband, and has not indicated the amount and means to funding any expansion and improvement of infrastructure.
By contrast, Clinton’s “Initiative on Technology & Innovation” committed to ensure that, by 2020, 100% of US households would have been able to access “affordable broadband” at speeds “sufficient to meet families’ needs.” To this end, the plan was to continue investing in the Connect America Fund, Rural Utilities Service program, and Broadband Technology Opportunities Program (BTOP), and direct federal agencies to consider the full range of technologies as potential recipients (including fiber, fixed wireless, and satellite) while focusing on areas that currently lack any fixed broadband.
Clinton’s plan also referred to the removal of regulatory barriers to the private provision of broadband services. This would have happened through the streamlining of permitting processes issued by local authorities, and by allowing nondiscriminatory access to existing conduits and poles. Although Trump has made no specific statement on this point, it is likely that his administration could go down a similar route on this issue because the FCC commissioner Ajit Pai has come up with a similar proposal, and has suggested giving more power to the FCC to oversee these processes. Similar to Clinton’s plan, he also advocates for “dig once” policies to deploy broadband conduits as part of every road and highway project.
Republican FCC Commissioner’s plan for gigabit broadband could face opposition
Despite the lack of clarity in Trump’s commitment to improve broadband infrastructure, the proposals brought forward by one of the current FCC commissioners chosen by the Republican Party provide a hint of what could be coming. Commissioner Ajit Pai has made public statements about supporting the deployment of infrastructure in underserved areas – something that market forces are generally unlikely to deliver without some intervention of regulators and policy-makers.
Strikingly, Pai’s plans aim to bring gigabit internet to rural areas, and to foster the deployment of mobile broadband by increasing funding and financial incentives. His proposals include a “rural dividend” coming from the sale of spectrum, taking 10% of the net proceeds of auctions to support mobile broadband deployment in rural areas. Also, he supports the creation of Gigabit Opportunity Zones by giving internet service providers financial incentives to deploy gigabit broadband, and by granting tax credits to start-ups in those areas to encourage them to invest and create jobs.
However, these plans could face obstacles because the market is notoriously reluctant to deploy superfast broadband in rural areas, and the need for such a high speed is currently unclear. Therefore, it is difficult to foresee that a similar plan could be easily adopted without significant objections.
Luca Schiavoni is a senior analyst for regulation at Ovum. For more information, visit www.ovum.com/