Telecom Convergence: Nirvana or Nightmare?

by Hogan Lovells

I’m currently watching a wonderful new show called “The Marvelous Mrs. Maisel,” on Amazon Prime.  It’s a comedy about a recent divorcee in Manhattan in the early 1960s who decides to become a stand-up comedian.  As I’m watching the show my thoughts drift to the magnitude of difference between the fictitious Midge Maisel watching Bob Newhart on her 1960s-era television and my present day Sunday night viewing experience.

Gone are the days of black and white television and three primary broadcast television stations.  Today, many consumers can chose among hundreds of television channels offered through cable or direct broadcast satellite subscriptions.  Aficionados can also access boundless archived and original content through online distributors such as Amazon, Hulu, Netflix, and YouTube, with multiple business models, from subscription video-on-demand (VOD) services to “virtual” MVPDs offering linear television in smaller packages.  Television watchers can consume content anywhere, including on their phones, tablets and other devices.

Convergence—the consolidation or synergism of previously distinct systems and functionalities–is creating all sorts of new opportunities for telecom providers and content creators.  But with new opportunities come new challenges.  Last month, lawyers, policymakers and analysts gathered at Hogan Lovells’ Sixth Annual Winnik International Telecom and Internet Forum to discuss convergence and competition in the communications industry.

One of the most interesting topics of discussion during the day was antitrust review in the age of telecommunications convergence.  Traditional thinking is that so-called “vertical” integration, or combinations involving companies in different segments of the supply chain, raises fewer competition concerns than horizontal combinations involving direct competitors.  For example, when the European Union blocked Telefónica UK’s O2 and Hutchison 3G UK’s Three from merging last year, it acknowledged convergence of mobile and fixed communications as a trend in the industry but maintained a distinct delineation between the retail market for mobile telecommunications services and the retail markets for fixed telecommunications and over-the-top services.

The traditional horizontal/vertical distinction in antitrust review may be changing.  Recently, the US Department of Justice sued to block AT&T’s proposed merger with Time Warner.  According to DOJ, the combined entity would be able to raise costs for video distributor rivals and “hinder the growth of online distributors that [AT&T and Time Warner] view[ ] as a threat to the traditional pay-TV model.”  DOJ has alleged that AT&T and DirectTV would have the ability and incentive to raise costs for “must-have” Time Warner programming such as HBO, CNN, TBS and TNT for other traditional multichannel video programming distributors (MVPDs), such as Comcast and DISH Network, as well as virtual MVPDs (such as DISH Network’s Sling TV) and subscription VOD providers such as Netflix and Amazon Prime.

Convergence is creating additional potential regulatory pitfalls as well.  Restrictions on foreign investment, regulations that previously applied only to certain segments of the industry (such as cross-ownership and content-based restrictions imposed solely on broadcast media ) and other policies such as net neutrality and privacy must all be re-evaluated for continued usefulness and effectiveness as the industry evolves.

Midge Maisel’s simpler times of three channels on the TV dial and a dearth of choices are far behind us.  The question now is whether convergence will lead to entertainment nirvana or a world full of regulatory nightmares.  I for one have my popcorn handy and am ready for the show.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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