FTC Staff Supports FCC-Proposed Cross-Ownership Rule for new LMDS Service

Staff members of the Federal Trade Commission said today that they support efforts by the Federal Communications Commission to establish a cross-ownership rule to restrict local phone or cable companies from acquiring licenses to provide local multipoint distribution service (LMDS). The FCC is getting ready to auction licenses for LMDS, which could be used for two- way voice, video and data transmission, potentially in competition with local phone or cable companies. The FCC had sought comments on whether it should restrict the acquisition by these companies of LMDS licenses in geographic markets that overlap their phone or cable markets.

According to the FTC staff, local phone or cable companies that acquired a LMDS license for the same geographic area in which they offer their current service, given enough market power, could either warehouse the LMDS license to forestall a third party from coming in and competing, or could raise the price of both services they offer. Currently, the staff said, neither the market for local phone service nor the local multichannel video distribution market is competitive enough to alleviate concerns about these potential anticompetitive activities. Although the FTC staff acknowledged the possibility of scope economies between wireline services and LMDS, the staff concluded that there is little evidence of such economies.

Finally, the FTC staff said it supported in general the FCC’s proposal to adopt a cross- ownership rule that, rather than strictly prohibiting the award of licenses to cable or phone companies whose service areas overlap the area for the LMDS license, would permit the incumbent cable or phone service operator to acquire a license as long as the overlap was no more than a certain percentage of the area.

“Until such time as effective competition is present in [these]markets, the acquisition of LMDS spectrum licenses by competing [local exchange carriers] and cable operators presents potentially significant competitive risks,” the staff comments state. “Accordingly, we believe that there is a reasonable basis for restricting these parties from acquiring LMDS licenses when substantial geographic service area overlaps would result.”

These comments represent the views of the staff of the FTC’s Bureau of Economics, and not necessarily those of the Commission or any individual Commissioner.

Copies of the staff comments are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC File No. V950014)