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Summary

The recently elected US president has appointed the new chairman for the Federal Communication Commission (FCC), Ajit Pai, who has served as a commissioner since 2012. His appointment is likely to lead to the end of net neutrality rules. It could also mean a more favorable environment for consolidation, and a push to improve broadband infrastructure in rural areas. In addition, the appointment could increase the likelihood that the AT&T–Time Warner merger will go ahead despite Trump's stated intention to block the deal in the previous months.

Choosing Pai could mean that Trump's opposition to the AT&T–Time Warner merger is not so strong after all

Pai's appointment as the new chairman of the FCC does not come as a surprise. He has been a commissioner for a long time, having been appointed in May 2012 under proposal of the Republicans. Soon after Trump's victory in the recent US presidential elections, he was also seen as the most likely candidate to take Tom Wheeler's place as a chairman (it is customary that when a new US president is elected, the chair of the FCC also changes).

Unlike the interim appointments which usually take place in these cases, Pai's appointment is likely to be permanent, which makes it possible to predict the direction of the new FCC in some key areas of regulation. In particular, it puts a significant nail in the coffin of net neutrality rules, which have been strongly opposed by Pai throughout his mandate as a commissioner. This stance is also in line with Trump's position on the issue, because the new president has never hidden his wish to repeal net neutrality rules.

Such a move would be welcomed by telcos that have long advocated against the Open Internet Order. However, the FCC will have to ensure that the repeal will not result in a regulatory vacuum. The regulator will still need to set out its position on issues such as traffic management and blocking. On these issues, it should look to adopt the same approach it has adopted on zero rating, which is currently assessed case-by-case.

On the other hand, Pai's appointment could mean that Trump's intention to block the AT&T-Time Warner deal is not as serious as the president's statements of the previous months suggest. The new chairman is understood to be supportive of the deal, and it is also worth noting that after his election, Trump went remarkably silent on the issue, which could suggest a change of heart.

In general, it is expected that a Republican chairman could mean a more favorable environment for all types of mergers, including those within the mobile market. Historically, Republican-led FCCs have been less likely to oppose mergers between MNOs than Democrat-led FCCs. Once the ongoing "incentive auctions" in the 600MHz band have concluded, and the picture of spectrum holdings is clearer, operators will be able to consider making plans for potential M&As.

Pai's appointment could also mean that the FCC will endeavor to support the deployment of high-speed broadband in rural areas. As a commissioner, Pai came up with a proposal to bring Gigabit internet to rural parts of the country, mainly through a "rural dividend" coming from the sale of spectrum and through financial incentives for ISPs to deploy infrastructure in these areas.

Appendix

Author

Luca Schiavoni, Senior Analyst, Regulation

luca.schiavoni@ovum.com

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