March 2015

New ideas for how the Congress should protect the Internet

[Commentary] There is widespread bipartisan agreement that Congress should play a larger role in regulations issues in the communications sector. The Communications Act outlines what actions the Federal Communications Commission may and may not take. These restrictions make it difficult for the FCC to craft optimal policies. But, Congress operates under far fewer restrictions. Nonresident Senior Fellow Stuart Brotman discussed three ideas for improving the stale law:

Legislative history: The original Communications Act of 1934 requires that broadcasters operate in the “public interest, convenience and necessity”. Congress failed to fully define the enigmatic term. If Congress devoted itself to thinking critically and developing a well-thought-out standard, then it would make it easier for the FCC to regulate future communications technologies.

Sunset clause: Sunset clauses in a reauthorized Communications Act would require FCC to reconsider whether regulations made sense after a set period of time. If a section of a law seemed hopelessly antiquated, then it could expire. This would place political pressure on Congress to update the law.

Jurisdictional issues: Congress can help companies that cross jurisdictional boarders by redefining the responsibilities of agencies. This will help to reduce uncertainty for businesses and ensure that bad actors are caught rather than slipping through cracks of the system.

Charter CEO: Bright House Buy Could Help Comcast-TWC

Charter Communications CEO Tom Rutledge said that its pending $10.4 billion acquisition of Bright House Networks is contingent on Comcast’s $67 billion deal to purchase Time Warner Cable, but the Charter CEO said his deal could help push the larger transaction through some murky regulatory waters. Rutledge admitted that if the Comcast-TWC deal does not win approval, that would make the Bright House deal a no go. But he said that he is confident the larger transaction will win approval and said that by buying Bright House, Charter effectively lowers the attributable subscribers to the combined Comcast, TWC to about 27 million customers from the 29 million subscribers previously expected. “We think the [Comcast-TWC] deal is likely to close and it is more likely to close because it solves the attribution problem for Comcast-TWC,” Rutledge said. “It improves the assets under the control of Comcast."

Charter/ Bright House Deal: Cable Industry Looks More and More Like Telecom

The cable industry is looking more and more like the telecommunications industry with Charter Communications’ announcement that it plans to acquire Bright House Networks. Charter already was positioned to be the nation’s second largest cable company as the result of a pending deal that would put certain Time Warner Cable properties into Charter’s hands whenever Comcast’s plan to acquire Time Warner Cable is completed. Assuming that deal is completed, Charter also would own one third of a spin-off company comprised of certain current Comcast properties.

The upshot is that Comcast and Charter are playing roles quite similar to those that AT&T and Verizon played some years ago in telecommunications, where between the two of them they gobbled all but one of the original seven regional Bell companies -- and despite some recent sell-offs, the two telecommunications companies are still the dominant players in the market. Charter CEO Tom Rutledge cited scale as a key driver of the acquisition plans. At a time when content costs are climbing steeply, more and more video providers are seeking mergers and acquisitions as a means of increasing their negotiating power with content providers. Bright House CEO Steven Miron noted that the cable business is becoming more “centralized,” also contributing to the increased importance of scale.

Copyright Office Needs To Develop Plans that Address Technical and Organizational Challenges

The mission of the Copyright Office, a service unit within the Library of Congress, is to promote creativity by administering and sustaining a national copyright system. In recent years, the Register of copyrights has discussed the need for a modernized Copyright Office, to include upgrades to the current information technology (IT) environment. The Government Accountability Office recommends that the Copyright Office:

Develop key information to support proposed initiatives for improving its IT environment and submit them to the Library's IT investment review board for review.
Develop an IT strategic plan that is aligned with the Library's strategic planning efforts. The office neither agreed nor disagreed. GAO continues to believe its recommendations are warranted.

Strong Leadership Needed to Address Serious Information Technology Management Weaknesses at Library of Congress

The Library of Congress is the world's largest library, whose mission is to make its resources available and useful to Congress and the American public. In carrying out its mission, the Library increasingly relies on information technology systems, particularly in light of the ways that digital technology has changed the way information is created, shared, and preserved. To carry out its work, the Government Accountability Office reviewed Library regulations, policies, procedures, plans, and other relevant documentation for each area of management at the library and interviewed key library officials. GAO is recommending that the Library expeditiously hire a permanent Chief Information Officer. GAO is also making 30 other recommendations to the Library aimed at establishing and implementing key IT management practices. The Library generally agreed with GAO's recommendations and described planned and ongoing actions to address them.

Charter Communications to Buy Bright House Networks in $10 Billion Deal

Charter Communications said that it had agreed to acquire Bright House Networks for $10.4 billion, in the latest consolidation of cable television operators to reshape the media landscape. The deal will further enlarge Charter, which is involved in the huge merger of Comcast and Time Warner Cable, the two biggest cable operators in the country. If that deal is approved, Charter will acquire some markets and subscribers from the enlarged Comcast.

But much hinges on the approval of Comcast’s acquisition of Time Warner Cable, including Charter’s acquisition of Bright House. If Charter is not able to acquire the disposed assets from Comcast, it will not go ahead with this deal. Bright House is the sixth-largest cable operator in the country, with about two million subscribers in Florida, Alabama, Indiana, Michigan and California. The structure of the deal will have Charter own 73.7 percent of a new company and Advance/Newhouse, the parent company of Bright House, own 26.3 percent. Charter will pay Advance/Newhouse a mix of $5.9 billion worth of common stock, $2.5 billion worth convertible preferred shares that pay a 6 percent coupon and $2 billion in cash. ”Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility,” said Thomas M. Rutledge, Charter’s chief executive. “Bright House has built outstanding cable systems in attractive markets that are either complete, or contiguous with the New Charter footprint. This acquisition enhances our scale, and solidifies New Charter as the second largest cable operator in the US.” The Bright House deal is a signal that Charter executives believe the Comcast deal for Time Warner Cable will be approved. Antitrust experts have said that regulators in Washington are likely to scrutinize the deal for any detrimental effect it might have on consumers.

Comcast, CFO Pledge $4.1 Billion to Fund New Investment and Operating Company

Comcast Corporation and CFO Michael Angelakis are pooling together $4.1 billion to launch a new investment and operating company. Angelakis -- who has personally pledged $40 million to the forming venture -- will become CEO of the new firm and be replaced as chief financial officer of Comcast. The big cable provider is funding the new company to the tune of $4 billion. The remainder will come from other senior members of the new company’s management team. The newly formed group will have an exclusive, 10-year partnership with Comcast as sole outside investor. “We believe the ability to establish entrepreneurial ventures that partner with and participate in the growth of innovative companies can be an important driver of strategic and financial value creation for our company,” said Brian L. Roberts, chairman and CEO of Comcast.

“As Comcast approaches the completion of the Time Warner Cable merger and related transactions, and the integration plans are well advanced, Michael is ready and excited to turn his attention to the next phase of his career and relationship with Comcast.” He continued: “In the past, Comcast has made substantial investments in companies like QVC, Comcast Cellular and SpectrumCo, which have generated tremendous strategic and shareholder value. I couldn’t be more excited about the future and Michael’s role in building this new company.” Comcast will immediately begin a search for a successor chief financial officer. Following that eventual appointment, Angelakis will serve as a senior advisor to Comcast. Angelakis will assist with the transition to the new CFO and begin the integration process for the Time Warner Cable and related transactions.

Man who sued Comcast now wants over $5M, says ISP shouldn’t have smeared him

Just after his lawsuit failed to settle during the week of March 23, aggrieved former Comcast customer Conal O’Rourke filed an amended civil complaint that stemmed from a year-long billing dispute with the Internet service provider. But this time, he's now raised the demanded amount to more than $5 million. Previously, he had asked for "all damages legally and/or proximately caused to Mr. O’Rourke by Defendants totaling more than $1 million" when the suit was first filed in October 2014. The new March 27, 2015 amended complaint is largely identical to the original one, except that it also adds a new "cause of action" against Comcast, listed now as number six of seven: "Invasion of Privacy (Public Disclosure of Private Facts).

Jenni Moyer, a Comcast spokeswoman, recently said, "We believe Mr. O'Rourke's claims are without merit, and we expect to be fully vindicated." Moyer also commented on the recent promotion of Lawrence Salva, who is personally named as a defendant in O’Rourke’s case. "Larry Salva has been promoted to executive vice president because he is one of the most outstanding and respected chief accounting officers and controllers in corporate America," Moyer said on March 20. "While we don't normally comment on pending litigation, the decision to promote Larry was not affected by a baseless allegation, which has developed into frivolous litigation."

Latest Assault on Net Neutrality Launched at Telecommunications Industry-Funded Think Tank

House Communications Subcommittee Chairman Greg Walden (R-OR) addressed the Free State Foundation to announce his new plan to undermine recently enacted network neutrality rules by going after the funding of the Federal Communications Commission, the agency behind the decision. The FCC’s approach to net neutrality represents “potential untenable rules and regulatory overreach that will hurt consumers,” said Chairman Walden, speaking at the foundation’s annual Telecom Policy Conference.

Chairman Walden outlined a plan to limit FCC appropriations, cap its other revenue sources, and change the hiring process for the FCC’s inspector general. David Segal, co-founder of Demand Progress, a pro-net neutrality group, said Chairman Walden’s remarks “underscore his allegiance to corporate interests.” Chairman Walden’s choice of venue is telling. According to tax filings by two cable and wireless trade associations, the Free State Foundation has received nearly half a million dollars from the trade associations over the last five years. CTIA-The Wireless Association -- representing Verizon, AT&T and Motorola, among others -- gave the foundation $213,750. The National Cable and Telecommunications Association, the trade group for Comcast and other major cable companies, provided $280,000 to the foundation. The two trade groups intend to file a lawsuit to block the FCC’s net neutrality rules.

The DC issues keeping advertisers up at night

Here are some of the top issues on the Association of National Advertisers’ agenda for its annual advertising law and public policy conference:

Ad tax deduction: It’s been a target before and it could be a target again. Broad tax reform is back in Congress and while any reform may be a heavy lift, advertisers need to stay close to this issue.
Data breach, data security: Nothing can besmirch a brand quicker than a data breach.
Privacy: Never goes away. While the President Barack Obama privacy bill of rights fizzled, there are still bills kicking around that could limit data collection and data sharing.
Net neutrality: The Federal Communications Commission’s order has hidden repercussions for advertisers and marketers. It all depends on how the FCC extends its privacy authority to broadband and mobile Internet providers, and how much that would affect the FTC’s authority.
Patent trolls: If you think you’re having déjà vu, you are. Patent reform got very close in 2014. What’s different now: Sen Minority Leader Harry Reid (D-NV), who killed it in 2014, has lame-ducked himself. There’s new momentum, but there is heightened opposition from groups worried that patent reform would hurt innovators.
Ad fraud: Piracy, bots, and malware will steal more than $6 billion from digital advertisers this year, according to White Ops.
New top level domain names: More than 617 new top level domains, from dot-plumbing to dot-sucks, are being introduced through the end of 2015.
Marketing to children: So far it’s been rather quiet. The Federal Trade Commission has brought only one Coppa case and bills in Congress have yet to break out. That doesn’t mean activity won’t pick up, especially for certain categories like e-cigarettes.

Benton

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