What Are People Saying About Comcast/Time Warner Cable? (Part I)

August 25, 2014, as Comcast’s David Cohen helpfully reminded us, was the due date for the first round of comments in the Federal Communications Commission’s review of Comcast’s acquisition of Time Warner Cable. [The Department of Justice, of course, is also reviewing the transaction, but the DoJ does not solicit public comments (see Andrew Jay Schwartzman's piece Here’s How The Government Handles A Deal Like Comcast/Time Warner Cable)]. Comcast, as you may well know, is seeking FCC approval to transfer control of the licenses and authorizations held by Time Warner Cable and its subsidiaries to Comcast. On February 13, 2014, Comcast announced it had entered into an agreement to buy Time Warner Cable for approximately $45 billion. The all-stock deal would combine the nation's top two cable TV companies. Comcast has 22 million pay TV customers; Time Warner Cable has 11.2 million customers. (Benton’s Headlines service has been tracking the merger review)

David Cohen, Comcast’s Executive Vice President and Chief Diversity Officer, noted (again) in his release that the “transaction will bring numerous public interest benefits http://corporate.comcast.com/twctransaction to millions of residential and commercial customers, from faster Internet speeds and greater programming diversity, to next-generation TV, more robust Wi-Fi, more advertising choices and competition, low-cost Internet through the Internet Essentials program, and the ability to better serve business customers big and small with innovative products and services tailored to their needs.” The deal is “pro-consumer, pro-competitive, and strongly in the public interest,” Cohen writes.

But the FCC’s review of the transaction is aimed at determining whether or not it is in the public interest and allows interested parties to aid in that determination. So what are the concerns raised this week in filings at the FCC? Today we start an examination of some of the most-notable filings. (We'll follow up with more next week.)

The Consumer Federation of America (CFA) and its member groups filed a petition calling on the FCC to block Comcast’s acquisition of Time Warner Cable and the swap of additional systems with Charter Communications. The petition argues that the Comcast-Time Warner merger poses a much greater threat to competition, consumers and the public interest than the Comcast-NBCU merger, which has not benefited the public. Comcast would be:

• 1.5 times as large as the next largest multichannel video program distributor (MVPD);
• 2 times as large as the next largest Internet access service provider;
• 3 times as large as the next largest service provider with the capacity to deliver an integrated bundle of video and broadband; and
• the dominant cable and broadband operator in 24 of the nation’s largest 25 video markets, including the addition of the most important media markets, New York and Los Angeles.

CFA points out that the performance of the cable sector has gotten worse since the Comcast-NBCU merger:

• Price increases have accelerated, and Comcast’s price increases have been above average.
• Broadband usage caps have spread, and Comcast is the leader.
• Broadcast retransmission fees have skyrocketed, contradicting the claim that the integration of broadcast content and distribution would moderate increases.
• Video and Internet services continue to rank last in consumer satisfaction and Comcast is among the worst of the worst.

The merger would have a devastating impact on the structure of all of the markets in which Comcast plays a leading role.

• The merger creates highly concentrated markets in multichannel video, high capacity broadband and regional news and sports programming.
• It fractures the federal merger guidelines, exceeding the thresholds by five to ten times.
• It is “presumed to be likely to enhance market power.”
• The merger and system swaps with Charter divide the nation into “fortress regions,” with Comcast dominating the coasts, while Charter would dominate the upper Midwest.

There is nothing in the recent past or near future that has or will change the fact that cable is the dominant technology.

• Comcast has been expanding its share of the broadband market and enjoys high margins because competition is weak.
• Comcast’s fixed-line, true broadband technology has much higher capacity than DSL and wireless and is set to increase its advantage.
• Entry of new competitors has been minimal and there are no prospects for significant, wide scale entry of new technologies or new players.
• CFA argues that Comcast has a long history of abusing its market power that has been reaffirmed by its behavior since its acquisition of NBC.
• It has shown it is willing to press its advantage to the limits of the law and beyond in disputes with video programmers in both the traditional and online markets.
• Netflix: discrimination, degradation of service quality, raising rival’s cost
• Conductive: denial of access to content
• Bloomberg News: delay in providing a fair channel location
• Tennis and Wealth Channels: denial of carriage
• In contrast, Comcast has done as little as possible to deliver on its public interest promises.
• Participation in Comcast’s broadband lifeline program has been meager, one-quarter of what well-run assistance programs in the communications sector achieve.
• The standalone broadband offer was badly mismanaged.

CFA also points out that Comcast remains a laggard in capital expenditures.

• It invests the lowest percentage of its free cash flow in capital expenditures (CapEx) than any of the large video and Internet access providers.
• In fact, it takes more capital out through depreciation and amortization than it puts back in with CapEx, with the total disinvestment over the past decade reaching $15 billion.
• Given the long-standing “gentlemen’s agreement” among cable operators to not compete head-to-head in physical space and their decision to extend that agreement to cyberspace with their “authentication” scheme, online video competition is the last and only hope to break the stranglehold of cable.

No regulatory tools exist, CFA argues, to control the market power over customers, set top boxes and “middle mile” transport that Comcast will have if it is allowed to acquire Time Warner. "Competition, consumers and the public interest can only be served by blocking this merger," CFA concludes.

Ouch. Does anyone agree?

Sixty-five organizations representing consumers, content producers, and social justice and democracy-reform advocates asked the FCC to block the acquisition warning that it will give Comcast “unprecedented gatekeeper control” over the nation’s telecommunications and media landscape and lead to higher prices and fewer choices for broadband and cable customers. The merger would give Comcast too much control over the future of the Internet and communications infrastructure and undermine the diversity of ownership and content in media, according to the groups.

“This deal would increase Comcast’s service area to almost two-thirds of the U.S. It would allow Comcast to use its increased market power, and increased control over millions more customers, to dictate terms to broadband content providers and increase its leverage over cable programmers. To put it mildly, combining these two firms would lessen competition and harm innovation, but not improve the consumer experience,” the groups wrote in a letter to FCC Chairman Tom Wheeler.

“This merger would harm competition, impede innovation by online video distributors, threaten innovation in equipment and platforms and reduce the diversity of information sources and services to the public, all to the detriment of consumers and contrary to public interest,” Consumers Union and Common Cause said in a joint filing with the agency. "If this deal goes through, we can expect to be hit with more skyrocketing bills and worse service as Comcast gains even more control over what we see online and on TV," Delara Derakhshani, policy counsel for Consumers Union, said in announcing the petition. "The two companies have failed to demonstrate how the merger would serve the public interest. The benefits they claim are overstated, or elusive, or don't depend on a merger, and they are far outweighed by the harms."

Comcast and Time Warner Cable have repeatedly argued that there are no horizontal antitrust concerns as Comcast, Time Warner Cable, and Charter do not compete for customers in any market and no customer will lose any choice. “The undisputable facts are that the number of video, broadband, and phone providers in every local market in the country will remain the same post-transaction as today,” Cohen wrote this week. “By the logic of that narrow view,” Consumers Union and Common Cause countered in their filing, “Comcast should be free to acquire every cable and Internet company throughout the country in every market it does not already serve -- amassing a nationwide monopoly.”

Public Knowledge and the New America Foundation’s Open Technology Institute filed a Petition to Deny asking the FCC to stop the merger. The groups demonstrate that the FCC typically analyzes large broadband and cable mergers through the lens of distribution. If it buys Time Warner Cable, Comcast would have about a 50 percent share in the market for truly high-speed residential broadband distribution. This would make Comcast the most dominant communications company in the United States since the breakup of the Bell System. Under its public interest standard, the FCC cannot permit a single company to have such control over the marketplace, the groups argue.

Earlier this month, PK’s Harold Feld wrote an article asking “does Comcast’s awful customer service actually provide legal grounds for the FCC to block the Comcast/TWC merger?” His conclusion: yes. And “I mean in the legal ‘the FCC has jurisdiction over this and should designate, as an issue for hearing, whether Comcast’s proposed acquisition of Time Warner Cable is contrary to the public interest and in violation of various provisions of the Communications Act’ sense.”

Free Press also filed a Petition to Deny saying the transition fails both the public interest and the antitrust tests required for regulatory approval. The transaction would create a telecommunications and pay-TV entity of unprecedented size and scope, reaching into six out of every 10 U.S. homes. Comcast’s resulting nationwide market reach and power would lead to direct consumer harms such as higher prices and fewer choices among competitors.

The content that is driving these increased demands for bandwidth, Free Press points out, is streaming video. "It is the growth in streaming video, and Netflix’s growth in particular, that serves as the primary factor for increased capabilities in the U.S. Internet access market," argues Free Press. But Comcast isn't interested in meeting consumer demand for online video streaming. Free Press illustrates the great lengths to which the company has gone to frustrate the efficient delivery of the video streams its customers request. The reason: "Comcast is still primarily a vertically integrated pay-TV distributor and content owner. Last year, pay-TV and content comprised 72 percent of Comcast’s total revenues." The merged entity would continue to protect its pay-TV offerings at the expense of the online video innovations sought by Internet users nationwide. Free Press argues that the merger "would increase Comcast’s incentives to harm further development of the streaming video market." Since the entity faces so little competition in this space, there is a "high possibility of unilateral and coordinated harms" that "would pose a grave danger to the development of the streaming video industry, and thus to further development of the U.S. advanced broadband market."

We promise that the FCC's Comcast-TWC docket is very full with comments -- both in opposition to and support of the merger. We'll bring you more from those comments next week and, as always, we'll see you in the Headlines.