Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: AAI files reply comments on Comcast-Time Warner Cable merger, (Dec 2, 2014)

By Linda O’Brien, J.D., LL.M.

The American Antitrust Institute (AAI) has reiterated its opposition to the proposed merger of Comcast Corporation and Time Warner Cable (TWC), in a second round of comments filed yesterday with the Federal Communications Commission (FCC). The comments were filed in response to Comcast – TWC’s rebuttal to protests filed in opposition of the proposed merger. The AAI’s reply comments highlight a major competitive issue raised by the proposed merger — the merged broadband Internet Service Provider’s (ISPs) enhanced incentives to use its power as a “gatekeeper” of the crucial last-mile interconnection to tens of millions of U.S. broadband subscribers to restrict competition.

This type of potential post-merger conduct would limit or control competition from rival online video distributors and inflict collateral damage on middle market participants that deliver their services. The AAI letter explains this concern; lays the landscape of an emergent, consolidation-driven “access” problem in the U.S. cable broadband industry; and makes the case for why behavioral access-type antitrust remedies to address exclusionary gatekeeping concerns would be misplaced.

Gatekeeping by rivals is not a complex or novel competitive issue and is particularly well known in network industries where distributors are often vertically integrated into upstream products and services. While regulators of other sectors have developed access regimes to address wholesale markets for interconnection and transit, the FCC has not yet begun to formulate policy. The FCC’s regulation of ISP network access is limited and network neutrality principles do not address the middle market where part of the gatekeeping issue is, in the AAI’s view.

The AAI notes that a merged Comcast – TWC’s enhanced incentives and demonstrated ability to engage in exclusionary gatekeeping is likely to increase costs of online video distributors (OVDs) and result in higher prices to existing and prospective cable broadband subscribers who have little or no choice in broadband service providers. Exclusionary gatekeeping could potentially restrict the availability of, and degrade the quality of, over-the-top (OTT) applications and dampen the emergence of new and innovative OVD products and business models. Moreover, anticompetitive conduct by a dominant Comcast-TWC ISP could inflict harm on the Internet middle market, creating inefficiencies and disrupting innovation.

According to the AAI comments, demonstrated episodes of access problems and gatekeeping provide verification that the merged company would have the ability to foreclose competing OVDs. Regardless of the context in which such incidents occurred, evidence of past gatekeeping debunks claims by Comcast and TWC that OVDs and other content providers are “complementary” to their broadband ISP systems. OVDs are certainly rivals of Comcast-TWC, and disputes between Comcast and middle market participants reflect the problem of competing OVDs having gained access to the Internet superhighway only to be stopped at the distribution system.

Whether the broadband industry warrants a more comprehensive access regime is beyond the scope of the FCC and Justice Department’s review of the proposed merger. However access is ultimately addressed, it would be poor competition policy to craft a piecemeal access regime in a merger proceeding thought behavioral remedies, in the AAI’s view. First, access problems raised by Comcast-TWC involve complex technical, engineering, economic, and institutional features of transit and interconnection involving the Internet middle market. Second, cobbled together behavioral remedies to create a merger-specific access framework would fundamentally complicate any future FCC access initiative.

Placing restraints on post-merger firm conduct while anticompetitive incentives remain intact invariably results in workarounds or drives anticompetitive conduct underground. Moreover, behavioral remedies result in costly litigation of conditions, involve ongoing monitoring for compliance, and require dispute resolution. Blocking the Comcast-TWC merger is the only response to the threat posed to competition, diversity in the media, and innovation in delivering news, opinion, entertainment, sports, and other forms of programming to millions of U.S. cable broadband subscribers, the AAI concluded.

The American Antitrust Institute is an education, research, and advocacy organization, working to increase the role of competition, assure that competition serves the interests of consumers, and challenge the abuses of concentrated economic power in the American and world economy.

News: AcquisitionsMergers Antitrust