Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Senate Judiciary members probe effects of Comcast-TWC deal, (Apr 10, 2014)

By Lynn Stanton,TR Daily

Senate Judiciary Committee members yesterday raised concerns about the potential effect of Comcast Corp.’s proposed $45 billion acquisition of Time Warner Cable, Inc., on the Internet, programming, and advertising sectors.

During a hearing, the committee members heard from executives of the two cable TV companies, as well as a law professor who defended the proposed transaction and a consumer advocate, an independent programmer, and a Wi-Fi broadband service provider that relies on Comcast and other companies for wholesale broadband services from cable TV companies.

Committee Chairman Patrick Leahy (D., Vt.) said in his opening statement, “This proposed transaction touches on a range of critical policy issues that extend beyond just the broadband space. This merger also raises important questions about diverse and independent video programming, and promoting a vibrant marketplace for online video. Our primary focus should be on how it would impact consumers. I urge the FCC and Justice Department to consider just as carefully the impact on consumers as they review the pending merger.”

Committee ranking member Chuck Grassley (R., Iowa) emphasized that it is not up to the committee to decide what conditions should be imposed on the merger. “The Federal Communications Commission and the Justice Department have the responsibility to determine whether there are any issues with this transaction. But this hearing does present the Committee with an excellent opportunity to conduct its oversight responsibility and examine the current state of the television and internet markets. It’s a chance for us to see how well our laws are working in an area that has a direct impact on the lives of Americans.” Sen. Grassley said he was “especially interested to hear what this merger might mean for Americans who live in rural areas.”

Chairman Leahy also said that he hoped Comcast would agree to be bound by the FCC’s open Internet order “beyond 2018,” despite a court action overturning the order’s nondiscrimination and anti-blocking provisions. Comcast is bound by all of the provisions of the order until 2018 under commitments it made to obtain regulatory approval of its NBC Universal transaction in 2011.

Comcast Executive Vice President and Chief Diversity Officer David Cohen said later in the hearing that he expects the FCC will adopt a new open Internet order governing all broadband Internet access providers before 2018.

Chairman Leahy quoted Cohen as saying that the transaction’s economies of scale may not lead to lower prices for consumer. Cohen said that he has “a nasty habit of telling the truth, and when I was asked whether consumer bills would go down, I said I can’t make that commitment.” However, he said that he could promise that “nothing in this deal will make prices go up.”

In her opening statement, Sen. Amy Klobuchar (D., Minn.), who chairs the antitrust, competition policy, and consumer rights subcommittee, said that the proposed merger of the two largest U.S. cable TV companies presents important concerns related to such issues as the resulting company’s power to affect prices and consumer choices throughout the industry. Also, she said, “we need to pay attention to the effect this merger will have on the Internet. … What will happen to the next Netflix that today is still just a dream in a garage?”

Antitrust subcommittee ranking member Mike Lee (R., Utah) said that “if concerns related to this transaction result only from issues affecting these industries as a whole, it may be arguably unfair to the merging parties to impose only on them conditions designed to ameliorate competition. Regardless of the outcome of the agencies’ review of this transaction, I believe it is important for Congress to continue to monitor the competitive state within these markets throughout the country.”

Sen. Lee noted that “the combined company will potentially control greater than 50 percent of high-speed Internet access in the country. Markets do of course change quickly, and government must be careful not to step in where economic forces will better direct and incentivize future investment and development of new products. But where the stakes are high—and they surely are high with respect to Americans’ access to the internet—any potential for anticompetitive effects or undue control of that market must be scrutinized very carefully.”

After the hearing, Sens. Klobuchar and Lee jointly announced a plan to send a letter to the Justice Department and the FCC urging them “to examine concerns regarding the proposed merger,” such as its potential effects on pricing, service, the market for programming, and consumers’ access to the Internet.

At the end of the hearing, Sen. Klobuchar, who had taken over the gavel in Sen. Leahy’s absence, said that she and Sen. Lee were “aware” of independent programmers who have concerns about how the proposed merger would affect their ability to get carriage but who “wouldn’t go public.”

Sen. Lee asked witnesses about the two cable companies’ control of regional sports networks (RSNs) and University of Pennsylvania law professor Christopher Yoo said that concerns about those are “a classic case of a problem that is not merger-specific.”

Witness James Bosworth Jr., chairman and chief executive officer of Back9Network, an independent channel focused on golf, had said that his company competes “directly” ComcastNBCU’s Golf Channel, and that “the choice to testify today was very difficult, because we want nothing more than to be in business with Cohen and Mr. [Arthur] Minson, [EVP and chief financial officer at Time Warner Cable]. But we had to be here. We’re fighting for our existence.”

Chairman Leahy asked Bosworth why it is critical to be carried by Comcast. “Could you simply operate as an online video service?” Bosworth said, “The average American still watches more than 20 times as much video via television they do online, and advertising rates reflect that.”

Richard Sherwin, CEO of Spot On Networks, testified that his company in the past year has begun experiencing difficulty in obtaining wholesale broadband services from Comcast, which it uses to deliver Wi-Fi broadband service to the “multifamily community market,” also known as MDUs (multiple dwelling units). In addition to offering high-capacity broadband, the Wi-Fi services addresses the difficult that residents of these often experience in receiving cellular signals, which in some cases cannot penetrate the “green” building materials used for energy conservation.

Cohen said he was “not aware of any refusal by Comcast to do business” with Spot On Network, adding that “in every market,” the company “has at least one other option.”

Ranking member Grassley asked about the argument that a combined Comcast-TWC will be able to negotiate lower prices from content owners, who in turn will charge smaller companies more to make up for the lost Comcast-TWC revenues.

Cohen said, “We currently have 22 million customers, and we’re the largest cable company. I wish I could represent to you that by increasing to 30 million customers we could leverage all this power and bring programming costs down.” He said that the inability to leverage lower content prices—which are a major part of a cable company’s expenses—is “one reason that I can’t promise lower prices” for subscribers. Cohen also said that the argument about the effect lower prices for Comcast-TWC would have on smaller video distributors suggests that content owners currently are leaving money “on the table” in their negotiations with smaller companies, a possibility he said is rejected by “adjacent market economic theory.”

Sen. Al Franken (D., Minn.) recalled that when the Comcast-NBCU transaction was pending a few year years ago, the chief executive officer of Comcast, Brian Roberts disputed the idea that the vertical integration involved in that transaction would give Comcast too much power in programming pricing by arguing that there were “other robust distributors,” specifically mentioning Time Warner Cable, and saying that “we aren’t getting any bigger in cable distribution here.”

Sen. Franken said, “Comcast can’t have it both ways. It can’t say that the existence of competitors in distribution was a reason to approve NCBCU transaction, and now say they don’t compete at all” with Time Warner Cable. Comcast has said that there are no antitrust issues with respect to the proposed Time Warner Cable acquisition because the companies do not compete in any markets. Sen. Franken also questioned Comcast’s statement that it “keeps its promises,” citing an FCC proceeding in which it admonished the company with regard to its Comcast-NBCU commitment to offer standalone broadband service. Call center agents had been trying to “upsell” customers who requested standalone broadband service, Sen. Franken said, and the FCC ended up “fining” Comcast and directing it to train its call center agents about the availability of the standalone broadband offering.

Cohen disputed Franken’s characterization of the FCC’s action, saying it “did not tell us to stop bundling and pushing bundles; they simply told us to offer a stand-alone [service].” He added, “We’re allowed to train people to up-sell it. We’re required to have our cell centers know that when people say they want stand-alone service, they know about it.”

Sen. Franken said, “You say Comcast keeps its promises and that the FCC has only had to look at one [NBCU] condition [regarding the stand-alone service], but isn’t it true that the FCC had to look at the news-neighborhooding issue” with regard to Comcast’s placement of BloombergTV in its channel lineup. “Isn’t that another condition that they looked at?” Sen. Franken asked.

Cohen said, “We only had a compliance issue with one condition [the stand-alone requirement]. The Bloomberg issue was not a compliance issue; it was an interpretive issue,” because Bloomberg and Comcast disagreed on the meaning of the news-neighborhooding issue.

Companies: Comcast Corp.; Time Warner Cable, Inc.

News: Antitrust