COMCAST, AT&T BROADBAND DEFEND THEIR DEAL, ACA JUMPS ON BOARD

Companies said their deal would comply with 30% ownership cap that has been struck down as illegal by U.S. Appeals Court, D.C. Specifically, they said AT&T Broadband had reduced its interest in Cablevision so that no longer was attributable under Commission rules, and companies were “firmly committed” to divesting AT&T Broadband’s interest in Time Warner Entertainment. If unsuccessful in coming to agreement with AOL Time Warner to liquidate AT&T Broadband’s interest in TWE, Comcast and AT&T Broadband said they would take steps to insulate interest or otherwise ensure AT&T couldn’t influence operations or policies of TWE until that interest was sold. Comcast and AT&T Broadband said they would have neither interest nor incentive to exercise monopsony power on programming. More programming is being produced than at any time in history, vertical integration has been in steady decline for years and AT&T Comcast would have minimal programming interests, companies wrote, adding that all those factors would be powerful incentives to provide programs consumers wanted.

In response to arguments that Comcast wasn’t truly committed to offering cable telephony, companies pointed to its recent announcement it would begin telephone service in Philadelphia and Detroit, saying that “will mean that about 1 million additional residential customers will have a competitive alternative to the incumbent local exchange carrier (ILEC).” Argument is important because competition to ILECs has been major hot button issue before FCC. Companies rejected argument by SBC Communications that cable telephony objectives could be achieved through joint venture rather than merger. Such joint ventures to offer facilities- based service are “notoriously difficult to implement and generally are not able to replicate the benefits of a merger,” companies said.

Among public interest benefits merger would bring, they said, are volume discounts for purchase of programming as well as reduced marketing, distribution and administrative costs. AT&T Comcast wouldn’t have undue influence over markets for set-top boxes, cable modems or related equipment, companies said, because those markets are global and even in U.S., new company would hold less than 1/3 of market. They also rejected argument by some opponents that Microsoft, which has strategic investments in both companies, would have influence. They said Microsoft would own 5% economic interest in AT&T Comcast but would have less than 5% voting power. Comcast Senior Vp-Strategic Planning Mark Coblitz said it wouldn’t be in company’s interest to help any software vendor obtain market power for set-top box software, and such power would add to software company’s profits at expense of cable industry and customers. Neither currently uses Microsoft software for their boxes, companies said, and Comcast has gone out of its way to prevent Microsoft from gaining influence.

Companies said they had incentives to offer multiple ISPs because competition with DSL and other services was fierce. As for CFA’s argument that increase in size of cable operator naturally increased prices for service, companies said price increases correlated with rise in number of channels offered to customers, and price of programming has soared. “The undeniable reality today is that cable companies’ customers and potential customers do in fact have competitive alternatives for multichannel video services,” including 2 facilities-based satellite competitors, cable overbuilders and others, they said. Responding to claims of predatory pricing by RCN Inc. and others, companies said price competition was kind of behavior that should be expected “and welcomed” because of competition. On complaint by Communications Workers of America that customer service would suffer, they said union’s argument was based on temporary, abnormal spike in number of complaints to AT&T Broadband call centers. Customer service has improved dramatically since then, they said.

AT&T Broadband and Comcast said FCC should approve their merger unconditionally. “Many of the issues raised by merger opponents are extraneous, having nothing to do with the prospective effects of the proposed merger, and are in any event baseless. And the few arguments that have any theoretical link to the merger rest on false factual assertions and flawed analysis,” companies said in filing at FCC.

ACA, which originally had filed comments saying it had many concerns about effect of merger, said in reply comments that Comcast and AT&T Broadband had allayed its fears. It said they had assured ACA that new entity would continue to give smaller cable systems access to digital programming via AT&T’s Headend-In-The-Sky (HITS) “for the foreseeable future” and that combined company would honor HITS’ contract with National Cable TV Co-op. ACA Pres. Matthew Polka told us he felt confident AT&T Broadband and Comcast were acting in good faith and said companies had taken what he described as major step by acknowledging that programming access was big issue for small, independent cable operators.

However, Prime Communications, independent ad agency in Mass. and N.H., said in its reply comments that merger had potential to stifle competition and could promote monopoly in provision of local cable advertising. As example, it cited current dispute with AT&T in Boston area, saying latter had refused to allow Prime to buy cable TV spots for its customers, mainly car dealers. Prime said FCC should condition merger approval upon company’s adoption of strict nondiscrimination policies on ad buys by independent advertising agencies.