Open Internet, Bandwidth Service Requirements Seen Major Conditions in Comcast/TWC

Some in the media industry said in interviews Tuesday they think the FCC also will successfully seek provisions on net neutrality and set-top boxes as conditions for approval of Comcast/Time Warner Cable. FCC, Justice Department and local franchise transfer approvals are expected (CD Feb 14 p1). But deal foes have said no condition can ameliorate the harms of the deal, and on Tuesday they opposed it at the FCC.

The combined company’s larger geographic reach and combined expertise and services “will allow it to become a stronger competitor, offering businesses of all sizes better options, lower prices, higher quality and enhanced services,” said Comcast. The transaction will allow competitive entry in market segments “neither company can meaningfully serve on its own today,” it said. Comcast said advertisers will have more options due to the combined company having the scale to market on a near-national basis and to invest in developing and deploying dynamic ad insertion and addressable technologies for use in VOD and other cable and online programming that will bring added value to programmers and advertisers, it said.

The transaction will extend various other public interest benefits to the TWC markets, including conditions and commitments resulting from Comcast’s previous purchase of NBCUniversal, said Comcast. These include applying the net neutrality rules and Comcast’s commitment to offer standalone broadband, it said. The TWC markets will benefit from “Comcast’s deep dedication to broadband adoption, diversity, accessibility, and cybersecurity,” it said. “Comcast and TWC provide broadband services in different geographic areas, so there is no reduction in consumer choice as a result of this transaction.” Comcast also said ISPs like it and TWC aren’t aggregators of content for their broadband customers, “but instead serve as a means of access for any and all of the Internet content their customers want."

Past deals, including Comcast/NBCUniversal, can provide a template of possible conditions if the FCC goes in the direction of approving the TWC acquisition subject to conditions, said James Speta, a professor of telecom and antitrust law at Northwestern University School of Law. Those conditions likely will revolve around net neutrality, minimum service requirements for bandwidth provisioning, and affirmative content licensing requirements, he said. The FCC may impose an obligation that says, to the extent that Comcast or the combined company owns content, it will have to license that content out to potential competitors, said Speta, who has sided with Comcast previously on FCC issues. The provisions agreed to in Comcast/NBCUniversal include adhering to FCC net neutrality rules until January 2018 (CD Feb 20 p11). The commission would likely want that to apply to the new company, said Speta.

It seems likely that “at least three members of the commission would want a promise from Comcast to apply to the newly acquired Time Warner system the same conditions to comply with the pre-existing net neutrality rules,” said Paul Feldman, a Fletcher Heald attorney with pay-TV clients. “It’s conceivable, although less likely, that the commission would want to extend that time out past 2018.” It’s less likely due to the intervening U.S. Court of Appeals for the D.C. Circuit rejection earlier this year of 2010 net neutrality rules, said Feldman.

The FCC should impose a condition that limits Comcast control over the set-top box, said James Stenger, a mergers and acquisitions attorney at Chadbourne & Parke. The FCC CableCARD system isn’t sufficient at opening the market for set-tops, he said. “The so-called need for security or digital rights management is no excuse for preventing customers from using whatever box they want to.” Net neutrality isn’t the issue, Stenger said. “Imposing conditions on Comcast for net neutrality will do nothing to promote innovation if the set-top box issue is not addressed.” With cable systems, there’s a cable modem, but there are hundreds of broadband channels used for programming, he said. “Network neutrality only addresses the cable modem channel. It doesn’t address all the program channels.” The control over all those channels is through the set-top box, Stenger said.

Public Knowledge CEO Gene Kimmelman will criticize the proposed Comcast/Time Warner Cable deal before the Senate Judiciary Committee Wednesday. Approving the deal “will threaten the continued viability of nascent competitors and endanger the continued emergence of innovative new video and other types of services delivered over the Internet,” Kimmelman, a former Justice Department antitrust official, will say, according to his written testimony (http://bit.ly/1gIwuUq). “The proposed transaction is inconsistent with antitrust policy, the goals of the Communications Act, and the broader public interest.”

Kimmelman will lay out the perceived harms he sees, such as to consumer costs or the way such a big company could dictate equipment costs, “artificially raise the prices of Comcast-owned programming to Comcast rivals hampering their ability to compete and raising prices to consumers,” pay content providers less than they are worth and hurt competition from Netflix and Amazon. “Claims that Comcast and Time Warner Cable systems do not overlap geographically in no way eliminate antitrust and communications policy concerns about the proposed transaction,” Kimmelman will add. “Comcast’s vertical integration of its programming interests into additional bottleneck monopolies is as much in the mainstream of antitrust as the concerns that led to the Microsoft and AT&T cases.”

Comcast Executive Vice President David Cohen and Time Warner Cable Chief Financial Officer Arthur Minson will testify in favor of the deal. The hearing will be at 10 a.m. in 216 Hart. Also testifying are James Bosworth, CEO of Back9Network; Richard Sherwin, CEO of Spot on Networks; and Christopher Yoo, a University of Pennsylvania law professor.

Veria Living, an independent TV network, is not testifying but will submit written testimony. The FCC and Justice “should press Comcast for enforceable guarantees and impose specific conditions requiring the new cable giant to assure fair access for independent networks,” CEO Eric Sherman, who has met with Judiciary staff and plans to attend the hearing, said in the written testimony. “That means allocation of ample bandwidth for linear video channels, transparent evaluation and selection processes, inclusion of diverse voices, and good-faith negotiation of fair and non-discriminatory terms and conditions.”

Expect scrutiny and pushback, said Guggenheim analyst Paul Gallant Tuesday in a note to investors. Gallant suspects Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., has particular interest and concern, given the hearing is at the full committee level rather than at the Antitrust Subcommittee level, as it was originally announced. “Content companies (which we assume dislike the merger) have strong relationships on the Judiciary Committee, which oversees copyright issues,” Gallant added. He also pointed to Sens. Al Franken, D-Minn., and Richard Blumenthal, D-Conn., as members who have media consolidation concerns. Gallant suspects this hearing will be the first of four in Congress but anticipates the deal will be ultimately approved -- likely with conditions and in early 2015, he said.

Public interest groups opposing the merger warned anew that it would threaten competition and harm consumers due to the control Comcast would have over the Internet and video programming. With “the complete lack of any tangible benefits, it’s clear” that joining the Nos. 1 and 2 U.S. cable operators “is not good for competition or in the public interest,” wrote about 50 groups to FCC Chairman Tom Wheeler and Attorney General Eric Holder (http://bit.ly/1g5fUP4). “This massive consolidation would position Comcast as our communications gatekeeper, giving it the power to dictate the future of numerous industries across the Internet,” TV and telecom sectors, wrote Consumers Union, Free Press, Public Knowledge and others.

The deal is expected to face challenges from public interest groups and antitrust agencies, some have said. The FCC plans to issue a public notice announcing a pleading cycle after applications for FCC approval are filed, it said (http://bit.ly/R1lFYF). ,