Lawmakers Scrutinize Peering in Second Comcast/TWC Oversight Hearing

Comcast “has actually been very clever -- it interferes with traffic before it enters its network,” Cogent CEO David Schaeffer said, criticizing the way Comcast has approached its peering deals. “It’s used its market scale and scope to extract an unusual concession.” He said a larger Comcast would demand bigger payments. Cogent couldn’t deliver all the traffic that Netflix wanted delivered to Comcast customers, Schaeffer said. Cogent asked Comcast to upgrade ports to allow that level of traffic to pass. “Comcast refused,” he said: “They not only refused Cogent, they refused every other backbone” provider. That move forced Netflix to go to Comcast for the peering deal, he said: “That’s an abuse of market power.” Netflix also opposes Comcast/TWC, and criticized its paid peering agreement with Comcast, which displaced Cogent as the middle man in handling that traffic.

Several lawmakers pressed Comcast Executive Vice President David Cohen with interconnection and peering questions. “We also play fair in the exchange of Internet traffic,” Cohen said, citing interconnection deals with companies such as Netflix: “Other companies do the exact same thing.” The interconnection market is quite competitive, he said. “We are good citizens in the peering world,” with any problems “isolated,” he said.

"There are two different markets here we need to consider,” Cohen said, pointing to the broadband ISP market and the interconnection market. He said he doesn’t believe the broadband ISP share Comcast would gain would have any effect on the interconnection market. The questions raised recently “are better raised on an industry-wide basis,” as the FCC has said it’s prepared to do, Cohen said. “We did not force Netflix to enter into an interconnection deal with us,” he said, calling Cogent’s description of the agreement inaccurate: “They came to us.” He said he would disclose the details if he could, with permission from Netflix, saying Netflix has a similar deal with Verizon.

The Netflix/Comcast paid peering deal may be seen as a “simple, straightforward business transaction,” given Netflix can consume as much as a third of U.S. Internet traffic, but Netflix has slammed the paid agreement and called it a threat, said committee ranking member John Conyers, D-Mich. He observed the conditions of Comcast’s acquisition of NBCUniversal and wondered whether new conditions of any deal now should be strengthened and more enforceable. He has a “strong feeling” there may be need for another hearing due to the deal’s complexity, he said.

"Comcast and Time Warner Cable do compete,” said Allen Grunes, an antitrust attorney at GeyerGorey who worked at the Justice Department Antitrust Division. “This merger is very likely illegal. The parties know it. That’s why they're here talking about why they plan to fix it.” But the fix “doesn’t cut it,” he said. One problem of the deal is “input foreclosure,” as the companies hope to combine the wiring of broadband with the provision of content, Grunes said. “Online video distributors like Netflix, according to the antitrust division, are likely to be the best hope for additional” video programming competition in these cable companies’ territories, he said. Grunes flagged Comcast’s emphasis on getting its video shares below 30 percent but said it hasn’t said a word on the broadband share of the market.

'American Success Story'?

"We are truly an American success story,” Cohen said. “When we invest, so do our competitors,” saying AT&T said the deal creates “a heightened sense of urgency.” Consumers benefit, he said. Faster Internet speeds, more programming choices and more-robust Wi-Fi would come to residential households, and businesses would also enjoy such changes, he said, with commitments to Internet Essentials and net neutrality also important facets to consider. “Consumers clearly will be the beneficiaries,” with the same choice of providers after the transaction as before, said Time Warner Cable CEO Robert Marcus.

Lawmakers pointed out that the larger Comcast would pass 91 percent of Hispanic households. “Covering a greater percentage of the Hispanic population in the United States is a very good thing,” Cohen said, citing the commitment to carrying Hispanic programming. “Sometimes big is very good.” Subcommittee ranking member Hank Johnson, D-Ga., asked if Comcast had, when forming its recent deal with Charter Communications, looked at dealing with smaller, minority-owned companies instead of Charter. Cohen said it was discussed but pointed to the tax and public interest efficiencies of dealing with Charter rather than smaller entities. Johnson asked whether Comcast carried minority-owned programming on its basic tier, and Cohen said its most popular digital basic tier carried 11 stations targeting minorities.

Rep. Louie Gohmert, R-Texas, and Farenthold expressed concerns that the larger company could make programming choices that are politically motivated, biased against conservatives. Cohen disputed the idea and said he would discuss it further with Gohmert. Rep. Darrell Issa, R-Calif., outlined types of various antitrust oversight from different authorities. Comcast and Time Warner Cable “have checked the boxes as necessary” for approval on this deal, Issa said, but “I believe we should do more to make sure there’s access for the consumer,” revisiting in a bigger way these antitrust oversight rules.

ACA President Matthew Polka cautioned of several dangers of the deal to smaller companies and pressed for relief and conditions if approved. Comcast would have incentive to charge National Cable Television Cooperative members higher prices, he pointed out.

Not a single constituent in Silicon Valley seem to like Comcast/Time Warner Cable, said House Communications Subcommittee ranking member Anna Eshoo, D-Calif., during a Google Hangout discussion Wednesday. “That says a lot to me,” she said. “I would have thought there was a mix of opinion. There’s not.” The FCC and Justice should “scrub this very, very carefully” in considering the deal. Eshoo did not say whether she outright opposed the deal herself but pointed to consumers who fear rising bills for broadband and cable and who fear consolidation will “squeeze” them and come without benefit. “I don’t know what’s happening to competition in our country,” Eshoo said. “Do we have real competition? I think in more and more markets, we don’t."

"This merger would solidify and increase the two companies’ combined market power not only as sellers of TV and broadband to consumers, but also as buyers of programming and content that consumers want,” Consumers Union told House Judiciary lawmakers in a letter Wednesday (http://bit.ly/1iuZDTM). “The combined firm would be gatekeepers for an enormous portion of consumers - and monopoly gatekeepers in numerous major markets -- which Comcast’s proposed market swap deal with Charter Communications would only further solidify.” Lawmakers should communicate concerns to the FCC and the Justice Department, it advised.