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Comcast Touts Consumer Benefits, Downplays Competition Issues Tied to Time Warner Deal

Wednesday, April 9, 2014

By Bryce Baschuk  

April 8 --Comcast Corp.'s proposed acquisition of Time Warner Cable Inc. will serve the public interest by expanding broadband Internet, video, and voice services to underserved U.S. consumers, the company said in filings submitted April 8 to the Federal Communications Commission.

“There is no credible theory of harm arising from the transaction” because Comcast and Time Warner Cable are not in direct competition for customers, the filing said. The two companies “serve almost entirely distinct geographic areas, they do not compete for any of these services and the transaction will not result in any reduction in competition or consumer choice for broadband, video, or voice providers,” the filing said.

Critics have urged the FCC and the Department of Justice to block the proposed combination of the nation's two biggest cable companies because they say it would leave consumers with increased prices, less choice, and less diversity. The success of the deal hinges, in part, on whether Comcast can convince the FCC and the DOJ that the merger will serve the public interest and comply with federal antitrust laws. Comcast filed its Hart-Scott-Rodino notification with the Justice Department last week and the company's Executive Vice President David Cohen will testify before the Senate Judiciary Committee on April 9.

No Harm to Consumers

Comcast said it would extend higher broadband speeds of 25 megabits per second (Mbps) download/5 Mbps upload to Time Warner Cable customers who currently have 15 Mbps/1 Mbps speeds.

“By combining the companies' core networks, the transaction will lead to additional innovations around capacity and architecture that will allow Comcast to reach more commercial customers on a single network with potentially reduced latency for national enterprise customers,” the company said.

Comcast said it will indefinitely extend its broadband Internet adoption program which provides low-income consumers with broadband Internet service for $9.95 per month, digital literacy training and an option to purchase subsidized computers for less than $150. The program was launched in 2011 amid Comcast's acquisition of NBC Universal Inc. and was scheduled to expire in June 2014. If regulators approve the merger Comcast said it will offer its “Internet Essentials” program to Time Warner Cable markets like Los Angeles, Dallas, Charlotte and New York City.

Comcast agreed to divest enough subscribers to fall below a 30 percent threshold share of the multichannel pay-TV market if regulators and stockholders approve the merger. Comcast would acquire a net of about eight million subscribers, bringing its total customer base to roughly 30 million.

Underdog Pitch

Comcast sought to frame itself as an underdog company competing with global firms with far greater market capitalization, annual revenues, and customers.

Comcast noted that the company currently faces stiff competition for video, high speed data, and voice customers from traditional telecommunications companies--like AT&T Inc, Verizon Communications Inc., DirecTV, Dish Network Corp.--as well as technology firms like Netflix Inc., Amazon.com Inc., Apple Inc., Yahoo Inc., Google Inc, and Facebook Inc. “The business reason for this transaction is to create the scale that will allow Comcast to make larger investments in R&D, innovation, and infrastructure to enable us to compete more effectively in this incredibly dynamic marketplace,” Comcast said.

Cohen noted that Google, which has launched fiber networks in three cities, is in discussions to expand its broadband services to 34 more cities. “Google is coming,” he said during a call with reporters. “They are a global company with enormous resources.”

Broadband Competition Concerns

By some estimates, a combined Comcast-Time Warner Cable would be the only broadband provider to offer high speed Internet access and pay-TV services to 40 percent of U.S. households. For that reason regulators should be concerned that the merger “would give Comcast unprecedented control over the Internet,” more than 50 public interest groups said in a letter sent to FCC Chairman Tom Wheeler and U.S. Attorney General Eric Holder.

Comcast noted that it currently faces increased competition as an Internet service provider from traditional telephone companies that offer DSL services, wireless companies that offer mobile broadband service and new entrants like Google's fiber service. “In many ways, wireless broadband is an even more formidable competitor because it offers consumers mobility and national reach,” the filing said.

Cable Versus Wireless

Free Press Research Director Derek Turner said it is “simply laughable” for Comcast to claim that wireless and DSL connectivity are comparable to fixed broadband services. “Consumers understand quite well that there is no way you will substitute a Verizon 4G LTE connection for a hardwired cable modem connection. It would be prohibitively expensive to do that,” he said.

“It's also laughable that first generation DSL is a comparable product,” Turner told Bloomberg BNA. “It's a connection through your telephone company that tops out at about 3 Mbps on the downstream side. That's certainly not enough for what most households use their Internet connections for.”

Monopsony Buying Power

Critics of the merger said the combined entity would gain significant market power as a buyer of video content and could seek to diminish competition from online video providers.

Comcast said that since the two companies do not compete for the same video customers, “one firm's purchase of programming does not reduce the other firm's potential demand for programming.” Furthermore, if the deal is approved, Comcast's subscriber base is “unlikely to have a meaningful impact on its bargaining power” for video distribution deals, Comcast said.


“Previous concerns about further cable consolidation and 'monopsony' power are truly antiquated in light of today's marketplace realities.”  
- Comcast FCC filing

Comcast noted that the growth of online video distributors like Netflix, Apple, Amazon and Google would limit the merged entity's bargaining leverage in acquiring programming. “Previous concerns about further cable consolidation and 'monopsony' power are truly antiquated in light of today's marketplace realities,” the filing said.

“The overwhelmingly dominant firm that would result from this merger would be uniquely capable of coordinating those industry-wide efforts to undermine competition,” said Consumer Federation of America's Research Director Mark Cooper, in a recent paper . “This merger would deal a severe, if not a death blow to emerging competition.”

Comcast could “increase its profits by paying less for the goods and services it buys and charge more or gain market share for its own products by using its buyer power” Cooper wrote. Comcast already owns NBC, MSNBC, and Universal Studios content as a result of its acquisition of NBC Universal in 2011.

Net Neutrality

Comcast has said it would extend the open Internet commitments from its NBC Universal deal to Time Warner customers until 2018. Its net neutrality proposal is likely to please FCC officials who are currently seeking new protections following a recent appeals court decision that threw out much of the FCC's 2010 open Internet order.

“The obligation that Comcast undertook in 2011 will thus serve as a bridge to the day new open Internet rules that apply to all ISPs are in place, and this transaction makes that bridge much wider,” Comcast's filing said.

Comcast's Net Neutrality obligations are “pretty much meaningless,” Turner told Bloomberg BNA. “Comcast very much knows how to work around this,” he said. “So the fact that they will extend these very weak, very porous conditions to Time Warner Cable is essentially meaningless.”

The FCC is currently seeking to re-implement net neutrality rules to ensure that ISPs don't unfairly block or discriminate against Internet content providers. In January the U.S. Court of Appeals for the District of Columbia Circuit ruled that the FCC's open Internet rules may not bar broadband ISPs from blocking or discriminating against Internet content transmitted across their networks.

Interconnection Issues

Consummation of the deal would not increase the interconnection costs for websites, or edge providers, to reach the merged entity's subscribers, Comcast said. Any edge provider can reach “either company's last mile-network through a third party without having any 'permission' or direct relationship (paid or otherwise) with Comcast or Time Warner Cable,” the company said.

In addition, edge providers can “opt to interconnect directly with Comcast under a market-based economic arrangement that offers an economically attractive alternative to indirect transit,” Comcast said. Netflix recently agreed to pay for more-direct access to Comcast's broadband network, something which compelled its Chief Executive Officer, Reed Hastings, to complain that companies like Comcast are motivated to charge content providers fees for more direct connections to their servers.

“Certainly regulators will look into this because Comcast has immense power in saying who gets to cross through its gates and reach its customers,” Turner said.

To contact the reporter on this story: Bryce Baschuk in Washington at bbaschuk@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com


For more information read the filing here: http://corporate.comcast.com/images/Comcast-Public-Interest-Statement-April-8.pdf

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