Trade Group Seeks Deal Conditions That Work For Consumers
PITTSBURGH, August 27, 2014 – The American Cable Association urged the Federal Communications Commission to condition the pending Comcast-Time Warner Cable-Charter transaction to protect millions of pay-TV consumers from seeing higher monthly bills for essentially the same multichannel video programming distributor (MVPD) service.
“This merger will increase the size of Comcast and Charter, resulting in an unprecedented consolidation of content and distribution. It would result in higher costs to consumers and reduced competition. Without adequate remedies, consumers and competition will suffer under the Comcast-Time Warner Cable-Charter deal,” ACA President and CEO Matthew M. Polka said.
The Comcast-Time Warner Cable-Charter deal involves companies with significant roles in both the downstream video distribution industry and the upstream video programming industry. The merger would combine the two largest cable operators in the country (Comcast and Time Warner Cable) simultaneously with a series of cable system sales and swaps among Comcast and Charter Communications, the fourth-largest cable operator, and the newly formed cable operator SpinCo.
By virtue of a programming services agreement Comcast has with Midcontinent Communications and a similar agreement with Bright House Networks (BHN) that it will assume from Time Warner Cable, Comcast can negotiate programming agreements for over 31.4 million video subscribers. Comcast also owns and operates 10 NBC TV stations in major media markets and 17 Telemundo TV stations, in addition to ownership of a vast array of local, regional and national cable networks.
Under competition law, the Comcast-Time Warner Cable merger would inflict serious “vertical” and “horizontal” harms on consumers and competition on a scale far higher than the per-merger capabilities of either firm.
ACA set forth its views in comments filed Aug. 25 with the FCC as part of the agency’s effort to determine whether Comcast, Time Warner Cable and Charter have met their burden of showing that the transaction will serve the public interest. ACA said that if the two firms fail to meet their burden, the transaction should be rejected, a point reinforced by an ACA-commissioned economic analysis (The Harms of Comcast-TWC Transaction) by Professor Gary Biglaiser, Professor of Economics, University of North Carolina, Chapel Hill. Biglaiser’s analysis is within ACA’s attached comments.
The integration of Comcast’s valuable programming assets and TWC’s distribution systems would exacerbate the harm from vertical integration that the FCC and the U.S. Department of Justice found in the 2011 merger of Comcast and NBCUniversal by uniting substantial video programming and extensive distribution assets. After the acquisition of cable systems from TWC and Charter, Comcast will expand the territory shared with rival MVPDs and will have new and increased incentives to charge higher programming fees to MVPDs that compete with it directly.
As a vertically integrated provider, Comcast’s existing incentives to charge its rivals higher prices for its programming will grow even larger in two ways. First, by increasing its number of homes passed, Comcast will find itself competing with new rivals and having a greater competitive overlap with existing rivals. Second, by increasing its profits per video subscriber, due to the efficiencies Comcast and Time Warner Cable claim will be created by the merger, Comcast’s incentive to attract new subscribers from its rivals by charging them higher programming fees will grow. The resulting programming fee increases borne by Comcast’s rivals will be substantially passed through to subscribers in the form of higher subscription fees.
Additionally, vertical price effects will also be felt by Comcast’s own subscribers in the form of increased prices as the combined entity profits from the sale of programming to rivals even if it loses some subscribers due to price increases, leading to widespread general public interest harm through increased prices.
The transaction threatens two sets of horizontal harms. The first concerns the addition of TWC’s regional sports networks (RSNs) in Los Angeles and New York to the vast supply of programming offered by Comcast, including the NBC station in each market. By combining control of these assets, Comcast will have an increased incentive and ability to command higher prices for this programming, especially in markets where MVPDs distribute both a Comcast RSN and a Comcast owned and operated NBC station, resulting in harm to MVPDs and consumers.
The second horizontal harm concerns the increased bargaining power with respect to its programming that Comcast will attain by increasing its video subscriber base from 21.1 million to up to 31.4 million (to the extent Comcast negotiates on behalf of BHN and Midcontinent). Comcast’s increased bargaining power will lead programmers to recoup these losses from other MVPDs by charging higher and less competitive prices. ACA members, already with the least amount of leverage in programming negotiations, will be threatened the most in these circumstances. Charter’s growth will have a similar impact.
In support of its analysis, ACA submitted the Declaration of Rich Fickle, Chief Executive Officer and President of the National Cable Television Cooperative (NCTC), the buying group utilized by most small and medium-sized cable operators to purchase programming. Fickle confirmed the “seesaw effect” plays out in the market today, as programmers make up from smaller providers losses they incur to the largest providers. He said it is likely to continue because the pending cable transactions would, if approved, put the “programmers in an even worse position in their negotiations with Comcast and Charter.”
Lastly, ACA said the ‘baseball-style” arbitration condition adopted by the FCC as part of the Comcast-NBCU transaction to resolve programming cost disputes was failing to serve the needs of independent cable operators. This was still the case, ACA added, even though the FCC had added the proviso that a small operator that won its arbitration could recover its legal fees and the cost of arbitration from Comcast.
ACA explained the baseball-style arbitration provisions crafted to benefit small MVPDs were flawed for several reasons, including the lack of critical pricing data at the start of the arbitration, Comcast’s possession of pricing data likely to be considered probative, and the high fixed cost of arbitration. No smaller cable operator used the baseball style arbitration condition adopted by the FCC in Comcast/NBCU.
In his Declaration, NCTC’s Fickle acknowledged that the buying group had considered utilizing the FCC’s arbitration remedy but after careful consideration found it to be inadequate and ineffective for all of these reasons, but most particularly because of the lack of critical information in formulating an opening “final offer.”
About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 850 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America. Through active participation in the regulatory and legislative process in Washington, D.C., ACA’s members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business. For more information, visit https://acaconnects.org/