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From Antitrust Law Daily, May 8, 2014

Proposed Comcast-TWC combination debated before House antitrust subcommittee

By Jeffrey May, J.D.

Executives from Comcast Corporation and Time Warner Cable appeared on Capitol Hill this morning to defend the proposed combination of their companies. Comcast Executive Vice President David L. Cohen and Time Warner Cable Chairman/CEO Robert D. Marcus were joined by six other witnesses at a hearing before the House Judiciary Committee's Subcommittee on Regulatory Reform, Commercial and Antitrust Law, entitled “Competition in the Video and Broadband Markets: the Proposed Merger of Comcast and Time Warner Cable.” Subcommittee Chairman Spencer Bachus (R.—Alabama) explained that the large number of witnesses was an attempt to provide balanced views of the complex deal.

In a joint statement, the company executives explained the “compelling benefits” of the combination of Comcast and Time Warner Cable (TWC)—two of the nation’s largest cable operators. The companies suggest that the transaction is not horizontal in nature and will not harm competition or consumer choice in any market. In addition, there will be no vertical harms from the transaction, according to the parties. The cable companies contend that they do not compete in any market.

Despite assertions that the deal is not anticompetitive, Comcast has pledged to keep its share of managed subscribers below 30 percent of the total number of U.S. subscribers. If the merger is approved, Comcast would divest systems serving approximately 3 million managed subscribers. In a deal with Charter Communications, Comcast would reduce the combined company’s managed residential subscribers by four million. Keeping the subscriber share below 30 percent is intended to satisfy concerns that it might wield “bottleneck control” or “monopsony” power over programming. Comcast owns significant content from its recent merger with NBC Universal.

There is concern, however, that the merger would negatively impact the market for video programming distribution, as well as consumers’ access to the Internet. It has been suggested that the merged entity could use its leverage over high-speed Internet access to stifle competition.

Comcast and TWC do in fact compete to carry local and regional sports teams and they compete for cable advertising dollars, said Allen Grunes of Geyer Gorey LLP. The former Department of Justice Antitrust Division attorney testified that the merger is very likely illegal, and the proposed fix doesn't cut it. Grunes said he was particularly concerned with “the merger’s impact on the high-speed residential broadband market, which is the pathway for Internet content providers to reach their audience.” Grunes noted that neither Comcast nor TWC has offered to lower market shares in the broadband market.

Matthew M. Polka, President and Chief Executive Office of the American Cable Association (ACA), called the transaction “a big deal that threatens consumers and competition, likely resulting in higher prices for consumers.” ACA’s members include nearly 850 small and medium-sized multichannel video programming distributors (MVPDs) that provide video, broadband Internet access, and voice services in local markets.

In his testimony, Polka described the deal as three separate mergers that require close scrutiny: (1) the horizontal combination of Comcast’s programming assets with TWC’s programming assets (upstream horizontal component); (2) the vertical combination of Comcast’s programming assets with the distribution assets Comcast acquires from TWC and Charter (vertical component); and (3) the combination of Comcast’s distribution assets with the distribution assets acquired from TWC and Charter (downstream horizontal component).

While not taking a position on the legality of the deal, Judiciary Committee Chairman Bob Goodlatte (R.—Virginia) cautioned critics to “be mindful of ever-evolving nature of the industry.” Like many of the House lawmakers in attendance, Goodlatte said that approval was up to the Federal Communications Commission and Department of Justice.

On the other hand, Judiciary Committee Ranking Member John Conyers, Jr. (D.—Michigan) echoed concerns of interest groups. He questioned whether the combined Comcast-TWC would have sufficient market power to discriminate against rival content providers.

Conyers pointed to a letter from the Consumers Union to House Judiciary Committee members, calling for rejection of the deal. According to Consumers Union, “a combined Comcast/Time Warner Cable would control nearly two-thirds of the nation’s cable TV service, nearly forty percent of its Internet broadband service, and half of its video-voice-Internet ‘triple-play’ service – far exceeding the next-closest competitor in any of those categories.”

Comcast and TWC argued that the transaction needs to be viewed in the “proper competitive context” of the dynamic industry. They suggested that the combines are facing “increasing rivalry and experimentation” from “powerful companies, such as AT&T, Verizon, DirecTV, Dish, Amazon, Apple, Samsung, Sony, Google, Netflix, and Facebook in competing for consumer attention and loyalty across the broadband ecosystem.” However, Comcast and TWC might have a difficult time convincing the Department of Justice Antitrust Division with this argument. Antitrust Division officials have commented recently that they will carefully scrutinize assertions that large tech companies are ready to swoop in to replace competition lost by a challenged merger.

This might not have been the final hearing addressing the Comcast-TWC transaction in the House of Representative. Conyers suggested that another hearing might be necessary in light of the complexity of the issues raised in the transaction. The deal was scrutinized at a Senate Judiciary Committee hearing last month.

Companies: Comcast Corp.; Time Warner Cable, Inc.

MainStory: TopStory Antitrust

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