CFA Takes Aim at Comcast/TWC

Says could be death blow to online video competition
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At about the same time that Comcast/Universal was filing its proposal to merge with Time Warner Cable at the FCC, the Consumer Federation of America was slamming the deal as a death blow to online video competition.

"Comcast executives have claimed that the proposed merger is 'approvable' because the two firms do not compete head-to-head and Comcast agreed to conditions in its acquisition of NBC that address the concerns of federal and state authorities reviewing the merger," said Mark Cooper, CFA's director of research and author of a just-released report on the deal. "Nothing could be farther from the truth."

Cooper/CFA say that the deal would lead to massive buyer (programming) and bottleneck power (up to 40% of broadband subs, though Comcast says that figure is more like 20% when wireless is factored in).

"We have moved from potential competition to incipient competition in which Internet distribution of video content has begun to dent the anticompetitive armor that cable operators have built around their abusive business model," Cooper said, "but they are attempting to rebuild their defenses by extending the industry's anticompetitive practices to cyberspace and leveraging their control over broadband access," said Cooper.

Comcast's David Cohen in a press conference with reporters Tuesday argued that Comcast needs to get bigger in order to compete with over-the-top providers like Netflix and Amazon, who have global reach and even more eyeballs.

CFA's arguments boil down to the following:

"Comcast would be so large, as a buyer of content, that it would have the power to dictate the prices, terms and conditions, exercising what antitrust calls monopsony power. Because Comcast sells content, it would be more than glad to weaken competition in the market for those products."

"Comcast would have such a huge broadband footprint it would have the ability to undermine online video distribution by raising its rival's cost, degrading its quality of service, or blocking the delivery of its product altogether, exercising what antitrust calls vertical leverage."

Comcast's Cohen pointed out that the company is subject to the FCC's no-blocking rules even though the court has thrown them out. He also pointed out that prohibition would now extend to TWC systems.

Comcast has argued that no competition will be lessened since Comcast and TWC don't compete head to head in any markets. But Cooper says that the absence of that market competition means it is more likely a big firm with buying power could abuse the marketplace.

Comcast pointed to the many Comcast/NBCU conditions that it will extend to TWC, but Cooper lists five reasons why those conditions are not sufficient governors on conduct for this deal.

"The cornerstone of the consent decrees was a nondiscrimination obligation that relies on market benchmarks and pays deference to standard industry practices, like most favored nation clauses. With Comcast-Time Warner representing such a large share of the market, it can drive industry practices, meaning there is no effective competitive market benchmark.

"The Netflix dispute took years to reach a conclusion that Netflix calls an ‘arbitrary tax’ because the network neutrality conditions are too weak. This was before Comcast had proposed to acquire 50% more bargaining power by merging with Time Warner. 

"Comcast's mistreatment of Bloomberg under the consent decree is a blatant demonstration of bad faith and recalcitrance that calls into question the ability of the oversight agencies to enforce consent decree conditions.

"Netflix and Bloomberg are two very large companies that could withstand years of foot dragging by Comcast. Smaller firms cannot, especially if Comcast is 50% larger. The entire approach to enforcement would have to be revamped with Comcast required to comply on an expedited basis (weeks not months or years).

"[T]he choke points over which Comcast would exercise bottleneck market power have also expanded beyond those considered in the consent decree to include set top box and Wi-Fi hotspots."

Comcast has some 850,000-plus hot spots, according to Cohen, and TWC about 29,000 more.

Cohen said Tuesday he expected critics and respected them, but was confident government agencies could be convinced that the benefits of the deal outweigh the perceived problems.

Cooper obviously did not agree. "When all is said and done, the merger is too large and the leverage points too numerous to try and repair the damage to competition with conditions," Cooper concluded. "Competition, consumers and the public interest will be best served if the merger is blocked."

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