A confidential report to Congress on Comcast's proposed deal for control of NBC Universal--issued in advance of the Feb. 2 hearings on the transaction--raises issues on both sides of the debate, but starts from the premise that the deal will go through.
"There is consensus that the Department of Justice (DOJ) and the Federal Communications Commission (FCC) are likely to approve the combination subject to merger conditions and/or license conditions - intended to protect competition, diversity of voices, and localism - that may significantly affect the impact of the combination," wrote a telecommunications policy specialist with the Congressional Research Service, who declined to discuss the report citing its confidentiality.
CRS reports are not made public by the agency, but are sometimes released by the members of Congress for whom they were prepared. In this case it was prepared for all members - there were hearings in both the House and Senate.
According to a copy of the report supplied to Multichannel News, the document identifies the issues most likely to draw scrutiny from the FCC as program access, programming costs, the potential for favoring owned content over independent content, migrating NBC to a cable network, and, on the plus side, what possible new business models could be crafted to benefit consumers.
As to the thought that NBC will become a cable network, the report suggests that is not likely to happen unless the marketplace changes significantly. It cites "the strong trend" of broadcasters getting cash for retransmission consent, as well as "the continued strong demand for local news and sports programming and the strong branding associated with local broadcast stations, as well as the criticism Comcast would face if it abandoned local programming and free, over-the-air programming."
Comcast has said it plans nothing of the sort.
Comcast and NBCU have argued that the primarily vertical transaction poses practically no anti-competitive or public interests harms, and that whatever issues there are can be addressed through existing mechanisms like program-access rules. The companies have even said they would commit to abiding by those program-access rules as conditions of the merger, whether or not the courts overturn them. But the report says that to deal with so-called most favorite nation clauses in existing contracts, the FCC or DOJ might have to add merger-specific conditions rather than "rely on existing program-access rules that may be difficult to apply in this situation."
The report also says the new company would be so broad as to require "careful scrutiny of its competitive effects," including implications for "for a wide range of media rules, regulations, and policies, including program carriage rules, program access requirements, retransmission consent rules, longstanding policy supporting free over-the-air broadcast television, and even network neutrality and open access policies."
It also suggests that the deal may have its own internal controls on excessive market power, though not ones Comcast or NBC would want to trumpet, particularly to Wall Street.
"[T]he recent history of failed mega-mergers in the communications sector suggests that the vertically integrated post-merger entity may have so many pieces with conflicting market incentives that it proves impossible for executives to craft an internally consistent profit-maximizing business strategy, much less exploit market power to undermine competition," Congress was told.
The report opened with a description of the combined company as "a huge, vertically integrated entity with potentially enormous negotiating power," and closed with a warning that the deal could prompt more consolidation "if small players are forced out of business or to marginal niches and larger players are forced to seek merger partners in order to be able to compete with Comcast-NBCU."
The government review of the deal, including more oversight hearings, is expected to take most of this year.