Lost in the hub-bub of yesterday, the Federal Trade Commission voted 3-2 along party lines to approve the proposed division of Adelphia between Comcast and Time Warner and accompanying system swaps. What surprises me is not so much the result (getting conditions in this administration, particularly on a cable merger, was always a long-shot) but the timing. The FCC is still chewing over the data request it made in December, and the Adelphia Bankruptcy proceeding has been rescheduled for mid-March. It smacks annoyingly of a political favor done for a stalwart Republican (did we mention Brian Roberts, CEO of Comcast, is a big Bush supporter and fundraiser?) than the careful reasoning of the anti-trust agency charged with protecting the public. But that’s probably just my imagination post-State of the Union grumpiness combined with discovering how many big companies are spying on us for the government.
My analysis below . . .
One of the things I really loath about this administration is that it becomes entirely believable that Karl Rove just picked up the phone, called Chairman Majoras, and said “Brian Roberts really wants this deal done as quickly as possible. Get this thing moving before the bankruptcy creditors start worrying.” Granted in a Republican administration, particularly this one, one expects a much narrower perspective on anti-trust enforcement. Also granted that the traditional view of cable mergers is that concentration at the local or regional level does not impact the state of competition, which is the only factor the anti-trust agency is supposed to consider. (Obviously, as described in our voluminous filings at the FCC, we feel that even under the anti-trust standard, the deal should be denied or seriously conditioned.)
But I find the haste with which the FTC approved this, given that they only recently took two new commissioners on board (the other two Republicans) and that the FCC staff are still chewing over the data, disappointing. Given the importance of this to the future of broadband deployment and video programming in the United States, taking a few more weeks to get it right is not too much to ask.
In any event, whether the product of political pressure or reasoned analysis combined with ideological view point, the Adelphia deal has now cleared the Federal Trade Commission. Under the Hart-Scott-Rodoino Act (HSRA), any merger of sufficient size must be reviewed by either the Department of Justice Anti-Trust Division or the Federal Trade Commission. Under the law, the antitrust agency reviewing the merger can sue in federal court to block the merger if it determines that the merger is “substantially likely” to reduce competition in any line of commerce or in any geographic region of the United States.
The Republican majority issued a statement saying that staff had recommended no action because there was no proof the merger would increase the control of Time Warner and Comcast over regional sports programming — the only area they considered threatened by the merger. In a bone to the satellite companies and cable overbuilders, the majority promised that if they found evidence of actual anticompetitive behavior, they would act, and that they will remain “vigilant regarding the conduct of Time Warner and Comcast on a going forward basis.” Given the Administration’s track record to date, I expect that Time Warner and Comcast are literally quaking in their boots at the thought of such close federal scrutiny. (Belly laughs count as “quaking,” yes?)
The Democrats, issued a genteel dissent, observing that regional sports programming was critical to the health of competitors and that while it was not absolute certain that Time Warner and Comcast would use their newly acquired market power to discriminate against rivals, the law doesn’t require absolute certainty to seek conditions. The Dems would therefore have approved if the parties would have consented to a regional sports programming condition similar to the one agreed to by News Corp when it acquired DirecTV.
More importantly, the Demorcats observed that the FCC has much greater authority to impose conditions on a merger under its “public interest” standard than the antitrust laws give to the FTC or DOJ Antitrust, and expressed as much of an explicit hope as possible that it would do so — at least in the area of sports programming.
I confess I raise a skeptical eye at the Dems inconsistent reasoning that the RSN would not agree to forgo contracts with cable competitors because it is in the interest of the RSN to maximize eye balls. Duh, I thought that’s what market power was, the ability to make someone else forgo a profit or accept an additional cost because the alternative is worse (in this case, the RSN will give up carraige on the DBS or overbuilder competitor with much smaller market share rather than face the situation that the Washington Nationals now face in Washington DC, i.e. exclusion from the incumbent with the substantial majority of the viewers). But if you don’t believe the incumbents will acquire enough market power to make the RSN give up on the competitors, then why do you believe the incumbents will have enough power to raise the price of the RSN programming to the competitor? A little less cordiality and a little more clarity would have been appreciated, at least by this disgruntled progressive rabble rouser.
[How cable operators can get away with excluding RSNs when RSNs are such “high value” programming is, of course, explained in my nifty new White Paper “Cable Market Power for Dummies.”]
In any event, as I said, the result was not unexpected. The ball now bounces to the FCC, which, as the Demorcatic Dissenters noted, has much broader authority to impose conditions. Under the the HRSA the Antitrust agencies need to show that a merger is likely to cause harm before they can block it or seek conditions.
At the FCC, on the other hand, the merger applicants must prove that the merger will affirmatively serve the public interest. Granted, under the Republicans, the presumption tends to be that a merger that does no harm satisfies the public interest, but that’s not what the law actually says. The Republicans (and even the Clinton Democrats) have also increasingly stressed that any harms identified must flow from the merger itself, and not merely be “industry-wide problems” which should be dealt with in the context of “general rulemakings.”
This doctrine reached its apex under Michael Powell (no surprise) where, in the context of Comcast’s acquisition of AT&T Broadband, the FCC went so far as to suggest that if the applicants were already big enough to exercise market power and do bad things, and the merger merely gave them added bonus power to do the bad things they were already doing, that still served the public interest. Because apparently super-sizing market power is not “merger specific” enough.
Happily, the current FCC seems to have retreated from this low water mark, as evidenced by conditions imposed in the recent wireless mergers (where parties made regional divestitures and agreed to certain conditions) and the Big Bad Bell Mergers (where the parties agreed to all kinds of stuff).
As I observed a little while back, although the smart money is still on no conditions (or, at most, conditions on regional sports programming), there is reason to believe the FCC may impose more substantial conditions. The FCC has now been chewing over the replies to the data request and getting supplementary information for a month. Relatively soon, they will likely make a recommendation to the Chairman’s office.
And then the fun begins. The FCC remains 2-2 at the moment, which gives the FCC Democrats (who are more concerned with getting it right than staying polite, although they have managed to be firm without descending into the dreaded “partisan bickering”) considerable leverage. At the same time, the FCC will eventually get a new Republican Commissioner, probably sooner rather than later. The trade press is abuzz with the news that Robert McDowell will soon be nominated for the position.
Potentially, that’s bad news for Comcast and Time Warner. McDowell is right now the number two man at CompTel, the trade association for competitive telecoms. Comptel has pushed heavily for open access. One may hope that McDowell would be at least sympathetic to the request for open access or net neutrality conditions (although doesn’t say anything about other conditions).
None of this matters if Martin decides that he is dead set against conditions and persuades the other Republicans that they must go along. Given the way the Bush administration does business, it is difficult to avoid dark fantasies of Cheney and Rove dropping by the Martin house to see the new baby and casually saying “Kevin, you got the family tier thing done. Nice work and Stevens is happy. Now how about letting [Comcast CEO] Roberts have his merger so he can block anti-war ads during the election? With Jefford’s seat in play in Vermont, it would be nice to have someone ‘reliable’ running those Adelphia systems. And both [Time Warner CEO] Parsons and Roberts agree to let us snoop for terrorists and pornographers on their systems without a warrant if we get the deal through without conditions. How about it?”
I’d still like to think that’s a little too Oliver Stone for reality. But if anyone reading this wants to file a quick comment at the FCC urging them to impose conditions despite the FTC decision, I’d be much obliged. The Docket No. is 05-192. The FCC’s online submission form is here.
Stay tuned . . .