Comcast/TWC Merger Explained By Taiwanese News Animation

I will, eventually, have more to say about the Comcast’s proposed acquisition of Time Warner Cable (TWC). My first reaction, I will admit, was pretty visceral. “My God! Aren’t you already freakin’ BIG ENOUGH Comcast?” But then, I realized that I needed to actually calm myself, and recall that bigness is not necessarily —


Breathe, Harold, breathe. Think policy. [pause for calm] Several folks have posted excellent policy analysis, starting with my Public Knowledge colleague Jodie Griffin in this blog post here to this excellent piece by David Karr to this more general expression of antitrust concern by Paul Krugman


As you can see, I’m still having a bit of trouble getting over my visceral reaction to the shear size and scope of this deal. So while I am calming down and getting ready to write my Insanely Long Field Guide To the Comcast/TWC Merger, I will simply let the good people at Taiwan’s fine Tomo News capture the moment. Because nothing really says “Comcast/TWC” better than giant robots and tasers.

Stay tuned . . . .

What the FCC Can Do About CBS and TWC — Nudging The Parties Forward

Last Friday, Federal Communications Commission (FCC) Chairwoman Mingon Clyburn addressed the CBS/Time Warner Cable (TWC) retransmission consent fight for the first time. Clyburn noted her “real distress” about the impact on consumers and said she was “ready to consider appropriate action” if the companies can’t resolve their differences.


First, let me say that I am glad to see Clyburn give a “shot across the bow” to the parties that the FCC might actually take some kind of action. This sort of “jaw boning” by officials (like the letters from members of Congress last week) is part of the feedback mechanism for parties. If officials stay quiet or state they have limited options, it is generally taken as a signal by the parties that no official consequences will occur and they can proceed without worries of Washington repercussions. Statements like Clyburn’s amount to a warning that this is not a free ride — even if it is not obvious yet what the FCC would (or could) do.


Since all industry players hate Washington intervention, the threat that it might happen is a modest incentive to the parties to get this resolved sooner rather than later. It also helps by indicating to consumers that the FCC does not consider this a perfectly normal event and that they (the consumers) are right to get pissed about it — which may prompt more calls for Congressional action.


But to really influence the parties, there needs to be a credible something the FCC can do. Since the FCC (including Chairwoman Clyburn) have said before that they don’t think they have authority to resolve the dispute, it raises the question of what the FCC can actually do.


Even accepting the limitation that the FCC cannot resolve the dispute, the FCC still has authority to both limit the scope of the dispute by ordering CBS to stop blocking Time Warner Cable broadband subscribers, and taking other steps to bring the parties together. I outline some of these possibilities below . . .

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Apparently, Program Access Rules Are Toast — Another Kill for the DC Circuit.

Last week I posted that if the FCC were going to extend the Program Access Rules, or was still thinking about what to do, then it ought to buy itself some time to proceed in an orderly fashion. That same day, according to this article in Broadcasting and Cable, Chairman Genachowski circulated a draft Order allowing the rules to sunset. According to the article, the FCC will still address outright discrimination on a case-by-case basis under the Section 628(b) general prohibition on “unfair or deceptive acts or practices.” Hopefully, the Order will spell out what this means.

To be honest, I am having a hard time feeling worked up about this given that the competing MVPDs did not put a heck of a lot of effort into protecting the rules. Given that the D.C. Circuit made it clear that it was unlikely to bless a further renewal, the folks in the industry that rely on the Program Access rules should have known they were going to have to make a strong case to preserve the rules in some way shape or form. But lobbying around this issue has been fairly anemic, despite the fact that the October 5, 2012 date has been circled in red for the last five years.

Mind you, I am still sympathetic to a lot of the little guys, like American Cable Association, who don’t have a lot of lobbying resources and are really in a position to feel a squeeze. The NPRM had proposed some targeted relief for them, which could still get considered under the FCC’s general authority even if the main rules expire. But it is frankly very hard to predict with certainty how this impacts he market. I absolutely expect the vertically integrated players to start pushing the boundaries on pricing and exclusions — particularly with regard to things like internet-based distribution rights. It will probably also be even harder for any new entrant with even a slightly different business model to get programming, so if someone wanted to try a mix of traditional and online delivery, they are screwed. But since it wasn’t clear that such a competitor would emerge anytime soon anyway, it is kind of hard for the FCC to use that as a justification for maintaining the existing rule.

What really bugs me is that this is a classic example of how the DC Circuit goes all activist and conceives its role as being overall manager of agencies like the FCC, rather than as a court deciding actual cases. The DC Circuit dropped a pretty large hint to the FCC that it better not try to renew the rule, so the FCC tremblingly obeys whatever the merits. Because lets face it, no one wants to waste time creating rules that are going to get reversed on appeal. Congress never intended the D.C. Circuit to act as some sort of Uber-Agency enforcing an anti-regulatory agenda while mouthing the language of deference. But so it has become. The result is a great deal of regulatory uncertainty as agencies and practitioners spend the time wondering what will appeal to the prejudices of particular D.C. Circuit judicial panels rather than focusing on the actual law or facts.

Stay tuned . . . .

Will The Program Access Rules Expire On October 5?

Back in March, the FCC released a Notice of Proposed Rulemaking on whether to extend the “program access rules” for another five years, either as they exist now or in some modified form.  For those unfamiliar with the program access rules, they require a cable or satellite provider that also owns programming to make that programming available to rivals on commercially reasonable terms. For example, Cablevision has to sell AMC to Verizon for at least a facially reasonable price, even if it would rather not sell AMC to Verizon at all.

Congress required the FCC to create the program access rules as part of the 1992 Cable Act. Because Congress did not particularly trust the FCC to do a good job fighting cable market power, it gave the FCC very explicit instructions in Section 628(c) (codified at 47 U.S.C. 548(c)). But it also said the rules would expire after 10 years, unless the FCC extended them. The FCC extended the rules for 5 years in 2002, and again in 2007. Without another extension, the Program Access Rules will expire on October 5, 20122.

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FCC Authority In VZ/SpectrumCo, or “Real Lawyers Read The Footnotes.”

Many years ago, I taught a semester of law school as an adjunct. I assigned the students to read the FCC’s 2005 Internet Policy Statement. I was dismayed to discover that, after doing the reading, none of them had even heard of the concept of “reasonable network management.” How was that possible? Reasonable network management is not mentioned in the main text, but in footnote 15 which says that the principles are “subject to reasonable network management.” Given the centrality of the “reasonable network management” concept to the net neutrality debate, I was rather irritated. “Understand this before you graduate,” I warned them. “Real lawyers read the footnotes!”

I thought of that after reading Geoffery Manne’s and Berin Szoka’s piece about VZ/SpectrumCo over on CNET.

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Could Verizon/SpectrumCo Create Gaping New Loophole In Media Ownership Rules?

Few people would imagine that the Verizon/SpectrumCo deal, now heading rapidly for conclusion, could potentially have huge impact on traditional broadcast ownership rules. Unfortunately, unless the FCC takes action, the deal is likely to create a new and powerful loophole in traditional media ownership rules involving something called the “attribution rules.”  While I do not think the participants themselves are aware of this problem, or intend this outcome, allowing the major cable companies and Verizon to participate in a Joint Operating Entity (JOE) without certain precautions creates a means by which these parties, if they wished, could coordinate their video offerings in a way that Congress and the FCC have traditionally found antithetical to our media policy of viewpoint diversity.


As the attribution rules apply to broadcast media, the mechanism for circumventing the attribution rules set in this case would extend to radio and television broadcast ownership as well. In other words, it’s not just about Comcast and VZ, or even Comcast and TWC, sharing programming info such as what they are paying for ESPN or what tier they plan to place Tennis Channel or EPIX. Approval of the deal in its current form also creates a mechanism whereby broadcasters such as News Corp and CBS could get together to coordinate news coverage on things of mutual interest, such as whether Congress should adopt SOPA.


Fortunately, the DOJ proposed final judgment lays the groundwork for addressing these concerns. But the FCC has to actually focus on this and act. It doesn’t make a difference for the current deal, but it makes a huge difference for the future of media ownership.


I explain below . . .

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VZ/SpectrumCo Update: Actually Pretty Good, Except For That ‘Cartel’ Thing.

I have been doing some analysis of Verizon’s latest move in the VZ/SpectrumCo transaction, the announcement VZ will engage in a series of AWS spectrum swaps with T-Mobile. Between this and Verizon’s commitment to sell off its Lower 700 MHz A&B block licenses, I am almost happy — except for that whole cartel thing with the major cable companies. But if we ignored the cartel thing, this deal now becomes the rare bird that actually enhances both Verizon’s position in the market and that of a prospective competitor. This is not quite a triumph for Coasian market efficiency, since it took the threat of agency action to nudge Verizon in the ‘right’ direction. I also need to point out that when we start out with a fairly dismal market structure, it does not take much to improve things. Giving spectrum to T-Mo is good, but it does not address all the competition problems created by our unfortunate means of distributing spectrum, which still ends up concentrating it in the hands of a very small number (i.e. 2) of companies. So ‘happy’ is a relative term.

As a result, the transaction needs a few minor conditions to make it complete: a data roaming condition to keep competition afloat (and in case the data roaming rule does not hold up in court) and accelerated build out/use or share to ensure rural communities see a 4G network before the end of the decade, but otherwise this looks pretty good (even with AT&T likely to snarf all the Lower 700 MHz B block licenses). Mind you, it reenforces the need to get interoperability and special access reform done if we want to see real competition — but we have rulemaking proceedings on those.

Unfortunately, there is that whole “cartel” thing with the major cable operators. And despite all the positive aspects of this transaction as now configured, they cannot outweigh the negative of creating an anti-competitive cartel at the center of our communications infrastructure.  But let me set that aside for the moment to focus on the spectrum side of things.


More below . . . .


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Time Warner Cable’s New Pricing Plan And The Dr. Strangelove Rule Of Price Signaling

“The whole point of the Doomsday Machine is lost if you keep it a secret! Why didn’t you tell the world, eh?” — Dr. Strangelove, from Dr. Strangelove, or How I Stopped Worrying And Learned To Love The Bomb

Time Warner Cable (TWC) has announced it will expand its existing “Internet Essentials” program to more cities in Texas. Users that elect this pricing plan are limited to 5 GB per month. Go over, and you pay $1/GB until you hit a maximum of $25 extra on your monthly tab. Time Warner also provides  you with meters so you can keep track of your usage. TWC also allows you to switch back and forth between unlimited and “essentials” easily and without any lock-in. If I find I keep going over, I can switch back to unlimited. As an added effort to make sure users know what they are getting in to when they opt for the more restricted plan, TWC gives you a 2 month grace period if you switch to Essentials where they track your overages and don’t charge you for them. This is a good thing, because, as I discuss below, one of the issues for these usage based billing/bandwidth cap things is that many people do not have any clue how much capacity they use.

As I’ve written before, I like the way TWC is experimenting with pricing here.  I don’t know if customers will see this as a good deal, but that is the point of experimenting with different price plans. In fact, I wish other providers would experiment this way, rather than simply impose bandwidth caps or usage based billing (there is a difference between them, although most reports treat bandwidth caps as a form of UBB). Oddly, Time Warner Cable’s experiment may tell us a lot not only about whether customers like a low-bandwidth option (and whether five dollars is the right discount for it), but about whether other operators who are forcing their customers to take more constrained options are able to do so by exercising market power rather than because customers want it.

Which brings me to the Dr. Strangelove Rule of Price Signaling, which I describe below . . . .


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The Supreme Court Does Not Want To Revisit Constitutionality of Broadcast or Cable Regulation, Get Over It And Get On With Life.

Remember how conservatives just could not get over the fact that neither Chris Christie or Mitch Daniels — or anyone else they liked better than Mitt Romney — would run for President? Remember how this collective fantasy actually acquired a factesque quality, so no matter how often and emphatically they said “I’m not running,”, hardcore true believers kept saying it would totally happen? As a result, this collective fantasy actually kept impacting reality, with Mitt Romney forced to spend real time and real money persuading potential supporters that their choices really were Mitt Romney, Rick Santorum, Newt Gingrich, or Ron Paul. Really.

I bring this up because we have our own version of this in telecom policyland. Here, a hardcore group of people in telecom policyland believe that the Supreme Court is positively lusting to overturn the two cases that form the mainstay of the FCC’s authority to regulate broadcasters and cable operators: Red Lion and Turner Broadcasting. The rock solid belief that the Supreme Court cannot wait to get its collective hands on these cases cases to overturn them is an article of faith among so many in the telecom world that it influences behavior. Those who favor regulation of things like media ownership and program access live in mortal terror of any change to the rules that might give rise to a cause of action. By contrast, broadcasters, cable operators, and other opponents of any regulation of Big Media keep trying to generate lawsuits so they can strike down what they see as a vile restraint on the First Amendment.

This past term, the Supreme Court had the opportunity to review both Red Lion and Turner. It opted not to do so.  In May, the Supreme Court quietly declined to hear an appeal by Cablevision that would have allowed the Court to revisit the Turner case. In June, the Court not only refused to reconsider Red Lion in the context of the Fox Broadcasting indecency case, they refused to hear the broadcaster appeal of the FCC’s media ownership decision. These cases presented the cleanest, most clear-cut opportunities for the Court to re-examine the constitutionality of either cable or broadcast regulation in years, and the most obvious opportunities for years to come. If the Court were lusting to take on either Red Lion or Turner, surely this presented the perfect chance for them to do so.

But they didn’t. And, just as even the most avid Romney-haters needed to wake up to the fact that Chris Christie wasn’t playing hard to get, folks in Policyland need to deal with the fact that regulation of media ownership and cable remains constitutional for the foreseeable future.

More below . . . .

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My Insanely Long Field Guide To The Verizon/SpectrumCo/Cox Deal.

The more I look, poke and prod at the VZ/SpectrumCo/Cox deal the more convinced I am that this becomes one of the defining moments in telecom for 2012 – possibly for the foreseeable future. If AT&T/T-Mo represented the last stand for traditional antitrust , VZ/SpectrumCo represents the new frontier. Where AT&T was a frontal assault on antitrust by accumulating marketshare and spectrum, this hits antitrust up its blind side with collaborative agreements and fundamental questions about when can competitors decide to abandon entire markets to one another. Just about everything single issue in telecom – spectrum aggregation, video distribution, the nature of competition in the age of convergence, the interaction of antitrust and patent technology —  all come together in one package so amazingly complicated and wonky that average Americans will fall asleep while you explain it to them.

So, with the help of some incredibly lame innuendos to spice things up a bit, I attempt to explain below . . . . .

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