Steqtoe STEPTOE & JOHNSON LLP
Total Page：16
File Type：pdf, Size：1020Kb
Markham C. Erickson 202 429 8032 [email protected] SteQtoe STEPTOE & JOHNSON LLP 1330 Connecticut Avenue, NW Washington, DC 20036-1795 202 429 3000 main www.steptoe.com REDACTED - FOR PUBLIC INSPECTION August 25, 2014 By HAND DELIVERY William T. Lake Chief, Media Bureau Federal Communications Commission 445 12th Street S.W. Washington, DC 20554 Re: Applications of Comcast Corp. and Time Warner Cable Inc. for Consent to Assign or Transfer Control of Licenses and Authorizations, Docket No. 14-57 Dear Mr. Lake: In accordance with the Joint Protective Order, 1 Netflix, Inc. submits the attached redacted version of its Petition to Deny. The"[[]]'' symbols denote where Confidential Information has been redacted, and the " { { } }" symbols denote where Highly Confidential Information has been redacted. The Confidential and Highly Confidential versions of this filing are being simultaneously filed with the Commission and will be made available pursuant to the terms of the Joint Protective Order. Please contact me with any questions. RespectfullJ~uW------- ti1Erickson Counsel for Netflix, Inc. 1 Applications of Comcast Corp. and Time Warner Cable Inc. for Consent to Transfer Control of Licenses and Authorizations, MB Docket No. 14-57, Joint Protective Order, DA 14-463 (Apr. 4, 2014). REDACTED - FOR PUBLIC INSPECTION Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 ) In the Matter of ) ) Applications of Comcast Corp. and Time ) MB Docket No. 14-57 Warner Cable Inc. for Consent to Transfer ) Control of Licenses and Authorizations ) ) PETITION TO DENY OF NETFLIX, INC. Markham C. Erickson Christopher Libertelli Erik Stallman Corie Wright Damon J. Kalt Netjlix, Inc. Andrew W. Guhr 1455 Pennsylvania Ave., NW Steptoe & Johnson LLP Suite 650 1330 Connecticut Ave., NW Washington, DC 20004 Washington, DC 20036 (202) 464-3322 (202) 429-3000 Counsel for Netjlix, Inc. August 25, 2014 REDACTED - FOR PUBLIC INSPECTION TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................... I I. INTRODUCTION.............................................................................................................. 1 II. STANDARD OF REVIEW ............................................................................................... 3 A. The Commission's Broader Public Interest Analysis ........................................ 4 B. Antitrust Principles and the Commission's Analysis of Competition .............. 5 C. Burden of Persuasion and Affirmative Finding of Competitive Benefits ................................................................................................................... 7 III. RELEVANT MARKETS .................................................................................................. 8 A. National High-Speed Broadband Distribution of Edge Provider Content ................................................................................................................. 10 1. Product Market: High-Speed Distribution of Edge Provider Content ..................................................................................................... 10 2. Geographic Market: National. .............................................................. 24 B. Video Programming Distribution ................ ~····················································· 27 IV. THE MERGED ENTITY'S INCENTIVE TO HARM EDGE PROVIDERS AND DIMINISH COMPETITION IN THE VIDEO MARKETPLACE IS WELL ESTABLISHED .................................................................................................. 29 A. Applicants Have the Incentive to Protect Both Their Linear Video Services and Affiliated OVDs From Competition ........................................... 29 B. Applicants Are Developing Services to Compete With OVDs While Protecting Their Current Bundling Strategies ................................................. 31 C. The Best Indication of Comcast's Incentives Is Its Conduct .......................... 34 V. APPLICANTS ALREADY HAVE THE ABILITY TO HARM OVDS ..................... 34 A. Comcast and Time Warner Already Have Market Power in Local High-Speed Broadband Internet Access Service Markets .............................. 35 1. There is Minimal Competition for High-Speed Wired Connections ............................................................................................. 36 2. High Switching Costs Prevent Consumers from Changing ISPs ....... 37 REDACTED - FOR PUBLIC INSPECTION B. Four Terminating Access Networks (Including Comcast and TWC) Already Have Demonstrated Ability to Leverage Control of Interconnection to Foreclose OVDs or Raise Their Costs .............................. 42 1. Four Terminating Access Networks Can Congest Routes into Their Networks and Extract Terminating Access Fees from Edge Providers ........................................................................................ 43 2. An OVD's Ability to Manage Congestion at Interconnection Points Is Critical to Delivering its Service to its Customers ............... 46 3. Large Terminating Access Networks Can Extract Terminating Access Fees Because They Pose a Significant Threat to OVDs with Fixed-Costs for Content ................................................................. 50 C. Comcast Already Has Exercised Its Market Power over Netflix by Leveraging Congestion to Shift Netflix Traffic to Paid Interconnection ....... 52 1. There Are No Technological, Economic, or Regulatory Impediments to Large Terminating Access Networks Pursuing Congestion Strategies .............................................................................. 60 2. Marginal Costs of Interconnection Do Not Justify Terminating Access Fees ............................................................................................... 64 3. Traffic Ratios Do Not Justify Payment of Terminating Access Fees ........................................................................................................... 68 D. Comcast Already Has Used Data Caps and Restrictions on User Devices to Harm OVDs and Consumers ........................................................... 71 1. Comcast Already Has Used Data Caps to Push Consumers Away from OVDs .................................................................................... 71 2. Comcast Already Has the Ability to Leverage Control of Devices to Control Content Distribution .............................................. 73 VI. THE TRANSACTION WOULD INCREASE COMCAST'S EXISTING INCENTIVE AND ABILITY TO HARM OVDS BY CREATING AN EVEN LARGER TERMINATING ACCESS NETWORK ..................................................... 75 A. The Transaction Would Extend Comcast's Ability to Harm OVDs to TWC's Network .................................................................................................. 77 B. The Sheer Size of the Combined Entity Would Threaten OVDs ................... 79 11 REDACTED - FOR PUBLIC INSPECTION C. The Transaction Would Give the Combined Entity an Increased Ability to Raise OVDs' Costs ............................................................................. 84 D. Comcast's Ability to Leverage Data Caps and Power over Consumer Devices Will Extend to TWC ............................................................................. 87 VII. FORECLOSURE OF EDGE PROVIDERS WOULD LEAD TO OTHER SIGNIFICANT PUBLIC INTEREST HARMS ............................................................ 89 A. The Transaction Would Decrease Program Diversity .................................... 90 B. The Transaction Would Diminish Consumer Choice and Value ................... 92 C. The Transaction Would Inhibit Broadband Investment and Deployment .......................................................................................................... 93 VIII. APPLICANTS' CLAIMED PUBLIC INTEREST BENEFITS ARE TENUOUS, NON-MERGER SPECIFIC, AND UNDERMINED BY COMCAST'S INCENTIVE AND ABILITY TO DISCRIMINATE AGAINST OVDS ............................................................................................................. 94 A. Many of the Purported Public Interest Benefits Rely on Competition from the Very Entities That the Merged Entity Would Have the Incentive to Harm ............................................................................................... 95 B. Many of Applicants' Proposed Benefits Are Weak, Speculative, or Non-Existent ........................................................................................................ 96 1. The NBCU Conditions Are Not Public Interest Benefits from This Transaction ..................................................................................... 97 2. Increased Scale Is Not By Itself a Public-Interest Benefit................... 97 3. Comcast's Acceleration of TWC's Broadband Deployment and Technological Innovations Provide Only a Minor Public Interest Benefit ........................................................................................ 99 IX. CONCLUSION ................................................................................................................ 99 lll REDACTED - FOR PUBLIC INSPECTION EXECUTIVE SUMMARY Comcast Corporation ("Comcast") and Time Warner Cable, Inc. ("TWC") (together, "Applicants") ask the Federal Communications Commission ("FCC" or "Commission") to approve their application to become the nation's largest onramp to the Internet. The Commission should reject the request. The proposed merger puts at risk the end-to-end principle that