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United States of America + + + + + Federal Communications Commission + + + + + Proposed Comcast-Time Warner Cable- Charter Trans REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 1 UNITED STATES OF AMERICA + + + + + FEDERAL COMMUNICATIONS COMMISSION + + + + + PROPOSED COMCAST-TIME WARNER CABLE- CHARTER TRANSACTION ECONOMIC ANALYSIS WORKSHOP + + + + + FRIDAY JANUARY 30, 2015 + + + + + The Economic Analysis Workshop met in the Federal Communications Commission, Commission Meeting Room, 445 12th Street SW, Washington, D.C., at 9:15 a.m., William Rogerson, Paul LaFontaine, and Shane Greenstein, FCC Moderators, presiding. FCC MODERATORS SHANE GREENSTEIN PAUL LAFONTAINE ERIC RALPH WILLIAM ROGERSON DAVID WATERMAN ANDREW WISE NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 2 APPLICANT ECONOMISTS DENNIS CARLTON MARK ISRAEL GREG ROSSTON MICHAEL TOPPER THIRD PARTY ECONOMISTS GARY BIGLAISER DAVID EVANS JOSEPH FARRELL JOHN KWOKA DAVID SAPPINGTON RICHARD SCHMALENSEE WILLIAM ZARAKAS NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 3 C O N T E N T S Page Opening Remarks ............................... 4 Session I: Interconnection ................... 7 Break Session II: Online Video Distribution ...... 107 Break Session III: Program Access, Program Carriage and Other Programming Issues ........... 198 Break Session IV: Benchmarking, Efficiencies, and Other Issues ........................... 269 Adjournment NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 4 1 P-R-O-C-E-E-D-I-N-G-S 2 9:15 a.m. 3 DR. ROGERSON: Well, I'd like to welcome 4 everyone here this morning. And thank everyone for 5 coming. Before we start, I'd like to thank all of 6 the FCC staff that worked very hard to organize this 7 and get this all together. 8 And of course the crack staff that worked 9 on the questioning and stuff. You're going to see 10 a lot of them. So thank you to all the FCC staff 11 that did all the organizing for the panel. 12 I have a few small announcements to make. 13 No recording of any kind is allowed during the 14 sessions. And everyone in this room is cleared to 15 hear highly confidential information. But you 16 should remember that highly confidential 17 information will be shared within this room. And 18 then it has to be treated as highly confidential 19 information. 20 If you leave the room you're going to 21 get interrogated on the way back in. Because you're 22 only allowed in this room if you were invited. And NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 5 1 so be aware that you should -- I don't know what 2 that means. 3 (Laughter) 4 DR. ROGERSON: But I was told to tell you 5 that. I was also told to tell you we have bathrooms. 6 They're off in that direction. Let's see, what 7 else? 8 Oh yes, there will be a lunch break. 9 It's only an hour and a quarter. So probably you're 10 better off just having lunch at the FCC cafeteria 11 because probably everyone in this room knows how 12 long it takes to get through FCC security. Me too. 13 So you may decide to have lunch there. 14 One last thing, I want to thank all of 15 the economists from both sides of the issue for 16 coming today. Many of them submitted questions to 17 us in advance. We used some of them, we didn't use 18 some of them. But thank you very much for 19 submitting questions in advance. 20 As well, people in the audience, we have 21 some FCC staff -- yes, there. Okay, well we have 22 at least one FCC staff. If you raise your hand, they NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 6 1 have cards and you could write a question on a card. 2 It will be brought up front and I may ask it. Okay, 3 I guess it's up to me. 4 One last thing, that probably we -- any 5 one of these questions we could spend a half hour 6 on. And we've got 15 or 20 topics we want to go 7 through at each of these sessions. So occasionally 8 I may end up having to be a little rude and hurrying 9 people along. But it's really just in the goal of 10 making sure we have time to discuss all of the 11 topics. 12 So, please panelists, try and keep your 13 answers short and succinct. And I'll help you if 14 I feel I need to. Okay. 15 So, without further ado, let me 16 introduce the -- oh. 17 COURT REPORTER: Can I ask one thing 18 now. Can you make sure that when you do speak that 19 the microphone is right in front of you. 20 DR. ROGERSON: Okay. And I guess that 21 means me too. Be close to the microphone when 22 you're talking please. Good. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 7 1 Okay, so without further ado, the FCC 2 panel of moderators that are helping me moderate 3 the first panel are Paul LaFontaine and Shane 4 Greenstein. From the Applicants we have Dennis 5 Carlton and Mark Israel. And then from third 6 parties commenting on the proceeding, we have David 7 Evans, Joseph Farrell, David Sappington and William 8 Zarakas. 9 So, without further ado, let’s start 10 with Session I, which is on interconnection. So, 11 I want to begin just for clarity by stating what 12 I believe is the central theory of harm we're going 13 to discuss. 14 So when I say this theory of harm that 15 doesn't mean that I think it's true or I think it's 16 false. I just think we should understand what we're 17 talking about. 18 Okay, so the theory of harm that I 19 believe we're discussing in this panel is that by 20 providing access to a larger share of the nation's 21 broadband subscribers, post-transaction Comcast 22 will be better able to charge higher interconnection NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 8 1 fees to OVDs and other edge providers either by 2 directly charging higher interconnection fees to 3 those that directly connect with Comcast, or by 4 charging higher interconnection fees to CDNs and 5 ISPs that provide this interconnection. 6 Although this is a very simple theory 7 to state, it turns out that there's a number of 8 distinctly different, very complex issues that 9 arise when you try and check out if this theory has 10 any validity in the context of this merger. What 11 we propose to do in this panel is go over a large 12 number of these most important points one at a time. 13 So the point I want to start with is, 14 this theory of harm clearly requires some for it 15 to be valid, would require that if Comcast were to 16 deny access to an OVD or a content provider, or 17 degrade access to it, Comcast would have to retain 18 a significant number of its customers. If they all 19 left it wouldn't be able to engage in this type of 20 action and then negotiate higher prices. 21 So there has to be some reason why the 22 subscribers won't leave. Or are unlikely to leave. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. (202) 234-4433 WASHINGTON, D.C. 20005-3701 www.nealrgross.com REDACTED FOR PUBLIC INSPECTION MB DOCKET NO. 14-57 BEFORE THE FEDERAL COMMUNICATIONS COMMISSION 9 1 Commenters have suggested that they might not leave 2 if they don't have good substitutes. And they might 3 not leave if their switching costs are high. 4 These are in some sense just theoretical 5 speculations. Commenters have provided three 6 different pieces of evidence and the Applicants 7 trying to support you know, their view on this. And 8 I'd like to go through the three pieces of evidence 9 one at a time. 10 So the first piece of evidence, Dr. 11 Israel has reported that fully {{ }} of 12 Comcast's customers churn away over a year. And he 13 interprets this {{ }} churn rate as suggesting 14 that consumers must have broadband options and 15 possibly that switching costs are generally low.
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