sign in sign up
<<
Home , NBCUniversal, NBC News, Shift (MSNBC)

The Capitol Forum December 23, 2013

Cable Consolidation: Potential Acquisition of TWC Would Pose Concentration Challenge for , Clustering Challenge for Charter

Conclusion

In this report we examine the key regulatory issues likely to be raised by a hypothetical complete take-over of (TWC) by the first and the fourth largest cable incumbents, Comcast and Charter, respectively. Both deals would be controversial and regulators would likely undergo lengthy, in-depth investigations.

Key Points

Issues Affecting Both Deals: Precedent from Comcast/NBCU, RSN Clusters. Regulators will look to recent concessions made in the previous Comcast/NBCUniversal (NBCU) merger to assess whether similar remedies might be applicable or whether or not further consolidation would require more aggressive action. Enhanced market power from (RSN) consolidation or integration would also play a major role in review of either potential merger.

A Comcast Deal Would Increase Concentration and Scale. An acquisition by number one, Comcast, which currently serves over 22 million video subscribers and passes more than 50 million homes, would give the company an additional 11.4 million video subscribers and pass an additional 28 million U.S. households (out of 130 million total). A deal for all of TWC would also increase Comcast’s roster of affiliated RSNs from 18 to 29. The optics of a merger of the two largest cable providers in the United States last week led Republican FCC Commissioner Ajit Pai to publicly opine that the FCC would be unlikely to sign off on a Comcast/TWC deal.

A Comcast deal for TWC opens the door for a reassessment or even an extension of the remedies imposed as conditions on the company’s 2011 acquisition of NBCU, including mandated price-capped, stand-alone broadband, and program access and carriage conditions, currently set to expire in 2018.

A Charter Deal Would Create RSN-Clusters in L.A., , and Wisconsin. Charter, with 5.3 million subscribers and passing about 12 million homes, would result in a smaller post-merger national footprint than Comcast/TWC, but would create “RSN-clusters” in the , Dallas/Ft. Worth, and Milwaukee regions. “Clustering” is the process whereby a cable multiple systems operator (MSO) increases its penetration in a regional area by acquiring cable systems where it already maintains a significant presence. Ever since the Aldephia divestitures, the agencies have recognized that when a clustered MSO also is affiliated with an RSN, the incentives for exclusionary conduct are greatly magnified. TWC’s recent high-dollar, long-term deals with the Lakers, Dodgers and other L.A. teams and its RSNs in and Wisconsin would likely draw significant attention in a deal with Charter, already number two in those regions. Further, such agreements would likely push regulators, at the least, to require special conditions involving programming access and carriage.

Other Issues Also Likely to Arise in a Regulatory Review. The DOJ reviews communications mergers under Section 7 of the Clayton Act, under which a transaction can be blocked if it may substantially lessen competition or tend to create a monopoly. The parties’ opportunity to defend themselves also leads to consideration of efficiencies claimed to result from the transactions that arguably counter any lessening of competition. In cable consolidation, the merging parties can be expected to claim that additional market power will be pro-competitive

1 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions. as a counter to escalating content costs and will create a technically superior combined system. Moreover, the FCC’s competitive analysis is broader than the DOJ’s, and includes consideration of whether a transaction may enhance, rather than merely preserve, existing, potential, and future competition. Accordingly, other issues are likely to arise in the course of regulatory review, such as the effects of the transaction on the availability of broadband access, and its effect on innovation, on-line programming distribution, and content creation.

Issues affecting both deals: Precedent from Comcast/NBCU, RSN Clusters

Comcast/NBCU, Take Two. Re-litigation of the objections raised during the FCC’s review of the Comcast/NBCU transaction can be expected in a review of any proposed Comcast/TWC merger. The Comcast/NBCU merger, announced in 2010 and approved by the DOJ and FCC in 2011, combined the largest U.S. cable MSO with NBCU, owner of “marquee” or “must carry” NBC programming, Universal Studios, and the operator of numerous NBC-affiliated broadcast TV stations. The deal prompted significant regulatory conditions and commitments by the merged entity.

In its review of the transaction, the agencies recognized the ability and incentive for Comcast to engage in anticompetitive conduct as a result of the NBCU acquisition. Given that little has changed since 2011, those abilities and incentives would only be enhanced and strengthened by an acquisition of TWC’s additional scale and content.

The same type of economic modelling relied on by the Commission to show that the NBCU transaction would cause a in the merged entity’s threat point in its future negotiations with counterparties would show a similar shift in point caused by a TWC acquisition. A shift in the “threat point” captures a change in a party’s relative negotiating power in a bargaining game. Changes in a party’s endowment or the state of the game can make certain strategic threats—such as withholding programming—more or less credible. In light of the further shift of the threat point that would result from a TWC acquisition, it follows that the conditions imposed by the FCC to alleviate the competitive harm threatened by the NBCU transaction would be reviewed and potentially strengthened or extended as part of the approval of any Comcast/TWC deal.

In short, a direct result of the increased scale in distribution of a combined Comcast/TWC would be a shift in the threat point in favor of the merged entity vis-à-vis its rivals, suppliers and customers. But, obtaining control of TWC’s additional RSNs also would create increased opportunities to operationalize the threat. TWC operates the following 11 RSNs in these Designated Market Areas (DMAs):

 Los Angeles  Dallas/Waco  Milwaukee/Green Bay  Rochester/Syracuse/Watertown/Binghamton/Buffalo, NY  Portland/Augusta, ME  Charlotte/Raleigh, NC  Columbia, SC  NE/Mid/SW Ohio  Lincoln, NE  Kansas City, MO and KS  Austin/San Antonio, TX

2 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions.

These RSNs, together with Comcast’s current roster of 18 RSNs, would hand the merged entity control of 29 RSNs, over half of all of the 56 cable-affiliated RSNs (in addition to Comcast’s existing “marquee” content).

Any Comcast/TWC merger, therefore, would emerge from the regulatory approval process as a heavily regulated entity under numerous behavioral conditions. These behavioral conditions would be aimed at, for example, ensuring that 1.) Rival multichannel video programming distributors (MVPDs) - which include cable, Direct Broadcast (DBS), and Telco programming distributors, but not on-line video distributors (OVDs) - are able to obtain non-discriminatory access to programming, 2.) Rival content providers are able to obtain non- discriminatory access to distribution, 3.) Customers are able to continue to obtain stand-alone broadband at reasonable prices, and 4.) The development of OVDs will not be impeded. Whether the conditions imposed by the FCC and DOJ have been effective in reigning in Comcast post-NBCU is a matter of some debate, but even more debatable is whether extending or strengthening similar conditions can save any Comcast/TWC proposal.

Creating RSN-Clusters (or their Avoidance) Could Be Key For Any Deal. Whether clustering itself has anticompetitive effects is currently being tested in several antitrust class actions pending against Comcast for clustering in the , Boston, and DMAs. Ordinarily, the court’s attention to such conduct would be enough to cause the parties to be wary of seeking approval for transactions that would entail additional clustering and establish new regional cable monopolies. A TWC-Charter tie-up would lock-up nearly all of Southern California, where Charter is the number two system after TWC; Cox and are a distant third and fourth, and Comcast has no presence. Charter is also number two after TWC in the Dallas and Milwaukee DMAs, so a Charter deal would also create regional cable monopolies there.

The FCC has recognized at least since the Adelphia transaction in 2006 that the more clustered a vertically integrated cable/RSN in a given region is, the greater its ability and incentive to engage in exclusionary strategies against rival distributors and programmers. The Adelphia deal was a joint bid by TWC and Comcast in July 2006 to acquire the cable systems of the bankrupt Adelphia cable. Comcast and TWC swapped certain cable systems, including both self-owned systems as well as Adelphia-owned systems. In addition to Adelphia’s Philadelphia systems, Comcast acquired TWC’s Philadelphia system, after which TWC exited the Philadelphia DMA, leaving Comcast with the entire DMA to itself.

Although clustering does not result in an increase in concentration as measured by the traditional HHI concentration index (because the number of competitors from which consumers can choose remains unchanged after the transaction), exclusive wireline coverage of large metropolitan areas does have horizontal anticompetitive effects. Compared to a clustered region with only a single incumbent, a region with two or more adjacent providers is more likely to develop into a region with overlapping providers in some areas, where consumers would have a choice of wireline MVPDs. Similarly, the presence of a single incumbent also makes a clustered region less attractive for entry and investment by the new Telco entrants or other overbuilders, such as Fiber. Although in previous deals these dynamic, long-term effects have not posed an obstacle to approval, a more nuanced approach by the agencies could elevate these longer-term policy concerns into greater scrutiny of regional wireline clustering.

Where clustering poses a greater immediate concern to the agencies, however, has been the mixed horizontal- vertical effects that occur when a vertically integrated MSO controls a local RSN. Although Charter’s only current RSN asset is its minority stake in Comcast’s Cable Sports Southeast, Charter would achieve close to

3 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions. 100% penetration in three DMAs where TWC controls premium RSNs. In addition to exclusionary strategies, a peer-reviewed recent empirical study (“ in Multichannel Markets: A Study of Regional Sports Networks,” by Hal Singer et al.) shows that RSN subscription rates increase in DMAs where the MSO is clustered compared to DMAs where the RSNs are independent or the cable operator shares the region with a competing cable operator.

The Potential Competitive Harms From a Comcast/TWC Deal

The increased scale and scope of a combined Comcast/TWC would exacerbate all of the potential competitive harms identified in the FCC’s 2011 Order conditionally approving the Comcast/NBCU deal. The competitive threats include both vertical and horizontal elements.

Rival MVPD Access to Comcast/TWC content. Comcast’s ability and incentive to withhold from its MVPD rivals reasonable access to the merged entity’s content was identified by the Commission as a competitive threat posed by the NBCU transaction. The addition of TWC’s RSNs would hand Comcast additional, high-value sports content (i.e., additional “marquee” content) with which to engage in strategic exclusionary conduct directed at rival MVPDs while the significant expansion of its service area would also ensnare additional Cable and Telco rivals in the threat zone. Comcast currently operates RSNs in San Francisco, CA, Oakland/Sacramento, CA, Chicago, IL, , TX, Washington, D.C., Portland, OR, Boston, MA, Philadelphia, PA, , GA, and , NY.

The FCC recognized in the NBCU Order that Comcast/NBCU “will take into account the possibility that any harm from failure or delay in reaching agreement” with rival MVPDs to carry its content “would be offset to some extent by a benefit to Comcast, as reaching a higher price would raise the costs of Comcast’s rivals.” As in the NBCU transaction, a TWC acquisition would further “improve Comcast’s bargaining position, leading to an increase in programming costs for its video distribution rivals.”

In NBCU the Commission determined that its program access rules would be an insufficient remedy, so the FCC created a supplemental program access regime with “baseball-style” arbitration and a standstill provision “to maintain the pre-integration balance of bargaining power.” In baseball-style arbitration, each party submits its best offer and the arbitrator chooses between them. A standstill provision prevents disputed programming from being withheld during the pendency of arbitration proceedings. These rights were extended to all Comcast / NBCU programming, including video-on-demand (VOD) and pay-per-view (PPV), and were made available to all MVPDs, not just rivals in certain markets. It seems likely that the additional concentration and content control resulting from a Comcast/TWC deal would call for a strengthening of these provisions, their extension beyond the current sunset in 2018, or both.

On-Line Video Content. The Commission also found in the Comcast/NBCU Order that Comcast would have the incentive and ability to hinder competition from rival On-Line Video Distributors (OVDs), including MVPDs and non-MVPDs (i.e., OVDs that do not control the signal path to the subscriber but must rely on the subscriber’s broadband connection, which have not yet been granted MVPD status by the FCC). The Commission noted the availability of strategies such as 1.) Restricting access to affiliated on-line content, 2.) Blocking or degrading or otherwise “violating Open principles” with respect to delivering unaffiliated on-line content to Comcast broadband subscribers, and 3.) Using Comcast set-top boxes to hinder the delivery of unaffiliated on-line video. Accordingly, the FCC requires Comcast to provide affiliated programming to OVDs

4 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions. on terms that are economically comparable to non-vertically integrated “peer” content providers. Comcast’s peer content providers for sports and news are the networks and for other programming are the major studios.

Acquisition of additional TWC content would appear to strengthen the need for these program access remedies. However, in the two years since the Comcast/NBCU Order, only two OVDs have sought to take advantage of these remedies. One OVD is still waiting for the arbitration to conclude and the other OVD dropped its arbitration request when the DOJ referred it to the FCC.

The program access regime in Comcast/NBCU requires OVDs to take either Comcast/NBCU’s entire bundle of MVPD programming at rates “benchmarked” by the rates charged to rival MVPD’s for the same bundle or to take programming that is comparable to peer programming the OVD is already carrying. Thus, an OVD that carries, for example, CBS news (a peer to NBC news) can seek arbitration to compel Comcast to allow it to distribute comparable NBC news programming. But if no peer network or studio makes a carriage deal with an OVD, no OVD will have the right to seek to carry Comcast’s programming. So far, linear cable programming from the networks and studios is not broadly available over the Internet.

Accordingly, stakeholders could point to the sluggish development of OVDs and the unsatisfactory performance of the arbitration provisions in the Comcast/NBCU Order to support the claim that the existing OVD program access provisions are inadequate and would need to be strengthened and broadened in the event of a Comcast/TWC merger.

The FCC accepted voluntary commitments from Comcast/NBCU not to prioritize affiliated content over its broadband connections and required its set-top boxes to display non-affiliated content in a non-discriminatory manner, conditions that are likely to continue to apply to any Comcast/TWC transaction. The Comcast/NBCU Order also noted the potential competitive harm from bundling internet access with programming, so the Commission requires Comcast to offer stand-alone internet access on terms that are at least as favorable as its bundled offerings. This provision would also most likely apply to a broader, Comcast/TWC footprint.

Program Carriage. The flip side of denying content to rival distributors is denying distribution to rival content providers. The FCC found that the combined Comcast/NBCU would have the ability and incentive to discriminate in its distribution of rival content, so it imposed a “non-discrimination” condition that requires Comcast “not to discriminate in video programming distribution on the basis of affiliation or non-affiliation of vendors in the selection of, or terms or conditions for, carriage, including in decisions regarding tiering and channel placement.” As background, tiering is the placement of programs into a separately-priced bundle of programming that may be purchased in addition to a basic cable package.

The greatly expanded footprint of a combined Comcast/TWC suggests the continuing need for these program carriage conditions. A refusal to carry programming to 22 million subscribers constitutes one threat level while a refusal to carry programming to 34 million subscribers constitutes another. Objectors are likely to point to the dismal failure of content providers to obtain any meaningful relief under the FCC’s regime as proof that such conditions are too ineffectual to ameliorate the competitive harm. Bloomberg has been battling under the Comcast/NBCU Order for two years to be placed in the same channel neighborhood as Comcast’s other business news offerings, but the company has so far successfully resisted doing so, despite the non-discrimination condition and the FCC’s requirement that if Comcast places news and/or business news channels in a

5 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions. neighborhood, then “Comcast must carry all independent news and business news channels in that neighborhood.”

In Tennis Channel v. Comcast, the DC Circuit reversed an FCC order requiring Comcast to carry Tennis Channel on the same tier where Comcast carries its own and NBC Sports. The court did not find Comcast’s decision to place Tennis Channel on a more expensive (and much less widely viewed) digital tier to be “discriminatory.” One member of the court accepted Comcast’s refusal to carry Tennis Channel on a lower tier as the legitimate rejection of a business proposal it saw as being of no benefit to Comcast. The result is particularly puzzling in light of the Commission’s identification of Comcast/NBCU’s ability and incentive to refuse carriage for anticompetitive reasons as a specific competitive harm intended to be cured by program carriage conditions. Nonetheless, objectors are likely to insist that the failures of program carriage obligations to curb the anticompetitive exercise of market power demonstrates that such rules and conditions cannot be relied upon to ameliorate threatened competitive harm, weighing against approval of even a highly conditioned Comcast/TWC transaction.

The Potential Competitive Harms From a Charter-TWC Deal

The Commission has determined that the relevant geographical markets for MVPD services are local, because consumers are unlikely to change residence to avoid an increase in the price of MVPD services. Penetration rates in local markets, therefore, are significant for the analysis of competitive conditions. As noted above, Charter serves as the only significant cable alternative to TWC in the L.A, Dallas, and Milwaukee DMAs, where TWC controls affiliated RSNs. The combination of regional clustering and RSN control raises significant competition issues.

Clustering. Between 1998 and 2007, Comcast entered into a series of nine acquisitions and swap transactions (including the Adelphia deal) that resulted in the acquisition of virtually every cable-passed household in the Philadelphia DMA, which includes northern Delaware and southern New Jersey. A similar series of transactions gave the company regional cable near-monopolies in Chicago and Boston. Consumers have brought antitrust class action cases against Comcast for clustering in each of these three regions, alleging, among other things, a connection between clustering and barriers to entry to competing overbuilders, other cable operators, or Telcos that invest in wireline facilities in areas already served by a cable operator.

The Philadelphia case, Behrend v. Comcast, became the vehicle for the Supreme Court to tighten the requirements for the calculation of damages on a class-wide basis for the purpose of class certification. But the case is back before the district court, and discovery in the Boston and Chicago cases is starting. Objectors to a Charter/TWC transaction will look closely at the regional clustering in Los Angeles, Dallas, and Milwaukee that would result from the proposed deal and are likely to argue that this will raise barriers to competitive entry and create disincentives for overbuilding.

The Magnifying Effect of Cable-owned RSNs

Horizontal Effects. For cable operators that also control an RSN, clustering increases the incentives for both input foreclosure (aimed at rival programming distributors) and customer foreclosure (aimed at rival RSNs). Inducing subscribers to defect from rival distributors by withholding affiliated sports programming is much more effective when there is nowhere else for customers to turn. Thus, a clustered cable operator that withholds an

6 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions. RSN from a DBS MVPD (such as Dish or DirecTV) is assured of driving subscribers to its own system rather than to a rival. The larger the footprint of the vertically integrated regional incumbent compared to its regional rival, the more likely it will be to benefit from following a withholding strategy.

Although independent RSNs seek to maximize the value of their rights to deliver games over multiple platforms within a DMA (Cable-DBS-Telco-Internet), integrated RSN-Cable programmers will jointly maximize profits between their distribution business and the value of their RSN rights, leading the firm to sacrifice profits from its RSN to gain profits from distribution. That is, an exclusionary strategy generating losses from a smaller RSN may be offset with larger profits from foreclosure of downstream rivals.

In the context of the bargaining model used to analyze vertical integration, clustering dramatically alters the threat point, making exclusionary strategies more profitable. The ability and incentive of an MVPD to withhold its RSN, therefore, is greatly magnified when the operator is regionally clustered.

Program Carriage. Similarly, the more subscribers served by a clustered vertically-integrated MVPD, the greater its ability to extract favorable terms for the distribution of rival RSN programming. In several cases, RSN-integrated cable operators have withheld carriage from independent RSNs, including:

 In MASN v TWC, TWC offered the Mid-Atlantic Sports Network only the digital tier in North Carolina (where half the subscribers are on analog). Although the FCC Media Bureau found discrimination, the full Commission reversed that finding;

 In MSG v TWC, TWC blacked out the Madison Square Garden network (NY Knicks) just at the height of “Linsanity;”

 In Network v , the court found that Cablevision was “using its status as a vertically integrated multichannel video programming distributor to protect its monopoly over local sports programming by refusing to grant YES Network carriage on its system on nondiscriminatory terms.”

Control of an RSN has a dramatic effect on bargaining as a consequence of the market power of sports programmers in their regional markets. In Laumann v. NHL/Garber v. Comm’r of Baseball, the federal court determined that leagues possess “monopolies of their respective sports” In those lawsuits, consumer plaintiffs have challenged out-of-market game black-out provisions, which limit viewers’ access to league games except those involving in-market teams. The court has permitted the case to proceed against the NHL and Major League Baseball—but not against the MVPDs involved, whose subscription agreements contain arbitration clauses— because the complaint “plausibly alleged that the NHL and MLB have used their monopoly power to restrict the broadcast of television programming in a manner that harms competition.”

In sum, a Charter-TWC merger would create a vertically integrated cable-RSN operator with three regional clusters, allowing the firm to control league broadcasts on the programmer level and local access on the distribution level in three major markets. This would seem to create substantial scope for harm to competition and justifying divestitures and/or strict program access and carriage regulation of the post-merger entity.

7 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions.

Additional Issues Likely to Arise

Content and Programming Costs. The merging parties are likely to point to the pricing power of content providers as justification for any deal. The upward slope of retransmission fees over the past decade, pricing power of “monopoly” sports programmers, and TWC’s recent row with CBS would be examples of content providers’ increased negotiating leverage. reported last week that TWC lost 306,000 subscribers in Q3 of 2013. On August 3rd, CBS broadcast and its Showtime, Movie Channel, and Smithsonian Channel cable programming went dark on TWC’s systems in New York, Los Angeles, Dallas, Boston, Chicago, , Detroit and Pittsburgh, where CBS owns and operates broadcast affiliates.

Parties to any deal, therefore, are likely to justify any increase in market power as countervailing buying power that will drive down programming costs and create savings that can be passed on to consumers. Irresistible though this argument may prove to the merging parties, it could however trigger complaints over program bundling, a main driver of supra-competitive programming costs.

Bundling on the wholesale level is teed up in federal court in Cablevision v. and is being addressed on the retail level through various recent federal legislative proposals requiring MVPDs to offer a la carte programming. Although the bundling issue is not “merger specific,” and the prospects for reform are not encouraging, the practice undermines the argument that cable needs greater power to negotiate for bundles of programs that for the most part are not demanded by cable subscribers.

Moreover, countervailing power is not always viewed by the agencies as pro-competitive, despite the failure of the 2010 Merger Guidelines to recognize that countervailing power may be anticompetitive. For example, upstream countervailing purchasing power may diminish the incentives, output, or the variety offered by an upstream supplier or encourage several competing suppliers to collude. Downstream competition may be adversely affected if suppliers compensate for or accede to concessions demanded by a large buyer by raising prices to less powerful customers.

Finally, expect to hear from the merging parties that combining two large MSOs into one even larger MSO by itself creates economic or technical efficiencies. This argument should be viewed with skepticism, because it is difficult to demonstrate that once a network has achieved minimum efficient scale, further increases in scale are economically or technically beneficial.

On-Line Programming Distribution. Some stakeholders and public interest groups may also voice discontent with cable’s “walled garden,” i.e., practices by incumbents that keep premium programming off the Internet for non-subscribers and away from cord-cutters. The perpetuation of wholesale bundling, however, is likely to keep such programming largely out of the hands of OVDs for a period of time.

Broadband Access. Meaningful focus on the longer-run, dynamic competition effects of any deal or the real state of entry conditions for cable and fiber overbuilders could be derailed by deep divisions and confusion at the FCC over the state of competition in the broadband access market. As cable companies and the FCC keep focusing on bundles of video programming, the most significant bundling, and the most pressing policy issue, involves access to high-capacity (read: wired) broadband.

8 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions.

The current FCC is deeply divided over the state of competition in the retail broadband access market, where a Republican minority of the Commission would include mobile broadband in national penetration and adoption rates. The Commission’s Eighth Broadband Report, however, makes clear that only wired access offers a level of utility acceptable to the current Commission. There, by that definition, cable dominates. Although the FCC places great faith in the Telcos as new entrants, there is some question about whether the Telcos’ intend aggressively to roll out Verizon FIOS and AT&T UVerse. As of last year, Verizon passed only 15.6 million households and AT&T passed 27.3 million. Greater clustering of subscribers and consolidation in cable-owned sports programming could further dampen the Telcos’ appetite.

Comcast and TWC broadband already passes more than 70% of the residents in an unknown number of localities, information that has been redacted from the FCC’s Eighth Broadband Report. The list likely already includes Philadelphia, Boston and Chicago for Comcast and Los Angeles for TWC, suggesting that these markets are not competitive. Out of a total U.S. population of 318.6 million, TWC offers broadband access to approximately 66.8 million people in 29 states (20.9%), Comcast to 113.0 in 40 states (35.5%), and Charter to 27.9 million in 25 states (8.75%). Increasingly, observers point to the need for the separation of broadband services from video programming distribution and for policies that encourage more facilities-based broadband competition, such as the projects being considered by .

Regulatory review by the Antitrust Division and the FCC will not be written on a Clean Slate. Previous mergers, including Comcast/NBCU, have generated significant institutional experience with cable deals. Moreover, the FCC’s current proceedings relating to program access rules, the video distribution market, and broadband deployment intersect with merger analysis in the sector. Conceivably, technological changes, sluggishness in bringing innovations to market, and new personalities at the agencies could encourage a new way of looking at competitive conditions. It is more likely, however, that the regulators focus on the short-term rather than the long-run implications, static rather than dynamic analysis, and national rather than regional metrics. Further, they will also focus on programming rather than broadband and debatable efficiencies rather than barriers to entry. Thus, even in the face of evidence of a worse competitive outcome, further consolidation could win the agencies’ approval.

9 You are currently a subscriber to The Capitol Forum. The Capitol Forum is a subscription news service that provides comprehensive news coverage of competition policy as well as in-depth market and political analysis of specific transactions and investigations. Please contact 202-601-2300 for sales or editorial questions.