Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (36 page)

The public narrative of the Comcast-NBCU transaction remained largely the Comcast-shaped story. Major media would have jumped on the news if any major companies had spoken up about the deal, but the telephone companies (Verizon, AT&T, Qwest), large cable companies (Time Warner, Cablevision), media conglomerates (News Corp., Disney, Viacom, CBS, Turner), and large online companies (Google, Amazon, eBay, Facebook) were mostly not saying a thing. The media and telecommunications world
had become sufficiently consolidated that no large company saw much upside to opposing another large company's deal—their positions might be reversed soon enough, and all of them needed to deal with Comcast. They talked to the Department of Justice and provided information about their practices, but they did not make noise; when it came to Comcast-NBCU, the media community maintained an appearance of equipoise.

Public-interest groups did their best to kick sand in the gears. Free Press in particular agitated for blocking the deal entirely; Executive Director Josh Silver issued statements and wrote blog posts throughout the year of the FCC review, and wrote after the deal was approved that “the ComcastNBC merger is truly a disaster for anyone who hopes the American public might someday emerge from the propaganda morass that is embodied by cable television, and now threatens to consume the internet.”
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Andy Schwartzman of the Media Access Project testified vehemently against the deal.
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Public Knowledge's Harold Feld wrote comments and blog posts.
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All these groups joined the Communications Workers of America and Common Cause in opposing the merger as filed and asking for detailed conditions that would, in their view, curb Comcast's market power.
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But in the absence of opposition from another large corporation, the tens of thousands of comments filed in support of the public advocates’ views were outweighed by the hundreds of supportive comments from Comcast allies—state and local officials, business groups, and nonprofits.
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Sensing a draw complicated by a lot of tricky details, reporters saw little to write about. National coverage of the deal was surprisingly thin considering the size of the participants.

Meanwhile, Kathy Zachem, an engaging, forceful, and well-liked Comcast employee charged by David Cohen with managing the company's relationship with the FCC, virtually camped out at the Commission's offices, holding court on the eighth floor, where all the commissioners have offices. The entire Comcast team was viewed by staff as good to work with and professional; the Comcast people worked hard and did not leak information.

The FCC and DOJ had a lot of ground to cover, even if the public was not hearing about it. This was the Obama administration's first mega-merger, and the reviewing agencies had mountains of information to absorb and
analyze. The basic concerns were obvious: would the addition of NBC Universal content to the assets already under Comcast's control give the company the power to demand better terms for programming and for carriage of other peoples’ programming? Would Comcast be able to use this power to move the subscription cable model online while suppressing competition from new forms of online video? What effect would the merger have on the future of Internet businesses and Internet access? The merger review took more than a year, in the end, because each of these issues had to be understood and then explained in writing to the public in the final order, which was filed online.

From the start, blocking the merger was unlikely. The agency economists took the view that there were positive gains from vertical integration between content and distribution; “double marginalization” (overhead overlaps triggered by the involvement of multiple companies) could be reduced, innovation could be enhanced by coordinating work on content with work on new forms of distribution, and overall costs could be cut through economies of scale and scope. Case law supported the idea that vertical integration was less worrisome than horizontal mergers; the antitrust agencies had not successfully litigated a vertical merger challenge for decades.
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Besides, Comcast was already in the content business: its regional sports networks were powerful engines driving the company. The Antitrust Division staff, given the scope of their review, felt they did not have a good enough analytical reason to challenge the merger as a whole; the FCC wanted to limit itself to merger-specific harms, and staff members believed that it would be difficult to make a strong case that the merger would make the existing situation worse. And the political dynamics clearly favored the merger; with most legislators, minority groups, and state officials from across the country in favor and no large businesses opposed, there was little reason to contest a vertical merger. Six months before the final decisions were released, John Malone said of the deal, “Absolutely it'll happen. I don't think there's any question. And I don't think they'll [Comcast and NBC Universal] have to make a lot of commitments to get it through. They'll make some.” Malone predicted that other distributors would see clues in the deal's approval that would prompt them to vertically integrate as well, in order to protect themselves.
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The skirmishing was over the conditions for the deal. Competing providers of pay TV wanted to ensure that they would have fair access to programming that would be owned by Comcast. Although AT&T did not seem overly concerned—CEO Randall Stephenson told the press that he expected his company would have the same access to programming following the deal—small cable companies complained that the existing program-access rules allowed Comcast innumerable ways to make life hell for them. Enforcing the rules was costly and time-consuming, and Comcast could always claim that it was merely using standard volume discounts and (secret) “most favored nation” provisions in its contracts to favor larger distributors.
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Other programmers wanted the chance to be distributed through Comcast's enormous pipes. Without this distribution, they would not be able to sell advertising effectively so that they could become bigger, and without distribution on Comcast they would not be viewed as important enough to get distribution from Cablevision, Cox, or Charter. The big cable companies routinely act in parallel. Comcast had been denying independent programmers access for years; the FCC had just one judge dealing with carriage complaints, and Comcast had been able to avoid or wear down most complainers.
Al Jazeera
may have been able to trigger the fall of governments, but it could not get carriage on Comcast; no programmer independent of the media conglomerates has managed that reliably.
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With the addition of NBCU content, programmers argued, Comcast would have even more reason to shield its marquee brands (USA, CNBC, NBC Sports) from competition by keeping independents out of its pipes.
Bloomberg
, in particular, wanted special treatment from Comcast: “neighborhooding” of all business channels so that it could be found next to CNBC.
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Online video-distribution companies worried that Comcast could make things especially difficult for them; with control over more programming and no obligation to allow competing broadband companies to use its pipes, Comcast could deny new online companies a platform. Comcast's ability to offer its own online video with TV Everywhere would make the situation even worse; the cable bundled subscription model would be successfully moved online.
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Toward the end of the process, the FCC paid glancing attention to the issue of high-speed Internet access and the power of Comcast (and other
cable incumbents) to dominate wired access in its market areas. Earthlink, the Internet service provider that had been allowed onto Time Warner's cable system as a result of the AOL–Time Warner merger a decade earlier, strongly argued for wholesale standalone broadband access so that it could compete.
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Public-interest groups trooped to the FCC offices about once a week. Like some of the companies, they wanted rules to ensure Comcast's rivals access to programming, better rules covering Comcast's obligation to carry programming from independent programmers, and a requirement that Comcast make its high-speed Internet access services available on a wholesale basis.
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To the end, the public-interest groups thought that wholesale access to high-speed Internet services was a strong possibility.

Comcast, for its part, kept asserting that the review was certain to be settled in 2010—the company was expert at creating an air of inevitability, and it had financial reasons for wanting to get the deal done that year. It had seen an opportunity in a business-friendly administration and had gone forward. But approval of the merger on Comcast's schedule would not be possible, given the work that had to be done on net neutrality and the compromises the staff had to get through in order to complete that order. Approval would have to wait until January 2011.

Some outsiders to the process found it hard to believe that public policy would permit the deal to go through. “If the framers could see what has happened to their First Amendment, they'd be shocked,” one commenter told me. “It now protects corporations. … Comcast owns the Internet now.”
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But the unthinkable had become commonplace. At the end of 2010, after months of work, the FCC staff was nearly ready to circulate its proposed conditions for a vote. There was, predictably, a last-minute scramble to add on conditions that had personal appeal for one actor or another. The commissioners all had their own requests. Commissioner Mignon Clyburn had already made hers known; she wanted to ensure that the deal was used as an opportunity to provide low-income Americans, as well as schools and libraries, with better access to low-cost broadband.
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Commissioner Michael Copps, after a period of disengagement, submitted a host of requests at the end, including requiring Comcast to sell Internet access on
a wholesale basis as well as putting in place much stiffer rules about programming—both access to Comcast's programming and carriage by Comcast of independents’ programming.

The Republican commissioners, McDowell and Baker, had had little involvement in the process beyond preliminary briefings; now, however, they insisted that the conditions on the merger expire as quickly as possible. And they wanted to be sure that the Commission did not say anything about either net neutrality or the terms under which Comcast would make programming available online; the FCC had never extended its program-access rules to the Internet.
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Brian Roberts and David Cohen came in to see Chairman Genachowski on Thursday, January 13, 2011. The results would be announced the following Tuesday. Genachowski told them that the merger would be approved, and Comcast was comfortable with the conditions that had been proposed. The Republicans had gotten some minor language tweaks but had not otherwise prevailed; Commissioner Clyburn's concerns had largely been addressed and she would support the merger; Commissioner Copps's end-of-process list of requests had not made it into the deal, but his nay vote would not affect the final outcome.
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Investment analysts looking at the announced conditions saw a positive outcome for Comcast. Although competing distributors got the ability to trigger “baseball arbitration” for programming (in which both sides are obliged to make a last best offer, one of which will be chosen by the arbitrator), Comcast could still bundle at will—which would make any arbitration extremely difficult to win.
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And online video distributors would get access to Comcast-NBCU content, but there were enough exceptions and details and expenses involved to keep lawyers busy for a long time; the most potentially disruptive condition required Comcast-NBCU to license to an online video distributor (OVD) broadcast, cable, or film content comparable in scope and quality to the content the OVD received from one of the joint venture's programming peers. There would be fights over the meaning of “comparable,” and in order to trigger the obligation at all one of the four peer conglomerates would have to break ranks with the others in making programming available online outside the TV Everywhere umbrella, a situation that left ample room for maneuvering and litigation. Little had
changed with regard to Comcast's ability to protect its own programming from independent competitors (the “program carriage” issue), and the net neutrality obligation did not apply to IP-based services Comcast carried over its own “private network.” This exception effectively negated the rule because Comcast would be the source of the definition of its “private network.”
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On the plus side for the public, Comcast was obliged to offer a retail standalone high-speed Internet access service at $49.95 a month for 6 Mbps speed—a service it was already selling. It would have to bring data services to an additional four hundred thousand homes (but could impose whatever terms it wanted) and would be obliged to promote greater broadband adoption by 2.5 million low-income households through a $9.95 per month service—information the FCC tried to ensure would be more public than AT&T and Verizon's ten-dollar-a-month DSL offer had been a few years earlier. The FCC adopted Comcast's low-cost broadband suggestion nearly verbatim, but although the program looked like a public benefit, it would not be easy for customers to apply for it.
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Means-tested plans were not going to affect Comcast's existing services, and, as the company had found back in Meridian, Mississippi, in 1963, when it is difficult to apply for something, customers won't. The company would not be offering the program to anyone who had recently been a customer of Comcast. In effect, the merger condition opened new business opportunities to Comcast without creating any pressure on the company to offer the same deal to its existing customers. And when the program ended, families would be forced to choose between canceling their access or paying Comcast's higher rate for the same services. Most important, the voluntary nature of the program substantially lowered the risk that Comcast would be regulated by the FCC: if the Commission tried to wield power, the company could threaten to withdraw its voluntary assistance. In the meantime, the program would give Comcast essentially free advertising facilitated by government and nonprofit organizations.