OVERBUILDERS ASK LFAs TO DEAL WITH PREDATORY PRICING BY MSOs
Private cable overbuilders have joined their municipal counterparts in accusing incumbent cable operators of indulging in predatory pricing policies to “restore their former monopoly” in violation of federal and local regulations. Selective discounts offered by incumbents have become issue in AT&T-Comcast merger transfer applications with local franchising authorities (LFAs). In recent letters to LFAs in Mich. and Ill., WideOpen West (WOW) accused Comcast and AT&T of seeking to drive out competitors by offering “selective unpublished discounts” and lower prices. “If federal, state and local government regulations are not enforced, the discriminatory pricing practices currently deployed by Comcast will not only impede the potential benefits in service and prices to cable customers, but it threatens to destroy the competitive cable television industry altogether,” WOW Pres. Mark Haverkate wrote. He urged LFAs to condition consent to merger in way that would preserve benefits of competition.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
Municipal overbuilders have accused MSOs of seeking rate relief not to raise rates but to cut rates to discourage competition (CD March 4 p3). FCC filings for rate relief doubled in last year, phenomenon MSOs acknowledged was driven by shift in strategy to compete more aggressively with DBS at local level. WOW said Comcast was engaging in rate discrimination in Mich., charging customers in same franchise area different rates. In Dearborn, Comcast customers who expressed interest in switching to WOW were offered discounted $21.95 rate for basic against regular rate of $33.95. “We believe this action is illegal, predatory and seeks to restore their former cable monopoly,” Haverkate said. Allowing practice to continue, by “even richer merged corporation, could forever remove the benefits of competition that cities have invested so much to achieve,” he said.
Haverkate said Comcast provided its customers seeking to switch to WOW “deeply discounted” rates for digital services as well for 6-12 months: “These same rates are clearly not uniformly and publicly made available to existing Comcast customers.” WOW customers are being solicited by Comcast through “huge, predatory discounting (approximately 50% off for 12 months)” for basic, digital and other services to switch to Comcast, he charged. Comcast may argue that it’s merely “meeting the competition,” he said, but pricing plans are required to be available on nondiscriminatory basis. “These Comcast offers are not advertised to all current and potential Comcast customers; rather, this discriminatory and anticompetitive pricing scheme is being administered secretively and selectively,” he said. WOW has written to 42 communities in Mich. (Comcast) and 35 LFAs in Ill. (AT&T), he said.
Haverkate asked LFAs to: (1) Require that Comcast supplement its Consent to Change of Control filing by specifically identifying terms and conditions of all pricing plans, including promotions, direct sales and retention offers it had provided to residents in last 36 months. (2) Condition consent on Comcast’s agreeing not to engage in predatory pricing activities and “strictly adhering” to all federal, state or local laws governing uniform pricing. (3) Provide for enforcement mechanism and remedies to deal with practice. Asked why it was illegal for incumbents to provide lower rates to customers, Haverkate said Cable Act required uniform pricing of basic rates in any given franchise area. Also, local franchising agreements call for uniform pricing. “This issue is key for competition,” he said, and it would be impossible for new company to survive if practice were allowed to continue.
Responding to predatory pricing complaints filed by Scottsboro, Ala., and overbuilder Knology against Charter, FCC, in its status of competition report released in Jan., expressed concerns about “signal such targeting may send” to would-be competitors in market, “particularly to the financial markets to which a new entrant may well be dependent for resources.” However, agency said it wasn’t clear whether it had specific authority to “address these kind of problems directly.” Capital markets were well aware of “economic power” of MSOs and “their potential for abusive pricing practices, leaving a very grim potential future for cable competition,” Haverkate said. As for argument that lower prices benefited customers, he said: “It’s a short- term tactic for long-term benefits of no competition.”
Predatory pricing practice is gaining more MSO “adherents,” said attorney James Baller, who represents cities. With Charter, AOL-Time Warner, Comcast and AT&T resorting to practice, it’s “becoming a national problem,” he said. MSOs were using profits from national markets where they face no competition to “cross-subsidize their predatory pricing” to drive out competitors in smaller markets, he said. Asked whether LFAs had authority to deal with practice, he said it depended on franchise agreements. However, one local regulator said that with FCC’s effective- competition rules freeing MSOs of pricing controls, local franchise requirements that called for uniform pricing could run into claims of inconsistency with federal laws and be preempted.
Responding WOW charges, Comcast spokeswoman would say only that company was faced with “very competitive” environment for all its product levels: “We compete for every different customer at different levels, including product features, customer services as well as prices.”