Comcast/TWC Deal Faces Doubts at First Capitol Hill Hearing

Sen. Al Franken, D-Minn., is the one Judiciary member who outright opposes the deal and raised concerns from pricing to net neutrality to market power concerns. He questioned Comcast Executive Vice President David Cohen on his claim in written testimony that Comcast suffered from only one compliance problem in abiding by its NBCUniversal acquisition conditions. “We only had a compliance issue with one condition,” Cohen affirmed to Franken.

Franken zeroed in on Comcast’s Bloomberg “neighborhooding” condition. “You put Bloomberg way out in the nosebleed seats,” Franken said of Comcast’s placement of the Bloomberg channel, which led to a complaint and resolution at the FCC. “People couldn’t find Bloomberg.” Cohen disputed the idea that Franken was characterizing the situation accurately and pointed out that Comcast remains the largest distributor of Bloomberg. The complaint over this condition at the FCC was an issue of interpretation, not technically of compliance, Cohen insisted.

Specifically Franken questioned the footnote of Cohen’s written testimony. “The conditions in the NBCUniversal Order cover 15 separate substantive and multi-faceted areas, amounting to a total of more than 150 separate specific requirements,” the testimony footnote said (http://1.usa.gov/1eaTd0v). “Out of these, the FCC has only found it necessary to look at one issue,” specifically referring to compliance with the stand-alone broadband condition.

Franken read from the FCC’s order in question. “That is ‘looking’ at that,” Franken said. “You're saying they didn’t look at this issue? ... I think everyone knows what the word ‘look’ means.” Cohen conceded it “may not have been the best chosen word” but still contended it’s not a compliance issue. “We should have had a better use of words in the written testimony, and I apologize for that."

Comcast welcomes critics of the deal, Cohen said, directing his words partly at Franken. “We are totally open to the fact that sometimes we need a kick in the butt,” Cohen said. “We think in the end we're going to be a better company because of it, so thank you.” Franken referred to Comcast’s 100 lobbyists trying to sell the deal on Capitol Hill but said he has heard from 100,000 consumers concerned about the deal.

Net Neutrality Issues?

Net neutrality is a deep source of concern in Vermont and throughout the U.S., Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said in his opening statement, saying thousands of people came to the FCC in favor of restoring net neutrality rules recently. “Their voices have to be heard.” Leahy also backed concerns about peering, which Netflix and Level 3 have voiced this year: “When ISPs can charge tolls or block access to their networks, net neutrality policies alone may no longer be enough to protect consumers and promote an open Internet.”

Antitrust Subcommittee Chairman Amy Klobuchar, D-Minn., also pressed Cohen on paid peering. “Why charge both Netflix and your consumers for this service?” she asked of the deal, which Netflix has strongly attacked and said merits stronger net neutrality protections.

"I hate to say it, but this was Netflix’s idea,” Cohen said of the peering agreement, which he said was the first time Netflix paid directly for connection to Comcast’s Internet backbone. “That is Netflix’s desire to pay us directly and cut out the middle man. ... This is not net neutrality.” Netflix did not comment.

Subcommittee ranking member Mike Lee, R-Utah, worries the “extremely large" deal would cause discrimination against conservative political programming. He cited Comcast’s ownership of NBCUniversal, a “complicating factor” due to its political leanings, he said, expressing fear that the new company could “discriminate against certain political content, including for example conservative political content.”

Public Knowledge CEO Gene Kimmelman took several swings at the deal. “I'm here to represent Internet users and TV consumers,” began Kimmelman, a former Justice Department antitrust official, at the hearing. A Comcast/Time Warner Cable merger would create “a nationwide octopus” with “massive tentacles” that could squeeze innovation and affect everything from pricing to net neutrality to content availability, he said. The company’s various tentacles would be “able to fill in when the other one’s removed,” Kimmelman added. “Comcast will be in the driver’s seat -- you're either on their system, serving 30 million customers, or you're not.” Kimmelman suggested the bigger company could drive business practices: “What is acceptable in the industry is what they decide."

Cohen disputed the idea that combining Comcast, the largest U.S. cable company with 22 million customers now, with Time Warner Cable to bring the number up to 30 million would “generate all this wonderful leverage” in the marketplace, as some contended. “But I don’t think that’s the reality. Programmers have inordinate market power.” Cohen said programming costs have gone up 98 percent over the past decade while cable rates have gone up half that rate. He doesn’t expect the merger will lead to “dramatic shifts” in programming or equipment costs.

Cohen and Time Warner Cable Chief Financial Officer Arthur Minson testified at length about the consumer benefits they believe the deal would bring. It “will create a world-class provider,” Minson said. Comcast is the friendliest company around when it comes to independent programmers, Cohen said. He emphasized the Internet Essentials program, focused on low-income Americans, and its potential expansion. He stressed the net neutrality protections that Comcast, obliged to follow through 2018 as part of its acquisition of NBCUniversal, would extend to Time Warner Cable. Cohen said he expects those protections will remain after 2018 given FCC Chairman Tom Wheeler’s desire to craft new net neutrality rules. They stressed better upgrades that would reach consumers faster if the merger were approved.

Judiciary isn’t to decide whether to approve the deal or what conditions are necessary, despite such a hearing being “an important part of the process,” said Committee ranking member Chuck Grassley, R-Iowa. He wondered about the same questions as Leahy, he said, such as whether the deal would put the company in a “better position to expand high-speed Internet access” and “whether consumers have higher cable bills” and how it will affect content. “Some have suggested this will put independent programmers at a disadvantage.”

Not All Convinced

"Where’s the beef?” mused Sen. Richard Blumenthal, D-Conn., pointing to what he saw as his colleagues’ “general sense of skepticism, reflected in the general public,” about the consumer benefits the deal would bring. The two companies seem to be offer the “vague potential promise for good things happening.”

Other witnesses also expressed reservations. “We are up against a distribution system that stifles innovation and consumer choice,” dominated by large players, said Back9Network CEO James Bosworth, who worries the deal “may make a bad situation even worse.” Comcast owns the Golf Channel, and Back9 had been engaged in “productive” conversations with Time Warner Cable that “stalled when the merger was announced,” he said. He backs “effective and forceful conditions” on any deal, he said. “That couldn’t be further from the truth,” Minson said. “We are obviously acting on our own to make all of those such decisions.” Spot On Networks CEO Richard Sherwin also testified and backed conditions on how the company would have to make wholesale bandwidth available. “Comcast has refused to sell us bandwidth in many areas of the country over the last 12 months,” Sherwin said. University of Pennsylvania law professor Christopher Yoo, however, defended the merger as “unlikely to harm consumers,” not likely to affect prices because Comcast and Time Warner Cable don’t compete head to head in the same markets.

The deal has attracted opposition in days leading up to the hearing, such as from the American Antitrust Institute and Consumers Union. The Parents Television Council slammed it in a statement Wednesday. The deal “will result in harm to competition and consumers,” the American Cable Association and NTCA said in a joint letter to Senate Judiciary. “ACA and NTCA are most concerned about the competitive effects of the transaction in two vertically related industries -- the (downstream) MVPD industry, which distributes video programming to consumers, and the (upstream) video programming industry, which provides this programming to these distributors. Comcast is a behemoth in both industries.”

Cohen “got off easy, arguing that big is good,” Veria Living CEO Eric Sherman said in a statement after the hearing. “We hope the House of Representatives, Justice Department and FCC will be more successful in obtaining some guarantee that the public interest will be served in a Comcast/Time Warner merger.” Government regulators need to ensure the carriage of independent networks, Sherman said.

House Judiciary Committee Chairman Bob Goodlatte, R-Va., and Antitrust Subcommittee Chairman Spencer Bachus, R-Ala., issued a joint statement saying the House hearing will allow for more digestion of Comcast’s Tuesday filing. The hearing date “will allow the Committee and consumers an opportunity to review Comcast’s arguments in support of the transaction included in the FCC filing,” they said. “We look forward to conducting a balanced hearing on the proposed transaction and ensuring that both consumers and competition in the marketplace are protected.”