Comcast-Time Warner Cable: Your move, Mr. Wheeler

Comcast officials were reported to be in discussions with federal regulators about a possible bid for Time Warner Cable as far back as November. So it seems unlikely the companies would have announced Comcast’s friendly acquisition offer this morning had they gotten nothing but red lights in those talks. Presumably, Comcast has some reason to believe it can get the merger through.
Still, the regulatory review process is likely to be a long and politically charged one, given the heightened concerns over net neutrality since a federal court threw out the FCC’s Open Internet Order last month and the already-limited competition among broadband providers. Over at GigaOM, Stacey Higginbotham suggests that FCC chairman Tom Wheeler could actually turn out to be among the winners in the deal in that the merger review process could provide an opportunity for the agency to re-impose the rules the court vacated as a condition of approving the merger (I suggested something similar in a post last month, although at the time it looked more like a Charter-TWC merger than a Comcast deal).
Comcast, in fact, is already covered by the FCC’s no-blocking and non-discrimination rules, notwithstanding last month’s court ruling, as a condition of its acquisition of NBC Universal last year. In a memorandum on the deal issued this morning, Comcast preemptively agreed to extend those conditions to the Time Warner Cable systems it would acquire under the proposed deal.
That may be fair enough, as far as it goes. But the FCC might want to consider whether it goes far enough. As Comcast executive VP David Cohen noted on a conference call with analysts this morning, the terms of the consent decree from the NBC deal have another four years to run. While Cohen suggested that should alleviate concerns over Comcast’s commitment to net neutrality principles, four years is hardly forever. The review process itself, moreover, is likely to take a year or more, which would leave only three more years at most, ex-merger, in which the non-discrimination conditions were fully in place for Comcast and Time Warner Cable systems.
One solution would be for the FCC to insist on extending the length of Comcast’s non-discrimination obligation beyond the terms of the NBC consent agreement.
The FCC and whichever antitrust agency gets the case should also consider treating the Comcast-TWC deal as a horizontal merger, despite the fact that cable-TV systems rarely compete head-to-head with each other.
In the conference call this morning, Cohen went out of his way to try to tamp down that idea, insisting, “This is simply not a horizontal merger. We do not compete with each other in a single zip code anywhere in the country.”
That may be true historically, due to the highly localized footprints of individual cable systems, but it’s unlikely to be true in the future. At some point, someone’s going to successfully go over-the-top with a broadband-based, virtual cable-TV service, as Verizon hinted was in its plans when it acquired the assets of Intel’s OnCue OTT platform last month.
Comcast, in fact, is better positioned than most to go out-of-footprint, having already deployed its cloud-based X1 platform. The bigger Comcast’s footprint, however, the fewer people who will live outside it.
Having an over-the-top alternative to your local cable provider could be a boon to consumers, and the FCC should make sure nothing inhibits the development of that sort of competition. That means ensuring that potential OTT competitors have reasonable access to the same content available to the incumbent pay-TV providers.
Pointing to OTT competition from Netflix, Hulu, and Amazon, as Comcast does in its Public Benefits Summary memo released this morning, doesn’t really cut it since none of those services delivers, or seeks to deliver, live-linear programming.
Time Warner Cable has already acknowledged using restrictive covenants in its carriage agreements with linear networks to prevent them from making their content available to potential OTT competitors. In light of that, the increased market power of a combined Comcast-TWC should be viewed by the FCC as a real and present danger to the development of robust OTT competition that can legitimately be addressed in any merger-approval agreement.