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Transcript: Community Broadband Bits Episode 148
Thanks to Jeff Hoel for providing the transcript for the episode 148 of the Community Broadband Bits podcast with Sally Hubbard and Teddy Downey on the Comcast merger and antimonopoly/antitrust policy. Listen to this episode here.
Sally Hubbard: It's important to think about antitrust in a broader lens than just consumer prices. And antitrust used to be very much focused on diversity of voice. The Comcast merger showed that those kinds of issues are still on regulators minds.
Lisa Gonzalez: Hello. You are listening to the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance. This is Lisa Gonzalez.
By now, you know that the proposed Comcast / Time Warner merger will not be happening. In this episode of the podcast, Chris talks with Sally Hubbard and Teddy Downey. She's a Senior Correspondent for the Capitol Forum, and he's the Executive Editor and the CEO. The Forum has analyzed the potential merger in depth. Sally and Teddy share why they had doubts about the success of the deal. They also provide insight into the scrutiny that this type of transaction must face at the federal level. They also share tips on how state and local government can make a difference in dealing with ISPs when antitrust is a potential problem. For more detailed info on antitrust, telecom, and consumer protection, we recommend you check out thecapitolforum.com . And that's capitol with an "o."
Now, here are Chris, Sally, and Teddy.
Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. Today, I'm talking with Teddy Downey, the Executive Editor and CEO of the Capitol Forum. And a Senior Correspondent from Capitol Forum, Sally Hubbard. Welcome to the show.
Sally Hubbard: Thank you. Happy to be here.
Chris: Absolutely. We're thrilled to talk more about antitrust and anti-monopoly, which is, as I understand it, your specialty. Let me -- tell me a little bit first about the Capitol Forum. I actually was not very familiar with it until Barry Lynn introduced me to it.
Teddy Downey: The Capitol Forum is an investigative news and legal analysis journalism-focused company. And we produce a regular newsletter for our subscribers, going in-depth and in the weeds on competition policy issues. Most recently, when it comes to communications mergers -- the Comcast / Time Warner Cable merger, which -- most -- hottest topic right now.
Chris: Yes. And, Sally, why don't you tell us a little bit about your background? You're writing now about these issues, but it seems that you've been involved with them for a while.
Sally: Right. Yes. I used to be an antitrust enforcer at the New York Attorney General's Office. So, for three administrations there, I was investigating antitrust violations and looking at mergers and, you know, conducting the kind of analysis that the Department of Justice and the Federal Trade Commission do when they're looking at mergers. So, now, when I'm writing about them, I get to kind of put on that hat, and it helps me understand what they're likely thinking of, as well.
Chris: We're talking, now, just a few days after the Comcast merger's been cancelled. And I guess what I'd like to start with is, why should we care how big Comcast gets -- or any cable company, for that matter?
Sally: Well, this merger in particular involved the most critical infrastructure of the U.S. economy -- right? -- Broadband. You know. The stakes were very, very high. And, certainly, something like this Comcast merger was going to create a pretty durable market power. I mean, even though we are seeing more competition up in broadband, it does have very high entry barriers. So, I think it's important to be concerned about any one company that could control more than half of this critical infrastructure. Particularly in this Comcast / Time Warner Cable merger, Comcast had a lot of incentives that could really be harmful for competition and innovation.
Teddy: And I just also add that one of the really important markets that the DOJ and the FCC wanted to protect is the burgeoning "over-the-top" market, which is the application -- like Netflix, and we've seen a recent offering from Sony -- to provide customers who want to cut the cord and not have a cable subscription but do want to watch content that that market was going to be competitive, and that all those companies that are up and coming and providing that service and that application would be able to compete on a level playing field with Comcast and its NBC Universal content, as well as whatever applications Comcast comes out with. So, protecting and preserving competition in a new market was also really important.
Chris: I do think it's interesting. Some public interest folks have noted that the deal -- some of the technologies you just mentioned, the Sling offering from Dish, a lot of these things came about after Comcast was in the middle of its merger review, and could not engage in some of the perhaps dirty practices that it has in the past, to use its market power. But I'm just -- I'm curious if tell us what sort of things might a very large and powerful company like Comcast do to make sure that it can control markets in the future?
Sally: Well, certainly, with the markets that Teddy is talking about, in terms of online innovation and over-the-top programming, by controlling the broadband pipes, Comcast -- even after Title II came down -- Comcast still had the power to -- would have had the power to utilize tools like usage-based pricing, data caps, interconnection fees, as ways to basically raise the effective price of other video online competitors. So, you know, there's a lot more other tools that, you know, the Title II, you know, redefining -- reclassifying -- broadband are aimed at preventing. But certainly interconnection data caps and usage-based pricing was still left to be determined on a case-by-case basis. Which is really not that comforting for competitors, knowing that they're beholden to Comcast moving forward.
Teddy: Comcast controls the pipe that the data goes over. And so there are myriad ways in which they could prefer their own content or charge other competitors in a way that would favor Comcast in the long run, either to have all of the content go through its application or to make sure that its content was favored, in terms of either feed or not counting against a data cap, if they were to institute data caps. But, really, the DOJ's view, and the FCC's view, is to preserve competition, and to not necessarily try to get in the weeds of precisely how Comcast could favor its own content or applications, but just to make sure that there would be a competitive playing field in the future.
Chris: So, I think, in a second, we're going to get away from just the sort of Comcast-specific arguments. But I want to ask first if -- and I'm not sure which one of you would like to answer, but -- what role did the consumer hatred and just anger about Comcast's customer service play, in terms of making this merger less likely? You know, there's been a lot of comments that if Comcast hadn't alienated so many of its own customers, that this probably wouldn't have been as toxic a merger to people in Washington, DC.
Sally: I mean, I think that definitely played a role. I don't think it was critical to the antitrust analysis. And even without that kind of consumer hatred, you would still have a lot of potential competitive harm to be really worried about, as an antitrust enforcer. In terms of the political atmospherics, definitively, it did apply more pressure, I think, to the regulators to be aggressive. And I don't think it was just the consumer -- the poor customer service -- but I think it was also kind of some of the past anticompetitive practices, kind of issues with past compliance with merger conditions, that kind of contributed to that -- those negative atmospherics that would make it politically easier to be aggressive against the merger.
Teddy: I would just add that the FCC receives a lot more feedback -- there's a lot more open process -- and is much more subject to political influence and pressure during their review, because they meet with a lot of lobbyists, and because they're political appointees. And certainly if there's a huge amount of public backlash, that makes it easier for the FCC and the DOJ to make an enforcement decision. And that -- we certainly saw the case here. It wasn't just a public reaction, and the public's disfavor of the customer service of the companies, but, really, a lot of interest groups that really pushed pretty hard to block this merger -- either the cont- -- both the content industry interest groups, the public interest groups, and then you also saw the Latino community interest groups, as well, push back pretty hard. So, that created -- that makes it easier for the regulators.
Chris: So, I'm curious to what extent a Charter / Time Warner Cable merger might encounter the same problems. I mean, with Comcast, we had a number-one combining with a number-two. And if we have smaller cable companies combining, you know, from my perspective, it's a loss of competition. I'm curious how it is when you look at it more rigorously, through the eyes of the law.
Sally: So, I do agree that a Charter / Time Warner Cable tie-up could hinder competition in some ways, mostly likely by increasing the regional clustering of the cable systems. And it could also raise concerns regarding some -- a few -- regional sports networks, that Charter and Time Warner Cable would jointly control. However, because Charter has a much smaller video and broadband footprint than Comcast does, and because Charter doesn't have extensive content holdings like Comcast does, it -- we expect it to raise much less concerns amongst the antitrust regulators.
Chris: It's actually kind of interesting. Because that suggests that it was the previous merger with NBC that may have hurt Comcast's ability to merge, then, with Time Warner Cable. Which would be, I think -- for those of us who opposed that merger -- a little bit of -- you know, makes us feel a little bit better.
Sally: [laughs] Yes. I definitely think that merger made -- created a lot of the negative incentives that Comcast would have to favor its own content over rival content. To use its broadband market power in a way that favors NBC Universal products over other competitors. So that definitely added to the concerns that regulators had.
Chris: One of the things that's been coming up is, some people have noted, we have this AT&T / DirecTV merger, which raises some -- a number of the same issues for public interest groups like myself. And I'm not quite sure how that it impacts -- or what it looks like to the regulators, you know. From your earlier comments, Sally, I think it's important to pull out that regulators have a very specific set of criteria upon which they can evaluate whether or not these mergers are permissible. And they're not supposed to be swayed by public opinion so much. I mean, when we were talking about the folks inside the DOJ, and that sort of thing, ...
Chris: Department of Justice -- just to make sure we have covered that at least once. Um, are we seeing a new era of anti-monopoly-type activity in DC? Or are these just mergers that -- AT&T / T-Mobile, Comcast / Time Warner Cable -- they were just "over-the-top"?
Sally: I do think they were over-the-top mergers. And I think that was -- there was kind a period of weak antitrust enforcement that has really emboldened companies to try and just go for it, with mergers that people wouldn't even have considered trying before. You know, I think it remains to be seen whether it's a new era. I mean, one thing that I think was important -- an important takeaway from the Comcast / Time Warner Cable merger is that they're really going to look at what are the competitive effects of the merger first. And that's really the focus of their investigation, is, how will this harm competition? And it's not the kind of robotic exercise of, oh, what's the product market -- you know, this whole -- the whole argument that Comcast and Time Warner Cable said over and over again, we don't compete because we don't geographically overlap. You know, they said that over and over again. And it just isn't as simple as that. It's not -- the regulators -- the antitrust agencies are really going to be understanding how could competition be harmed. And they're not going to just engage in that kind of, you know, superficial exercise.
Teddy: I would also say that -- you know, I'd agree with Sally that these were -- these mergers really were pushing the envelope. But -- and, as Sally pointed out, the antitrust community, which consists of lawyers and policy makers in DC was widely predicting that this merger would get through, because there was no direct horizontal overlap. And, for the past 30-35 years, that has been one of the primary ways in which the antitrust enforcers look at harm, and look at whether or not they're going to litigate a merger. And Comcast, really importantly -- even though it was a really aggressive, envelope-pushing merger, does represent a shift in that thinking, even if it is a slight shift. And the interesting thing to watch, going forward, is going to be, will DOJ -- and will, potentially, the FTC and FCC -- will they look at these industries in the media, and look to protect those burgeoning com- -- markets, like the over-the-top market? And so, you can think about how litigating or threatening to litigate the Comcast merger -- Comcast / Time Warner Cable merger protected that over-the-top market. That's good for providers of television and movie content that's going to be delivered over broadband. And will the regulators start to think about creative industries differently, and protecting those creative industries from their distributors?
So, a couple of things I would add are that the DOJ recently litigated against a merger between National CineMedia and Screenvision, which are the advertisers on movie theaters -- the companies that do advertising in movie theaters. And there's also a DOJ investigation into the movie distribution companies -- the large theater chains. And so, is this the beginning of the shift in how the DOJ thinks about distributors of important content? And we'll see how this plays out, but it could be the start of a much bigger shift in enforcement.
Chris: Yeah. I hope so. One of the things that I often thing about is, you know, Time Warner Cable and Comcast, they may not compete head-to-head. But if you're a TiVo, for instance, which makes a far superior set-top box product, you've basically been screwed by both of them.
Chris: And I just think about how much people love their TiVos, and how, even though, you know, they sort of operate off to the side, their entire business -- I'm thrilled that they've been able to hang on -- but they clearly were incredibly innovative, and they basically were crushed by these big cable companies.
Sally: The set-top box market is definitely another area to watch. And I know that there's a task force looking to rewrite the regulations regarding set-top boxes, after the whole CableCARD initiative was pretty much a failure. And that is another area where you could see the same concerns that regulators have had regarding gatekeeper power of our broadband. Like, for instance, if Comcast were to have purchased Time Warner Cable, and it could have expanded the footprint of its X1 Infinity set-top box, that that would be another way to basically be a gatekeeper, in terms of who gets a spot on that set-top box. I know Netflix was trying to get a spot on the set-top box, so that Comcast subscribers could easily switch to Netflix -- you know, more easily between the channels and Netflix -- than the current setup. So, the set-top box market is basically another way they that can be a gatekeeper. And I do think that we're going to see the FCC trying to promote competition in the set-top box market as well. Because you're going to have a lot of issues as you have with net neutrality. And it could, in some ways, be an end-run around some of the net neutrality restrictions. Like you saw, when Comcast was forbidden, under the NBCU merger conditions to exempt its own content from data caps -- it kind of went around that and exempted X1 Infinity set-top box content from data caps. Which didn't technically violate the letter of the NBC Universal conditions, but it certainly violated the spirit of those conditions, and was proof of how it's very difficult to anticipate every conduct that a company could do to accomplish the ends that you're trying to prevent through merger conditions.
Chris: One of the things I wanted to make sure we covered before we run out of time is what states can do. A lot of this focus has been on the antitrust anti-monopoly policy coming out of Washington, DC. But I know a lot of the communities that have built their own networks and have gone up against these companies, they've faced predatory pricing -- ah, in some cases, quite blatantly. And it hasn't been clear where they could go for a remedy. You know, what powers do states have to try and deal with the market power of the abuses of these big cable companies?
Sally: So, states have two different main bodies that could be working to preserve competition. There's the states' Attorney Generals -- Attorneys General -- um, and antitrust bureaus at the state AG's offices. And then there is also the -- you know, the state regulatory commissions. Like, we saw the California Public Utilities Commission essentially causing problems for the Comcast / Time Warner Cable merger. There's the state public service commissions. So, both of those two entities can help promote competition in different ways. The state AGs can bring actions to, you know, prevent anticompetitive mergers, and also to prevent anticompetitive conduct, or to come after anticompetitive conduct. And the regulatory boards can enact regulations of, of course, getting rid of some of these barriers that have been put up at the state and local level for broadband competition and local competition.
Um, predatory pricing is a very difficult case for the state AGs to bring. Unfortunately, the law has developed in a very negative way in that area, so that it's very hard for the -- to win on a predatory pricing case, unfortunately. That's definitely something that needs to be reevaluated, in order to really promote competition in the long run.
Chris: And so, as we're clearing out, are there any final thoughts, or key points, that you'd want to make sure that we hit? Or just reiterated, in terms of antitrust, anti-monopoly issues?
Sally: My big takeaway is that, I think, from the Comcast / Time Warner Cable merger, is, it's important to think about antitrust in a broader lens than just consumer prices. And I think everyone was so convinced that the merger was going to go through. I will say that we, from the beginning, thought that the merger was going to have lots of potential problems, and that was because they weren't singularly focused on consumer prices going up. But we were looking at how it could affect competition and innovation with other content providers and online innovators. And I think antitrust used to be very much focused on diversity of voice, especially with media mergers being focused on how you could lose the marketplace of ideas, by allowing the consolidation. And I think the Comcast merger showed that those kinds of issues are still on regulators minds, even though what we mostly hear about is, will a merger affect consumer pricing as a primary concern.
Teddy: There -- I would add one other issue that, I think, will be a source of debate going forward. Which is that this merger falling through doesn't actually resolve one of the issues that consumers are so concerned with. Which is that a lot of consumers only have one choice when it comes to their broadband provider. And so, FCC Chairman Wheeler has really established a pro-competition legacy during his time at the FCC, both with taking an aggressive stance on net neutrality, and also stepping into -- to stop the Comcast / Time Warner Cable merger. They've taken a very small, preliminary step to encourage competition in broadband markets by overruling state laws that limit the potential for competition at the municipal broadband level. So, whether or not the FCC and Chairman Wheeler will continue on this pro-competition bent, and try to facilitate competition -- not just in the "over-the-top" market but also in the actual broadband market -- how they'll think about that, and whether or not they'll be creative -- it's probably more likely that they'll spend their time focusing on protecting the net neutrality rule in court. But it will be interesting to see if Chairman Wheeler decides to push the envelope and see if he can't figure out how to promote more competition at the broadband level.
Chris: It certainly seems to be his most animating principle. And we've been thrilled to see the results so far. Let me encourage listeners to check out Capitol Forum. And I'll just say, it's "Capitol," like the U.S. capitol, not like Wall Street capital. And -- that means there's an "o" rather than an "a." So, thank you both for coming on the show.
Sally: Thanks for having us.
Teddy: Yeah. Thanks for having us. It was great.
Lisa: Send us your ideas for the show. E-mail us at firstname.lastname@example.org . Remember to like us on Facebook, and follow us on Twitter. We are @communitynets . Thanks again to Persson for the song, "Blues walk," licensed through Creative Commons. Thank you for listening, and have a great day.
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