How communities can protect themselves and their citizens through local reviews of the proposed merger (where permitted by a local franchise or state law); and by filing comments with the Federal Communications Commission, to either deny the merger, or to establish merger conditions.
3. Government Relations Services
Summary
• Brief description of the merger
• Significance of merger – why local government
should join the discussion
• The federal review of the merger
• Local reviews of the merger
• Recap and ways you can make your
participation more effective
5. Government Relations Services
Description of the Merger (cont’d)
• Combines first and third largest broadband
providers in U.S., giving Comcast more than 30%
of market
• http://www.trefis.com/stock/twc/articles/207096/broadba
nd-will-continue-to-drive-growth-for-time-warner-
cable/2013-09-25
• Merger occurs at parent level, Comcast stock for
TW stock (1 share TW = 2.875 Comcast)
• Valued at $45 billion
6. Government Relations Services
Description of the Merger (Cont’d)
• TWC shareholders will control about 23% of
Comcast common stock
• Comcast will control all of TWC franchisees
Local franchisees will remain the same BUT about
3 million subscribers divested
• The merger requires federal approval. It may
also require local approval or state approval
depending on franchise
8. Government Relations Services
Why Local Government Needs to Join
the Discussion
• This deal will define the future structure, prices
and availability of video and broadband in the
nation and in your community.
9. Government Relations Services
Does the Deal Help or Hurt the Video
Delivery/Broadband Market?
• The Comcast “public interest” statement (filed
with FCC)
This deal enhances scale and scope economies.
These “enhanced revenues” (i.e. profits) will
stimulate new services and technologies.
10. Government Relations Services
Does the Deal Help or Hurt the Video
Delivery/Broadband Market? (Cont’d)
• Economies of Scale and Scope
Warren Buffett: invest in companies with “moats”
that protect against competitive entry.
• i.e. expect super profits, unchallenged by competitive
entry.
Good for shareholders is not necessarily good for
customers and suppliers.
11. Government Relations Services
Does the Deal Help or Hurt the Video
Delivery/Broadband Market? (Cont’d)
Core issue: Do economies of scale (reduced costs
per dollar invested) and economies of scope
(increased revenues per dollar invested) help or
hurt?
• Shareholders vs. customers
• Innovation
• Competitive Entry
• “The Social Contract”
12. Government Relations Services
Economies of Scale and Scope: Good
or Bad?
• Last major national debate was AT&T Divestiture (1973-1984)
• Question: Should AT&T Be Granted a National Monopoly License for
Telecommunications?
• AT&T made same arguments as Comcast today: economies of scale and scope allowed
intrasystem subsidies to support the “Social Contract”
Universal service
Bell Labs innovation
National telephone long distance rate averaging.
• Opponents argued AT&T system dominance nationally and locally
prevented direct competitive entry in long distance (MCI)
Inhibited product and service innovation (cellular rollout and Carterphone)
Threatened destructive cross-subsidies of computer services (Computer I and II)
• Conclusion: Breakup the AT&T system
Regulate the “last mile” copper networks that enjoyed scale economies
Divest Bell Labs and Long Distance and Computer Service (“competitive lines of business”) to
avoid anti-competitive cross-subsidies
13. Government Relations Services
Lessons from AT&T Debate
• Do Local Consumers Have Effective Alternatives to “last mile” cable
broadband networks? For video? For hi-speed data?
Can users of high speed internet access avoid cable infrastructure?
Can video consumers avoid cable infrastructure?
If no effective alternative, expect:
• Discrimination in service terms and availability.
• Prices in excess of competitive levels.
• Do Suppliers (Programmers and Equipment) Have Market Access
without Comcast?
“If Comcast won’t buy my service, there won’t be a market.”
If Comcast won’t provide me connections, I can’t reach my customers.”
If no effective alternatives, expect:
• Discrimination in market place.
• Comcast prices tied to value of service rather than cost of service.
14. Government Relations Services
Lessons from AT&T Debate (Cont’d)
Choice of Remedies:
• Add regulatory conditions
• Add contractual conditions
• Divest competitive lines of business
15. Government Relations Services
Is There a Social Contract With Cable
in Your Community?
Reasonable, uniform cable rates?
• Have Cable rates increased faster than inflation? Faster than program cost
increases?
• Do different consumer groups get different prices?
Universal service?
• Has the cable operator built out your entire community or avoided high-cost,
low-revenue neighborhoods?
Local Community non-commercial programming?
• Is there robust local, non-commercial programming with technology
comparable to commercial programs?
Is the Cable Operator Resisting Competitive Alternatives?
• Reducing prices selectively?
• Seeking legislation prohibiting government-owned networks?
• Opposing government I-Nets?
16. Government Relations Services
This is a Local Issue
• Economists predict unregulated providers with
strong economies of scope and scale will:
Set customer service at prices that maximize
return on investment (ROI)
These price/service levels may not satisfy
customer demand
17. Government Relations Services
This is a Local Issue (Cont’d)
• Rate and Service Discrimination
Local video and broadband entrepreneurs may experience problems
accessing the cable network
Local consumers may face discriminatory prices unrelated to supply
constraints
• Discrimination against Local community programming
Cable operator may not offer VOD, HD, or adequate financial support
for community programming
• Discrimination against high-cost regions/customer groups
• Anti-Competitive treatment of overbuilders (including municipal
systems)
• Limited market access for Programmers and product vendors
18. Government Relations Services
Many of These Issues Can Be
Addressed Through Local Actions
• Conditions on approval of the transfer.
Fix all franchise non-compliance issues
Consider, provided you have franchise and/or ordinance authority
to do so:
• Build-out requirements
• Non-discriminatory/uniform rate requirements
• Upgrades to the local system
• Support for local programming
• Customer Service conditions
• Joint actions before federal regulators and antitrust authorities.
Seek federal conditions on any approval of the deal
19. Government Relations Services
The Federal Process *
And Where You Can Make Your Voice
Heard
* Many thanks to Andy Schwartzman for his paper on this subject.
20. Government Relations Services
ApplicationFiled
F.C.C. Communications Act
Transfer licenses
requires public interest.
Approve
Disapprove
Condition
Justice
Clayton Act/Hart Scott
Rodino/Sherman
Cannot lessen
competition
Approve
Disapprove
Condition or Consent
Decree
FTC
Clayton Act/Federal Trad
Commission Act
Cannot lessen
competition
Flow Chart of the Process
Clayton Act, 15 U.S.C. § 18, Sections 1 and 2 of the Sherman Act, 15
U.S.C. § 1, 2, and Section 5 of the Federal Trade Commission Act, 15
U.S.C. § 45
21. Government Relations Services
Department of Justice
• Jurisdiction -- Under Clayton Act merging companies do not technically need DOJ’s permission
to consummate a transaction, but if DOJ does not approve, DOJ can ask dist. ct. to enjoin
transaction break up combination
Hart-Scott-Rodino (HSR) Act established procedures for DOJ review
Parties must file information about the deal with the DOJ. They may not close on the
purchase for 30 days, and for longer when DOJ requests additional information
• DOJ’s review is not a transparent process. There is a page of guidance. Actions are conducted
in private ( See http://www.justice.gov/atr/public/guidelines/hmg-2010.html)
1. DOJ’s Antitrust Division will conduct an investigation, during which it will ask for
submission of tens of thousands of pages of documentation, perhaps conduct
depositions, and engage in detailed discussion with the parties
2. It will also consult with competitors and other affected parties
3. None of these activities are a matter of public record, and the DOJ generally refuses
to issue any public statements during its investigation
4. William Baer, the current Assistant Attorney General, represented Comcast in the
Comcast/NBC Universal litigation and has recused himself
5. Renata B. Hesse, a principal deputy assistant attorney general, whose credentials
include rejecting the Federal Communications Commission’s investigation of AT&T’s
proposed takeover of T-Mobile will lead
22. Government Relations Services
Department of Justice
• Conclusion of Process:
1. DOJ may announce that it will not object to deal
2. DOJ may file suit in fed. dist. ct. to enjoin the deal
3. DOJ may enter into a consent decree with Comcast,
requiring that Comcast agree to certain divestitures
or modifications of the deal and to specific steps
designed to minimize anti-competitive harms.
4. (Under the Tunney Act, a consent decree does not
become final until interested parties have a right to
file objections to it, but Courts rarely modify
consent decrees before approving them.)
• Time Frame: Experts estimate that the DOJ
investigation will take at least eight months.
23. Government Relations Services
FCC
Communications Act
• Jurisdiction -- Communications Act poses a separate and some feel higher
standard for approval of the transfer of the hundreds of licenses (e.g.
microwave, satellite and other licenses,) from Time Warner to Comcast.
• Standard: Comcast bears the burden of proving that the deal is in the
“public interest, convenience and necessity.”
Public interest standard offers FCC greater latitude than the DOJ has.
FCC can base its actions on a determination of what the deal’s approval might
do to affect the diversity in the marketplace of ideas, competition or localism.
Commission decision is afforded considerable deference.
• Process
Comcast was required to file a detailed application listing:
• All of the affected licenses.
• Details about the terms of the transaction.
• Explanation as to why Comcast believes that the transaction is in the public interest.
24. Government Relations Services
FCC
Most of the application materials are available for public review. (M.B. 1457)
• Certain competitively sensitive information is withheld from general public scrutiny, but
lawyers for opposing parties can obtain permission to read them, and use their analysis in
FCC filings if they agree to sign “protective orders” under which they are barred from
revealing what they learned to any unauthorized parties.)
Opponents of the transaction have the right to file “petitions to deny” approval
of the application.
“Transaction team” and Ex Partes –
• Transaction team is composed of representatives of several FCC bureaus and the General
Counsel’s office – see list infra as all must be copied on any ex parte communications.
• Conclusion of Process (Staff Recommends/Commissions Vote)
Approve
Disapprove
Condition Approval
• Dissatisfied parties can appeal FCC action to the United States Court of
Appeals for the District of Columbia Circuit.
26. Government Relations Services
How to File Comments at FCC
• Use the cover – or include
the docket number.
• You can find detailed
instructions on how to file
comments, and to where you
should send those
comments, on the Public
Notice announcing the
transaction and seeking
comment..
http://apps.fcc.gov/ecfs/uplo
ad/display?z=dmfz7
• Make sure to copy
Transaction Team
27. Government Relations Services
FCC Service List
(Per DA 14-479– Service by Email/Fax/mail)
• Best Copy and Printing, Inc. (FCC@BCPIWEB.COM )
• Vanessa Lemmé, Industry Analysis Division, Media
Bureau, (Vanessa.Lemme@fcc.gov )
• Marcia Glauberman, Industry Analysis Division, Media
Bureau, at (Marcia.Glauberman@fcc.gov )
• William Dever, Wireline Competition Bureau
(William.Dever@fcc.gov)
• Jim Bird, Office of General Counsel
(TransactionTeam@fcc.gov )
• Each Commissioner or Commission employee who
attended or otherwise participated in the ex parte
meeting.
29. Government Relations Services
Local Review
• Local authority to review is affected by Cable Act
and FCC rules, state law and the local
law/franchises
• Federal rules affect process – not the substance of
review
120-day deadline once a complete “Form 394” is filed
– but deadline can be extended
30 days from receipt of application to notify operator
locality questions whether Form 394 is accurate (and
complete)
Failure to act by deadline = approval is deemed
granted.
30. Government Relations Services
Local Review (Cont’d)
• Relevant statutory provision = 47 U.S.C. Sec.
537; relevant FCC regulation = 47 C.F.R. Sec.
76.502
• Leg history to Cable Act suggests a franchising
authority ensure transferor is in compliance as
part of transfer process, and that transferee
(absent agreement) cannot be held responsible
for predecessors omissions at least for
purposes of renewal
31. Government Relations Services
Local Review (Cont’d)
• In states that have recently adopted state franchising,
local authority to review transaction may be minimal or
non-existent and state review may be perfunctory
• In states that retain local franchising, right of locality to
review will depend on franchise language/local law
Some franchises require approval of transfers of franchise
or franchisee, but do not require approval of changes in
parent company control
First question that will determine whether local review is
required is whether the local franchise reaches changes of
control.
32. Government Relations Services
Local Review (Cont’d)
• The second issue: what is a change of control
under the franchise? What sorts of changes of
control are subject to review?
For Comcast, it depends on whether the stock
being transferred to TWC shareholders is a change
of control.
For TWC, is likely to depend on whether mergers
through exchange of common stock trigger review
33. Government Relations Services
What Does This Mean?
• You need to begin by checking your franchise.
• If you have review authority, you should have
received a letter from Comcast by now.
If you have not, please do bring the issue to the
company’s attention.
34. Government Relations Services
Reviewing the Transfer Request
• Federal law does not establish substantive
standards
• Franchises or local laws often do
• Scope of review therefore depends on limits of
franchise
Public interest standard?
Financial, technical, legal, and character qualifications?
Impact on cable competition? (see 47 U.S.C. Sec.
533(d))
• Your review should be tailored to your authority
and federal requirements
35. Government Relations Services
Local Review
• In Charter Communs., Inc. v. County of Santa Cruz,
304 F.3d 927, 933 (9th Cir. 2002), the court found
that a denial “should be upheld as long as there is
substantial evidence for any one sufficient reason
for denial.”
• Effect: subject to contractual limitations, localities
have significant authority to address outstanding
performance issues and to ensure transfer will not
harm the public or reduce competition in the
delivery of cable service
36. Government Relations Services
Recovering Fees
• Federal law may also prevent you from recovering your
additional consultant fees and attorney’s fees directly from
the cable operators absent a law that would allow your
community to recover similar fees in reviewing transfer
applications from other entities with whom the community
may have a franchise (i.e. electric or gas companies).
• The FCC has determined that such fees, imposed upon a
cable operator solely because of its status as such, are not
“incidental to” the enforcement of the franchise, and
therefore generally must be treated as franchise fees (which
are capped at 5%).
(In re Implementation of Section 621(a)(1), 22 FCC Rcd. 19633
paragraph 11 (2007).)
37. Government Relations Services
How to Make Participation More
Effective
• Federal conditions will depend on showing that
merger has harms that conditions will mitigate
• Local conditions must be related to issues
locality may properly address
• Possible approach: jointly sponsor studies
• Form coalitions to address issues at federal or
local level
• …but participation may be important for your
community
38. Government Relations Services
Questions?
Joseph Van Eaton
Best Best & Krieger LLP
2000 Pennsylvania Avenue N.W.
Suite 4300
Washington, DC 20006
(202) 370-5306
Joseph.VanEaton@bbklaw.com
Gerard Lavery Lederer
Best Best & Krieger LLP
2000 Pennsylvania Avenue N.W.
Suite 4300
Washington, DC 20006
(202) 370-5304
Gerard.Lederer@bbklaw.com
Nicholas P. Miller
Best Best & Krieger LLP
2000 Pennsylvania Avenue N.W.
Suite 4300
Washington, DC 20006
(202) 370-5309
Nicholas.Miller@bbklaw.com