How Your Community Can Respond to the Comcast - Time Warner Merger


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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.

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How Your Community Can Respond to the Comcast - Time Warner Merger

  1. 1. Government Relations Services
  2. 2. Government Relations Services April 24, 2014 PRESENTED BY Gerard Lederer, Joseph Van Eaton, and Nicholas Miller BB&K Webinar: How your Community Can Respond to the Comcast- Time Warner Merger ©2014 Best Best & Krieger LLP
  3. 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
  4. 4. Government Relations Services Description of the Merger • First and second largest cable providers merge – BlazeTV charted effect
  5. 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 • 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. 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
  7. 7. Government Relations Services Before/After
  8. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 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. 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. 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. 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.
  25. 25. Government Relations Services FCC Transition Team Page (Not Yet Posted for Comcast-Time Warner)
  26. 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.. ad/display?z=dmfz7 • Make sure to copy Transaction Team
  27. 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, ( ) • Marcia Glauberman, Industry Analysis Division, Media Bureau, at ( ) • William Dever, Wireline Competition Bureau ( • Jim Bird, Office of General Counsel ( ) • Each Commissioner or Commission employee who attended or otherwise participated in the ex parte meeting.
  28. 28. Government Relations Services The Local Process: How It Applies
  29. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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 Gerard Lavery Lederer Best Best & Krieger LLP 2000 Pennsylvania Avenue N.W. Suite 4300 Washington, DC 20006 (202) 370-5304 Nicholas P. Miller Best Best & Krieger LLP 2000 Pennsylvania Avenue N.W. Suite 4300 Washington, DC 20006 (202) 370-5309