Small Providers’ Approach Closes Flaws, Loopholes In AT&T/Time Warner’s Unilateral Arbitration/Standstill Offer
PITTSBURGH, May 15, 2018 – The American Cable Association and its member — RCN Telecom Services/Grande Communications/WaveDivision Holdings – today filed an Amici Curiae brief with the Federal District Court offering an alternative remedy to address the anti-competitive harms that would arise should AT&T be permitted to acquire programming giant Time Warner, owner of HBO, CNN and other marquee video channels.
“ACA members compete with AT&T and DirecTV, the largest traditional multichannel video programming distributor (MVPD) in the U.S., and purchase video programming from Time Warner, giving these smaller MVPDs a significant stake in the outcome of the case and putting them in an excellent position to understand the harms that would ensue from the transaction and remedies that could offset the harms,” ACA President and CEO Matthew M. Polka said. “ACA’s proposal is an effort to address the flaws and loopholes in AT&T/Time Warner’s Unilateral Arbitration/Standstill Offer.”
ACA and its members support the Justice Department’s (DOJ) assertion that the proposed merger “would give the nation’s largest MVPD the power to control its rivals’ access” to Time Warner content. They also were recipients of the offer from AT&T and Time Warner (the “Turner Offer”) to abide by arbitration and standstill processes post-merger to resolve program access disputes. However, they found the Turner Offer – which effectively admits harm will result from the combination – insufficient in many respects and note that virtually no distributors signed onto the offer.
What concerns ACA and its members is that while the Turner Offer is insufficient, DOJ presents the Court with “all-or-nothing” remedies – that is, either block the merger entirely or force divestiture of Turner Broadcasting or DirecTV as a condition of the merger. ACA and its members are not opposed to DOJ’s position but believe the Court has sufficient authority to craft equitable relief and should consider adopting behavioral conditions, most notably an enhanced arbitration and standstill process that reflects the conditions adopted by the Federal Communications Commission in the 2011 merger of Comcast and NBCU and that enhances those conditions to reflect lessons learned to address their flaws.
More specifically, ACA and its members propose that the Turner Offer be fixed first to fully incorporate the Comcast-NBCU provisions:
1.) It Should Cover All Programming Managed or Controlled by the Post-Merger Entity: The arbitration standstill remedy needs to cover all AT&T/Time Warner programming owned or controlled by the post-merger entity at any time during the term of the consent decree because of the importance of such networks as HBO and to ensure that the entity cannot shift programming from a network covered by the offer to one not included.
2.) It Should Permit Smaller Distributors to Use a Bargaining Agent for Arbitration and Should Permit Smaller Distributors to be Entitled to Fee Shifting if They Prevail: Smaller distributors should expressly be permitted to use a bargaining agent, such as the National Cable Television Cooperative (NCTC), to invoke arbitration on its members’ behalf to address the fact they may be less able to bear the costs of commercial arbitration than larger MVPDs, thus rendering the remedy of less value to them. Those with fewer than one million subscribers (or their agents) should also be permitted to recover fees as prevailing parties in any arbitration with the merged entity.
Then, the Turner Offer should be enhanced to address flaws with the Comcast-NBCU condition:
1.) It Should Provide Distributors with Key Programming Data and Information Prior to Submitting a Final Offer: The parties to an arbitration should exchange information related to programming agreements prior to making final offers. Specifically, once a competing distributor gives notice of its intent to arbitrate, the merged entity would provide it with information on a confidential basis, including the rates, terms, and conditions in programming agreements with other video distributors, and the competing distributor would provide the post-merger firm on a confidential basis information with the rates, terms, and conditions in agreements for programming it acquires from other programmers.
2.) It Should Prohibit the Post-Merger Entity from Punishing Broadband Subscribers of Competitors: The merged entity should be prohibited from engaging in retaliatory or punitive conduct against the distributor’s broadband subscribers by blocking access to the entity’s content or any other content that other broadband subscribers have access to through an entity’s website or other means. In other words, the merged entity should not be permitted, especially by leveraging a licensing dispute against a distributor with which it competes, to target rivals’ broadband subscribers for punitive treatment.
3.) It Should Provide for a Mid-Term Review and Adjustment: The remedy should provide for a mid-term review by the parties and other stakeholders and permit them to make recommendations to the Court (or an appointed Special Master) concerning changes and a possible term extension. As DOJ points out, it is difficult for a behavioral remedy to “be detailed enough to cover in advance all the many fashions in which improper influence . . . might manifest itself.” Allowing for a mid-course correction addresses this problem without excessive government entanglement at the start.
Crafting a remedy with ACA’s improvements would address DOJ’s primary objections to a behavioral remedy and would correct the shortcomings of the Turner Offer. ACA and its Members look forward to the Court considering it.
About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing about 800 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America. Through active participation in the regulatory and legislative process in Washington, D.C., ACA’s members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business. For more information, visit http://www.americancable.org/