PITTSBURGH, December 24, 2014 - The American Cable Association called on the Federal Communications Commission to impose targeted remedial conditions on the Comcast-Time Warner Cable-Charter transaction that create meaningful protections for small and medium-sized cable operators facing vertical and horizontal harms flowing from this latest round of consolidation by giant cable operators, cable programmers and broadcasters.
"ACA's chief goal is for the FCC to make clear that Comcast- and Charter-affiliated programmers are prohibited from demanding rates, terms, and conditions that are discriminatory or higher than fair-market value from Multichannel Video Programming Distributors (MVPDs), and that the enforcement mechanisms for these safeguards work, particularly for small and medium-sized MVPDs," ACA President and CEO Matthew M. Polka said. "Such remedial conditions have, in the main, provided vital protections to MVPDs in the past, and, with ACA's recommended improvements, must again be imposed by the FCC in this case."
ACA set forth its views on Dec. 23 in reply comments filed with the FCC as part of the agency's public interest review of the Comcast-TWC-Charter transaction. To view ACA's full comments, click here.
If approved as submitted, the transaction would result in Comcast, already the largest MVPD in the country, increasing the number of video subscribers it negotiates on behalf of from 21.1 to 31.4 million (to the extent Comcast negotiates on behalf of Bright House Networks and Midcontinent Communications). Comcast -- which also owns NBCUniversal, one of the largest programmers and broadcasters in the MVPD market -- would also gain control of TWC's regional sports networks (RSNs) in New York and Los Angeles, where Comcast already owns the local NBC TV stations. Charter, which is affiliated with a large programmer, would increase the number of subscribers that it negotiates on behalf of from 4.2 million to up to 8 million subscribers (to the extent it negotiates on behalf of SpinCo).
In its reply, ACA asked for a set of narrowly tailored, merger-specific conditions. In addition to imposing an improved baseball-style arbitration remedy on Comcast- and Charter-affiliated programmers to address their incentive to charge rates above fair market value, ACA asked the FCC to impose a non-discriminatory access condition to prevent programmers from charging discriminatory rates, terms and conditions. Since News Corp. purchased DirecTV in 2003, the FCC has consistently imposed a non-discriminatory access condition multiple times on parties to transactions involving the merger of an MVPD and a programmer and/or broadcaster. For unexplained reasons, the FCC did not apply this vital condition to Comcast-NBCU in its review of that transaction.
ACA's proposed conditions would fix this major defect but more is still needed, Polka said.
"Conditions that depend upon MVPDs to identify when Comcast and Charter-affiliated programmers are charging rates, terms, and conditions that are discriminatory or higher than fair-market value only work if the MVPD has adequate information to identify when these programmers are breaking the rules," Polka said. "Because of the programming industry's widespread use of non-disclosure agreements, MVPDs, particularly small and medium-sized MVPDs, lack the critical information necessary to know when programmers are offering them rates different from those charged other similarly situated MVPDs. This has been one of the most significant problems with enforcing previously adopted conditions."
To address this, ACA urged the FCC to put the burden on Comcast- and Charter-affiliated programmers to provide information sufficient to demonstrate to MVPDs that the prices, terms and conditions they are offering are not discriminatory. With this information, MVPDs can evaluate offers during negotiations and, if necessary, to make their case at the start of the complaint process. For the arbitration condition, ACA asked that MVPDs be given the right to obtain information sufficient to determine if Comcast- and Charter-affiliated programmers are offering rates, terms, and conditions above fair-market value and, if necessary, have access to information needed to make informed best and final offers at the initiation of the arbitration process.
Additionally, ACA said MVPDs should have the right to request an audit of Comcast- and Charter-affiliated programmers annually to verify that they are living up to their obligation not to discriminate.
"By allowing access to this information, the FCC will also create a disincentive for a Comcast- or Charter-affiliated programmer to engage in such practices in the first instance," Polka said.
Because the non-discriminatory access condition has traditionally relied on the FCC's program access complaint procedures, ACA recommended modifications be imposed through the conditions to correct procedural flaws that result in an ineffective enforcement mechanism, particularly for small and medium-sized MVPDs.
Among other things, ACA recommended that an MVPD seeking to enforce the non-discriminatory access condition be given the right to bring a complaint comparing itself to a similarly situated MVPD regardless of whether the MVPD is the complainant's direct competitor. This freedom would allow for better comparison cases than are possible under current program access enforcement procedures and facilitate easier identification of illegitimate discrimination in cases where the only direct competitor available for comparison is far larger than the complainant and the volume discount defense muddies the analysis.
Additionally, ACA requested that the FCC bar Comcast- and Charter-affiliated programmers from withdrawing any programming from an MVPD while a complaint arising from the non-discriminatory access complaint is pending. ACA explained that if the programmer is permitted to withhold programming from the MVPD while allegations of non-discriminatory treatment are being adjudicated, the harm that would come from the withdrawal of programming, which could potentially last months, could easily outweigh the benefits of prevailing in the complaint.
Furthermore, because the vast majority of independent cable operators acquire programming through a third-party negotiator, such as the National Cable Television Cooperative (NCTC), ACA said the FCC should clarify that an MVPD's bargaining agent has the right to utilize the non-discriminatory access condition, creating parity with the FCC's commercial arbitration remedies.
ACA also proposed two conditions to ameliorate the harm that results from the transaction because of the increased bargaining leverage that Comcast and Charter will have as MVPD purchasers of programming from third parties:
The conditions proposed by ACA are intended to mitigate the transaction's vertical and horizontal harms identified by Gary Biglaiser, Professor of Economics, University of North Carolina, Chapel Hill on ACA's behalf. Biglaiser's latest analysis (attached) rebuts Comcast's claims that the transaction poses no public interest harms by showing that Comcast relied mostly on flawed data and inapposite economic comparisons. ACA's conditions also reflect lessons learned through small and medium-sized MVPDs' utilization of previous FCC merger conditions. Biglaiser's analysis is available here.
ACA has urged that its conditions, which also seek to address harms in the cable advertising market, last for at least nine years, and after that time, require Comcast and Charter to return to the FCC and demonstrate that the conditions are no longer needed.
About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 850 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/
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