No Home Run in Purchase of Adelphia

Feb 6, 2006  •  Post A Comment

The Republican-dominated Federal Trade Commission’s approval last week of Comcast and Time Warner’s $17.6 billion acquisition of Adelphia Communications was a less-than-complete victory for the cable giants.

That’s because the FTC’s two Democrats-Jon Leibowitz and Pamela Jones Harbour-invited the Federal Communications Commission, which is still reviewing the Adelphia transaction, to consider conditions that would prevent the cable firms from using their new clout to deprive satellite TV operators and other competitors of reasonable access to regional and local sports programming.

“[Regional sports network] programming … is a unique product, of tremendous value to a certain segment of consumers, and thus access to it is critical to cable and satellite providers’ ability to remain competitive,” the two FTC Democrats said in a joint statement.

The argument that special regulatory conditions should be imposed on Comcast and Time Warner is being heavily promoted at the FCC and other regulatory venues in Washington by satellite TV operators DirecTV and EchoStar Communications.

Last week’s mixed signal from the five-member FTC (three Republicans, two Democrats), which approved the acquisition without imposing conditions on the deal, had the spin machines of the cable and satellite companies whirling in overdrive.

“Now that the FTC has completed its review, we look to the FCC-which must review the proposed merger under a broader public interest standard-to impose conditions which address the harms that will result if this merger is approved,” said Marc Lumpkin, a spokesman for EchoStar. “Even prior to the proposed merger, Comcast and Time Warner controlled access to valuable programming.

“That programming must be made available to all pay TV providers under fair terms and for reasonable rates, including a la carte pricing, which will enable EchoStar to provide consumers with the programming choices they deserve.”

Said Kathy McKiernan, a Time Warner spokeswoman: “We are pleased that the FTC has concluded its review of the Adelphia transaction, completing a key step along the path to closing. The FTC’s action today recognizes that this transaction is a pro-competitive one that will significantly benefit American consumers.”

Added Tim Fitzpatrick, a Comcast spokesman: “We are gratified by this action. We believe these transactions have substantial benefits for American consumers and look forward to the timely completion of the FCC’s review process.”

In their joint statement, the FTC Democrats said they agreed with the agency’s Republican majority’s position that the Adelphia deal would be largely “competitively neutral or even pro-competitive.”

Still, the two Democrats said they, like satellite TV company representatives, were concerned that in the wake of the Adelphia deal, Comcast and Time Warner would be able to increase their system ownership share in major markets, increasing their leverage over programming and particularly over sports networks in the regions.

Though FCC rules currently bar cable operators from getting exclusive contracts to the rights for satellite-delivered networks, an agency loophole allows cable operators to assert exclusivity over networks distributed terrestrially, not over satellite. As the FTC’s two Democrats pointed out in their statement, Comcast’s SportsNet Philadelphia is currently delivered terrestrially, enabling the cable operator to deny satellite access to the programming.

In addition, the FTC Democrats said that Comcast and Time Warner might be able to raise the prices of programming for regional sports networks they dominate through their newly expanded clout, even while ostensibly complying with the FCC’s regulation requiring vertically integrated cable providers to charge competitors “reasonable and nondiscriminatory fees.”

According to the FTC Democrats, a cable company can easily get around the intent of the existing FCC regulation by raising the price of a sports network and then paying itself the same price it charges its rivals.

“If allowed to establish such regional monopolies without adequate safeguards, I can assure you that Comcast and Time Warner will deny key regional programming, especially local sports, to their competitors,” said Daniel Fawcett, DirecTV’s executive VP of business and legal affairs and programming acquisition, during testimony before the Senate Commerce Committee last week.

But Joe Waz, Comcast VP for external affairs and public policy counsel, told the committee that Comcast believes no FCC conditions are warranted for the Adelphia deal.

In their own statement last week, the FTC’s three Republicans-Chairman Deborah Platt Majoras, Commissioner William Kovacic and Commissioner J. Thomas Rosch-said the FTC’s investigation had not uncovered evidence suggesting that the sale would reduce competition.

“We will be vigilant regarding the conduct of Comcast and [Time Warner Cable] on a going-forward basis,” the FTC Republicans said. “If the proposed transactions are consummated and facts emerge that indicate that Comcast or TWC is engaging in conduct that harms competition to the detriment of consumers, we will investigate and, if appropriate, take action under the antitrust laws.”