Franken: Comcast called Time Warner Cable a competitor until they wanted to merge

Comcast has repeatedly said the biggest reason US regulators should approve its $45.2 billion purchase of Time Warner Cable (TWC) is that the two companies do not compete against each other. While Comcast has more than 21 million customers and TWC has more than 11 million, there isn't a single city or town in America in which the two companies both offer video and Internet services.

At a Senate Judiciary Committee hearing today, Sen. Al Franken (D-MN) said that Comcast made a very different argument in order to secure approval of its 2011 purchase of NBCUniversal. During a hearing in 2010, Comcast argued that competition from Time Warner would prevent it from taking unfair advantage of increased ownership of television content. Franken said:

Comcast has argued that there's nothing to worry about here because it doesn't compete with Time Warner Cable in any ZIP code… When Comcast wanted to acquire NBCUniversal, Comcast's CEO told this committee not to worry about it because there were still other robust distributors, and he specifically named Time Warner Cable, which would prevent Comcast from setting anti-competitive prices for Comcast content.

The point was that Comcast couldn't get away with that sort of behavior because distributors including Time Warner Cable wouldn't stand for it, and they could go to the FCC and complain about it, too. Later in the hearing, Comcast's CEO also told us, 'We are not getting any larger in cable distribution here.' Well, if this deal goes through, Comcast will become larger in cable distribution, and if this deal goes through, Comcast never again will have to negotiate with Time Warner Cable when it comes to setting prices for NBC content. And NBC content, everyone should remember, is 20-some networks.

Comcast can't have it both ways. It can't say that the existence of competition among distributors including Time Warner Cable was a reason to approve the NBC deal in 2010 and then turn around a few years later and say that the absence of competition with Time Warner Cable is a reason to approve this deal.

According to a transcript of that February 2010 hearing, Comcast CEO Brian Roberts was asked by Sen. Herb Kohl (D-WI), "Won't Comcast have the incentive to raise its rivals' costs by raising the cost of NBC programming if this merger is completed?"

Roberts responded, "There are robust distributors—DirecTV, Dish Network, Time Warner, Ms. [Colleen] Abdoulah's company [telecom provider WideOpenWest, or WOW]—all negotiating with other programmers. There is a very defined marketplace and a third party to adjudicate whether somebody is playing games, as was the suggestion perhaps that you would do, so you would overcharge. That would not be available to do, the way I understand how the process has worked, and that is not the intention."

In that same hearing, Roberts said, "We are not getting any larger in cable distribution here with this because NBC is not in our business, and we are not really in their business."

Time Warner Cable was spun off as a separate company from Time Warner in 2009. Roberts may have been referring to Time Warner itself rather than Time Warner Cable—although the comparison to DirecTV and Dish suggests he was referring to TWC. Comcast Executive VP David Cohen testified at today's hearing and did not dispute Franken's description of the 2010 hearing.

A Comcast spokesperson responded to Franken's argument in an e-mail to Ars, saying, "the market has changed and evolved significantly since 2010. There are new and robust competitors for programming and for viewers—for example Netflix, Amazon, Google, and Yahoo—many of these companies have just made announcements about acquiring and selling programming and/or set top boxes... Verizon is now the #5 video provider, and in the last five years AT&T and Verizon have added 6.7 million subscribers, DirecTV and Dish added 1.2 million while cable has lost over 7 million."

Comcast also argues that in the proposed merger with TWC, "sale of programming isn’t really an issue, as hardly any new programming is being added with this deal. Comcast’s percentage of the video market will be about the same as it was in 2002 or 2006, when our subscriber levels were higher, as we’ve lost subscribers over the past decade to satellite, telco and other overbuilder competition."

Sparring partners

Today, Franken jousted a bit with Cohen, pointing out times in which Comcast was accused of violating agreements it made with the government when it purchased NBCUniversal.

Comcast's written testimony to the Senate committee said that out of "more than 150 separate specific requirements… the FCC has only found it necessary to look at one issue."

Franken pointed out that there were actually two issues: one in which Comcast was fined $800,000 in 2012 for making it harder for consumers to purchase standalone broadband service without subscribing to cable television. In addition, Bloomberg filed a complaint with the FCC in 2011 claiming that Comcast was "neighborhooding" channels, keeping them far away from other news channels such as MSNBC to limit viewership.

Cohen argued that "Bloomberg was not a compliance issue, it was an interpretive issue" but agreed with Franken that it was misleading to say that "the FCC has only found it necessary to look at one issue."

On bundling, Franken told Cohen, "You were told by the FCC to stop pushing bundles… When you're training [call center employees] to upsell, you're not training them to make people want to go to standalone broadband, something you were fined for not doing."

Cohen replied, "We were allowed to upsell. All we have to do is when someone says, 'I want to buy broadband alone,' our call center employees have to be aware of the standalone product and sell it to people."

"You seem like a pretty good salesman," Franken said.

Congress isn’t the decider, but it can pretend

Congress has an indirect role to play in the merger. The FCC will analyze whether the transaction serves the public interest, and the Department of Justice will examine whether it would reduce competition. Even if the deal is approved, Comcast could have to comply with various conditions designed to protect consumers and competitors.

Despite not making the final call on whether the merger is allowed, "Congressional reaction will tend to influence how the agencies react," wrote Harold Feld, senior VP of consumer advocacy group Public Knowledge. "If the deal gets support of powerful members on the right committees, or gets broad bipartisan support, then that can intimidate the agencies from pursuing a vigorous case. By contrast, if the deal gets strong opposition or lacks support from members one would normally expect to see supporting such a deal, then the agencies will feel more confident about taking an aggressive stance with regard to conditions or blocking the deal."

Money talks

Comcast, which spent $18.8 million on lobbying last year and $1.8 million in political contributions in the current electoral cycle, will have friends in Congress. The campaign committee of Sen. Orrin Hatch (R-UT) has received $38,750 from Comcast's political action committee (PAC) and Comcast employees since 2009, and Hatch's Leadership PAC (political action committee) got another $15,000 from Comcast's PAC.

To be fair, Comcast people spreads money around to supporters and opponents. Franken has received $15,050 from Comcast employees since 2009 though he got nothing from Comcast's political action committees, according to OpenSecrets.org.

Hatch took a different view than Franken did, saying antitrust laws should not be a tool to disadvantage companies. "Too often, government intervention in such matters risks harming consumer welfare and innovation by protecting insufficient competitors from market forces," Hatch said. The workings of the free market ensure that resources are allocated in the most efficient way possible, Hatch said.

Sen. Amy Klobuchar (D-MN), whose leadership and campaign committees have received $45,623 from Comcast's PAC and its employees since 2009, did raise some issues that Comcast might have preferred not to talk about. She brought up data caps and usage-based pricing, as well as Comcast's recent deal to charge Netflix for a connection to its network.

"Why charge both Netflix and your consumers for this service?" Klobuchar asked Cohen.

Cohen argued that Netflix was already paying transit providers like Level 3 and Cogent for indirect access to Comcast's network. "Comcast has agreements with 40 companies for settlement-free [i.e. unpaid] peering," he said. "They go out and sell access to their networks. Even though they're not paying us anything, they charge edge providers to connect to our ISP."

Public Knowledge CEO Gene Kimmelman argued that Comcast charging video providers for peering might be one of the ways a combined Comcast and Time Warner could "advantage their own [content] and drive up their competitors' costs."

Other issues discussed today include a merged Comcast/TWC having a presence in 19 of the top 20 and 27 of the top 30 US markets and greater control over sports programming.

"The most recent information I have details Comcast owning 11 RSNs [regional sports networks] in the country's largest markets and Time Warner Cable owning five RSNs along with 16 local sports channels," Sen. Richard Blumenthal (D-CT) said. "The merged entity would own a very formidable amount of live sports programming in the biggest markets… Any competitors that won't pay your increased costs for sports programming get denied access, and that's led to some serious high-profile disputes… I'm really concerned that the increased ownership of high value programming like regional sports networks will give your companies, soon to be one company, both the means and incentive to overcharge your rivals."

Cohen argued that "nothing in this transaction changes the competitive balance."

Referencing the Los Angeles Lakers' regional sports network, he said, "We're not going to have any more power in the LA market to negotiate deals because we also own networks in Chicago, Philadelphia, and Washington."

Blumenthal countered that a bigger entity would have more economic power and "increased strength to withstand potentially hostile negotiations."

No price benefits for consumers, but TWC execs get a nice payoff

The growing size of customer bills also came up, with Franken saying, "I'm worried that this deal simply continues a trend of media consolidation, a trend that has led to increasing prices for consumers who have seen their bills going up more than twice the rate of inflation since the mid-1990s."

Cohen said in February that Comcast is "certainly not promising that customer bills are going to go down or even increase less rapidly" as a result of the transaction.

"I have a nasty habit of telling the truth," he said today. While "there is nothing in this transaction that will cause cable bills to go up," he said other factors—like the cost of sports programming—could increase prices.

TWC Chief Financial Officer Arthur Minson also testified today. Minson was asked about the golden parachutes TWC officials are set to receive, which include $27 million for Minson and $79.5 million for TWC CEO Robert Marcus.

"As it relates to the overall compensation packages, I would say for transactions this size and transactions this complex, I think you'll find that they're in line," Minson said.

Judiciary Committee Chairman Sen. Patrick Leahy (D-VT) responded, "You may find that not all consumers agree, but it is what it is."