“The industry has taken the position that any constraint on its actions will end the digital revolution and dramatically increase costs for consumers. The Consumer Federation of America emphatically disagrees,” said Mark Cooper, CFA’s Director of Research.

“The House Judiciary Committee and Antitrust Subcommittee is doing exactly what Congress should do to reboot needed oversight of the dominant incumbent digital platforms. The Committees have identified general practices that must be reformed, given concrete recommendations, and provided increased resources for implementing these needed actions,” Cooper added.

Finally, said Cooper, “We also support and recognize that the recommendations keep Congress out of the business of trying to pick winners, when they are just as likely to pick losers. Instead, all the remedies on the table empower antitrust and regulatory experts to use their judgement, based on the clear goals defined by Congress, to build adequate consumer protections in the world of big data.”

Contacts:
Mark Cooper, 301-384-2204
Amina Abdu, 202-656-1282

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The Consumer Federation of America is quite convinced that the antitrust and regulatory oversight of the digital communications sector is in desperate need of a reinvigoration after decades of extremely lax enforcement that has failed to promote competition and protect consumers.  We also believe that immunity from liability is a serious and important issue that should be addressed as antitrust and regulatory oversight are recalibrated to deal with the digital economy.

However, we believe it would be a mistake to deal with these challenging issues in a piecemeal, “siloed” approach.  A much more comprehensive review of antitrust and a new regulatory agency are necessary to address the many harms that have been visited on consumers by the dominant players in the digital communications sector.

To ensure that policymakers address the problems of the digital communications sector, we have launched a series of reports entitled “The Quarterlife Crisis of the Digital Revolution: Great Potential, Benefits and Harms that Can Only be Addressed by Pragmatic, Progressive Capitalist Policy.” The working papers examine two industries that are directly relevant to this proceeding, big broadband networks and big data platforms.

While the immunity that dominant big data platforms claim based on Section 230 has anticompetitive impact, this impact is a very small part of the anti-competitive structure of the big data market.  Moreover, it is a very small part of the anticompetitive conduct that permeates the big data platforms market.

We seriously doubt that a section 230 proceeding instigated by a blatantly politically-driven goal can come to any good.  This is particularly the case when that proceeding is being conducted by an agency, the Federal Communications Commission (FCC), which has sought to deregulate the core sectors of the digital communications ecology, failing to ensure nondiscrimination in the carrying of internet traffic or prevent abuse of the control of the Business Data chokepoint.

Section 230 liability raises many issues that are not simply economic in areas like privacy and universal service where the FCC has been entirely ineffective. Over-broad immunity also has implications beyond the communications sector in product safety, where platforms use section 230 to avoid liability under safety laws. The FCC, acting on its current authority, is likely to be severely constrained by limitations on its power, even if it was inclined to do something meaningful.  Given its recent decisions to abandon oversight over anticompetitive conduct, we are dubious of its intentions.  Moreover, its own deregulatory words are certain to be thrown into its face.

While commenters may recognize the weak positions that the FCC has taken on issues that are in its jurisdiction, by choice, it is also extremely important to recognize that the FCC is likely to take very weak action when it comes to issues that fall outside of its jurisdiction.  Because of CFA’s very broad coverage of consumer issues, we recognize the importance of safety implications since platforms can use 230 as a liability shield and an explanation for why they do not need to comply with safety laws; but the FCC should not have anything to do with that.

Serious rebooting of antitrust and regulation of the digital communications sector is in order, but this proceeding and this agency are neither the time nor the place for such an important challenge.

Contacts:

Mark Cooper, 301-384-2204

Amina Abdu, 202-656-1282

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Entitled “Antitrust Practice, Economic Evidence and Market Reality Compel the Department of Justice to Oppose the AT&T-Time Warner Merger,” the paper argues that AT&T sits in the center of a tight oligopoly of a few dominant transmission and content companies that require substantial public oversight to prevent extending past abuses of both consumers and competition in the digital marketplace.

The paper reaches this conclusion through an extensive analysis of decades of market and regulatory developments, both involving antitrust enforcement and regulatory policy, across all the markets involved in both AT&T and Time Warner’s various businesses.

Key findings include:

• The application of the merger framework under the conditions in the communications sector shows that the AT&T-Time Warner merger poses a severe threat to competition.
• Policies to prevent discrimination against independent service providers in access to critical bottleneck facilities deliver significant benefits in terms of the quality of content and consumer choice.
• Historical antitrust interventions such as the Microsoft case delivered substantial pro-innovation and pro-consumer benefits, and the Microsoft case in particular is analogous to the AT&T-Time Warner suit due to the presence in both of real or likely vertical leveraging.
• Given the growing importance of a small number of platforms in the digital communications space, which is described in the paper as a “tight oligopoly on steroids,” the Department of Justice’s decision to oppose is not only correct on the facts, it is squarely within the mainstream of antitrust law and practice because the merger would harm competition, slow innovation, stifle the growth of online video distribution and raise consumer prices.
• In abandoning the 2015 Open Internet Order, the FCC has turned a blind eye to anti-consumer, anticompetitive practices that afflict all digital communications markets — increasing the need for the Department of Justice to act.
• Assistant Attorney General Delrahim should welcome the opportunity to lay out the broad basis for the decision to oppose the merger in a rich qualitative narrative during the AT&T-Time Warner trial.

The following can be attributed to Dr. Mark Cooper, Director of Research at Consumer Federation of America:

“Economic theory, empirical evidence and antitrust practice have all been moving toward a greater recognition of and concern about the market power that results from the control of chokepoints through which digital communications flow. ‘Over-the-Top’ competition is the best hope consumers have, but network operators will kill that competition if they are not stopped. The most effective way for antitrust authorities to protect competition is to reject vertical mergers that threaten to dramatically increase the market power of network operators like AT&T.”

The following can be attributed to Gene Kimmelman, President and CEO of Public Knowledge:

“If AT&T and Time Warner are allowed to merge, consumers will likely face ongoing price increases and lose new online options for smaller bundles of video channels and services at lower prices.”

You may read the full paper here. Dr. Mark Cooper is also available for interview.

Contact: Mark Cooper, 301-384-2204

The post The DOJ’s Case Against the AT&T-Time Warner Merger appeared first on Consumer Federation of America.

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The letter reminded the Commission that its actions must reflect the evidence before it and that evidence shows that current rates are unjust and unreasonable and eliminating competition policies would make matters worse.

Business Data Services have become a pervasive input to the delivery of a wide range of goods and services, not just the communications services that consumers pay for directly.  They are the high speed, always on connections that businesses have come to rely on for their routine communications. This includes the following examples of mobile broad band and phone service:

• Small, medium, and large businesses that need much more capacity than a single telephone line;
• branch networks (like ATM’s or gasoline stations) that have many nodes that need to be online all the time; and,
• businesses like healthcare providers, who need to move large quantities of data between their offices frequently and in real time.

The CFA/Public Knowledge letter included the following:

The costs of BDS services are consumer charges.  They are intermediate costs that businesses incur in producing the goods and services that the public consumes.  Like fuel, rent and wages, they must be recovered as routine costs of doing business.  The tooth fairy doesn’t pay them, consumers do.

The importance of BDS services has been increasing sharply as digital communications become an increasingly important input to economic activity.  This is the choke point of connectivity in the digital age. This chokepoint totally dominated by the major incumbent local exchange carriers, AT&T, Verizon, CenturyLink, and Frontier.  The FCC’s extensive data gathering shows that the vast majority of consumers (over three quarters) are served by a single supplier.  An additional twenty percent were served by a duopoly.  And the competitive market has been consolidating since the data was collected, with the incumbent telcos buying XO Communications, Level 3, and EarthLink.

In our comments last year, we estimated that overcharges are on the order of $20 billion.  Historical experience and the contemporary evidence gathered by the FCC indicate that further deregulation of BDS service could increase rates by 25%, adding between $10 and $20 billion to total overcharges.  These overcharges total $300 per household—$150 that should have been returned to consumers in lower rates and $150 per year in rate increases that will be visited on consumers by adoption of the ILEC proposals.

The proposals by the dominant incumbent BDS providers are based on the faulty assumptions about the market structure that are inconsistent with the record in this proceeding.

• The geographic market definition that the dominant incumbents propose is far too broad.
• The identification of potential competitive entry into the BDS market alleged by the dominant incumbents is wrong.
• The product market definition that the dominant incumbents propose is inaccurate.
• The definition of a workably competitive market offered by the dominant incumbents is incorrect. Two competitors is simply not enough to render a market workably competitive, With respect to the number of competitors necessary to identify a competitive market we concluded that “four is few, six may be enough, and ten is workably competition.”

This conclusion was supported by the evidence in this proceeding.  Defining product and geographic market and the potential entrants reasonably, econometric analysis of the pricing data shows that the presence of four actual competitors lowers price by 28% and the addition of four potential competitors increases the price reduction to 43%.  The threshold for a market to be assumed to be workably competitive should be four actual and four potential competitors.”

Simply put, a monopolist protectionist approach will not pass stand up to judicial review.

• Based on the record in this proceeding, it is clear that current rates are not just and reasonable under sections 201 and 202 of the act.
• The rates charged embody massive cross-subsidies supporting the more competitive offerings of service providers. This violates the explicit ban on such services under Section 254 of the Act.
• Finally, the severe abuse of market power slows and distorts the deployment of broadband. This makes the abusive rates terms and conditions imposed on the market an ideal target for action under Section 706 of the Act.

Contact: Mark Cooper, 301-384-2204

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

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“Stockholders love the astronomical rate of return, but consumers hate it,” said Dr. Mark Cooper, CFA’s Director of Research and the author of the report, “which is reflected in the very low ratings that these products get in consumer satisfaction surveys.”

“Our report highlight three themes from the recent election – pocketbook populism, concerns at big media, and the anti-merger position taken by leaders in both parties,” Cooper noted.  “This is a key test of whether there is a genuine commitment to address these problems.  Rejecting the merger will be an important step in stopping the growth of the tight oligopoly on steroids, but there will still be a lot of work to do to control the abuse of market power by the dominant communication giants.”

The 240-page report entitled, Overcharged and Underserved: How a Tight Oligopoly on Steroids Undermines Competition and Harms Consumers in Digital Communications Markets, shows that digital communications product markets are afflicted by more than just the typical tight oligopoly that has come to dominate too much of the U.S. economy.

By traditional economic standards and current antitrust practice, these markets fit the classic definition of a tight oligopoly.  All are highly concentrated markets and the top four firms have a combined market share well in excess of 60%.  The report shows that the market power of this tight oligopoly is magnified (on steroids) by several factors.

From the point of view of market structure,

• The same four firms dominate all the markets.
• They failed to compete with each other in the core franchises service territories in which they had been granted monopolies prior to the Telecommunications Act of 1996. Cable companies never overbuilt other cable companies. Telephone companies never overbuilt telephone companies.  Cable never went into wireless.  Telephone companies were slow to enter video.
• Costs have been declining rapidly. This creates more surplus that service providers can capture as excess profits in the absence of vigorous competition.
• As a result, these firms enjoy a significant degree geographic separation, technological specialization, and product segmentation that enables them to dampen head to head competition.

From the point of view of supply-side conduct,

• Their behavior reinforces their market power with significant efforts to collaborate in the distribution of services and in lock step support of public policies that preserve their market power.
• They engage in parallel, anticompetitive contracting terms and conditions when they sell network services in their home service territories.
• When they buy services outside of their home territories their business practices reflect reciprocity that freezes out competition.

On the demand side, the potential for abuse of market power has grown because consumers cannot easily exercise choice.

• These services have become necessities with low elasticities of demand and moderate income elasticities.
• Differences in the technologies and functionalities of the services make them complements, rather than good substitutes.
• High switching costs make it difficult and costly for consumers to change suppliers in the small number of cases where they do have a choice.
• The services are frequently bundled.

“The harms inflicted by the tight oligopoly on steroids are not limited to its anticompetitive and anti-consumer impact,” Cooper added, “we also show that it undermines important social goals like universal service and protection of consumer privacy online.”

“All of the negative aspects of the tight oligopoly on steroids come into play in the ATT-TWX mergers.  In many respects ATT is the dominant player in the tight oligopoly, with a strong position in wireless, business data services and video distribution.  Allowing it to acquire a major content producer would give it much stronger incentives and an enhanced ability to leverage its market power to harm consumers and competition.”

“The merger would provide a powerful tool to dampen competition in the two areas of the digital market that have shown the best hope for the growth of competition – wireless and online video.  By favoring its products with bundles and discriminating against potential competitors, it would weaken competition.”

“Any short term gains it offers to consumers would quickly evaporate as ATT reverts to its strong pattern of anti-competitive, anti-consumer pricing and practices.”

“Throughout this analysis we find ATT as one of the most vigorous defenders of the tight oligopoly and abusers of market power.  Our historical analysis shows that the incentive and ability to exploit vertical leverage over content, which ATT would acquire as a result of this merger leads to rapid and severe abuse of market power.”

“The ultimate harm may be to trigger a merger wave in which each of the other dominant firms would be forced to integrate vertically.  If the responsible authorities don’t say no to this merger, we are likely to see all of the major content producers gobbled up by the dominant communications giants.”

“Our analysis shows that over the past half dozen years, the antitrust and regulatory authorities have built up the analytical and legal basis for rejecting mergers like this, consistent with broad consensus that this merger would harm consumers and the economy.”

“While rejecting the merger cannot fix the bigger problem in digital communications markets, it would be step in the right direction and a signal that Washington policymakers are serious about addressing the severe pocketbook harm that the tight oligopoly on steroids imposes on consumers,” Cooper added.

Contact: Mark Cooper-301-384-2204

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

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In an issue paper released today, Cooper explains that for the third time in less than a decade, a merger proposed by ATT has triggered the usual “just say no/just say yes reactions.  The debate has been amplified by the fact that, after more than a decade in which dozens of mergers were approved with weak conditions, the Obama Administration has moved merger policy in the opposite direction.  The DOJ and the FCC blocked two mergers (ATT/T-Mobile, Comcast/Time Warner) and jawboned another out of existence (Sprint/T-Mobile).  They imposed extensive conditions on others (Comcast-NBC, ATT-DirecTV, Charter-Time Warner-Bright House, and the Verizon-cable joint venture (Cellco)).

“While there is no question that the ATT-TW merger should be blocked, there is a far bigger market failure that needs to be addressed in the digital communications industry.  A tight oligopoly on steroids has emerged with consumer harm that far exceeds the problems that would be created by the ATT-TW merger,” said Cooper in his just released issue paper on the subject.

“Right now, four massive firms (AT&T, Verizon, Comcast and Charter) totally dominate the digital communications landscape. These four firms constitute what is known as a tight oligopoly, presenting a deeply troubling policy problem for U.S. regulators.  The market is highly concentrated with these four firms controlling over 60% of the industry.  The fact that the same four firms that constitute the tight oligopoly across all four communications markets (video, broadband, wireless and business data services) makes the oligopoly even tighter,” said Cooper.

The Issue Brief describes the current digital communications market as a “tight oligopoly on steroids” because the same four firms (ATT, Verizon, Comcast, and Charter) dominate all of the major product markets (wireless, broadband, business data services, and broadband).

Moreover, because of their history as local franchise monopolies and their decision since the 1996 Act not to compete head-to-head by overbuilding their neighbors, choosing to buy out their sister companies, they have achieved geographic separation.   By emphasizing their franchise products and dragging their feet in entering new product markets, they have achieved a significant amount of technological specialization and product segmentation. These market structural characteristics make it easier to cooperate, collaborate and engage in parallel and reinforcing behavior.

Because ATT has a strong position in three of the four product markets, adding video content increases its incentive and ability to undermine competition from online video distributors, but even if the merger is rejected, the underlying tight oligopoly on steroids will exist, imposing excess cost and restricted choice on consumers.

“Preventing any further consolidation of distribution is a no brainer,” said Cooper, “but that will not address the underlying problem.” Public policy cannot force firms to compete and the prospects of a new distribution network entering the market are slim to none. Breaking up the dominant firms requires decades of litigation and may not succeed. Our only option is to ensure these mammoth network operators cannot use their power over the pipes to frustrate competition for the content and applications that ride over them. Luckily, the FCC has four active and nearly complete proceedings that will further that goal:

Set Top Boxes: Opening up the control of set top boxes to both consumers and the free market.        

Zero rating: Preventing network operators from giving their affiliates a pricing advantage.

Privacy: Giving consumers more control over the network operators who can see everywhere the consumer goes on the network.

Business data services: Providing businesses, which need high volume, high speed transmission pipes to move large quantities of data to consumers, with greater options, will prevent those companies from passing network overcharges on to beleaguered customers.

“Stopping dangerous mergers is often not enough to open markets to effective competition. Regulatory action to open markets must go hand in hand with tough antitrust enforcement to deliver the innovation and lower prices that consumers deserve,” said Cooper.

Contact: Mark Cooper 301-807-1623

The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.

The post ATT-Time Warner Merger Bad for Consumers appeared first on Consumer Federation of America.

However, whether or not ATT-TW rises to the level of an outright rejection or strong conditions, there is a more profound problem that is highlighted by the merger.  The merger is certainly a problem, but the market structure is a much bigger problem.  A tight oligopoly on steroids has emerged in the sector that rejecting or conditioning mergers cannot address.

The post The Tight Oligopoly on Steroids in the Digital Communications Sector appeared first on Consumer Federation of America.

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The “public interest” merger review standard of the Communications Act goes beyond the antitrust standard of protecting competition to a broader charge to promote the public interest. In comments to the Federal Communications Commission, CFA and 23 of its member groups concluded that the merger failed to pass that standard by an even wider margin[2] and “no regulatory tools exist to control the market power over customers, set top boxes and middle mile transport that Comcast will have if it is allowed to acquire Time Warner. Competition, consumers and the public interest can only be served by blocking this merger.”

On the merits of the case, rejecting this deal was a slam dunk.  Unfortunately, politics frequently gets in the way of good policy in Washington.

Comcast has put on a full court press, with an army of lobbyists and a huge advertising budget, to dissuade policy makers from reaching the right conclusion.  However, recent accounts of the staff actions at both the Department of Justice and the Federal Communications Commission, suggest that, at the analytic level, the staff has broken through Comcast’s defense.  This is an extremely positive development for the public and consumer interests.

But, the game “ain’t over till the fat lady sings.” The senior levels of the two agencies must reflect on the fact–based skepticism of the staff in their dealings with Comcast.  This frequently has the effect of convincing the parties proposing the merger to concede defeat, but Comcast has been so successful in getting its way in Washington and so brazen in its disregard for antitrust laws and the Communications Act, it may go to court.  The public interest can only be served if the senior decision makers reject the merger and defeat Comcast in court, if that is necessary.  The future of competition in the broadband and video markets demands no less.

Contact: Mark Cooper, (301) 384-2204

The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.

[1] Buyer and Bottleneck Market Power Make the Comcast-Time Warner Merger “Unapprovable,” http://www.consumerfed.org/pdfs/CFA-Comcast-TW-Merger-Analysis.pdf

[2] Petition to Deny of the Consumer Federation of America, et al., http://www.consumerfed.org/pdfs/CFA-Comcast-TW-Comment.pdf

The post Statement of Mark Cooper, Director of Research, CFA, on Reports that the Staff at the Department of Justice and the Federal Communications Commission are Leaning Strongly Against the Comcast-Time Warner Merger appeared first on Consumer Federation of America.

“The inevitable result of this merger will be higher prices, worse service, and less innovation,” Mark Cooper, CFA’s director of research said. “Just four years ago the FCC and the Department of Justice (DOJ) found that Comcast has market power, as the nation’s largest buyer of professional video content and the largest provider of both multichannel video programming and broadband Internet access service.

“The acquisition of Time Warner would increase Comcast’s market power by at least 50% and create a Goliath that would tower over the industry.  Comcast would be:

• 1.5 times as large as the next largest multichannel video program distributor (MVPD),
• 2 times as large as the next largest Internet access service provider,
• 3 times as large as the next largest service provider with the capacity to deliver an integrated bundle of video and broadband,
• the dominant cable and broadband operator in 24 of the nation’s largest 25 video markets, including the addition of the most important media markets, New York and Los Angeles.”

“Sometimes size does matter, and in these markets it is particularly important,” Cooper added. “Because Comcast has such a commanding position in distribution and owns a huge slate of national and regional programming, with well over a billion subscribers, it has the incentive and ability to leverage its market power to distort and weaken competition in local, regional and national video and Internet markets.”

The Petition to Deny points out that the performance of the cable sector has gotten worse since the Comcast-NBCU merger.

• Price increases have accelerated, and Comcast’s price increases have been above average.
• Usage caps have spread, and Comcast is the leader.
• Broadcast retransmission fees have skyrocketed, contradicting the claim that the integration of broadcast content and distribution would moderate increases.
• Video and Internet services continue to rank last in consumer satisfaction and Comcast is among the worst of the worst.

According to the DOJ/FTC Merger Guidelines, the merger would have a devastating impact on the structure of all of the markets in which Comcast plays a leading role.

• The merger creates highly concentrated markets in multichannel video, high capacity broadband and regional news and sports programming.
• It fractures the Guidelines, exceeding the thresholds by five to ten times.
• It is “presumed to be likely to enhance market power.”
• The merger and system swaps with Charter divide the nation into “fortress regions,” with Comcast dominating the coasts, while Charter would dominate the upper Midwest.

There is nothing in the recent past or near future that has or will change the fact that cable is the dominant technology.

• Comcast has been expanding its share of the broadband market and enjoys high margins because competition is weak.
• Comcast’s fixed-line, true broadband technology has much higher capacity than DSL and wireless and is set to increase its advantage.
• Entry has been minimal and there are no prospects for significant, wide scale entry of new technologies or new players.

Comcast has a long history of abusing its market power that has been reaffirmed by its behavior since its acquisition of NBC.

• It has shown it is willing to press its advantage to the limits of the law and beyond in disputes with video programmers in both the traditional and online markets.
  • Netflix: discrimination, degradation of service quality, raising rival’s cost
  • Conductive: denial of access to content
  • Bloomberg News: delay in providing a fair channel location
  • Tennis and Wealth Channels: denial of carriage
  • In contrast, Comcast has done as little as possible to deliver on its public interest promises.
    • Participation in Comcast’s broadband lifeline program has been meager, one-quarter of what well-run assistance programs in the communications sector achieve.
    • The standalone broadband offer was badly mismanaged.

Comcast remains a laggard in capital expenditures.

• It invests the lowest percentage of its free cash flow in capital expenditures (CapEx) than any of the large video and Internet access providers.
• In fact, it takes more capital out through depreciation and amortization than it puts back in with CapEx, with the total disinvestment over the past decade reaching $15 billion.

“Given the long-standing “gentlemen’s agreement” among cable operators to not compete head-to-head in physical space and their decision to extend that agreement to cyberspace with their “authentication” scheme, online video competition is the last and only hope to break the stranglehold of cable.

• No regulatory tools exist to control the market power over customers, set top boxes and “middle mile” transport that Comcast will have if it is allowed to acquire Time Warner.
• Competition, consumers and the public interest can only be served by blocking this merger.”

The post CFA Petitions the FCC to Block the Comcast-Time Warner Merger appeared first on Consumer Federation of America.

“The inevitable result of this merger will be higher prices, worse service, and less innovation,” Mark Cooper, CFA’s director of research said. “Just four years ago the FCC and the Department of Justice (DOJ) found that Comcast has market power, as the nation’s largest buyer of professional video content and the largest provider of both multichannel video programming and broadband Internet access service.

“The acquisition of Time Warner would increase Comcast’s market power by at least 50% and create a Goliath that would tower over the industry.  Comcast would be:

• 1.5 times as large as the next largest multichannel video program distributor (MVPD),
• 2 times as large as the next largest Internet access service provider,
• 3 times as large as the next largest service provider with the capacity to deliver an integrated bundle of video and broadband,
• the dominant cable and broadband operator in 24 of the nation’s largest 25 video markets, including the addition of the most important media markets, New York and Los Angeles.”

“Sometimes size does matter, and in these markets it is particularly important,” Cooper added. “Because Comcast has such a commanding position in distribution and owns a huge slate of national and regional programming, with well over a billion subscribers, it has the incentive and ability to leverage its market power to distort and weaken competition in local, regional and national video and Internet markets.”

The Petition to Deny points out that the performance of the cable sector has gotten worse since the Comcast-NBCU merger.

• Price increases have accelerated, and Comcast’s price increases have been above average.
• Usage caps have spread, and Comcast is the leader.
• Broadcast retransmission fees have skyrocketed, contradicting the claim that the integration of broadcast content and distribution would moderate increases.
• Video and Internet services continue to rank last in consumer satisfaction and Comcast is among the worst of the worst.

According to the DOJ/FTC Merger Guidelines, themerger would have a devastating impact on the structure of all of the markets in which Comcast plays a leading role.

• The merger creates highly concentrated markets in multichannel video, high capacity broadband and regional news and sports programming.
• It fractures the Guidelines, exceeding the thresholds by five to ten times.
• It is “presumed to be likely to enhance market power.”
• The merger and system swaps with Charter divide the nation into “fortress regions,” with Comcast dominating the coasts, while Charter would dominate the upper Midwest.

There is nothing in the recent past or near future that has or will change the fact that cable is the dominant technology.

• Comcast has been expanding its share of the broadband market and enjoys high margins because competition is weak.
• Comcast’s fixed-line, true broadband technology has much higher capacity than DSL and wireless and is set to increase its advantage.
• Entry has been minimal and there are no prospects for significant, wide scale entry of new technologies or new players.

Comcast has a long history of abusing its market power that has been reaffirmed by its behavior since its acquisition of NBC.

• It has shown it is willing to press its advantage to the limits of the law and beyond in disputes with video programmers in both the traditional and online markets.
  • Netflix: discrimination, degradation of service quality, raising rival’s cost
  • Conductive: denial of access to content
  • Bloomberg News: delay in providing a fair channel location
  • Tennis and Wealth Channels: denial of carriage
  • In contrast, Comcast has done as little as possible to deliver on its public interest promises.
    • Participation in Comcast’s broadband lifeline program has been meager, one-quarter of what well-run assistance programs in the communications sector achieve.
    • The standalone broadband offer was badly mismanaged.

Comcast remains a laggard in capital expenditures.

• It invests the lowest percentage of its free cash flow in capital expenditures (CapEx) than any of the large video and Internet access providers.
• In fact, it takes more capital out through depreciation and amortization than it puts back in with CapEx, with the total disinvestment over the past decade reaching $15 billion.

“Given the long-standing “gentlemen’s agreement” among cable operators to not compete head-to-head in physical space and their decision to extend that agreement to cyberspace with their “authentication” scheme, online video competition is the last and only hope to break the stranglehold of cable.

• No regulatory tools exist to control the market power over customers, set top boxes and “middle mile” transport that Comcast will have if it is allowed to acquire Time Warner.
• Competition, consumers and the public interest can only be served by blocking this merger.”

The petition can be found at www.consumerfed.org/pdfs/CFA-Comcast-TW-Comment.pdf.

Contact: Mark Cooper 301-384-2204 markcooper@aol.com

The Consumer Federation of America is an association of more than 250 nonprofit consumer groups that was established in 1968 to advance the consumer interest through research, advocacy, and education.

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The post Reply to the Department of Justice – Request for Comments in the Review of ASCAP and BMI Consent Decrees appeared first on Consumer Federation of America.

Mark Cooper, Director of Research

The decision of the Department of Justice to revisit the Consent Decrees government Professional Rights Organizations (PROs) in the music sector (“ASCAP and BMI) is both timely and important, particularly in light of the recent ruling of the Second Circuit Court of Appeals in the Pandora v. ASCAP. The anticompetitive, anti-consumer conduct in which the PROs engaged when they thought the digital rights to musical works is a shocking reminder of the continuing market power of these organizations and the important role that the consent decrees play in preventing the abuse of that market power.

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The post Buyer and Bottleneck Market Power Make the Comcast-Time Warner Merger “Unapprovable” appeared first on Consumer Federation of America.

“Comcast executives have claimed that the proposed merger is ‘approvable’ because the two firms do not compete head-to-head and Comcast agreed to conditions in its acquisition of NBC that address the concerns of federal and state authorities reviewing the merger,” Mark Cooper, CFA’s Director of Research and author of the report, said. “Nothing could be farther from the truth.

“This merger causes such a massive increase in two other forms of market power – buyer and bottleneck market power – that it doesn’t just violate the antitrust laws and the Communications Act, it obliterates them,” Cooper added.  “Ironically, the weakness of head-to-head competition in the broadband and multichannel video markets that Comcast reminds us about, magnifies the concern about the other forms of market power.”

“We have moved from potential competition to incipient competition in which Internet distribution of video content has begun to dent the anticompetitive armor that cable operators have built around their abusive business model,” Cooper said, “but they are attempting to rebuild their defenses by extending the industry’s anticompetitive practices to cyberspace and leveraging their control over broadband access.”

“The overwhelmingly dominant firm that would result from this merger would be uniquely capable of coordinating those industry-wide efforts to undermine competition,” Cooper added.  “This merger would deal a severe, if not a death blow to emerging competition.”

The report, entitled, Buyer and Bottleneck Market Power Make the Comcast-Time Warner Merger “Unapprovable,” explains why buyer and bottleneck market power are important in this merger review:

• Comcast would be so large, as a buyer of content, that it would have the power to dictate the prices, terms and conditions, exercising what antitrust calls monopsony power.  Because Comcast sells content, it would be more than glad to weaken competition in the market for those products.
• Comcast would have such a huge broadband footprint it would have the ability to undermine online video distribution by raising its rival’s cost, degrading its quality of service, or blocking the delivery of its product altogether, exercising what antitrust calls vertical leverage.
• The weaker horizontal competition is, the more likely it is for the firm with buyer market power to benefit from these abuses.
• By exercising buyer and bottleneck market power Comcast can indirectly enhance its dominance in video distribution.

The report evaluates the impact of the merger with respect to the standards applied in merger review and market power abuse cases.  Buyer market power is judged to be a concern where the market share of the firm is 30% or higher. Mergers are deemed to be “likely to enhance market power” when a substantial increase in market concentration results in a highly concentrated market.  The Comcast-Time Warner merger exceeds these thresholds by a wide margin.

• The Comcast-Time Warner merger increases Comcast’s market share by 50% at the key points of leverage in the vertical video supply chain, including not only the purchase of content and the sale of broadband access, but also set top box design and WiFi hotspot designs and deployment.
• It creates an industry leader in the broadband access market that is twice the size of the next firm, a dominant firm with a post-merger market share that is so large, it could only eliminate the competitive concern by divesting all of the Time-Warner subscribers.

While the analysis of the merger impact based on subscriber counts indicates the merger “is likely to enhance market power,” the report identifies two characteristics of Comcast-Time Warner that indicate the impact is even more damaging.

• The market power of the combined firm is magnified because post-merger Comcast will have more of a dominant position in the most important video markets – 9 of the top 10 markets, 20 of the top 25 and 30 of the top 50. The analysis shows that in terms of advertising revenue, the viewer in the markets that Comcast-Time Warner would dominate have a “premium” of 20%.
• Post-merger, Comcast-Time Warner would have a majority of marquee regional content – regional sports and news networks.  Comcast has used the tactic of withholding access to marquee content to weaken competition in the past.

The report concludes by identifying five reasons the Comcast-NBC consent decrees are inadequate to deal with the dramatic increase in market power caused by a Comcast-Time Warner merger.

• The cornerstone of the consent decrees was a nondiscrimination obligation that relies on market benchmarks and pays deference to standard industry practices, like most favored nation clauses.  With Comcast-Time Warner representing such a large share of the market, it can drive industry practices, meaning there is no effective competitive market benchmark.
• The Netflix dispute took years to reach a conclusion that Netflix calls an “arbitrary tax” because the network neutrality conditions are too weak. This was before Comcast had proposed to acquire 50% more bargaining power by merging with Time Warner.
• Comcast’s mistreatment of Bloomberg under the consent decree is a blatant demonstration of bad faith and recalcitrance that calls into question the ability of the oversight agencies to enforce consent decree conditions.
• Netflix and Bloomberg are two very large companies that could withstand years of foot dragging by Comcast.  Smaller firms cannot, especially if Comcast is 50% larger.  The entire approach to enforcement would have to be revamped with Comcast required to comply on an expedited basis (weeks not months or years).
• Finally, the choke points over which Comcast would exercise bottleneck market power have also expanded beyond those considered in the consent decree to include set top box and WiFi hotspots.

“When all is said and done, the merger is too large and the leverage points too numerous to try and repair the damage to competition with conditions,” Cooper concluded.  “Competition, consumers and the public interest will be best served if the merger is blocked.”

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The post CFA Comments Filed at the FCC on Auction Rules for the TV Spectrum appeared first on Consumer Federation of America.

The response AT&T filed at the FCC and the analyses that have been offered to support it, are, at best irrelevant and, at worst, completely misleading because those analyses rest on assumptions that bear no relationship to the reality of the U.S., wireless market:

• They fail to recognize the fundamental difference between frequencies and the impact of their propagation characteristics on the economics of wireless service delivery.  Therefore they incorrectly assume that the dominant wireless carriers are as efficient, or more efficient than the small carriers, when the opposite is the case.
• They refuse to recognize that the dominant firms wield market power in a highly concentrated market and use that power to increase prices and profits.  Therefore they incorrectly assume that the dominant carriers are equally likely to pass through efficiency gains from capturing more high quality spectrum to consumers as the smaller carriers would be.  That is not the case, since the dominant carriers are likely to pocket a large part of any efficiency gains.

When efficiency and market power are correctly analyzed, it is abundantly clear that the dominant wireless carriers have a powerful incentive and the ability to foreclose the small wireless carriers from obtaining high-quality spectrum at auction.  Based upon detailed analyses of the wireless market structure in several recent merger reviews, the Department of Justice rightly concluded that these are central features of the wireless market structure.

Following the Department of Justice recommendation is one of the most important steps the FCC can take to lower prices and improve consumer choice in the wireless market.

Click here to view the Comments

Contact: Mark Cooper, (301)384-2204, markcooper@aol.com

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