Opinion

AT&T/Time Warner Will Face Binding Arbitration Threat, but Not Comcast/NBCU

To get its merger approved, AT&T Inc./Time Warner Inc. committed to submit to binding arbitration to settle disputes over access to key programming — a restriction mega-media Comcast Corp./NBCUniversal no longer must follow. Why isn’t Comcast/NBCU subject to the same rules as AT&T/Time Warner?

Nothing in the AT&T/Time Warner decision suggests that government antitrust watchdogs should ignore the threat to competition caused by the now 8-year-old Comcast/NBCU merger, or the even greater problems that could result if Comcast/NBCU could purchase the programming assets of 21st Century Fox.

Most importantly, in giving the AT&T/Time Warner merger the green light, a federal court specifically considered the fact that AT&T had made a unilateral commitment to follow a binding arbitration requirement to settle program access disputes. This commitment is very similar to the requirement that the Department of Justice and the Federal Communications Commission put into place as a condition for approving the 2011 Comcast/NBCU transaction.

The court, for instance, found that the government failed to explain why AT&T/Time Warner’s commitment would not limit its ability to raise prices. The court also found convincing evidence offered by AT&T/Time Warner that Comcast/NBCU had not been able to raise programming prices while the binding arbitration requirement had been in effect. Thus, the court’s opinion leaves intact the proposition that an effective binding arbitration requirement is necessary to control the additional market power created when a large video distributor attempts to acquire significant programming assets.

Yet, Comcast/NBCU is about to be completely unleashed from the very requirement that AT&T/Time Warner must now abide by. The binding arbitration conditions imposed on Comcast/NBCU in 2011 as a condition of allowing the merger have either just expired (in the case of the FCC conditions) or are about to expire (in the case of the DOJ conditions). By endorsing the importance of binding arbitration conditions to limit the market power of vertically integrated media companies, the AT&T/Time Warner decision actually emphasizes the need for government to reinstate these conditions for the case of Comcast/NBCU — before it is given the potential to limit competition in the marketplace.  

This flies in the face of the fact that the competitive harms created by the Comcast/NBCU transaction are, if anything, more significant that the harms created by the AT&T/Time Warner transaction for many very important reasons.  

First, Comcast’s ability to raise programming prices in local markets is unmatched by any similar problem created by the AT&T/Time Warner transaction. Unlike Time Warner, Comcast owns significant must-have local programming, including 11 NBC local television stations and seven NBC RSNs, and unlike AT&T, Comcast is the dominant multichannel video programming distributor in many of these local markets with market shares above 60 percent.

Second, Comcast/NBCU offers bundles of video/broadband/telephone throughout its entire footprint, while AT&T/TW is only able to offer a complete bundle of services where AT&T has a wireline presence. This means that Comcast/NBCU is therefore likely to earn significantly higher average profit margins on switching customers than AT&T will, which in turn implies that Comcast/NBCU has dramatically increased leverage over programming prices compared to that of AT&T/TW.

Third, by contrast to Comcast/NBCU, AT&T/Time Warner’s incentive to disadvantage rival online pay television providers, such as Sling, is reduced because AT&T, as a leading national wireless provider, would likely benefit from increased usage of these virtual distributors.  

Finally, again unlike Comcast/NBCU, because Time Warner relies on a relatively small number of networks for most of its profits, it is a more natural partner for online video distributors that wish to offer “skinny bundles” than many other programmers that rely on a much larger stable of networks.

And, all of the market power that Comcast/NBCU now wields will be multiplied should it ultimately prevail in purchasing the programming assets of Fox, including Fox’s 22 RSNs, or any other large programmer.

Thus, federal and state antitrust agencies and the FCC cannot now turn a blind eye to the competitive concerns that vertical combinations in the media industry raise. If anything, the AT&T/Time Warner case has affirmed that any vertical combination may raise competitive concerns — and that Comcast/NBCU’s power needs to be put back in check. The court, consumers and rivals are counting on it.

 

Matthew Polka is president and CEO of the American Cable Association.

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