Comcast, Netflix Spar Over Meaning of AT&T-MediaOne Merger

By Josh Long

**Editor’s Note: Please click here for a recap of the biggest communications mergers in Q2 2014.**

In 2000, AT&T agreed to divest its interest in Road Runner, then the nation’s second-largest broadband provider, to allay antitrust concerns over AT&T’s merger with MediaOne Group, Inc.

The U.S. Justice Department said AT&T’s interest in Excite@Home – then the largest provider of broadband Internet access – and MediaOne’s interest in Road Runner would substantially decrease competition in the aggregation, distribution and promotion of broadband content. At the time, Excite@Home and Road Runner served approximately 75 percent of cable-modem subscribers.

“Through its control of Excite@Home and substantial influence or control of Road Runner,” the Justice Department said in a May 25, 2000, competitive impact statement filed in federal court, “AT&T would have substantially increased leverage in dealing with broadband content providers, which it could use to extract more favorable terms for such services.”

The combined entity reportedly would have controlled nearly 40 percent of broadband homes.

Fourteen years later, as Comcast and Time Warner Cable seek regulatory approval to merge, the nation’s two largest cable companies have failed to account for the precedent laid down in the AT&T/MediaOne merger, according to Netflix in a 256-page filing this week with the Federal Communications Commission.

Netflix, whose worldwide base of online video customers exceeds 50 million, has asked the FCC to quash Comcast’s pending acquisition of Time Warner Cable.

Just as in the AT&T-MediaOne merger, the union between Comcast and Time Warner Cable would lead to substantial broadband consolidation on a national level, said Netflix, which noted the companies would pass nearly two two-thirds of U.S. homes or 81 million residences. Netflix claims a bigger Comcast would have the incentive and power to unfairly hurt rivals such as online video distributors (OVDs) by charging access fees at interconnection points.

“With its expanded national footprint, the combined entity can more easily manipulate access to its high-speed broadband service than can each company standing alone, thereby harming OVDs and diminishing competition in the online video market,” Netflix wrote.

The FCC never analyzed in the AT&T-MediaOne merger whether there was a distinct broadband Internet access market, and Netflix has ignored several transactions since then, including the FCC’s observations in 2002 that Comcast and AT&T Broadband largely competed in separate markets, said Joelle Terry, a Comcast spokesperson. AT&T’s broadband unit and Comcast merged 12 years ago, creating a cable operator valued at $60 billion.

“Since AT&T-MediaOne, broadband technologies and business models have evolved significantly, as has the FCC’s experience with broadband markets,” Terry said. “In more relevant and recent cases where the FCC actually did look at the ISP broadband market, the FCC has found that the relevant market is local, that the broadband market is competitive, and that where there is little or no geographic overlap among broadband providers that seek to combine, there is no cause for competitive concern.”

FCC also made such observations in AT&T’s acquisition of BellSouth, noting “the relevant geographic markets for residential high-speed Internet access services are local.”

In regulatory filings and elsewhere, Comcast has repeatedly said its merger with Time Warner Cable isn’t anticompetitive for the simple reason that the companies compete in different areas of the country. Comcast said it will control 35.5 percent of wired broadband connections after the deal closes.

“The undisputable facts are that the number of video, broadband, and phone providers in every local market in the country will remain the same post-transaction as today,” said David Cohen, Comcast’s executive vice president and chief diversity officer, in a blog Monday.

But concerns raised by the Justice Department 14 years ago involved the attempted union of two broadband access providers (AT&T and MediaOne) that didn’t overlap, according to DISH Network, another opponent of Comcast’s acquisition of Time Warner Cable merger, in an FCC filing.

“Even though the Commission found it premature to conclude that the AT&T-MediaOne transaction posed a sufficient threat to competition in the distribution of broadband Internet content, the Justice Department did not, and required the merged entity to divest its interest in RoadRunner,” DISH Network said. “The Justice Department determined that allowing AT&T to acquire a substantial share in RoadRunner would likely result in anti-competitive harm in the national market for broadband content distribution.”

DISH Network contends Comcast’s merger with Time Warner Cable raises many of the same concerns that the Justice Department highlighted in the AT&T/MediaOne transaction.

“Unlike AT&T fourteen years ago, Comcast has its own online video product to sell,” DISH Network said. “Consequently, Comcast has greater incentive to foreclose or otherwise disadvantage rival video services.”