News

NBCU Deal Looks Good to FCC, DOJ

3/12/2010 8:54 AM Eastern

Washington — A confidential
report to Congress on Comcast’s
proposed deal for control
of NBC Universal — issued in
advance of the Feb. 2 hearings
on the transaction — raises issues
on both sides of the debate,
but starts from the premise that
the deal will go through.

“There is consensus that the
Department of Justice (DOJ) and
the Federal Communications
Commission (FCC) are likely to
approve the combination subject
to merger conditions and/or
license conditions — intended
to protect competition, diversity
of voices, and localism — that
may significantly affect the impact
of the combination,” wrote a
telecommunications policy specialist
with the Congressional
Research Service, who declined
to discuss the report citing its
confidentiality.

CRS reports are not made public
by the agency, but are sometimes
released by the members
of Congress for whom they were
prepared. In this case it was prepared
for all members — there
were hearings in both the House
and Senate.

According to a copy of the report
supplied to Multichannel
News, the document identifies the
issues most likely to draw scrutiny
from the FCC as program access,
programming costs, the potential
for favoring owned content over
independent content, migrating
NBC to a cable network, and, on
the plus side, what possible new
business models could be crafted
to benefit consumers.

As to the thought that NBC will
become a cable network, the report
suggests that is not likely to
happen unless the marketplace
changes significantly. It cites “the
strong trend” of broadcasters getting
cash for retransmission consent,
as well as “the continued
strong demand for local news
and sports programming and the
strong branding associated with
local broadcast stations, as well
as the criticism Comcast would
face if it abandoned local programming
and free, over-the-air
programming.”

Comcast has said it plans nothing
of the sort.

Comcast and NBCU have argued
that the primarily vertical
transaction poses practically no
anti-competitive or public interests
harms, and that whatever issues
there are can be addressed
through existing mechanisms like
program-access rules. The companies
have even said they would
commit to abiding by those program-
access rules as conditions
of the merger, whether or not the
courts overturn them. But the
report says that to deal with socalled
most favorite nation clauses
in existing contracts, the FCC
or DOJ might have to add merger-
specific conditions rather than
“rely on existing program-access
rules that may be difficult to apply
in this situation.”

The report also says the new
company would be so broad as
to require “careful scrutiny of
its competitive effects,” including
implications for “for a wide
range of media rules, regulations,
and policies, including program
carriage rules, program access
requirements, retransmission
consent rules, longstanding policy
supporting free over-the-air
broadcast television, and even
network neutrality and open access
policies.”

It also suggests that the deal
may have its own internal controls
on excessive market power,
though not ones Comcast or NBC
would want to trumpet, particularly
to Wall Street.

“[T]he recent history of failed
mega-mergers in the communications
sector suggests that the
vertically integrated post-merger
entity may have so many pieces
with conflicting market incentives
that it proves impossible
for executives to craft an internally
consistent profit-maximizing
business strategy, much less
exploit market power to undermine
competition,” Congress
was told.

The report opened with a
description of the combined
company as “a huge, vertically
integrated entity with potentially
enormous negotiating
power,” and closed with a warning
that the deal could prompt
more consolidation “if small
players are forced out of business
or to marginal niches and
larger players are forced to seek
merger partners in order to be
able to compete with Comcast-
NBCU.”

The government review of the
deal, including more oversight
hearings, is expected to take most
of this year.

November