Washington— Testifying on Capitol Hill last Wednesday, Time Warner Cable chairman and CEO Glenn Britt said the acquisition of Adelphia Communications Corp. would yield system upgrades and new services for newly acquired Adelphia subscribers.
Two years ago, the Denver-based MSO tumbled into bankruptcy after a major accounting scandal brought down top company officials. In a $17.6 billion deal, Time Warner and Comcast Corp. plan to buy Adelphia and divide the cable-system assets.
Turmoil at Adelphia did not allow the operator to keep pace with its cable peers, Britt said.
“The Adelphia systems, not surprisingly, lagged behind the marketing and deployment of advanced services,” Britt told the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.
Once the transaction closes, former Adelphia subscribers can expect Time Warner to offer voice-over-Internet protocol service as a feature-rich alternative to their current phone provider, most likely a Baby Bell.
The Adelphia merger, under review by the Federal Communications Commission and the Federal Trade Commission, has come under attack from those who say Time Warner and Comcast would be able to dominate top markets, obtain exclusive rights to regional sports programming and favor networks they own over unaffiliated programmers.
Addressing some of these allegations, Britt said the FCC has recognized the efficiencies associated with clustering. He added that it was puzzling that cable clustering was an issue when Verizon Communications Inc. and SBC Communications Inc. control vast regions and DirecTV Inc. and EchoStar Communication Corp. have national scale.
“Even with the [Adelphia merger], Time Warner Cable’s regional footprints will be dwarfed by the national reach of DBS and by contiguous multistate territories of the incumbent telephone companies,” Britt said.
The subcommittee’s leaders — Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wisc.) — appeared sympathetic to critics of the Adelphia merger. Kohl urged the FTC and the FCC to ensure that Comcast and Time Warner did not try to use control of programming as a weapon against competing distributors and did not make it impossible for startup networks to find a place on their cable systems.
Doron Gorshein, CEO of the America Channel, told the subcommittee of his inability to obtain carriage from Comcast or Time Warner. New cable networks, he asserted, will fail without carriage from the two top MSOs.
Gorshein indicated that he has reached carriage deals with Verizon and SBC.
Britt responded that his job was to assemble the best programming possible and this his company was unable to accommodate every entrepreneur with a great idea.
Peter Aquino, CEO of RCN Corp., a cable overbuilder that passes 1.4 million homes, called for an FTC investigation of cable programming-license fees. He complained that the commission needed to determine whether the volume discounts provided large MSOs but not to small operators are discriminatory.
“I think the price difference is unacceptable,” Aquino said.
Aquino also called for closing the so-called terrestrial loophole, which allows cable companies to withhold affiliated programming not delivered via satellite. RCN, however, has access to Comcast SportsNet Philadelphia, a terrestrially delivered regional sports network that Comcast withholds from DirecTV and EchoStar’s Dish Network.
As many in the cable industry have noted, Britt argued that program access issues have waned as a major concern. He said the most problematic exclusive deal was DirecTV’s pact with the National Football League for its “Sunday Ticket” out-of-market game package.
Precursor CEO Scott Cleland, an analyst who follows the cable and phone industries, said heightened regulation of cable may have been justified a decade or more ago, but not today.
“I think the facts are clear — cable is no longer a monopoly,” he said, adding that consumers will tell a poor-performing cable company to “take a hike” and switch to satellite.
“I think the marketplace is working,” he said.
CLELAND THUMBS UP
Cleland also endorsed the Adelphia merger, saying that 5 million subscribers would be better off under Comcast and Time Warner than the Rigas family, whom he described as “criminal family enterprise.”
Cleland’s one caveat was a concern about Internet backbone providers refusing to exchange traffic, which can lead to unannounced service disruptions that can hurt business without backup providers.
Cleland said the government had to require companies to arbitrate their disputes in manner that does not injure consumers. Cleland said his own company was victimized by a dispute between Cogent Communications Group Inc. and Level 3 Communications Inc.
“It will get worse if the government doesn’t fix it,” he said.
Mark Cooper, research director of the Consumer Federation of America and a longtime cable critic, argued that cable had market power to raise rates with impunity and consumers deserved more a la carte options.