Consumer 10.0: Media-merger fallout

FCC Commissioner Michael J. Copps (left) testifies at a hearing as FCC Chairman Julius Genachowski listens.
FCC Commissioner Michael J. Copps (left) testifies at a hearing as FCC Chairman Julius Genachowski listens.

Comcast deal highlights public-policy shortcomings.

Posted: January 23, 2011

Another venerable video store bit the dust in my neighborhood recently, announcing it would close by the end of this month.

I'd call it "Chestnut Hill's beloved TLA Video," but apparently my neighbors and I didn't love it quite enough. Or maybe we just loved the price or convenience of mail-order DVDs, online streaming, and video on demand from Comcast or Verizon even more.

It's more than a coincidence that TLA is closing at the same time that Comcast plans to close on its takeover of NBC Universal, the $30 billion deal that won approval last week after a painstaking, yearlong review by the Federal Communications Commission and the Justice Department.

Economists use terms like "creative destruction" when they discuss the fall of businesses such as TLA and the rise of new competitors like Netflix or Hulu, and say it's an ordinary feature of a free market. But the conclusions of federal regulators in the Comcast deal, and the long list of conditions they imposed before they gave it the green light, illustrate the extraordinary moment we live in.

In 2011, the Internet lies at the heart of almost every kind of communication and all sorts of other activities. News, education, phone service, video, movies, games, shopping, social networking, you name it - an amazingly large slice of many people's lives has migrated or even been invented online.

And for 17 million Americans, including a large slice of the Philadelphia region, Comcast lies at the heart of the Internet - or, potentially, right at its choke point.

Regulators plainly could have gone to court to try to block the takeover, which Antitrust Division lawyers found would give Comcast "a potent tool that would allow it to disadvantage" its traditional rivals including satellite services and other cable and phone companies, and to stifle the emergence of the new breed of online video services such as Netflix.

Of course, Philadelphia sports fans don't need to speculate about how Comcast might use that kind of leverage. For years, many have complained bitterly about Comcast's refusal to share its Philadelphia SportsNet channel with DirecTV and Dish Network - a decision that the FCC estimates has depressed the satellite companies' market share in the Philadelphia region 40 percent.

If FCC officials are right, the conditions the agency imposed last week on Comcast - including a new, fast-track arbitration process to settle program-access disputes - should finally lay that particular issue to rest, maybe even by baseball's All-Star break.

If they're right, Comcast also won't be able to use similar tactics to gain an unfair edge against competing video distributors that want access to its new wealth of content, or against unaffiliated producers that want their shows or channels carried on Comcast's systems. And the Justice Department has promised special scrutiny to protect the fledgling online-video industry, whose goal of bypassing the cable TV middlemen poses a clear and present danger to Comcast's basic business model - enough to give it motive to fight back.

But the Comcast-NBCU merger raises another set of questions that are even more important, if less directly tied to the deal itself.

FCC Commissioner Michael J. Copps discussed some of them in a sharp dissent against the merger, which the FCC approved on a 4-1 vote, and elaborated on his concerns in an interview Friday.

Despite all the sweeteners offered by Comcast or demanded by regulators, including a plan to provide low-cost broadband service and inexpensive computers to 2.5 million poor households, Copps says the deal failed the FCC's basic test: that transfers of broadcast licenses - a scarce public resource - can be approved only if they truly benefit the public.

Copps has a variety of concerns about the media mergers that have come before the FCC during his decade as a commissioner, including the damage from news-organization cutbacks that he says have left 27 states without a single accredited reporter on Capitol Hill.

New media can help fill the gaps - in theory. But Copps worries that U.S. Internet policy went astray shortly after passage of the Telecommunications Act of 1996, when companies that helped write the law began to challenge its pro-competition provisions - especially the requirement that incumbent phone carriers open their systems to allow Internet providers to lease their wires.

The problem was compounded by deregulatory fervor during the Bush presidency, he says. First the FCC improbably declared that cable-broadband service should be treated as a loosely regulated "data service," not the fundamental telecommunications service of the dawn of the 21st century. Then the phone companies won similar treatment for the fiber networks or other "advanced services" they proposed.

"It got us into this funny never-never land of 'Oh, don't worry, the market's going to get all this done; we don't need any public policy to get this infrastructure built,' " Copps says.

Copps wasn't surprised by the result. The dream of multiple, competing broadband services is a chimera for most of the country. Phone companies have limited their investment plans, as even duopoly competition has forced price cuts and eaten into margins. And the United States has fallen behind countries in Europe and Asia that have found better ways to push broadband investment and competition.

The economic costs of our foot-dragging could be huge, Copps says.

"The world is not going to pause and say, 'Let's give the good old U.S.A. some time to catch up with us so they can be a little more competitive in the game,' " he told me.

But Copps says there is something larger at stake than U.S. competitiveness: U.S. democracy.

Copps says the broadband Internet is the new town square - the place for nurturing civic dialogue and engagement. We need to make sure it's built out fully, as past generations used a mix of public policy and public and private capital to build canals, railroads, and electric grids.

Instead, he sees the nation postponing crucial investment in infrastructure - old and new.

"We're letting this great country of ours deteriorate in front of our eyes," he says. "We need to build the infrastructure that's going to get the ox out of the ditch in the 21st century. And that's access to broadband and the information highways of the future."

Copps says even the Founding Fathers struggled with the question of how to best nurture debate, and settled on a postal subsidy for newspapers. The same concern has long governed the nation's use of broadcast spectrum.

"That's exactly what's at issue here," he says. "The technologies may change, the times may change, but the democratic challenge is exactly as it was then. Those earlier generations found ways to respond, and we darn well better find ways to respond, too."


Consumer 10.0:

Thorny issues arising from the Comcast deal. Consumer 11.0, D2.


Contact columnist Jeff Gelles

at 215-854-2776 or jgelles@phillynews.com.

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