community broadband networks

Back in 2010, we reported on the merger between Comcast and NBC, which was in the works at the time. One of the issues that came up was how programming is chosen.

At the time, the Tennis Channel had filed a suit against Comcast, alleging that Comcast did not make Tennis Channel programming available to as many subscribers as the Golf Channel and NBC Sports (both belong to Comcast). Comcast, under the Communications Act and Commission rules, is required to place channels owned by others on tiers equal to its own similar types of channels and can't play favorites.

The FCC had reviewed the case at various levels for two years (there was an appeal) and finally, in July of this year, issued a decision in favor of the Tennis Channel. The Tennis Channel alleged discrimination, Comcast argued the Tennis Channel was using the FCC to get out of a contract it wanted to escape. According to a Meg James LA Times article:

The FCC ordered Comcast to provide the Tennis Channel with distribution comparable to the two sports channels, which would effectively increase its coverage by about 18 million homes, and force Comcast to pay Tennis Channel millions of dollars more each year in programming fees.

It was the first time that a major cable operator has been found in violation of federal anti-discrimination program carriage rules that were established in 1993.

Comcast was ordered to remedy the situation within 45 days, a window that would make the Tennis Channel available in more homes during one of the biggest tennis events of the year, the U.S. Open in New York. The channel is currently available in about 34 million homes nationally.

Comcast immediately asked for a stay from the remedy, appealing to the U.S. Court of Appeals for the D.C. Circuit. Comcast was granted the stay while the case is argued on appeal. Once again, Comcast's army of lawyers  are strategically using the court as a way to slow down an adversary's remedy.

We expect to see more video legal issues arise in the near future. As broadband transforms the way people receive video signals, how those signals are governed will inevitably affect license agreements, rules, and regulations.

In an informative blog post, Susan Crawford gives us the heads up on where problems dwell and the attitudes that will drive litigation and policy. Unfortunately, now that few people watch video for free, the usual participants will tussle for a very large pie. Will the consumer be considered? Early indications don't seem to suggest that. From Crawford:

The consumer, who is being squeezed the most, would like to watch what he/she wants, when he/she wants, and doesn’t want to be stuck with enormous must-buy bundles. But no one is talking about that.

The ever-growing Comcast is a threat to those who have innovative ideas for video content. If you want people to see your content, you need to get it in a cable lineup or online... but the big cable providers are trying to wrestle back control over online video with monthly bandwidth caps.

And even when Comcast does violate the law, it knows how to string out the process long enough that the harmed party has to fold or negotiate directly with them because they'll go bankrupt waiting for justice. 

We have frequently written of Comcast's anti-consumer actions past posts, so we were not surprised to learn that the Department of Justice (DOJ) recently decided to investigate the cable company for antitrust. The borders between antitrust and hyper competitive business practices are grey; Comcast has experimented in the shadows on more than one occasion. We looked into one nine-year-old case, that recently advanced in the Pennsylvania courts.

The Behrend v. Comcast class action case began in 2003 against the cable giant. The suit alleges that Comcast violated the Sherman Antitrust Act by building itself into an “illegal monopoly.” The plaintiffs are current and former customers of Comcast and damages are estimated at $876 million, although the amount could be tripled under the Act.

The plaintiffs claim that Comcast’s strategy was to “cluster” as a way to eliminate competition and be able to raise rates above the market. “Clustering” involved acquiring the cable systems of other large multi-system operators that operated and offered multichannel video programming distributor service in various franchise areas in the Philadelphia area. There are internal documents, referred to in the April 12 Summary Judgment Memorandum [pdf], supporting the argument that Comcast’s business strategy was to eliminate competition through clustering.

Growing by gobbling up smaller entities in the same industry is not a new idea and certainly not illegal on its face. The issues in the 2003 case were how Comcast went about expanding, why they did it, and to what extent they took steps to hinder competition. There was a cable system asset swap with AT&T and the two worked together to divide up the Philadelphia assets of former MediaOne, rather than compete with each other during the bidding process. Other swaps involved Aldelphia, Time Warner, and even smaller operators, like Patriot Media & Communications.

Swapping and clustering with intent to eliminate competition may be considered Sherman Act violations. There were also allegations that Comcast took steps to prevent a new company from overbuilding, including requiring contractors to enter into non-compete agreements. They offered long term contracts with special discounts and penalty provisions in the areas where the possible competition planned on competing.

Allegations are that such practices harmed the members of the class – the customers. By eliminating competition and creating barriers to new competition, Comcast was able to keep the rates artificially high.

Comcast argued that no company wants to compete in the Philly areas they serve. Another cable company, RCN, tried to overbuild;the Philly market at the time and failed. Whether or not it was due to RCN’s failures, Comcast’s activities, or both, will be examined at trial. Comcast has also argued that the philosophy of clustering allowed it to offer new products and the benefits should justify their business decisions.

Seeing as how Comcast has tremendous margins on its products, particularly broadband, and it is consistently rated as one of the most hated corporations in America, we find it very hard to believe that other companies simply don't want to go head to head with them. The question is whether the legal system is equipped to deal with the harm Comcast is doing to millions of American households.

Once again, we are witnessing the federal government allowing a few massive telecommunications companies to collude rather than compete. Verizon is about to ally itself with major cable companies, to the detriment of smaller competitors in both wireless and wireline.

One of the reasons we so strongly support the right of communities to decide locally whether a community network is a smart investment is because the federal government does a terrible job of ensuring communities have fast, affordable, and reliable access to the Internet. By building their own networks, communities can avoid any dependence on the big cable or telephone companies that are more interested in consolidating and boosting shareholder dividends than they are in building the real infrastructure we need.

The Department of Justice released a statement on August 16th, that it will allow the controversial Verizon/SpectrumCo deal to move forward with changes. We have watched this deal, bringing you you detailed review and analysis by experts along with opinions from those affected. One week later, the slightly altered deal was also blessed by the FCC.

Many telecommunications policy and economic experts opposed the deal on the basis that it will further erode the already feeble competition in the market. In addition to a swap of spectrum between Verizon and T-Mobile, the agreement consists of side marketing arrangements wherein Verizon agrees not to impinge in the market now filled with SpectrumCo (Comcast, Time Warner Cable, Cox, and Bright House Communications).

Verizon has been accused of hoarding spectrum it doesn't need. The marketing arrangements constitute anti-competitive tools that the DOJ has decided need some adjusting. From the announcement:

The department said that, if left unaltered, the agreements would have harmed competition by diminishing the companies’ incentive to compete, resulting in higher prices and lower quality for consumers.

The deal was considered inevitable when FCC Chairman Julian Genachowski released a statement indicating that his agency had no problem following the DOJ. A PDF of the FCC statement can be viewed here.

In scrutinizing the deal, the FCC and DOJ bisected the analysis, which worked in the parties' favor. Susan Crawford looked at the process:

Bottom line: The companies involved in the transaction can credibly claim that the deal itself is not going to change the facts on the ground for most Americans. Without “merger-specific harms,” and with an impressive display of bureaucratic sleight-of-hand – FCC got the spectrum part of the deal but DOJ got the joint marketing arrangements, and the two agencies have different statutory authority and DNA, leading to lots of finger-pointing and careful behavior – the companies will avoid being interfered with unduly by the feds.

Harold Feld, another strong critic of the deal, recently commented on the issue of FCC authority in this particular review. Feld notes that challenging FCC authority is a growing trend, and not good for telecommunications policy. Those who challenge it are diluting at what many consider an already tepid application. In essence, the "repeat loudly and often and eventually they will believe you" phenomena is creeping in and even FCC Commissioners are buying it. From Feld:

Given all this, it is rather difficult to understand why both Commissioner McDowell and Commissioner Pai likewise question the FCC’s authority to engage in ongoing monitoring in the wake of the agreements.  Given that this transfer involved spectrum, cable, broadband, and even broadcasters (shout out to my NBC peeps! What it is O & Os!), the only way this could implicate more FCC jurisdictions would be if one of the parties owned a maritime radio service.

...

Given that there is no question that the FCC has authority to entertain complaints going forward, and certainly has authority to monitor how the markets under its jurisdiction are developing, it is hard to understand the jurisdictional argument even as the worship of empty formalism.

...

I would think that “we’ll keep an eye on things, anyone with complaints can file over here” would be applauded as the lightest touch possible rather than condemned as regulatory overreach.

Feld goes on:

Which requires me to point out one of the more unfortunate problems in telecom policy (and regulatory policy) these days. There is a huge difference between “it’s bad policy, don’t do it” and “you don’t have authority.” It is unfortunate that those who agree with the FCC on matters of policy increasingly seek to cast their arguments as arguments of regulatory authority. I get that if you don’t like the policy, you would prefer the FCC not have authority to implement it. But just as real lawyers read the footnotes, real lawyers (and non-lawyers) ought to be honest about the difference between policy and authority. Certainly there are times when authority is genuinely contestable, and I will never blame a litigant for making the traditional Hail Mary pass at jurisdiction. But where, as here, the authority of the FCC over reseller agreements is well established, attacks on authority can only be the interpreted as careless or disingenuous.

The FCC and the DOJ may have tried to lighten the negative impact this deal will have on competition by making slight adjustments. Their efforts amount to putting a band aid on a bullet wound. The decision to allow this deal to move forward was telecommunications business as usual.

Crawford, like many others, sums up this deal for what it is:

"...the SpectrumCo transaction is an outcome, not a cause, of the primitive approach to communications that characterizes this country."

In Star Tribune coverage of Mediacom's war against real broadband in rural Minnesota, we learn that Mediacom will not sue Lake County to disrupt its plan to serve thousands of unserved residents and local businesses.

And for all its accusations, Larsen says Mediacom will not sue. Spending millions of dollars on a lawsuit in a place where the company serves so few homes, he said, "is not a great business decision."

We have previously covered the many false and disproved accusations Mediacom have leveled against Lake County. The Strib article reiterates that these charges have been found to have no merit.

The article also reiterates that the County has a real need that private companies have failed to meet:

The conflict that ensued is part of a national struggle. Public officials and some of their constituents argue that rural broadband is like rural electrification: It's a lifeline for small-town America that the free market will not extend.

"We've been ridiculously underserved in this area for years," said Andy Fisher, who owns a Lake County bed-and-breakfast and a rural cross-country skiing lodge. The cable companies "are working in the interest of their profits. But if they're not going to serve this area, what are we going to do?"

And yet, Mediacom sees itself as the underdog!

"Lake County wants to make this into a David and Goliath story, where Mediacom is Goliath and poor little Lake County is David," said Tom Larsen, Mediacom's group vice president of legal and public affairs. "The truth is we're David because we're fighting [the government]. It's just the same story repeated all over the country."

Fascinating. Mediacom has billions in revenues whereas the County deals with budgets in the millions. Sure Mediacom is between 100 and 1000 times bigger than Lake County, it still wants to stop a project serving thousands of unserved people (that it believes is doomed to fail) because it is too disadvantaged.

If Mediacom actually met the needs of its subscribers, it would have little to fear.

I would like to see some reporting about the areas Mediacom purports to serve -- what options do they have? How is the customer service? Mediacom doesn't care about a few thousands people in northern Minnesota, so I feel confident saying that many of the people who only have access through Mediacom will be thrilled to have a real choice and finally gain access to high capacity connections to the Internet.

Finally, the article has yet another example of a rural business that needs this infrastructure:

Likewise, the promise of a new fiber network persuaded Michael Stiff and his wife, Darci, to move their business, Hybridge Imaging, from Duluth to a spot just outside Two Harbors, where they prefer to live.

Current slow processing speeds force them to put clients' data on computer discs or hard drives for manual delivery. Stiff said the fiber network would let Hybridge e-mail data instantly, just like Twin Cities competitors.

Those who believe that wireless alone could solve rural America's problems are foolish. How is this business going to compete with other businesses if their only option were a connection that comes with a 5 or 10 gigabyte monthly cap? And a slower, less reliable connection to boot!

Lake County is doing what it is necessary in the modern age to retain businesses and a high quality of life for its residents. If the private sector had stepped up rather than simply shipping profits from Two Harbors to New York, then I would not be writing this post.

As for whether it will or will not sue, we hope Mediacom stays true to its word. A lawsuit could further disrupt this project, but would certainly fail to stop it.