Wall Street is increasingly pessimistic about Comcast and Time Warner Cable pulling off their merger deal as regulators stop the clock to take a closer look at the transaction.

The Capitol Forum, an in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition, specializes in examining marketplace mergers and their potential impact on American consumers and the general economy. The group has shared a copy of their assessment — “Comcast/Time Warner Cable: A Closer Look at FCC, DOJ Decision Processes; Merits and Politics May Drive Merger Challenge, Especially as Wheeler Unlikely to Embrace Title II Regulation for Net Neutrality” — with Stop the Cap! and we’re sharing a summary of the report with our readers.

The two most important government agencies reviewing the merger proposal are the Federal Communications Commission and the Department of Justice. The FCC is responsible for overseeing telecommunications in the United States and is also tasked with reviewing telecom industry mergers to verify if they are in the public interest. The Department of Justice becomes involved in big mergers as well, concerned with compliance with antitrust and other laws.

In many instances, the two agencies work separately and independently to review merger proposals, but not so with Comcast and Time Warner Cable.

Sources tell Capitol Forum there is a high level of coordination and information sharing between DOJ and the FCC, potentially positioning the two agencies in a stronger legal position if they jointly challenge the merger. Readers may recall AT&T’s attempt to buy T-Mobile was thwarted in 2011 when the FCC followed the DOJ’s lead in jointly challenging the merger on competition and antitrust grounds. With a united front against the deal in Washington, AT&T quickly capitulated.

Despite a blizzard of Comcast talking points claiming the cable industry is fiercely competitive, Capitol Forum’s report indicates the DOJ staff level believes the cable industry suffers dearly from a lack of competition already, and allowing further marketplace concentration would exacerbate an already difficult problem.

Capitol Forum reports the DOJ’s staff is inclined to “take an aggressive posture with regards to [antitrust] enforcement.”

The DOJ would certainly not be walking the beltway plank to its political doom if it ultimately decides to oppose the merger.

Few on Capitol Hill are likely to fiercely advocate for a cable company generally despised by their constituents. The Capitol Forum report notes that Comcast faces powerful opposition and its political support is overstated. Comcast’s lobbying efforts and ties to President Obama and several high level Democrats have also been widely exposed in the media, which makes it more difficult for D.C.’s powerful to be seen carrying Comcast’s water.

In fact, the report indicates a regulatory challenge against Comcast and Time Warner Cable would face considerably less political opposition than what the FCC faces if it reclassifies broadband as a “telecommunications service,” protecting Net Neutrality and exposing the industry to stronger regulatory oversight.

The report suggests FCC Chairman Thomas Wheeler, who seems intent on opposing reclassification of broadband under Title II, may appease his critics by taking a stronger stance on the Comcast/Time Warner deal instead.

Wheeler has already expressed concern about the state of competitiveness of American broadband. He considers providers capable of delivering at least 25Mbps part of broadband’s key market, which in many communities means a monopoly for the local cable operator.

Understanding “The Public Interest” and the Implications of a Combined Comcast/Time Warner Cable on Competition

The FCC will review the transaction pursuant to Sections 214 and 310(d) of the Communications Act of 1934, in order to ensure that “public interest, convenience, and necessity will be served thereby.”

The merger proposal must also demonstrate it does not violate antitrust laws.

It is here that merger opponents have a wealth of arguments to use against Comcast and Time Warner Cable.

Despite Comcast’s insistence the deal would have no competitive implications, the Capitol Forum reports the merger’s potential anticompetitive effects are “widely recognized and evidence from the investigation could provide DOJ and FCC with a solid foundation to challenge the merger.”

Although the two cable companies don’t directly compete with each other (itself a warning sign of an already noncompetitive marketplace), the report finds “a wide array of anti-competitive effects and several antitrust theories” that would implicate the cable company in a Clayton Act violation.

Comcast is betting heavily on its surface argument that by the very fact customers will not see any change in the number of competitors delivering service to their area, the merger should easily clear any antitrust hurdles. That argument makes it more difficult for the DOJ to fall back on the usual market concentration precedents that would prevent such a colossal merger deal. To argue excessive horizontal integration — the enlarging of Comcast’s territory — the DOJ would first have to prove Comcast’s size in comparison with other cable companies is a reason for the courts to shoot down the deal. Or it could bypass Comcast’s favorite argument and move to the issue of vertical integration — one company’s ability to control not just the pipes that deliver content, but also the content itself.

Here the examples of potential abuse are plentiful:

• Comcast would enjoy increased power to force cable programmers to favor Comcast in cable programming pricing and policies while allowing it to demand restrictions on competitive online video competitors or restrict access to popular cable programming;
• Comcast could impose data caps and usage-based pricing to deter online viewing while exempting its own content by delivering it over a Wi-Fi enabled gateway, game console or set top box, claiming all are unrelated to Comcast’s broadband Internet service or network;
• Force consumers to use Comcast set top boxes that would not support competing providers’ online video;
• Use interconnection agreements as a clever way to bypass the paid prioritization Net Neutrality debate. Netflix and other content producers would be forced to compensate Comcast for reliable access to its broadband customers;
• Noting AT&T has declared U-verse can not effectively succeed in the cable television business without combining its customer base with DirecTV to qualify for better volume discounts, there is clear evidence that a super-sized Comcast could command discounts new entrants like Google Fiber could never hope to get, putting them at a distinct price disadvantage.

The FCC’s scrutiny of Comcast’s merger deal has already uncovered evidence previously unavailable because of non-disclosure agreements which show Comcast’s heavy hand already at work.

The report notes Michael Mooney, a senior vice president and group general counsel at Level 3, told the Capitol Forum the dispute earlier this year between Netflix and Comcast could have been resolved in about five minutes had Comcast added a port to relieve congestion at an interconnection point. The cost? Just $5,000. Had Comcast been willing to spend the money, millions of Comcast customers would have never experienced problems using Netflix.

Whether Comcast is ultimately deemed too large to permit another consolidating merger or whether it is given conditional approval to absorb Time Warner Cable remains a close call, according to the Capitol Forum, despite the fact consumers have urged regulators for something slightly more concrete – a single sentence, total denial of its application.

[flv]http://www.phillipdampier.com/video/Capitol Forum The Consumer Welfare Test.mp4[/flv]

The Capitol Forum broadly explores how the “consumer welfare standard” has become a part of the antitrust review process over the last 30 years. Sometimes, a strict antitrust test is not sufficient to protect “the public interest” of consumers, and allows the dominant player(s) to harm competition. In the digital economy, corporate mergers that empower companies to restrict innovation can prove far more damaging than classic monopoly abuse. (15:52)

Struck Out

For most of the current baseball season, Los Angeles Dodgers fans who don’t subscribe to Time Warner Cable have been shut out, unable to watch the games shown exclusively on the extremely expensive SportsNet LA cable network, jointly owned by the Dodgers and Time Warner Cable.

Most of Time Warner’s southern California competitors balked at the asking price: about $4 a month per subscriber. Had they agreed to carry the network, subscribers would ultimately pay for it during the next round of rate hikes, whether they watched sports or not.

Time Warner Cable has a 25-year, $8.35 billion dollar contract to manage the network, and observers believe they have struck out.

“They rolled the dice and lost big time,” said Jimmy Schaeffler, head of consulting firm the Carmel Group.

With networks like ESPN commanding whatever they set as an asking price, sports team owners have rushed to get a piece of the lucrative sports network pie. Even individual teams are now demanding their own exclusive networks, hoping to charge top dollar to companies agreeing to carry them.

Angry cable customers watching their bills skyrocket can primarily blame sports programming for much of the endless increases. Around 20 regional and national sports channels now comprise 20% of the wholesale cost of cable television — a high percentage considering the average cable system now carries over 200 channels. While some basic cable networks are lucky to get 10 cents a month per subscriber, regional Fox Sports North demands $4.67 a month from each subscriber, whether they watch the network or not. Smaller independent cable systems usually pay even more.

In southern California, the average cable subscriber pays $20 a month for seven sports channels. There was little interest raising that to more than $24 a month to carry what Dodgers team president Stan Kasten called, “a Dodger-only channel with Dodger-only content 24/7.”

“We’ve been approaching a tipping point in sports programming costs for years and the Los Angeles market has sent a strong message that we’ve reached it,” Andy Albert, senior vice president of content acquisition at Cox Communications, one of the distributors that declined to carry SportsNet LA, told the Wall Street Journal.

The embargo has cost both the Dodgers and Time Warner Cable plenty of advertising and subscription revenue. Ratings are dramatically down from an average of 228,000 viewers when the baseball games were shown on widely carried Prime Ticket, to just 55,000 today on SportsNet LA. Advertising rates have been slashed to compensate for the lack of an audience.

The cost of the dispute between Time Warner Cable and its competitors also included bad public relations, which attracted the attention of regulators at the FCC and area elected officials, who have loudly complained that viewers are increasingly caught in the middle of these disputes.

The pressure worked, and Time Warner Cable announced in mid-September it would broadcast the six final Dodgers games of the season locally for free on KDOC-TV, an independent channel based in Orange County mostly known for airing endless reality shows and reruns of off-network series. On a good day, KDOC attracts at most 18,000 viewers. But the station is doing better today — grabbing an average of 259,000 viewers last week during one Dodgers game — essentially the same audience the Dodgers used to have before SportsNet LA came along. Even better for the station, Time Warner Cable is paying KDOC to carry the games.

KDOC management is now desperately trying to figure out how to keep its new audience after baseball season ends, running promotions for its various shows as often as possible. The station is easy enough to find over-the-air and on every significant cable, satellite, and telco-TV operator. But with more than three dozen high power, low power, and digital sub-channels to choose from across Los Angeles, the Inland Empire, and Orange County, airing stale series and courtroom drama shows may not be enough.

[flv]http://www.phillipdampier.com/video/KDOC Los Angeles New Years Show Eve Show of FAIL 12-31-12[/flv]

Many Los Angeles residents became familiar with KDOC after the station attracted national media coverage for its infamous 2013 New Year’s special hosted by actor and comedian Jamie Kennedy. As viewers watched the slow motion train wreck unfold with D-listers like Shannon Elizabeth, they were treated to endless technical issues, dead air, sudden commercials in the middle of interviews, open mics, unbleeped profanity, a stand-up routine not suitable for children or broadcast television, and special musical guests like rappers Bone Thugs-n-Harmony who dropped F-bombs on live television. Nobody at KDOC thought of pulling the plug, despite violating just about every FCC content regulation. It finally ended with an inebriated Macy Gray hoping to hurry along the festivities and, as the credits rolled, a sudden on-stage fight. Kennedy thanked fast-food chain Carl’s, Jr. for sponsoring the event, which undoubtedly caused extreme discomfort until they could disavow their involvement. An exasperated KDOC engineer assembled this montage of the disaster, which is definitely not suitable to watch at work. (6:23)

Alaska-based GCI has rolled out a free upgrade for customers in Anchorage, Fairbanks, Juneau, Ketchikan, Mat-Su Valley, and Sitka that delivers broadband speeds up to 250/10Mbps.

GCI’s re:D broadband used to max out at 200Mbps, but thanks to channel bonding on the cable system, download speeds will be upgraded to 250Mbps in re:D service areas by the end of this year.

But getting 250Mbps broadband is not cheap in Alaska. The service is priced at $174.99 a month when part of a service bundle. Broadband-only customers also pay a $11.99 monthly access fee. Both come with 24-month contracts at that price. Customers who don’t want to be tied down can choose month-to-month service for $5 more per month.

At those prices, one might hope GCI would drop its usage cap, but customers can forget it. A 500GB monthly usage cap applies, with overlimit fees up to $30/GB on some plans.

GCI also announced it would deliver 1Gbps next year over a fiber to the home network under construction in Anchorage, promising “no limits with what you can do with broadband” without mentioning whether it planned usage limits for its fiber service as well.

GCI is asking customers to vote support for their neighborhoods getting fiber upgrades. The more red sections of this map of Anchorage shows, the more customers who have shown support for fiber broadband.

For most GCI customers, however, broadband will continue to arrive over the company’s HFC coaxial cable network. To better manage speeds, the company’s DOCSIS 3 platform is bonding eight cable channels, but in re:D areas the company bonds up to 24 cable channels, with plans to increase to 32 channels.

The speed increases come after its competitor Alaska Communications announced speed increases of its own. ACS sells unlimited access broadband service at speeds up to 50Mbps. ACS has beefed up its copper infrastructure to support faster Internet speeds, starting with 15Mbps introduced across the state in May. Now customers in Anchorage can subscribe to faster tiers including 30 and 50Mbps.

“Alaskans asked for faster Home Internet, and we’ve responded with these increased speeds, delivered with great customer service and without overage charges,” said ACS president and CEO Anand Vadapalli. “In addition to faster download speeds, customers choosing our product get the highest upload speeds that are so important for sharing videos and gaming.”

ACS has found its unlimited broadband offering attractive to customers who don’t want to worry about GCI’s overlimit fees. ACS also claims its customers get broadband over a dedicated line, not shared infrastructure like GCI, resulting in no speed slowdowns at peak usage times.

More people will read this story than Atlantic Broadband has current customers for its 1Gbps broadband project in Miami.

“Atlantic Broadband is proud to be the first company to deliver 1 Gigabit Internet service to its customers here in the Miami Beach area,” said David Keefe, Atlantic Broadband’s senior vice president and general manager of the South Florida region. “While other companies are talking about what they will be doing, Atlantic Broadband moved forward and started offering this service in one of its communities. We look forward to extending access to our Gigabit Internet service to other properties and communities within our Miami footprint.”

Although Mr. Keefe isn’t being modest, his company’s gigabit broadband coverage area certainly is.

At present, the company serves just 40 properties with the super high-speed broadband service in high-income Indian Creek Village — the 8th richest community in the United States.

The tiny village of Indian Creek, in the Miami-Dade area, is made up of 40 properties and is the 8th richest community in the U.S.A.

Designed to appeal to residents who can spare no expense, the Atlantic Broadband package also includes more than 350 TV channels powered by TiVo, integrated access to Netflix, and unlimited phone service for up to four lines.

An Atlantic Broadband spokesperson wouldn’t reveal the price of the package, and admitted customers cannot choose standalone broadband-only service.

“The needs of Indian Creek Village were unique so custom service packages were created that include all of Atlantic Broadband’s TV services, Gigabit Internet and four phone lines,” a spokeswoman told Multichannel News. “Currently, there is not a published a standalone price for Gigabit Internet.”

Residents in the wealthy enclave include Victoria’s Secret model Adriana Lima, Spanish singer Julio Iglesias, his son Enrique Iglesias, Robert Diener, co-founder of Hotels.com, Edward Lampert, hedge fund billionaire and owner of what is left of Kmart and Sears, Don Shula, retired football coach, Charles Bartlett Johnson, mutual fund billionaire, billionaire investor Carl Icahn and former Philadelphia Eagles owner and billionaire art collector Norman Braman.

Other famous residents both past and present have included Beyoncé and Jay-Z, pro golfer Raymond Floyd, coach Rick Pitino, U.S. Senator George Smathers, Sheik Mohammed al Fassi, television host Don Francisco, co-founder of Calvin Klein Barry Schwartz, radio magnate Raul Alarcon, coal and oil executive, heiress and philanthropist Suzie Linden, Arthur I. Appleton, President of Appleton Electric Company and founder of the Appleton Museum of Art and Bridlewood Farm, and his wife Martha O’Driscoll a former Hollywood actress.

Atlantic Broadband has not ripped out classic cable infrastructure for its less-well-to-do customers outside of the village in the Miami-Dade area and relies on RF over Glass technology for its network extensions. That allows the company to keep its legacy equipment in place while giving some residents access to fiber and others traditional coaxial cable.

Atlantic serves an island of customers in the Miami Beach area, but most of Miami gets its cable service from Comcast. Competitor AT&T has promised fiber upgrades and gigabit speeds for its own customers in the Hialeah, Hollywood, Homestead, Opa-Locka, and Pompano Beach areas, but no time frame has been announced for the upgrade.

Atlantic Broadband will have one advantage over AT&T U-verse. It does not have usage caps.

Atlantic Broadband serves around 230,000 residential and business subs in western Pennsylvania, Miami Beach, Maryland/Delaware, and Aiken, S.C. It is owned by Cogeco Cable of Canada.

If regulators believe they can turn Comcast and Time Warner Cable’s mega-merger into a consumer-friendly deal in the public interest, they are ignoring history.

No matter what conditions regulators place on Comcast to approve its merger with Time Warner Cable, they will be toothless, television industry insiders told the New York Post.

Insiders suggest the Federal Communications Commission has been largely impotent enforcing conditions it required in earlier merger deals, including those Comcast promised to fulfill in its earlier merger with NBC Universal.

Among Comcast’s broken promises cited by The Post:

• Comcast failed to live up to its promise to market its low-cost broadband service, Sen. Al Franken (D-Minn.), an outspoken critic of the NBCU deal, told the FCC earlier this year;
• Comcast paid a fine for not marketing A standalone $50 broadband service widely enough;
• The giant cable provider’s hollow commitment to Net Neutrality didn’t stop it from excluding certain XFINITY video content from its data caps;
• They discriminate against non-Comcast owned cable channels, especially those that compete with network Comcast owns or controls. Examples include The Tennis Channel and Bloomberg TV.

Industry insiders claim the larger Comcast gets, the more the company spends on clever lawyering and lobbying to keep itself out of legal hot water with Congress and regulators. That has begun to worry programmers like Discovery Communications, who filed objections to the merger deal.

Discovery officials warned the FCC Comcast’s takeover of Time Warner Cable would deliver an NSA-like treasure trove of viewer data to the nation’s biggest cable company. Comcast already monitors its customers’ viewing habits with tracking software installed inside set-top boxes that monitors what customers are watching at any given time. Comcast has refused to share that data with outsiders, and uses it primarily to pitch potential advertisers.

Comcast’s size already gives the company unprecedented power over cable programming rates during negotiations. Making the company even larger worries Discovery, which expressed concern that:

• Comcast’s use of its bigger muscle to impose prices, terms and conditions that are overly favorable (for instance, preventing programmers from selling over-the-top rights or refusing to give competitors to its own services wide distribution);
• The possibility that the cable giant could impose broader “most favored nation” clauses in agreements;
• That Comcast could exercise control over national and local ad sales markets to the detriment of programers who also compete there.