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)

With millions at stake charging content producers extra for guaranteed fast lanes on the Internet, some lobbyists will go to almost any length to throw up roadblocks in opposition to Net Neutrality.

The sudden appearance of Onward Internet, a group that erects enormous “Internet suggestion boxes” at busy intersections in New York and San Francisco is a case in point.

At least a half-dozen 20-somethings, some dressed for a science fiction convention, staff the displays while encouraging people to write and toss in their own ideas about what they expect from the Internet over the next decade.

A higher bill and usage caps, unsurprisingly, were not among the suggestions. But it is doubtful the mysterious people behind Onward Internet are interested in hearing that.

Advocacy group ProPublica spent weeks trying to find who was paying for the youthful exuberance, giant black boxes, and hopelessly optimistic YouTube videos telling viewers the Internet was made to move data, and how amazing it was your Internet Service Providers valiantly kept up with the demand, helped connect industries and even topple dictatorships. Well, not corporate dictatorships in this country anyway.

With that kind of “feel good” message, ProPublica undoubtedly smelled industry money, especially after seeing lines like, “The Internet is a wild, free thing; unbounded by limits, unfettered by rules, it’s everyone’s responsibility to ensure that the Internet continues to advance.” But it took a leak from a worker hired to file permits and buy space in San Francisco for the street displays to finally blow the whistle.

Onward Internet = the National Cable and Telecommunications Association, America’s largest cable industry lobbyist.

This appears to be a repurposed dumpster.

You couldn’t find a bigger critic of Net Neutrality if you tried.

The NCTA played coy with ProPublica when the group first confronted the cable lobby with the evidence.

“What led you to the conclusion that this is an NCTA effort,” asked NCTA spokesman Brian Dietz.

Busted, Dietz followed up with a statement suggesting the NCTA needed to keep its involvement top-secret because it might ‘bias’ the feedback they received:

“We’ve kept NCTA’s brand off Onward Internet because we want to collect unbiased feedback directly from individuals about what they want for the future of the Internet and how it can become even better than it is today,” Dietz told ProPublica. “The cable industry is proud of our role as a leading Internet provider in the U.S. but we feel it’s important to hear directly from consumers about how they envision the future so we can work hard on delivering it.”

“We had always intended to put the NCTA brand on it but we wanted to collect as much unbiased feedback as we could for a few weeks before putting our name on it,” Dietz later told VentureBeat.

The NCTA is hoping unwitting consumers submit comments they can use to oppose Net Neutrality and Title 2 reclassification of broadband as a “telecommunications service.”

Because if that happens, the Money Party may end before it even begins.

The NCTA’s astroturf effort is nothing new. A panoply of well-funded, telecom-industry backed sock puppet groups muddy the waters on these issues everyday, from Broadband for America to various think tanks and bought and paid for researchers.

[flv]http://www.phillipdampier.com/video/Onward Internet Decide the future of the Internet 10-8-14.mp4[/flv]

Onward Internet is hoping you will share comments they can use to prove you oppose Net Neutrality. The NCTA is a strong opponent of Net Neutrality, which allows LOLCATS, movies, and dictatorship toppling to occur without paying even MORE money to the cable company for a fast lane that should have been fast in the first place, considering how much we are spending on it. Now Big Cable also want usage caps and allowances. The revolution has been capped. (1:22)

Phillip “How far will $20 get me in your office?” Dampier

Congress is famous for obfuscation when it comes to introducing legislation that promises one thing and delivers something quite different. Take the 2003 “Clear Skies Initiative,” which would have allowed the energy industry to increase polluting emissions, or “The Disclosure of Hydraulic Fracturing Fluid Composition Act,” which allows frackers to keep secret the ingredients of millions of gallons of chemicals pumped into the ground to displace natural gas, and potentially your potable drinking water.

So it shouldn’t be much of a surprise that Rep. Bob Latta (R-Ohio) wants to “protect” the open and free Internet by introducing a new bill that opens and frees the telecom companies that steadfastly support his campaign coffers to install paid Internet toll booths. Like many pieces of legislation coming from some House Republicans these days, “freedom” only extends to corporate interests, not to you or I (unless we want to start a corporation of our own.)

Reclassifying broadband as a telecommunications service under Title II of the Communications Act is the Holy Grail for Net Neutrality supporters. It offers clear oversight authority that would make future lawsuits from Comcast, Verizon and other telecom companies untenable. Earlier court decisions have laid a foundation for broadband oversight under Title II, but the FCC itself must take advantage of that opportunity, and so far it has not.

Congressman Latta has introduced legislation to make sure the FCC can never take that step. His bill would specifically prohibit the FCC from reclassifying broadband Internet access as anything beyond an unregulated “information service.”

According to Latta, only with his legislation can America be assured the Internet will stay “open and free.” — “Open and free” for the picking by companies who dream of new revenue monetizing Internet traffic. Not satisfied charging some of the world’s highest prices for Internet access, many of the largest cable and phone companies in the country now want the right to “double-dip” — charging consumers to reach Internet content and content producers for delivering it. It would be like paying postage to mail a letter and having it arrive postage due or letting the phone company charge both the caller and the person called for a long distance telephone call.

“The legislation comes after the FCC released a proposal to reclassify broadband Internet access under Title II as a telecommunications service rather than an information service,” says a press release from Latta’s office.

Would I lie to you? Rep. Bob Latta (R-Ohio)

That is patently false. In fact, FCC chairman Thomas Wheeler has twisted himself into a human pretzel with clever language and a clear determination not to reclassify broadband under Title II. Wheeler prefers sticking to the rickety Section 706 faux-authority for Net Neutrality — the same section that keeps handing FCC lawyers loss after loss in federal court. After Wheeler announced his intention to propose allowing Internet companies to build paid fast lanes for Internet traffic, the resulting backlash from content companies and the public made him grudgingly offer a “discussion” about utilizing Title II.

That kind of “discussion” will be familiar to every 16-year old teenage girl who is told “we’ll talk about it” after asking mom and dad if she can take her new 22-year old boyfriend on vacation and stay in their own hotel room.

Ironically, detractors like Latta are the ones that usually accuse Net Neutrality of solving a problem that doesn’t exist. But that didn’t stop Congressman Latta from introducing legislation to stop the current ex-telecom lobbyist chairman of the FCC from going all Elizabeth Warren on us, suddenly imposing draconian pro-consumer regulations against those job creators at the cable companies Wheeler used to represent. But on the bright side, when Wheeler doesn’t do what Latta’s bill wouldn’t let him do, Latta can still declare victory against “big government.” If you live in Latta’s district, you can read all about it in the forthcoming government-subsidized, no-postage-needed “newsletter” he and other members of Congress will pelt your mailbox with right before election time.

“In light of the FCC initiating yet another attempt to regulate the Internet, upending long-standing precedent and imposing monopoly-era telephone rules and obligations on the 21^st Century broadband marketplace, Congress must take action to put an end to this misguided regulatory proposal,” said Latta. “The Internet has remained open and continues to be a powerful engine fueling private enterprise, economic growth and innovation absent government interference and obstruction. My legislation will provide all participants in the Internet ecosystem the certainty they need to continue investing in broadband networks and services that have been fundamental for job creation, productivity and consumer choice.”

Consumers not included. Maybe he just forgot.

“At a time when the Internet economy is thriving and driving robust productivity and economic growth, it is reckless to suggest, let alone adopt, policies that threaten its success. Reclassification would heap 80 years of regulatory baggage on broadband providers, restricting their flexibility to innovate and placing them at the mercy of a government agency. These businesses thrive on dynamism and the ability to evolve quickly to shifting market and consumer forces. Subjecting them to bureaucratic red tape won’t promote innovation, consumer welfare or the economy, and I encourage my House colleagues to support this legislation, so we can foster continued innovation and investment within the broadband marketplace.”

Guess not. The Internet should only be about business in Latta’s mind. Consumers that support Net Neutrality are nothing more than parasites sucking away valuable potential profits from the dynamic, flexible and innovative world of traffic shaping, usage caps, and double-dipping.

Latta isn’t interested that your provider is turning your weekend Netflix binge into an exercise of maddening rebuffering futility as your cable/phone company waits for protection racket proceeds a paid peering agreement with Netflix. That is because he doesn’t represent you. He represents AT&T, Time Warner Cable, Comcast, and CenturyLink.

Latta can afford to travel through the Internet toll booth when one considers who his top contributors keeping his campaign flush with cash are:

• More than $32,000 in contributions from AT&T and its executives;
• $29,500 from Tom Wheeler’s old haunt — the National Cable & Telecommunications Association (Big Cable lobby);
• $15,000 from the American Cable Association (Small Cable lobby);
• $21,000 from Time Warner Cable and its executives;
• $16,000 from Verizon and its executives;
• $11,400 from CenturyLink;
• $11,000 from Comcast (they are ditching Ohio customers to Charter after merging with Time Warner Cable so why throw good money after bad).

Latta’s close friendship with Big Telecom is so obvious, it has made co-sponsoring his fact-free bill about as popular as Justin Bieber at an NAACP convention. Even his like-minded Congressional colleagues are staying away. But his industry friends sure appreciate his efforts on their behalf.

One wonders why his constituents return him to office when he would be obviously much more comfortable in his next job — lobbying for AT&T or Comcast. Before our Internet connections slow, let’s hope his constituents hasten a much-needed turbo-speed departure for the congressman, already a shadow employee of AT&T.

227194356 05 28 14 LATTA Broadband Bill (Text)
 

Cable industry executives on hand at this year’s Cable Show in Los Angeles are debating whether Netflix has taught the cable industry some important lessons about how to treat its online video competition.

Phil Lind, executive vice president of regulatory affairs at Rogers Communications called Comcast’s peering deal with Netflix a groundbreaking breakthrough on how the Internet will be treated in the future.

Netflix has been forced to compensate the cable and telephone companies for its reliance on their broadband pipes to reach customers.

Mike Fries, president and CEO of Liberty Global said the issue of Net Neutrality relates primarily to online video and the discussion will inevitably come down to choosing between providing a broadband fast lane for content producers willing to pay or adopting usage-based billing that compensates the industry for the growth of streaming video.

Several on the panel disagreed with the contention that Netflix has outmaneuvered the cable industry with a superior on-screen interface and better on-demand content. But Fries said Netflix has achieved more success than the industry’s own TV Everywhere initiative, which unlocks online content for authenticated, paying cable TV subscribers. In addition to unwieldy authentication systems that pester subscribers with frequent log-in demands, content rights issues still dramatically limit the amount of streamed video available from TV Everywhere platforms.

Netflix has reached an agreement with Verizon Communications for a paid-peering interconnection between the two that will help assure Verizon’s broadband customers can watch Netflix content without repeated buffering slowdowns.

It is the second major deal for Netflix where money has changed hands to assure a more error-free experience for customers, coming two months after a similar deal with Comcast.

Both Verizon and AT&T have told their respective shareholders they anticipate new revenue streams from interconnection agreements with Netflix, which now constitutes a large percentage of evening Internet traffic in the United States.

By establishing a more direct connection between Netflix and Verizon, customers should experience fewer streaming problems. Netflix traditionally pays third parties to handle its traffic and some of those shared connections have grown increasingly overcongested. ISPs are becoming increasingly reluctant to upgrade them without financial compensation.

The FCC does not consider peering arrangements part of the Net Neutrality controversy, but for customers the result is the same — without a financial arrangement with a provider, content from certain websites may not be dependably accessible. Earlier this year, Netflix viewing was increasingly disrupted for many Verizon, AT&T, and Comcast customers.

Netflix CEO Reed Hastings has repeatedly complained Netflix is being subjected to an “arbitrary tax” to assure dependable service to its paying customers. Hastings now wants the FCC to treat the issue as an “end run” around Net Neutrality and include peering agreements and financial compensation issues in the new Net Neutrality rules expected to be introduced in May.

Most analysts do not expect FCC chairman Thomas Wheeler to oppose or regulate the financial arrangements between ISPs and content producers.