We grant the application of Comcast Corporation (Comcast), Time Warner Cable Inc. (Time Warner), Time Warner Cable Information Services (California), LLC (TWCIS) and Bright House Networks Information Services (California), LLC (Bright House) for approval of the transfer of control of TWCIS and Bright House to Comcast. In addition, we grant the application of Comcast, TWCIS and Charter Fiberlink CA-CCO, LLC (Charter Fiberlink) to transfer a limited number of business customers and associated regulated assets of Charter Fiberlink. — Proposed Decision of California Administrative Law Judge Karl J. Bemesderfer

In a decision widely expected by observers for almost a year, the California Public Utilities Commission (CPUC) is poised to conditionally approve the merger of Comcast and Time Warner Cable with dozens of pages of conditions to appease state politicians, concerned commissioners, and interest groups seeking to protect Californians from the competitive impact of what will easily become the state’s largest cable provider, serving 84% of households.

Administrative Law Judge Karl J. Bemesderfer issued his lengthy “proposed decision” in February, acknowledging the deal’s opponents have proved their contention the merger is not in the interests of Californian consumers, but then recommends approving it anyway:

In more concrete terms, the proposed merger between Comcast and Time Warner reduces the possibilities for content providers to reach the California broadband market. While the FCC’s pending reworked Net Neutrality rules may mitigate some of this effect, the sheer dominance of Comcast’s post-merger position causes us concern.

Parties have made a convincing showing of the anti-competitive consequences that Comcast’s post-merger market power may have on the deployment of broadband in California, and of anti-competitive harms that would occur in California if the merger is consummated. We are also persuaded by evidence of Comcast’s Internet Essentials program’s weak performance in closing the digital divide in California and fulfilling universal service goals, and thus do not view it as a mitigating factor without additional conditions.

While the protesters and intervenors vigorously assert that we should deny the applications outright, they also urge us, in the alternative, to impose conditions ameliorating the potential harms should we decide that such conditions are within our powers and sufficient to render the resulting transaction not adverse to the public interest.

While we are troubled by the protesters’ and intervenors’ many examples of potential harms that may flow from the merger, we believe that those harms may be mitigated by the imposition of conditions on our approval consistent with our powers under state and federal law.

Bemesderfer proposes a lengthy list of conditions the cable giant must meet for at least five years after merging, including offering discounted Internet service programs, improve customer service, provide free backup batteries for Comcast phone service, and promise it will stop lobbying against community broadband projects.

But the judge said nothing about Comcast’s runaway rate increases likely in a de facto monopoly environment, its own vice president’s prediction that all Comcast broadband customers will be enrolled in a usage-based billing scheme within five years, and lacks specificity explaining the enforcement measures the CPUC will take against Comcast if it fails to meet the commission’s conditions.

The five-member commission could take up Bemesderfer’s recommendations as early as the end of this month, but is more likely to postpone consideration until later this spring. The commission can adopt, change, or discard Bemesderfer’s recommendations.

Accusations that the CPUC has grown too cozy with the companies it regulates only grew louder after consumer groups complained Bemesderfer bent over backwards trying to get Comcast’s merger deal closer to the concept of “the public interest.” For them, it isn’t nearly close enough.

“To read the recent 100-plus-page decision from the CPUC, you wouldn’t think this proposed merger is good for anyone,” writes Tracy Rosenberg, executive director of Media Alliance, which opposes the deal. “The regulator approved the merger with more than two dozen conditions to mitigate the bad impacts on Californians.”

Rosenberg hints the CPUC is ill-equipped to effectively watch over a multi-billion dollar telecom giant like Comcast. By proposing an ambitious set of requirements the CPUC cannot possibly enforce or defend in court with its current limited budget. Taxpayers may have to dig deep to cover legal bills likely to pile up in Sacramento if Comcast decides to rid itself of CPUC meddling in the courts. Comcast has already announced strenuous objections to at least 20 of the 25 conditions Bemesderfer recommends imposing.

Comcast to California: Hey, slow down a moment. We don’t like your pre-conditions.

Ars Technica’s Jon Brodkin chronicles Comcast’s objections in a convenient clickable format:

The table of contents of Comcast’s 46-page report gives a sense of just how much the cable company disagrees with California’s proposed conditions. Here are the main bullet points as written in Comcast’s argument; we’ve added hyperlinks and additional text in italics to further explain the requirements and Comcast’s objections:

The proposed decision improperly expands the scope of the proceeding beyond the commission’s jurisdiction and authority.

• The proposed decision would impose sweeping common carrier utility type regulation on the merged entity’s broadband and VoIP services in derogation of federal and state law.
• Other conditions in the proposed decision exceed the commission’s authority or are otherwise unlawful. [According to Comcast, these conditions include requirements related to Lifeline phone service, diversity, website design standards, backup batteries, video programming, non-interference with competing voice services, buildout requirements, opposition to municipal broadband projects, and privacy complaints.]

The proposed decision adopts intervenors’ [merger opponents] flawed analyses and claims regarding market share and competition.

• The transaction will not increase market power or reduce consumer choice.
• The FCC’s new definition of “advanced telecommunications capability” has no relevance to this proceeding. [The Federal Communications Commission recently said that Internet service must provide at least 25Mbps download speeds and 3Mbps upload to qualify as broadband or “advanced telecommunications capability.” That decision increased Comcast’s “broadband” market share to 56 percent nationwide.]
• Concerns regarding future overbuilding are baseless and unsupported by the record. [The question here is whether Comcast and Time Warner Cable would ever compete against each other directly if they cannot merge.]
• The transaction presents no risk to edge providers [companies that deliver content and applications over the Internet], the highly competitive internet backbone, or consumers’ access to broadband content.

Other factual findings in the proposed decision are invalid and do not support the suggested conditions.

• TWC is not a “policy competitor” to Comcast. [The California judge’s proposal said TWC is a “policy competitor” to Comcast because it has different positions and business models. “For example, Time Warner has applied to the Commission to offer Lifeline as a tariffed service, while Comcast has not,” the judge wrote.]
• Mandatory diversity measures are unnecessary. [Comcast says California’s requirements amount to mandatory race-based quotas that violate state law and the US Constitution.]
• Concerns regarding Comcast’s battery backup program and other network safety issues are based on inaccurate assertions.
• The transaction will not harm wholesale offerings.
• Internet Essentials is successful by any objective metric and the program’s extension to TWC and Charter areas will provide substantial public interest benefits. [Internet Essentials is a low-cost Internet service for the poor that Comcast was required to create in exchange for approval of its 2011 acquisition of NBCUniversal. California wants Comcast to expand program eligibility further than Comcast is willing to. Comcast objects to a requirement to double download speeds from 5Mbps to 10Mbps. California also wants Comcast to achieve a 45 percent adoption rate among eligible consumers, which Comcast says is an unrealistic goal.]
• The proposed decision imposes unlawful rate and performance regulations based on inaccurate assumptions about TWC services and is in all events unjustified. [California wants Comcast to offer standalone broadband service for five years at prices not exceeding those charged by Time Warner Cable.]
• The proposed decision adopts incorrect data regarding Comcast’s quality of service and network safety and reliability.
• The “benchmark” competition theory adopted in the proposed decision is refuted by the record evidence. [California proposes an annual report requirement because the merger would eliminate the commission’s ability to compare reliability, customer service, prices, and service offerings of Comcast and TWC.]
• Other suggested conditions are unauthorized and unnecessary. [This section further covers a requirement to not interfere with voice services. Comcast says “it is unnecessary because Comcast does not interfere with voice services or degrade customers’ ability to complete calls.” This section also addresses a website accessibility requirement, which Comcast says is unnecessary because the company “already offers a comprehensive and user-friendly website that benchmarks to best practices for website accessibility.”]

Rosenberg argues a merger like Comcast and Time Warner Cable should have been easy to reject just on the basis of its size and scope.

“Economists use a scale called the Herfindahl-Hirschman Index to measure the level of concentration in a market,” Rosenberg said. “Anything with an HHI increase of more than 200 points is likely to enhance market power. The HHI increase for the merger of Comcast and Time Warner Cable is a 4,927-point increase in the fixed broadband market.”

In plain English, “California customers have nowhere to run,” Rosenberg writes. “If they had a choice, many of Comcast’s customers wouldn’t be their customers. If the merger with Time Warner goes through, that choice is about to get a whole lot worse.”

Instead of accommodating a merger proposal that seems clearly the opposite of the public interest, Rosenberg suggest an easier alternative.

“If something takes two dozen onerous conditions to prevent significant damage, then maybe the public is better off without it,” Rosenberg writes. “On March 26, the commission will vote on the Comcast-Time Warner Cable merger. A million conditions can’t make this a good enough deal. There comes a time to just say no.”

Charter Communications is in talks with Si Newhouse, Jr., the billionaire owner of Bright House Networks, to acquire the cable operator in an all-stock deal that could be worth over $12 billion, according to a report by Bloomberg News.

Bright House Networks serves 2.5 million customers, primarily in central Florida but also in parts of Alabama, Indiana, California and Michigan. Bright House has been closely controlled by the Newhouse family and has avoided efforts to consolidate the cable industry for more than two decades.

The deal is not yet finalized, according to two people asking not to be identified discussing confidential details of the deal. A side dispute over who will control voting shares of Charter after any acquisition remains at issue. John Malone’s Liberty Broadband, the largest single shareholder of Charter, is said to be seeking a larger ownership share of Charter Communications in what analysts expect will be a gradual takeover of Charter by Malone.

This afternoon, Bright House confirmed acquisition talks are underway.

“While we have had conversations with many parties about this transaction, we do not have an agreement with anyone regarding future plans for Bright House,” a company spokeswoman said in the statement.

The deal may also depend on whether regulators approve the merger of Comcast and Time Warner Cable. Time Warner Cable currently represents Bright House in most cable programming negotiations and the two cable companies have closely worked together on technology and services for more than a decade. That collaboration is likely to end if the Comcast merger is approved, stranding New House as a small independent operator.

Charter was long-expected to make offers to acquire other cable operators in its quest to grow larger, especially after failing in its bid to acquire Time Warner Cable for itself. An acquisition of Bright House by Charter would allow the company to further expand its presence in the south and midwest where it focuses most of its cable operations.

But it is not a done deal yet. The talks between Charter and Bright House could still fall apart and may not result in a deal, one source cautioned.

[flv]http://www.phillipdampier.com/video/Bloomberg Charter in Talks to Buy Newhouse Bright House Networks 3-12-15.flv[/flv]

Bloomberg News reports Charter Communications is in talks with the Newhouse family to acquire Bright House Networks in an all-stock deal. (1:22)

Could this be Comcast’s next target?

As Wall Street continues contemplating mom and dad at the FCC and Department of Justice calling off Comcast’s elopement with Time Warner Cable, some analysts believe Comcast will have to spend the money now burning a hole in its pocket on something.

“Given the strength of Comcast’s balance sheet and an insatiable appetite for acquisitions, we do not believe Comcast would be content with its existing portfolio (no different than after they failed in their 2004 attempt to buy Disney),” wrote Richard Greenfield from BTIG Research.

Greenfield has grown increasingly pessimistic about the Comcast-Time Warner Cable deal since realizing regulators were not going to follow the usual procedure of rubber-stamping approval with mild, short-term conditions to appease politicians. As President Barack Obama highlights telecommunications public policy in his second term, the cable industry (and broadband in particular) has come under unprecedented scrutiny and visibility in the press.

This winter, the FCC redefined broadband speed to mean a connection offering at least 25Mbps. That virtually eliminates DSL as a meaningful competitor, and would hand a combined Comcast/Time Warner Cable over 55% of broadband homes in the United States. The FCC’s approval of Net Neutrality and regulating broadband as a public utility led the audience in attendance to give a standing ovation to Chairman Thomas Wheeler and the two Democratic commissioners voting in favor of the policy change. The public sentiment is clearly against industry deregulation and unfettered deal-making, particularly when it involves Comcast, one of the most-loathed corporations in America.

Greenfield

Greenfield notes momentum is on the side of consumer groups fighting for Net Neutrality, oversight, and an end to cable industry consolidation.

Assuming Comcast’s deal with Time Warner Cable fails, what can Comcast spend its money on without running into a regulator buzzsaw?

Comcast could easily continue a mergers and acquisitions strategy if it avoids attempting to dramatically increase its cable footprint. For instance, Comcast could still choose to sell some of its less important cable systems to Charter Communications — already part of the proposed Time Warner Cable transaction — and make up that subscriber loss by acquiring Cablevision, which provides service in the important suburban New York City market. Of course, the Dolan family is notorious for not selling to anyone, and a considerable number of extended family members are employed as executives in the company.

Cable operators have returned to a strategy of hedging their content costs by spending billions to acquire content producers and sports teams in hopes of moderating their price demands. In the 1980s and early 1990s, large cable operators insisted on owning a piece of nearly every cable network shown on their systems. Today, having an ownership stake in the cable networks one negotiates with at contract renewal time is a helpful advantage.

Comcast has several attractive acquisition targets Greenfield believes it can consider:

• Time Warner (Entertainment): Not affiliated with Time Warner Cable, owning Time Warner (Entertainment) would gain Comcast important cable networks like TNT, HBO, and the Warner Bros. studio.
• Netflix: Acquiring one of the best assets cord cutters have might prove difficult with regulators in Washington, but buying the ultimate TV Everywhere experience could deliver a digital platform that puts Comcast’s own online content portal to shame. The deal would also come with the talent that made Netflix an international success. If Comcast were to acquire Netflix, it would combine a superior streaming platform with an enormous content library.
• Acquire online video content sites and producers: Linear live television continues to be challenged by an array of on-demand content and video clips from various websites like Vice — videos that could be further monetized by matching Comcast’s advertising sales team with online media.
• Next generation online video set-top box manufacturers: The traditional cable box is dead to a lot of subscribers who prefer the simplicity (and price) of Roku and other similar alternatives. Current cable boxes are huge, expensive, and simply lack the creative imagination of the competition. If Comcast can’t beat Roku, it could buy it.
• Buy Sprint or T-Mobile: Greenfield believes Comcast lacks a wireless component in its product lineup as consumers increasingly move towards portable devices. Comcast would be financially foolish to build a network from the ground up, so acquiring an existing one makes more sense. AT&T and Verizon Wireless are likely out of reach, but Sprint and T-Mobile are not. Both carriers’ parent companies seem ready to sell, if the price is right. Of the two, Sprint might be willing to sell first. Sprint’s owner — Japan’s Softbank — has discovered the United States is a huge country that can swallow up endless amounts of investment and still leave it saddled with a second-rate network.

Greenfield is only speculating and there are no indications Comcast is seriously considering a next move should the Time Warner Cable deal be killed in Washington. But it does signal Wall Street does expect Comcast to do something.

Allen: Comcast thinks “Give Sharpton $50,000 and a bucket of chicken and we’re good.”

A $20 billion racial discrimination lawsuit filed on behalf of black-owned media companies has uncovered alleged ties between executives of Comcast and Time Warner Cable and public officials who have allegedly helped cover up cable industry discrimination, price-fixing, collusion, and illegal payoffs.

Byron Allen, chairman and CEO of Entertainment Studios, in a blitz of eyebrow-raising interviews, accuses the two cable giants of putting minority-owned channels in the back of the bus, while falsely claiming black celebrities are the owners of minority networks that are actually controlled by former Comcast executives and private equity firms.

“Comcast has, in essence, created a ‘Jim Crow’ process with respect to licensing channels from 100 percent African American–owned media,” the suit reads, according to The Huffington Post. “Comcast has reserved a few spaces for 100 percent African American–owned media in the ‘back of the bus’ while the rest of the bus is occupied by white-owned media companies.”

The lawsuit, filed against Time Warner Cable, Comcast, the Urban League, the NAACP, former FCC commissioner Meredith Attwell Baker, and Al Sharpton’s National Action Network, claims the defendants are taking payoffs from the two cable giants and colluding to promote their business agendas and give minority support to their mergers and acquisitions.

“The industry spends about $50 billion a year licensing cable networks in which 100 percent African American-owned media receives less than $3 million per year in revenue from that $50 billion stream of money that is spent to acquire content,” he said.

Under normal circumstances, many African-American civil rights organizations would immediately raise a ruckus over the imbalance, but Allen alleges Comcast and Time Warner Cable have bought their silence, and in the case of Al Sharpton, his loyalty and support.

Byron Allen accuses Comcast of locking out 100% black-owned networks.

“Instead of spending real money with real, 100 percent African American-owned media, it is easier to give [Sharpton] $50,000 to give them a cover,” he said. “‘Give [Sharpton] $50,000 and a bucket of chicken and we’re good.'”

Allen called Sharpton the “least expensive negro” Comcast could find, and rewarded his loyalty with a $750,000 annual salary hosting a barely watched nightly show on Comcast-owned MSNBC.

“Why is Sharpton on TV every night on MSNBC? Because he endorsed Comcast’s acquisition of NBCUniversal,” Allen said. “He signed the memorandum of understanding back in 2010. He endorsed the merger. Next thing you know we’re watching him on television trying to form a sentence. Every night we have the privilege of watching adult illiteracy.”

Attwell-Baker is a defendant for her highly visible warp speed trip through D.C.’s revolving door, as the former Republican FCC commissioner seemed to be writing her resignation letter seconds after voting in favor of the Comcast-NBCUniversal merger, quickly accepting a high paid lobbying job with the cable company.

“President Obama promised us transparency, hope, and change,” he said. “And what happened in the Obama administration is former commissioner Meredith Attwell Baker voted for the merger of Comcast NBCU and then 90 days later took a much higher paying job with Comcast after granting them the merger. That was betraying the public’s trust as a public service.”

[flv]http://www.phillipdampier.com/video/HuffPost Byron Allen 2-27-15.mp4[/flv]

Watch the HuffPost Live interview with Byron Allen, who reveals who really owns the minority channels Comcast brags about. (7:37)

“President Obama has been bought and paid for. He has taken donations from Comcast. Comcast is his biggest contributor,” he added. “AT&T is one of his biggest contributors. Listen, Obama, your own FTC is investigating AT&T for throttling. How can you even consider them to buy DirectTV when you’re suing them? Is it because you took donations? Yes, Obama. Don’t even think about letting them merge until they settle this lawsuit and that lawsuit.”

Sharpton, in addition to being a regular supporter of Comcast’s various business agendas, also hosts a nightly show on Comcast-owned MSNBC, for which he is paid $750,000 a year.

“AT&T spent more money on Al Sharpton’s birthday party than they have on 100 percent African-American owned media combined,” Allen said. “He (Sharpton) should return the money because AT&T doesn’t even celebrate Martin Luther King Day as a national holiday. The employees there take it as a sick day.”

Apart from Allen’s inflammatory appearances on cable news, his lawsuit does bring to light several important new facts about Comcast’s claims it supports minority-owned channels. Allen’s lawsuit alleges many of those channels are actually secretly owned and controlled by former Comcast executives, private equity firms, and Wall Street banks.

• “Aspire is controlled by Leo Hindery and Leo Hindery is not black. They don’t pay Aspire any subscription fees. Aspire is free,” said Allen.
• “Sean ‘P Diddy’ Combs’ network Revolt TV is controlled by a private equity firm called Highbridge Capital. The person who runs Highbridge Capital is a former Comcast executive named Payne Brown. Highbridge Capital is owned by JP Morgan. On the board of JP Morgan is Steve Burke, the number two executive at Comcast,” said Allen.

These revelations are important because Comcast promised to create and carry minority-owned channels as part of several conditions mandated by regulators to approve the 2011 acquisition of NBCUniversal. Allen claims Comcast has broken its commitment and instead created “token front” networks or minority network “window dressing” that feature well-known African-American celebrities that pose as owners of the networks, but in fact they are controlled by white-owned businesses.

The lawsuit claims Comcast carries only one 100% African-American owned and controlled network — the Africa Channel. But dig a little deeper and you find the network is owned by a former Comcast/NBCU executive that played a critical part organizing minority group support for the NBCUniversal buyout.

Comcast and Sharpton’s organization both dismissed the lawsuit as inflammatory and frivolous.

[flv]http://www.phillipdampier.com/video/CNN Sharpton called black pawn in white game 3-1-15.flv[/flv]

Byron Allen appeared on CNN’s Reliable Sources and called Sharpton “a black pawn in a very sophisticated white economic chess game. He’s being used by his white masters at Comcast and AT&T. He just needs to shut up and get in the bleachers.” (7:12)

Moffett

Nearly 20 years after the 1996 Telecom Act deregulated much of the cable industry, the renewed threat of increased consumer protection and oversight by the Federal Communications Commission and the dwindling chance regulators will approve the merger of Comcast and Time Warner Cable has increased pessimism about guaranteed high cable industry profits on Wall Street.

Craig Moffett, senior analyst at MoffettNathanson has departed from his usual optimism about the prospects of cable industry stocks and downgraded Comcast, Time Warner Cable and Charter Communications this morning to “neutral,” suggesting the Title II reclassification of broadband could eventually lead to FCC mandated price cuts on broadband after the agency finalizes Net Neutrality regulations.

The cable industry had maintained high hopes for the Republican majority in Congress to trample Net Neutrality and allow the cable industry to continue boosting rates and introducing other pricing schemes including usage-based billing, but Moffett has grown increasingly convinced Republicans cannot override President Obama’s veto power if Congress attempts to change or end FCC oversight over the broadband business.

The cable industry has grown increasingly panicked over a new spirit of activism inside the FCC, particularly after FCC chairman Thomas Wheeler began asserting their “worst-case scenarios” for broadband speed and Net Neutrality. The National Cable and Telecommunications Association has warned Net Neutrality and Title II would stifle innovation. But Moffett fears it will more likely stifle profits.

“It would be naïve to suggest that the implication of Title II, particularly when viewed in the context of the FCC’s repeated findings that the broadband market is non-competitive, doesn’t introduce a real risk of price regulation,” Moffett wrote. “Not tomorrow, of course, so yes, near term numbers won’t change. But terminal growth rate assumptions need to be lowered. Multiples will have to come down.”

Moffett, who had been optimistic about the likely approval of the merger deal between Comcast and Time Warner Cable is much less so today.

His earlier 70-30 odds in favor of the merger are now down to 60-40. The headwind of negative press and the reclassification of broadband to a minimum speed of 25Mbps poses considerable risk the deal will be ruled anti-competitive.

Moffett claims the cable industry was also banking on jacking up prices for Internet access, already a very profitable service, to cover reduced profits from cable television. But now the FCC will be watching.

“In the past, changes to broadband pricing would have been the natural remedy,” Moffett said. “That avenue may be no longer open.”