COMCAST, AT&T SAY MERGER WILL INCREASE COMPETITION ON ALL FRONTS

Companies stressed in application that their marriage wouldn’t violate Communications Act or Commission’s rules, specifically that new AT&T Comcast would serve less than 30% of nation’s multichannel video subscribers, rather than just cable subscribers, as defined by FCC horizontal ownership rule. That rule, however, was overturned by U.S. Appeals Court, D.C. (CD March 5/01 p1). Companies’ figures don’t include customers served by Time Warner Entertainment and Time Warner Inc. Their interests as they described them would include 27.28 million subscribers -- 29.87% of MPVD subscribers out of total 91.33 million nationwide, including DBS, application said. Companies said AT&T planned to divest itself of its interest in TWE and TWI but, if it hadn’t done so by time merger closed, AT&T Comcast said it would try to defend those holdings by challenging Commission’s attribution rules. NCTA already has taken up that fight, asking FCC to reevaluate rules that say company with 5% interest in another should have 2nd company’s subscribers attributed to it (CD Jan 7 p8). Companies also said that, based on their own analyses, all of their cable systems would comply with 40% channel occupancy limit after merger.

Proposed merger would “have no anticompetitive effects in any relevant market” and therefore wouldn’t affect horizontal concentration, companies said. They said they wouldn’t have ability to exercise monopsony power. They said they would have “only very modest programming interests and no enhanced ability to control the pricing of video programming.” AT&T Comcast would have ownership interests in 24 video programming networks (6.4% of 374 national services), application said.

AT&T Comcast would be “fully committed to offering customers a choice of ISPs, subject to negotiation of mutually beneficial terms,” but they stopped short of embracing “open access.” Comcast recently signed deal with United Online (CD Feb 27 p4), when Comcast Pres. Brian Roberts said govt.-mandated solution wasn’t necessary and marketplace would provide multiple ISPs. Application said companies “already have ample market incentives” to deploy multiple ISPs because of competition from DSL and others -- without govt. intervention. Center for Digital Democracy and other public interest groups have expressed skepticism and plan to try to convince DoJ that it should hold AT&T Comcast to same “open access” standard as that imposed on merger of AOL and Time Warner -- if DoJ were to approve merger at all.

As of Dec. 31, Comcast’s wholly owned systems had 8.47 million customers in 26 states and passed 13.8 million homes, application said. Comcast said it had 2.3 million digital subscribers, 948,100 high-speed Internet customers, 41,500 telephony customers. AT&T Broadband had 13.44 million cable subscribers, of which 3.5 million were on digital tier. AT&T Broadband had 1.5 million high-speed Internet customers and 1 million cable telephony customers. AT&T Broadband also had another 5.24 million attributable subscribers in various partnerships.

Merger would allow combined company to accelerate availability of local telephony, video and high-speed Internet to millions of residential customers in parts of 41 states, application said. “These benefits would not be achieved as broadly or quickly without the merger,” it said. “AT&T Comcast’s efforts will also provide a competitive spur to other entities, including incumbent telephony companies, nationwide DBS providers and others.” Companies said AT&T Broadband’s systems still required significant upgrades, capital improvements that would be aided by merged new company’s ability to raise investment capital. They said they expected within 5 years of merger to achieve efficiencies worth $1.25 billion-$1.95 billion per year and of $100-$200 million in earnings before interest, taxes, depreciation and amortization (EBITDA) annually within 3 years due to merged company’s “greater ability” to research, develop and deploy VoD, iTV, HDTV, cable-based home security, networking systems and e-commerce initiatives. Combined company also would produce much stronger telephony competitor and merger would result in synergies in that sector worth $600-$800 million annually within 5 years, companies said.

Merged AT&T Comcast would ensure more local and regional programming and achieve volume discounts, companies said. Synergies and public interest benefits “cannot be obtained independently of a merger, such as through the formation of a joint venture,” application said. Companies said they didn’t compete against each other in any of their markets and therefore would not reduce competition anywhere.

Merger would have no adverse effects on equipment market, application said. AT&T Comcast “will account for a small fraction of the overall purchases of modems and set-top boxes and other navigation devices and thus will have no ability to exercise buyer market power over manufacturers of such devices.” Companies said equipment market was global. They said they “could have no conceivable incentive to do anything that would affect adversely” quantity and quality of equipment. They said CableLabs had established open industry standards for middleware, allowing any manufacturer to develop devices.