CITY COUNCIL
CONSENT CALENDAR
MARCH 16, 2015
SUBJECT: OPPOSITION TO THE PROPOSED TIME WARNER CABLE AND COMCAST CORPORATION MERGER
INITIATED BY: MAYOR JOHN D'AMICO
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(Michelle Rex, Council Deputy)STATEMENT ON THE SUBJECT:
The City Council will consider adopting a resolution in opposition to the proposed merger of Time Warner Cable and Comcast Corporation.
RECOMMENDATIONS:
1. Adopt Resolution No. 15- ~ ~')'" "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST HOLLYWOOD IN OPPOSITION TO THE PROPOSED MERGER OF TIME WARNER CABLE AND COMCAST CORPORATION."
2. Direct staff to send signed copies of the resolution to the Federal Communications Commission, the Department of Justice and the California Public Utilities Commission.
BACKGROUND AND ANALYSIS:
Comcast Corporation and Time Warner Cable Inc. (TWC) have filed applications seeking Federal Communications Commission approval to transfer control of the licenses and authorizations held by Time Warner Cable and its wholly-owned and controlled subsidiaries to Comcast (FCC's Comcast-Time Warner Cable, MB Docket No. 14-57). The merger also requires investigation by the Department of Justice to determine whether the deal would violate antitrust laws. Additionally, the California Public Utilities Commission is scheduled to vote on March 261h on the proposed transfer
of licenses currently held by Time Warner Cable.
Cable television providers that use the public rights of way are required to obtain a franchise from local authorities or from the state of California. Although these franchises are non-exclusive, there is currently only one cable company, Time Warner Cable, providing service in West Hollywood.
The current franchise agreement went into effect with Adelphia Communications in November of 2004 and transferred to Time Warner Cable in August, 2006, and has since transferred to the State of California. Part of the transfer agreement with Time Warner Cable is that they have agreed to the terms of the existing franchise agreement,
within the limits set by federal and state regulations, however the primary franchise authority now lies with the State of California. The term of this agreement is ten years, with provisions for two five-year extensions under certain conditions.
Under the current franchise agreement, Time Warner Cable is providing five access channels for use by the City. The City's Public Information/CA TV Division manages these channels and also oversees the franchise agreement with the cable company. We also provide assistance to cable customers who have questions about cable regulation or who have problems with the cable franchisee.
While the FCC must determine whether the deal is the public interest, the merger must also pass antitrust muster by the Department of Justice. The non-profit organization Consumer Watchdog objected to the deal to both the FCC and the Department of Justice earlier this year. The prestigious American Antitrust Institute also says the deal should be blocked for antitrust reasons.
The consolidation of the largest cable television providers would create a media juggernaut that would stifle completion and hurt consumers who would ultimately pay higher prices for even worse service. Substantial concerns exist about Comcast's potential for abuse since it has become a content provider with its acquisition of NBCUniversal. By controlling the means of distribution via cable TV or the Internet, Comcast will be able to unfairly promote its content over the content of other providers, limiting choice for consumers. With its deal with Netflix to expedite the popular service's video, there are already troubling signs that Comcast is using its power unfairly to hurt content providers and limit consumers' choice on the Internet. The Netflix deal also breaches commitments Comcast made when that merger was approved to maintain 'net neutrality.
Further concerns center around the share of the national cable TV market the behemoth would control, which would be substantial. The merged company would cover 16 of the largest 20 metropolitan regions for multichannel video programing distribution including the crown jewels of New York and Los Angeles. If approved, Comcast will control 30% of the pay TV market and 50% of high-speed broadband connections nationally. In addition, Comcast intends to acquire certain cable systems from Charter
Communications, including those in LA County, which will increase Comcast's regional concentration in Southern California to 96% of Los Angeles County's population.
The proposed merger poses even greater problems with Internet access. In most of the markets they serve, Comcast and Time Warner Cable are the primary providers of high-speed broadband Internet access. Because in each of these markets the companies are effectively local monopolies, they are able to charge more for slower broadband service than is the case in other developed nations around the world.
If the merger is approved, West Hollywood residents are almost certain to face higher prices, the implementation of anti-consumer policies that limit access to content and the ability to use the device of their choice and even worse customer service. Standalone broadband is also likely to become more expensive for West Hollywood residents
because almost all of Comcast's California prices are higher than Time Warner Cable's. Time Warner currently provides customers access to unlimited broadband data while Comcast executives have stated that the company envisions moving to a "usage-based billing model" for all customers within the next five years. Comcast's acquisition of Time Warner Cable would also impact low-income residents who could lose Time Warner's valuable standalone 3 Mbps Internet offering for a non-promotional price of $14.99 per month. In contrast, Comcast's lowest-cost standalone Internet offerings in California are 3 Mbps for $39.95 per month.
Time Warner Cable provides customer more flexibility in the devices they may use to access cable content including third-party devices such as Roku, Amazon Fire TV and Playstation 3. Comcast, on the other hand, has focused on its own X1 streaming device and has used restrictive authentication and licensing policies to limit what devices customers can use to watch the content of their choice.
Cable and fiber-based Internet technologies are the only services that are capable of delivering faster speeds that consumers demand, particularly for data intensive activities such as video streaming. The Federal Communications Commission recently adopted a broadband benchmark speed of 25 Mbps (download). Analysis indicates that 72% of LA County residents served by Comcast will have no alternate provider offering speeds of 25 Mbps or greater and would be subject to Comcast's proposed usage-based billing model and the resulting high fees for exceeding data caps in the next five years. Neither Comcast nor Time Warner Cable can count customer service as a core strength, as reported by major national consumer surveys, but numerous customer service horror stories shared online by customers frustrated in their attempts to change or cancel Comcast service paint a vivid picture of how much worse things could get for LA consumers. Comcast is currently under investigation by the California Public Utilities Commission for disclosing unlisted phone numbers, a service customers pay for, over a period of two years. Some customers had unlisted numbers because of personal safety or domestic violence concerns. Comcast claims that it doesn't track broadband outages in California (Time Warner and Charter do) so we do not know how reliable its network is. However, Comcast and Time Warner Cable have similar numbers of California customers, but Comcast reported twice as many "escalated complaints" about broadband as TWC reported for all three of its services.
West Hollywood residents that are Dodgers and Lakers fans will likely face a choice of watching fewer games or paying a higher price to watch their home teams if the merger is approved. Time Warner Cable owns the regional sports networks (RSNs) that
broadcast Lakers and Dodgers games. TWC has already used control of 140 regular season Dodgers games to demand excessive fees from competing pay TV distributors. TWC is reportedly demanding $4-$5 per month per subscriber for SportsNet LA, which would make it one of the most expensive RSNs in the country, according to estimates. Currently 70% of local pay television customers do not have access to the Dodgers channel because TWC is demanding such a high price. Research has demonstrated that when a cable company owns an RSN, the prices for that network go up and the
availability to competitors goes down. The research also found that the problem only gets worse as the cable company gets larger. When an RSN is owned by a cable or satellite operator, the RSN charges rival distributors a significantly higher license fee. Most significantly, the vertical integration premium increases significantly with the local downstream market share of the RSN's affiliated distributor. Comcast intends to acquire both TWC and Charter Communications cable systems locally, making it an even larger local provider than TWC has been. Combined with Comcast's control of local NBC and Telemundo broadcast stations and its suite of almost 20 basic cable networks, it will have the power to demand ever-increasing fees for access to this unique local content. This merger will have troubling consequences for writers and others in the
entertainment industry because it will give one company too much power over content. This will affect how much and what type of content is made, which could have negative implications for employment in one of this region's most important industries.
Comcast has told the FCC that it expects to save $1.5 billion in the first three years following the merger and $1.5 billion each year thereafter. Comcast has attributed some portion of this to programming cost savings from paying lower rates to carry television networks than TWC does. The problem is that these fees, paid by cable companies to television networks and other content suppliers, have helped finance television's recent creative renaissance.
As a result of the merger, content suppliers will have less money to invest in content, which could mean less creativity, fewer jobs and lower quality productions. The merger also threatens the growing online video distribution market. Comcast would control half of the high-speed broadband market and, as the largest pay TV distributor and major television network owner, has strong incentives to limit the growth of competing alternatives. With control of broadband, it will have the power to implement practices that harm unaffiliated online video distributors.
Comcast has already engaged in such behavior in its interconnection dispute with Netflix. By refusing to upgrade connections to handle the Netflix traffic that Comcast consumers were demanding, Comcast was able to extract higher fees from Netflix. Netflix has said that the fees are 150% more than its combined costs for transit,
hardware, engineering and colocation to deliver Comcast subscribers' data.27 Comcast can use its control of interconnection to charge companies like Netflix or Amazon for access to consumers. This will raise costs for online video distributors, which could mean less investment in content.
The City of West Hollywood should call on the Federal Communications Commission, the Department of Justice and the California Public Utilities Commission to reject the proposed $45 billion merger of Comcast and Time Warner Cable because the deal is not in the public interest of the residents of West Hollywood.
This resolution will oppose the Time Warner Cable - Comcast Corporation merger and will be sent to the Federal Communications Commission, the Department of Justice and
the California Public Utilities Commission to register the City of West Hollywood's opposition to the merger.
EVALUATION:
Staff will track the progress of the Time Warner - Comcast merger as it moves through the approval process with both the Federal Communications Commission, the Department of Justice, and the California Public Utilities Commission.
ENVIRONMENTAL SUSTAINABILITY AND HEAL TH: N/A
CONFORMANCE WITH VISION 2020 AND THE GOALS OF THE WEST HOLLYWOOD GENERAL PLAN:
This item is consistent with one of the City's ongoing strategic goals of actively
participating in regional issues and enhance technology and expand access for the City and its citizens.
Additionally, this item is consistent with our General Plan goals of: Provide excellent customer service, including utilization of emerging technologies (G-3), Provide citywide access to high-quality water, gas, electricity and telecommunications services (IRC-2). OFFICE OF PRIMARY RESPONSIBILITY
Office of Mayor John D'Amico and Legal Services and Legislative Affairs Division. FISCAL IMPACT:
RESOLUTION No. 15 -
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A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST HOLLYWOOD
IN OPPOSITION TO THE PROPOSED MERGER OF COMCAST CORPORATION AND TIME WARNER CABLE
WHEREAS, the City of West Hollywood has a long standing history of supporting human rights; and
WHEREAS, Comcast Corporation and Time Warner Cable Inc. (TWC) have filed applications seeking Federal Communications Commission (FCC) approval to transfer control of the licenses and authorizations held by Time Warner Cable and its wholly-owned and controlled subsidiaries to Comcast (FCC's Comcast-Time Warner Cable, MB Docket No. 14-57); and
WHEREAS, this merger also requires investigation by the United States Department of Justice (USDOJ) to determine whether the agreement would violate antitrust laws and the California Public Utilities Commission (CPUC) is scheduled to vote on March 26th on the proposed transfer of licenses currently held by TWC; and
WHEREAS, this consolidation of the largest cable television providers would create a media juggernaut that would stifle completion and hurt West Hollywood consumers who would ultimately pay higher prices for even worse service; and
WHEREAS, substantial concerns exist about Comcast's potential for abuse since it has become a content provider with its acquisition of NBCUniversal and by controlling the means of distribution via cable TV or the Internet, Comcast will be able to unfairly promote its content over the content of other providers, limiting choice for consumers; and
WHEREAS, further concerns center around the fact that, if approved, Comcast will control 30% of the pay TV market and 50% of high-speed broadband connections nationally. In addition, Comcast intends to acquire certain cable systems from Charter Communications, including those in LA County, which will increase Comcast's regional concentration in Southern
California to 96% of Los Angeles County's population; and
WHEREAS, if the merger is approved, West Hollywood residents are almost certain to face higher prices, the implementation of anti-consumer policies that limit access to content and the ability to use the device of their choice and even worse customer service. Standalone broadband is also likely to become more expensive for West Hollywood residents because almost all of Comcast's
California prices are higher than TWC's. Currently, TWC provides customers access to unlimited broadband;Comcast executives have stated that the company envisions moving to a "usage-based billing model" for all customers within the next five years. Comcast's acquisition of WC would also impact low-income residents who could lose TWC's valuable standalone 3 Mbps Internet offering for a non-promotional price of $14.99 per month. In contrast, Comcast's lowest-cost standalone Internet offerings in California are 3 Mbps for $39.95 per month; and
WHEREAS, Comcast is currently under investigation by the CPUC for disclosing unlisted phone numbers, a service customers pay for, over a period of two years. Some customers had unlisted numbers because of personal safety or domestic violence concerns; and
WHEREAS, as a result of the merger, content suppliers will have less money to invest in content, which could mean less creativity, fewer jobs and lower quality productions. The merger also threatens the growing online video distribution market. Comcast would control half of the high-speed broadband market and, as the largest pay TV distributor and major television network owner, has strong incentives to limit the growth of competing alternatives. With control of broadband, it will have the power to implement practices that harm unaffiliated online video distributors; and
WHEREAS, this resolution opposes the proposed merger of Comcast Corporation and TWC and calls on the FCC, the USDOJ, and the CPUC to reject the proposed $45 billion merger of Comcast and TWC because the deal is not in the public interest of the residents of West Hollywood; and
NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of West Hollywood does hereby opposes the proposed merger of Comcast Corporation and TWC.
