U.S. OK of Comcast-NBCU Contains Several Internet Conditions

That’s one of several web conditions from the first draft of the commission order, circulated Dec. 23 by Chairman Julius Genachowski, that remained in the revision sent to commissioners Monday night, an FCC official said. The commissioners approved the deal 4-1 in an order that an FCC official said included few changes from the first draft. Commissioner Michael Copps dissented and Commissioners Meredith Baker and Robert McDowell concurred. The joint venture “opens the door to the cable-ization of the open Internet,” Copps said. “The potential for walled gardens, toll booths, content prioritization, access fees to reach end users, and a stake in the heart of independent content production is now very real.”

To Baker and McDowell, the review “exceeded its statutory bounds,” with a “wide-ranging regulatory exercise notable for its ‘voluntary conditions'” that aren’t deal-specific, they wrote jointly. The order “has the potential to shape the future of entire industries, including the nascent online video market, on the basis of a record that is by necessity limited to facts” pertaining only to Comcast and NBC Universal, they said, and it “fails to recognize that the contours of our collective video future are best shaped outside the Beltway.” The chairmen of the House Commerce Committee and its Communications Subcommittee criticized what they saw as the deal’s net neutrality provisions. The deal curbs are targeted at Comcast-NBC Universal and specific to that transaction, a commission official told reporters.

The FCC’s Internet condition applies to any web content considered to compete with Comcast-NBC Universal’s, not just Internet video, a commission official said at a news briefing held under the ground rules that staffers couldn’t be identified by name or directly quoted. The condition is contained in the ordering clauses of the document, which will be publicly released Wednesday or Thursday, another official told reporters. The order notes that Comcast voluntarily agreed to the condition, a change from the Dec. 23 draft, an FCC official told us. Comcast can’t “disadvantage rival online video distributors through its broadband Internet access services and/or set-top boxes,” the FCC said in a news release (http://xrl.us/bie77o). The company also can’t “enter into agreements to unreasonably restrict online distribution of its own video programming or programming of other providers,” it said.

"Traditional and online rivals need access to NBCU programming, including the NBC broadcast network, to compete effectively against Comcast,” said a court complaint Tuesday in U.S. District Court in Washington by DOJ’s Antitrust Division, whose deal review was also done on behalf of California, Florida, Texas and two other states. “The joint venture must make available to online video distributors (OVDs) the same package of broadcast and cable channels that it sells to traditional video programming distributors.” The commission is creating a similar condition. Comcast-NBC Universal must offer an OVD broadcast, cable and movie content package like what conventional video programming distributors get from ABC and Disney, CBS, Fox, News Corp., Time Warner, Sony and Viacom, or better than that programming, says a proposed consent decree that Comcast is agreeing to in settlement of the suit. The consent decree had been expected, said a cable lawyer watching the deal closely. Decrees of this kind typically come from the antitrust enforcer in large deals that it doesn’t fight in court, the lawyer said.

Comcast must give up its management rights in Hulu, which DOJ said it considers an OVD, the department said. “Comcast also must continue to make NBCU content available to Hulu that is comparable to the programming Hulu obtains from Disney and News Corp.,” which also own stakes in the sharing website for broadcast network video, Justice said. “Comcast may not retaliate against any broadcast network (or affiliate), cable programmer, production studio or content licensee for licensing content to a competing cable, satellite or telephone company or OVD, or for raising concerns to the department or the FCC.”

Adhering to the FCC’s December net neutrality order, DOJ said it barred Comcast from “unreasonably discriminating in the transmission of an OVD’s lawful network traffic to a Comcast broadband customer.” The cable operator must also keep up its broadband service by continuing to sell access to download speeds of at least 12 Mbps in markets where it has upgraded its network, Justice said. “Comcast is required to give other firms’ content equal treatment under any of its broadband offerings that involve caps, tiers, metering for consumption or other usage-based pricing; and Comcast may not, with certain narrow exceptions, require programmers or video distributors to agree to licensing terms that seek to limit online distributors’ access to content."

The DOJ curbs allow “online competitors to step into the shoes” of a pay-TV company and “to have a fair opportunity” to compete with Comcast-NBC Universal “unimpeded by the joint venture,” Assistant Attorney General Christine Varney, who heads the Antitrust Division, told reporters. The department “will ensure that Comcast does not discriminate against its own managed services and other broadband content,” she said. The curbs aren’t “an effort to shape a marketplace,” Varney said. “The parties really believed that there was a solution to the competitive concerns that we raised.” To qualify as an OVD under the deal, an Internet video company must follow the same contract terms that a pay-TV provider would, she said. Comcast agreed to be bound by the consent decree, which a judge will decide on after seeking comment, Varney said.

The deal’s approval is meant to “spur broadband adoption among underserved communities” and to “increase broadband access to schools and libraries” while increasing news coverage, kids’ TV and Spanish-language programming, Genachowski said. “The conditions include carefully considered steps to ensure that competition drives innovation in the emerging online video marketplace.” The FCC’s review of Comcast-NBC Universal was among its “most rigorous,” Commissioner Mignon Clyburn said. “It is with far more comfortable optimism than fearful skepticism that I vote to affirm the joint venture."

Deal curbs last seven years unless specified otherwise in the order, a commission official told reporters. That was what the first draft provided. The order requires Comcast to sell programming to any “bargaining agent” acting on behalf of pay-TV providers that each have 1.5 million subscribers or fewer, said a commission official and an industry official. The Dec. 23 draft had limited participants to 400,000 subscribers, they said. The cost of making complaints to the FCC that a pay-TV provider couldn’t get access to programming owned by Comcast-NBC Universal would be borne by the combined company if it lost the case, said the FCC and industry officials. The order wouldn’t require Comcast to be repaid its legal costs if it wins, they said. Companies with 600,000 subscribers or fewer could quality for that one-way fee shifting condition, the FCC official said.

Comcast and GE still expect to complete the deal this month, Comcast Executive Vice President David Cohen told investors and reporters. The companies had delayed their target date from the end of 2010 as FCC and DOJ review continued (CD Dec 23 p3). “None of these commitments or conditions” will hurt the companies’ ability to run themselves the way “in which we intended” or hurt their “competitive positioning,” Cohen said. “None of them will prevent the company from being competitive in any of its markets.” A summary of the companies’ pledges is at http://xrl.us/bie78c.

The price of the deal shouldn’t be “coerced compliance with the heavy-handed tactics of an overreaching FCC,” said three House Commerce Committee leaders. “The FCC’s efforts to circumvent both the free market and courts by railroading job- and investment-harming net neutrality provisions, as well as regulation of nascent Internet-distributed video, represent more of a Chicago-style shakedown than the thoughtful deliberation this transaction deserved,” said committee Chairman Fred Upton of Michigan, Vice Chairman Lee Terry of Nebraska, and Communications Subcommittee Chairman Greg Walden of Oregon, all Republicans. “We will be examining whether changes in the FCC’s transaction review process are needed as we exercise congressional oversight in the weeks to come.”

Sen. John Kerry, D-Mass., backed the government approval. It “reflects a thoughtful effort to keep pace with advances in communications without sacrificing consumer protections,” he said. Deal critic Sen. Bernie Sanders, I-Vt., said he’s “deeply disappointed.” But Senate Antitrust Subcommittee Chairman Herb Kohl, D-Wis., said DOJ and the FCC “took a strong stand for consumers and competition."

Groups seeking to block the deal predictably slammed its approval. A “Comcastrophe,” said Executive Director Josh Silver of Free Press. Comcast-NBC Universal will have a “devastating impact on free speech,” said the Media Access Project. “Free expression online and on television will be worse off,” said MAP Senior Vice President Andrew Schwartzman. Other groups opposed to the deal were more sanguine.

The FCC and Justice conditions “are significant” and “could help to limit anti-consumer, anti-competitive behavior by Comcast-NBCU,” said Policy Counsel Parul Desai of Consumers Union. Defining the video market as including OVDs is “critical to promoting a more competitive, consumer-friendly video market,” said Research Director Mark Cooper of the Consumer Federation of America. Public Knowledge has “trust” that DOJ “will monitor closely” the combined entity “to make certain Comcast fulfills all the conditions to which it agreed,” said Legal Director Harold Feld. The American Cable Association said it considers the curbs “meaningful.” President Matt Polka said the FCC took steps “to ensure that arbitration represents more real and less conjectural relief for the independent cable operator community than in the past.” --

State of the Net Notebook

Calling net neutrality a “poor policy,” Neil Fried, House Commerce Committee counsel, said the committee plans to challenge the FCC’s order by using the Congressional Review Act. There’s a procedural window, he said on a State of the Net panel late Tuesday. Once details of the net neutrality rules are released, a 60-day clock will start, he said. Roger Sherman, chief Democratic counsel to the House Communications Subcommittee, said the FCC’s order is balanced and takes into consideration interests including those of public interest groups and the industry. He urged regulators to focus on other important issues like spectrum, intercarrier compensation and access revamp. “Most people are fairly confident that President [Barack] Obama would veto this,” he said. While the committee wants to move forward with other issues like spectrum, it’s not comfortable with the way the FCC uses its authority, Fried said, adding that other priorities like spectrum auctions also involve the commission’s authority. The speakers agreed that spectrum is a bipartisan issue. Privacy also is a bipartisan issue, but it will be hard to reach consensus, Fried said.

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Cloud computing is complex in a policy environment, said Roger Cochetti, principal at RJC Associates. Cloud computing separates the end user, vendor and operator, he said at the conference. “In many instances the merchant isn’t the data base operator.” It penetrates every facet of consumers’ lives, Cochetti said. It’s also affected by globalization, partly driven by reductions in telecom expenses, he said. This makes it possible to link networks that might have been disparate, permitting the storage and processing of data to occur almost anywhere on the planet, he said. “Each place your data is stored is a place where potentially something can go wrong,” said Ed Felten, the FTC’s chief technologist. Although this calls for more vigilance, “I don’t think there are major changes in terms of security we need to put in place,” he said. Companies are responsible for adequate data protection, he added. The FTC is working to make sure that consumers understand the options and trade-offs when considering cloud, Felten said. International governments must agree on what practical issues take priority regarding cloud computing, said Philip Verveer, international communications coordinator for the State Department. “We need to find some way to bring these areas into harmony, so we can have as many common expectations as possible."

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New York University’s Polytechnic Institute teamed up with Health Data Management magazine to launch a healthcare software testing site. The site, Health Data Tech Labs, will give physicians and hospitals “expert, independent reviews of electronic health records software,” the magazine said. Users can create reports that evaluate installation and maintenance, system configuration and user training and “test drive use-case scenarios.” The reports also provide a unique self-evaluation process “that enables professionals to match systems to their own specific requirements,” the magazine said.

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The Senate is “really behind the eight ball” on passing a comprehensive cybersecurity bill early this year, said Tommy Ross, defense and intelligence aide to Sen. Majority Leader Harry Reid, D-Nev., Tuesday at a conference. Reid will wait for the Obama administration to put together a long-promised cybersecurity proposal, before moving forward, Ross said. Reid’s office still has work to do to put together a comprehensive cybersecurity proposal, he added. Reid’s office spent much of last year trying to piece a proposal together but didn’t finish before Congress adjourned. The Senate must work with the House on a proposal before shopping it to industry, Ross said. “That is a lot of work, and getting it done early this year may seem ambitious,” he said.

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Protecting consumers’ privacy online requires legislation to put pressure on self-regulatory efforts, said Justin Brookman, consumer privacy project director at the Center for Democracy & Technology. “I worry that if we don’t pass legislation, then the self-regulatory efforts are going to fade away,” he said on a panel at the State of the Net conference in Washington. “Privacy policies aren’t really meaningful to consumers,” as the FTC privacy report draft noted, he added. “We hear about the benefits of privacy regulation but not about the harm,” said Declan McCullagh of CNet. The industry already operates under a constellation of regulation, he said. Maybe the existing regulatory environment doesn’t reach the outcome some privacy advocates would like, “but that doesn’t amount to market failure,” he said. The test of the effectiveness of self-regulation is the level of innovation in society, said Stuart Ingis, a privacy lawyer at Venable. “Had we put in place some the types of proposals or restrictions, ... I'd argue that many of the Googles and Facebooks and great companies wouldn’t exist,” he added. Better self-regulation also can be driven by the attention given to privacy in the media and government, the participants agreed.