Any Challenges to DOJ, FCC OK of Comcast-NBCU Would Face Many Hurdles

It’s unusual for a judge to seek wholesale changes in a merger consent decree, even if aggrieved parties call for them, said lawyers including Senior Vice President Andrew Schwartzman of the Media Access Project and Public Knowledge Legal Director Harold Feld. Opponents of DOJ settlements with merging companies sometimes avail themselves of the public comment period under the act, Schwartzman said. “Only in the rarest of instances do they get anywhere,” he said.

"The Tunney Act review is pretty pro forma,” said Feld, whose group opposed the deal and backed Justice’s consent decree with Comcast. “Given that the parties are all going to agree to it, I am hard pressed to think of who is likely to file against it. There may be some folks that might file on general principle, but the fact is that what distinguishes this from say the FCC order … is this is an antitrust settlement affecting one company.” Feld said he wouldn’t predict “any significant challenge” from those who might have wanted fewer DOJ conditions, “especially given that it doesn’t have much of a chance."

Lawyers for industry and nonprofits said they had heard of no lawsuits in the works against the FCC. The commission, unlike the DOJ, hasn’t released its order yet. Once the FCC order is released, which agency officials said should happen this week, there are 30 days for the regulator to be sued in the U.S. Court of Appeals for the D.C. Circuit or for a petition for reconsideration to be filed with the FCC, said Schwartzman. His law firm, a frequent opponent of media consolidation, represented Free Press at the FCC on Comcast-NBC Universal. That group won’t consider whether to sue until it sees the FCC’s order, said Policy Counsel Corie Wright. In the deal, “I think the DOJ did a better job under its mandate” of enforcing antitrust law “than the FCC did under its mandate” over the public interest, she said.

Most petitions for FCC reconsideration of deal approvals are narrow and don’t seek to overturn the transactions, Schwartzman and other lawyers said. In this deal, “a big petition for reconsideration is unlikely,” because “nothing was overlooked here,” Schwartzman said. “The more likely reconsideration petitions would be on one small detail.” Free Press has “some concerns about how the process was done” at the commission and about the inability of the group and others to Comcast’s carriage contracts, “which we think have important bearing on the record,” Wright said. It’s unlikely Public Knowledge will seek FCC reconsideration, Feld said. “We don’t see any reason that the commission would change its mind as a result of a petition for reconsideration, so we don’t see anything going on here.” Public Knowledge will watch FCC enforcement of the conditions carefully, Feld said.

Because a judge likely will approve the consent decree with requirements on net neutrality and selling programming from Comcast-NBC Universal to online video distributors, it would be “pretty pointless” to sue the FCC over similar conditions in the commission’s order, said Feld. “Since it’s already in the DOJ consent decree, even if the FCC got rid of it, it wouldn’t help. People rarely appeal from a merger. It’s a very difficult standard, because the court is looking at something that all the parties have agreed to something."

Investors Unfazed

Groups opposed to FCC net neutrality rules would seem to have a better chance suing over the commission’s Dec. 23 order than appealing Comcast-NBC Universal to the D.C. Circuit, said President Randolph May of the Free State Foundation, which sought few conditions in the deal. “It would seem more logical to take on net neutrality head-on.” Any appellant “would have a hard time challenging what is a voluntarily offered condition by Comcast and NBCU” to the commission, May said.

Key members of Congress continue to offer mixed reviews on Comcast-NBC Universal. House Judiciary Committee Chairman Lamar Smith, R-Texas, is “disappointed that the review took so long” and ended more than a year after the deal was struck, he said. “I am concerned that the Justice Department and FCC used this merger to impose the Obama Administration’s net neutrality agenda on Comcast and its customers.” Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va., said he’s disappointed that “consumer protections” weren’t stronger. “I wish the FCC had made an effort to hold down consumer cable rates in this transaction, because rates that rise as much as three times the rate of inflation deserve a close look,” Rockefeller said. “I hope that competitors will provide new pressure on these rates and bring consumers more choices as the video market continues to evolve, but I intend to have the committee keep a close watch on this issue going forward."

Most of the deal conditions are inconsequential, Evercore Partners analyst Bryan Kraft wrote investors. “The only condition we are disappointed with is the online video condition, but we think it is manageable, particularly if the other entertainment companies behave rationally.” Those online video conditions could actually benefit Comcast-NBC Universal, Wells Fargo’s Marci Ryvicker wrote. Before FCC approval, investors’ biggest fears were that Comcast would be required to provide its online content to all pay-TV operators and that the content would have price caps, she said. “Neither of these fears came true.” The online video distributor (OVD) conditions could be good for Comcast because they're limited, she said. An OVD that didn’t already carry one of the networks of NBC Universal’s FCC-defined peers would probably pay a higher rate to carry NBCU programming and would have to seek access to the full linear NBCU lineup, she said. That’s because the OVD would have to compensate NBCU for lost revenue, such as for ads to the smaller subscriber base offered by an online distributor, Ryvicker said.

Collins Stewart’s Thomas Egan raised his rating on Comcast shares to “buy.” Now that regulators have approved the deal, Comcast should begin returning cash to shareholders faster, he said. Sanford Bernstein’s Craig Moffett said the approval should set the table for a more substantial share buyback program. “The question now is what Comcast will do with its cash,” he wrote investors. “It should be self evident that more M&A is, for the foreseeable future, off the table."

Nothing in the conditions will boost the prospects that online video distributors will get more access to high-quality video programming, BTIG Research’s Richard Greenfield wrote. Traditional pay-TV providers “will launch a wide array of authenticated services in 2011, illustrating their ability to offer content that standalone OVDs simply will not have access to,” he said. The analyst said the conditions won’t make it any easier for Netflix to license NBC Universal programming, and that maintains the importance of Netflix’s agreements with Starz.