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FCC Approves Adelphia Deal

As expected, the FCC Thursday approved--by a 4-1 vote--Comcast and Time Warner's $17.6 billion purchase of bankrupt Adelphia Communications, with the two dividing up the systems.

Democrat Jonathan Adelstein joined the Republicans in voting for the deal, leaving only Democrat Michael Copps opposing. Adelstein did dissent in part, saying the commission should have imposed network neutrality conditions, a deficit that also troubled Copps.

Adelstein said, on balance, that the more compelling interest was to get Adelphia out of bankruptcy and improve service to its customers. It has been "rotting on the vine," in the interim, he said.

The merger, said the commission, serves the public interest, complies with all rules and statues and whatever public interest harms there might be are outweighed by public interest benefits, including principally system upgrades that will bring high speed voice and data, HDTV and video on demand to Adelphia's systems that are upgraded, and resolving the Adelphia bankruptcy.

The key conditions the FCC did put on the merger had to do with regional sports networks. Comcast and Time Warner must put disputes over pricing or access to its regional sports networks (RSNs) to arbitration. The companies also cannot deny access to its sports networks to other multichannel programming providers, with, as expected, a carve-out for Philadelphia.

But Adelstein got a caveat to that carve-out to grandfather providers already carrying the Philly sports net.
That was not lost on cable company RCN, not to be confused with RSNs.
This order is significant for RCN, said a company source, because, "in every market, including Pennsylvania for us, Comcast cannot use the terrestrial loophole to deny regional sports programming, nor can they enter into exclusive contracts for sports programming and we have the right to arbitrate. So, not only are we grandfathered for RSN access in Pennsylvania, but we have the right to arbitrate.Comcast can still use the terrestrial loophole to deny access to the satellite companies and Verizon, but not us."

The decision does close the terrestrial loophole for regional sports networks, which means that program access rules will now apply to landline-delivered RSNs, except those not grandfathered in Philly. Previously, they only applied to satellite-delivered programming. "The conditions apply regardless of the means of delivery," the FCC said. "Terrestrial means are included."

Comcast and Mid Atlantic Sports Network (MASN) will now have to submit their dispute to binding arbitration, which means likely resolving a fight that has kept the Washington Nationals baseball games out of many Washington homes. That was an issue that many on Capitol Hill had pushed the FCC to address. New Commissioner Robert McDowell was given credit for working on that issue.

There is not guaranteed outcome to that arbitration, however, only a guarantee of arbitration, which is a two-step process. First, the arbitrator must decide whether there was an unlawful process, if so, then in a second step, the two parties make their best carriage deal, and the arbitrator picks one.
If the arbitrator found no illegality in the impasse, however, no final arbitration would be triggered.
McDowell had some strong words for the FCC, saying it had been slow to resolve and address program carriage issues. He said he wholeheartedly supports launching a review of program access rules, which the FCC also agreed to do.

"The MASN complaint has been left to rot in some small crypt in this building," he said. McDowell said it had become clear to him that complaints wait too long for action, attributing it to an "indolent bureaucracy's failure to obey simple congressional mandates." To that end, he praised the decision to put a shot clock on resolving those complaints.

The conditions on the merger sunset after six years.

Competitors, congressmen and media reform activists had all called for some conditions on the merger, which allows the top two cable MSO's, Comcast and Time Warner, respectively, to get even bigger. Chairman Kevin Martin had telegraphed his intention to put some programming access conditions on the deal, particularly after input from many complaining of the access to home team sports broadcasts that Comcast controls.

Copps was unhappy that there were not tougher program access and other conditions, saying that "while rescuing Adelphia is laudable, the anticompetitive combination of assets is not."

Copps said nothing in the order "rebuts the truth that less competition means higher prices." It is big media getting bigger, he said, without sufficient protections from dominating programming and potentially broadband access as well.

That sentiment was echoed by Andrew Jay Schwartzman, President of Media Access Project, one of the groups that had called for conditions on the merger. "We got some of what we asked for, which is a lot more than anyone thought when this all started," he said. "But nothing will fix the regional monopolies created by this deal. And without Net Neutrality, the future of the democratic and open Internet remains in doubt."
Martin said he did not believe that network neutrality conditions were called for absent any showing of present harm, but said the FCC would stand by its four network neutrality principles and monitor for potential harms..
Copps also took issue with the regional sports remedies. He said arbitration was a positive step, but opposed the carve-out for Philadelphia.

Time Warner Cable and Comcast will divvy up Adelphia systems serving 5.2 million subscribers scattered across 31 states. The two cable operators will further swap systems from their existing portfolios to create stronger geographic clusters.

The deal will allow Time Warner to emerge as the largest cable operator in the Los Angeles market, which has been the most fragmented major market in the country.

The deal will also allow Comcast to fulfill its promise to regulators to unwind its 21% ownership of Time Warner Cable, something inherited in a past deal. Antitrust regulators frowned on such a significant link between the two largest cable operators—a legacy of the AT&T deal. As part of the various system swaps, Comcast will give Time Warner that stock back.

Friedman Billings Ramsey analyst Brian Coyne said two weeks ago that the analysts sees major system upgrades, and cable tech fortunes, spurred by the decision to allow Comcast and Time Warner to divvy up Adelphia's almost 5 million basic subs.

The FCC had pledged to move on its decision on the sale of Adelphia by the Aug 31 deadline for the deal to close--pushed back from an initial Aug. 31 deadline.

At the end of the day, Time Warner will grow from 10.9 million subscribers to 14.4 million. FCC Chairman Kevin Martin had wanted to move earlier on the merger approval, but was deadlocked with a 2-2 commission until recently, with the two Democratic commissioners wanting stronger conditions put on the merger.
Ultimately, the conditions were sufficient to win over Adelstein to the majority.

In addition, Adelphia has been in protracted bankruptcy proceedings that affected the timing of the approval as well. 

Coyne noted that Comcast alone plans to spend $150 million to upgrade the Adelphia systems
and Time Warner potentially more since it is getting more systems out of the deal.

In fact, Commissioner Adelstein said Thursday that the two had committed to $1.6 billion in upgrades between them.

The FCC Released the following outline of the conditions:

  • •      A Regional Sports Network is defined as any non-broadcast video programming service that (1) provides live or same-day distribution of sporting events within a limited geographic region of a sports team that is a member team of Major League Baseball, the National Basketball Association, the National Football League, the National Hockey League, NASCAR, NCAA Division I Football, or NCAA Division I Basketball, and (2) in any year, carries a minimum of either 100 hours of programming that meets the criteria of  subheading 1 or 10% if the regular season games of at least one sports team that meets the criteria of subheading 1.•       Neither Comcast nor Time Warner may offer an affiliated Regional Sport Network on an exclusive basis to any MVPD.•       Neither Comcast nor Time Warner may unduly or improperly influence (i) the decision of any affiliated Regional Sports Network to sell programming to an unaffiliated MVPD; or (ii) the prices, terms, and conditions of sale of programming by a affiliated Regional Sport Network to an unaffiliated MVPD.•       If an MVPD and an affiliated Regional Sports Network cannot reach an agreement on the terms and conditions of carriage, the MVPD may elect commercial arbitration of the dispute.•       The above conditions apply regardless of the means of delivery.  Comcast SportsNet Philadelphia, however, is not subject to the conditions, except to the extent that the service is already being carried by MVPDs other than Comcast. 
  • •       If an unaffiliated Regional Sports Network is unable to reach a carriage agreement with Comcast or Time Warner, it may elect commercial arbitration of the dispute.•       If an unaffiliated programming network is unable to reach an agreement pursuant to the Commission's commercial leased access rules with Comcast or Time Warner, it may elect commercial arbitration of the dispute, where the arbitrator would be directed to resolve the dispute using the rate formula specified in the Commission's rules.--John Higgins contributed to this report.

Affiliated Regional Sports Networks:

Independent Programming: