Comcast’s burden

The initial comment period in the FCC’s review of Comcast’s proposed acquisition of Time Warner Cable has now closed and the commission has received over 64,000 submissions. We don’t yet have a tally of the breakdown between pro- and anti-merger comments, but if history is a guide the majority of those who would have bothered to file comments likely oppose the deal.

For a good road map to how and why the deal is likely to be approved anyway (albeit perhaps with conditions) see Monday’s long blog post by Comcast executive VP and chief diversity officer David L. Cohen, in which he catalogs the many governors, mayors, community organizations, non-profits and “over 100 diversity groups” that have endorsed the merger. It’s a fair bet that nearly every one of those pro-merger comments represents a political marker collected over years of careful and assiduous favor-doing, fund-raising, back-scratching and deal-cutting, often by Cohen himself, that is now being called in.

That’s not a knock on Comcast. That’s just the way the game is played (for better or worse) and few play it better than Comcast. Though the FCC is nominally an independent agency, its chairman is a political appointee of a Democratic president, and many of the elected officials and groups Cohen has lined up in support of the deal are either Democrats themselves, or strongly affiliated with the Democratic party and their views are unlikely to be ignored.

In his blog post, Cohen also offers a carefully parsed rebuttal of the main objections to the deal raised by opponents, dismissing them as either unsupported by evidence, beyond the scope of the FCC’s transaction-review authority, or too general to be “transaction-specific.”

What Cohen does not do is offer a very compelling affirmative case for the deal, or for why it should be considered to be in the public interest. About the closest he comes is this:

This transaction will allow us to bring more investment and technology and new services – such as faster Internet speeds, a more reliable and more secure network, net neutrality protection, low-cost Internet access, and programming diversity – to more American homes and businesses.  The primary reasons we are pursuing our merger with Time Warner Cable is because it will provide us the increased scale to invest and innovate more in both residential and business services.  Here the scale efficiencies are key because we are in a sector where most of our costs are fixed, or at least do not grow proportionally to the increase in scale. Increased scale equals larger investments in R&D, innovation, and infrastructure to enable us to compete more effectively in this incredibly dynamic marketplace.   Plus, when we have the scale to increase investment in more markets, our competitors will invest too, which will benefit more consumers. 

Sounds swell, but none of those purported benefits is any more “transaction-specific” than the objections raised by opponents. There is no technical, legal or regulatory obstacle to Comcast investing in faster Internet speeds or a more secure and reliable network today, and certainly none that merging with Time Warner Cable (or anyone else) would remove. The only thing stopping it is its likely short-term impact on Comcast’s earnings.

The “scale efficiencies” Cohen is talking about are simply a matter of earnings management and shareholder return. It’s not clear to me why those are properly the concern of the FCC let alone in of public interest.

Of course, scale can sometimes translate into a lower cost of capital, or free up capital for investment. But there’s nothing like a firm commitment in Comcast’s application for approval that any additional resources resulting from the merger would be deployed as Cohen is suggesting. His promises are just as speculative and unsupported by evidence as the parade of horribles marshaled by opponents of the deal. Why should one be given any more weight than the other?

As a statutory matter, Comcast has the burden of proof to demonstrate that the proposed transaction is in the public interest, not merely to rebut objections to it. As a practical political matter, the FCC is likely looking for some way to approve the deal. At a minimum, it should hold Comcast firmly to its promises of greater access, improved service and higher broadband speeds.