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ADELPHIA COMMUNICATIONS CORPORATION, DEBTOR-IN-POSSESSION, TIME WARNER INC. AND COMCAST CORPORATION SEEK APPROVAL TO TRANSFER CONTROL AND/OR ASSIGN FCC AUTHORIZATIONS AND LICENSES 05-192 Released: June 2, 2005 Comments/Petitions Due: July 5, 2005
Responses/Oppositions to Petitions Due: July 20, 2005
On May 18, 2005, Adelphia Communications Corporation (“Adelphia”), Time Warner Inc. (“Time Warner”) and Comcast Corporation (“Comcast”) (collectively, “Applicants”) submitted joint applications to the Commission seeking consent to transfer control of and/or assign various Commission licenses and authorizations pursuant to Section 214 and 310(d) of the Communications Act of 1934. The proposed license transfers and assignments are associated with a series of transactions (“Transactions”) that when completed will effectuate the sale of certain cable systems and assets of Adelphia and its affiliates and related entities to subsidiaries or affiliates of Time Warner; the sale of certain cable systems and assets of Adelphia to subsidiaries or affiliates of Comcast; the exchange of certain cable systems and assets between affiliates or subsidiaries of Time Warner and Comcast; and the redemption of Comcast’s interest in Time Warner Cable Inc. (“Time Warner Cable”) and Time Warner Entertainment Company, L.P. (“TWE”).
The proposed Transactions involve a series of agreements whereby Time Warner Cable and Comcast separately will acquire various cable systems that, in the aggregate, comprise substantially all of the domestic cable systems owned or managed by Adelphia for a total of $12.7 billion in cash. Adelphia provides cable service to approximately five million subscribers, making it the fifth largest cable television company and the seventh largest multichannel video programming distributor (“MVPD”) in the United States. Comcast is the nation’s largest MVPD and will remain so upon completion of the Transactions. Today, Comcast states that it serves approximately 26.1 million subscribers in 35 states and the District of Columbia, or 28.2% of MVPD subscribers nationwide. Time Warner Cable states that it owns or manages cable systems serving 13.1 million cable subscribers in 27 states, making it the nation’s second largest cable operator and third largest MVPD.
As part of the initial phase of the overall transaction, in accordance with separate purchase agreements, Time Warner NY Cable (TWNY), a wholly-owned subsidiary of Time Warner Cable, and Comcast will each acquire a portion of substantially all of the cable systems owned or operated by Adelphia (the “Adelphia transactions”). Time Warner Cable will pay $9.2 billion in cash and issue common shares totaling 16% of Time Warner Cable’s outstanding common equity to Adelphia stakeholders. Comcast will pay $3.5 billion in cash. Each of the Adelphia transactions is conditioned upon contemporaneous consummation of the other. The Adelphia transactions are not dependent on the occurrence of the additional system swaps and redemption transactions between Time Warner Cable and Comcast.
Upon consummation of the Adelphia transactions, Time Warner Cable and Comcast will exchange certain cable systems owned by affiliates of Time Warner or Comcast, respectively, together with certain cable systems to be acquired in the Adelphia transactions. In the exchange transactions, Time Warner Cable will receive current Comcast systems located in or around Los Angeles, California; Cleveland, Ohio; and Dallas, Texas, and systems currently owned by Century-TCI California Communications, L.P., in the Los Angeles area, and by Parnassos Communications, L.P. and Western Cablevision, L.P., in Ohio and western New York. Comcast will receive Time Warner’s current cable systems serving portions of Philadelphia, Pennsylvania and certain systems currently owned by Adelphia located in California, Colorado, Connecticut, Florida, Georgia, Kentucky, Massachusetts, Maryland, North Carolina, New Hampshire, New York, Pennsylvania, Tennessee, Virginia, Vermont, Washington and West Virginia.
Also upon consummation of the Adelphia transactions, Time Warner Cable and Comcast will execute two Redemption Agreements. First, Time Warner Cable will redeem Comcast’s 17.9% equity interest in Time Warner Cable, currently held in an FCC-mandated trust, in exchange for 100% of the common stock of a Time Warner Cable subsidiary that ultimately will own various cable systems, plus approximately $1.9 billion in cash and 600,000 subscribers. Second, TWE will redeem Comcast’s 4.7% limited partnership interest in TWE in exchange for approximately $133 million in cash, 150,000 subscribers and 100% of the membership interests of a limited liability company that will own various Time Warner Cable systems.
Finally, upon consummation of the Adelphia transactions, certain FCC licenses held by Adelphia will be assigned (or control transferred) to Comcast, its subsidiaries or affiliates, and other Adelphia FCC licenses will be assigned to subsidiaries or affiliates of Time Warner Cable. In addition, upon consummation of the Time Warner/Comcast exchange agreements, control of certain subsidiaries or affiliates of Time Warner Cable or Comcast, respectively, holding FCC licenses (including certain FCC licenses acquired from Adelphia), will be transferred from Time Warner to Comcast or from Comcast to Time Warner. Upon consummation of the redemption agreements between Comcast and Time Warner Cable and TWE, certain FCC licenses will be assigned first to a newly formed Time Warner Cable subsidiary on a pro forma basis, and then control of the new entity will be transferred from Time Warner to Comcast. The Applications seek consent for those various assignments and/or transfers of control. Comcast states that upon completion of the Transactions, it will serve approximately 26.8 million subscribers, or 28.9% of MVPD subscribers. Time Warner Cable states that, as a result of the Transactions, will add 3.5 million basic video subscribers, in total serving 16.6 million basic subscribers nationally, or 17.9% of MVPD subscribers. Time Warner Cable expects to emerge as the second largest MVPD in the United States. Also, upon completion of the Transactions, Time Warner Cable will become a publicly traded company. Time Warner will hold 84% of the common stock and 91% of the voting control of Time Warner Cable. Adelphia stakeholders collectively will hold the remaining 16% of common stock of Time Warner Cable.
214. Free Press urges the Commission to adopt ISP access and interoperability conditions similar to those imposed by the Federal Trade Commission and the Commission in connection with AOL-Time Warner transaction. In the alternative, Free Press proposes that the post-transaction entities be prohibited from discriminating against providers of content, video, or voice services offered via broadband. CWA/IBEW propose that the Commission require "interoperability of network devices" and content neutrality on Comcast's and Time Warner's post-transaction broadband platforms. IBC proposes that the Commission require Comcast and Time Warner to program their set-top boxes to be Internet-accessible and to devote one cable channel to Internet access via television.
215. In response to these allegations, the Applicants state that "[t]he record is entirely void of any evidence that Comcast or Time Warner have ever degraded, blocked or otherwise discriminated against any packets delivered by any IP-enabled service application." [See Comcast / Bittorrent controversy] They emphasize that their desire to satisfy their subscribers and compete against other Internet providers provides sufficient incentive for them to allow their subscribers "unfettered access to all the content, services and applications that the Internet has to offer." [note that this is a reference to a statutory provision entitled "Protection for private blocking and screening of offensive material"]
216. The Applicants aver that market forces will ensure that consumers' needs are met because the Applicants face strong competition from other providers of broadband services. Further, they explain that they need flexibility to experiment with business models to respond to the dynamic marketplace and they should not be restricted in their ability to invest in and expand their networks to satisfy their customers. The Applicants also contend that direct enforcement of the Commission's broadband Policy Statement would be difficult to administer and would hamper the Applicants' efforts to resolve issues related to copyright protection, peer-to-peer applications, spam, and identity theft.
217. Discussion. We conclude that the transactions are not likely to increase incentives for either Comcast or Time Warner to engage in conduct that is harmful to consumers or competition with respect to the delivery of Internet content, services, or applications given the competitive nature of the broadband market. We agree with Applicants that competition among providers of broadband service is vigorous. Broadband penetration has rapidly increased over the last year with more Americans relying on high speed connections to the Internet for access to news, entertainment and communication. Increased penetration has been accompanied by more vigorous competition. In turn, greater competition limits the ability of providers to engage in anticompetitive conduct, a concern of some commenters, since subscribers would have the option of switching to alternative providers if their access to content were blocked or degraded. In particular, incumbent LECs' share of the U.S. broadband market has gradually increased over the past few years through increased deployment and increasingly aggressive pricing. Statistics collected by the Commission indicate that the percentage of broadband subscribers served by cable modem service has decreased over time, from 58% in 2003 to 56% in 2005, while the percentage served by DSL has increased from 38% to 41%. Additionally, consumers have gained access to more choice in broadband providers. For example, while the percentage of zip codes served by only one broadband provider has dropped from 16.4% in 2003 to 9.3% in 2005, the percentage of zip codes served by four or more broadband providers has increased from 43.7% in 2003 to 59.7% in 2005.
218. This growth in the number of providers is reflected in an increasing number of subscribers to new broadband technologies. For example, cable modem service and DSL service are facing emerging competition from deployment of cellular, WiFi, and WiMAX-based competitors, and broadband over power line (BPL) providers. Commission statistics indicate that satellite and wireless broadband lines more than doubled between June 2004 and June 2005, from 422,000 to 970,000, with BPL lines surveyed for the first time in June 2005. Some analysts project that some of these technologies have the potential to reduce further cable's share of the broadband market beyond the projected continued losses to DSL, particularly in rural areas. Press reports indicate that both DBS providers have signed distribution agreements with WildBlue Communications, Inc., a provider of satellite-broadband Internet service.
219. The only specific factual allegation in the record concerns an instance of e-mails being inadvertently blocked by a Comcast firewall provider. In this regard, Free Press alleges that Comcast blocked e-mails generated by an organization called "After Downing Street" ("ADS"), resulting in e-mails containing a reference to ADS being blocked for one week, without notice to ADS or subscribers. Free Press asserts that, although the problem was blamed on an anti-spam measure deployed by Symantec under contract with Comcast, when ADS contacted Symantec directly, the block was immediately removed. There is no evidence that the block was motivated by subjective judgments regarding the content being transmitted or that it was anything other than the result of a legitimate spam filtering effort by Symantec. Comcast states that it uses Symantec Corporation's Brightmail software solution to filter out spam e-mails. To avoid giving " unscrupulous spam senders a roadmap for avoiding filters," Symantec does not explain how it determines which e-mails are spam. However, Symantec did explain to Comcast that it had received thousands of complaints from end users, saying that ADS e-mails were spam. Comcast stated that the e-mails were blocked " because they exhibited many signature characteristics of unwanted bulk e-mail." ISPs' blocking of spam is a common and generally approved practice, and there is nothing in the record here to suggest that the blockage was other than the automatic functioning of the anti-spam software.
220. There is, other than this, no record evidence indicating that Comcast or Time Warner has willfully blocked a web page or other Internet content, service, or application via its high speed Internet platforms. Commenters and petitioners do not offer evidence that Time Warner and Comcast are likely to discriminate against Internet content, services, or applications after the proposed transactions are complete; nor do they explain how the changes in ownership resulting from the transactions could increase Time Warner's or Comcast's incentive to do so. If in the future evidence arises that any company is willfully blocking or degrading Internet content, affected parties may file a complaint with the Commission.
223. The Commission also has recently adopted a Policy Statement on broadband access to the Internet. This statement reflects the Commission's view that it has the jurisdiction necessary to ensure that providers of telecommunications for Internet access or Internet Protocol-enabled (IP-enabled) services are operated in a neutral manner. [emphasis added] To ensure that broadband networks are widely deployed, open, affordable, and accessible, the Commission adopted four principles embodied in that Policy Statement:
(1) consumers are entitled to access the lawful Internet content of their choice;
(2) consumers are entitled to run applications and use services of their choice, subject to the needs of law enforcement;
(3) consumers are entitled to connect their choice of legal devices that do not harm the network; and
(4) consumers are entitled to competition among network providers, application and service providers, and content providers.
The Commission held out the possibility of codifying the Policy Statement's principles where circumstances warrant in order to foster the creation, adoption, and use of Internet broadband content, applications, services, and attachments, and to ensure consumers benefit from the innovation that comes from competition. Accordingly, the Commission chose not to adopt rules in the Policy Statement. This statement contains principles against which the conduct of Comcast, Time Warner, and other broadband service providers can be measured. [empahsis added] Nothing in the record of this proceeding, however, demonstrates that these principles are being violated by Comcast or Time Warner or that the transactions before us create economic incentives that are likely to lead to violations. Additionally, the vigorous growth of competition in the high-speed Internet access market further reduces the chances that the transactions are likely to lead to violations of the principles.