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Will Comcast be unleashed to restrict what other TV viewers see?

Justice Dept. and FCC restrictions on Comcast's NBCU unit expire in 2018, freeing the company to play favorites, if it chooses. Comcast says it won't act like that.

The Justice Department is taking a new approach to antitrust investigations, saying it’s no longer interested in negotiating merger conditions like the ones placed on Comcast/NBCUniversal.
The Justice Department is taking a new approach to antitrust investigations, saying it’s no longer interested in negotiating merger conditions like the ones placed on Comcast/NBCUniversal.Read

Consider these facts from cable world:

The Justice Department is suing to block AT&T's proposed deal for Time Warner Inc., saying the deal could lead to higher costs and less choice for U.S. consumers.

Comcast was prevented from engaging in some of that same behavior when the Philadelphia cable giant bought NBCUniversal in 2011. But those restrictions on Comcast are set to expire in 2018.

Now the concern is whether Comcast will be unleashed. Will it hoard must-have NBCUniversal shows and deprive lower-cost internet streaming rivals of entertainment and news content?

Comcast says it won't do that and has helped streaming services Netflix, Hulu, Amazon Prime, YouTube TV, HBO Now, PlayStation Vue, Sling TV, fubuTV, and Philo expand to more than 100 million subscribers by licensing them hundreds of NBCU shows.

But the Justice Department says it doesn't think the anti-competitive threat has gone away and its Nov. 20 suit warns that AT&T/Time Warner and Comcast/NBCUniversal could act in unison to preserve the declining "cash cow" of the pay-TV business through their TV distribution systems and vast entertainment assets.

At Comcast, these include the news channel MSNBC and the USA cable network.  Comcast also owns  regional sports channels, the U.S. rights to televise the Olympics, NBC broadcast TV, and the Universal and Dreamworks movie studios.

If allowed to close on Time Warner, AT&T would control the HBO premium channel with its Game of Thrones franchise, March Madness college basketball games, and the CNN, TNT, and TBS cable networks. AT&T has rejected the idea of selling off CNN, which President Trump has criticized as "fake news," to gain approval for the deal.

The AT&T trial — one of the biggest antitrust showdowns between the government and a big corporation in years — could take place in Washington next spring before U.S. District Judge Richard Leon.

"This is a tale of two mergers," Jonathan Schwantes, senior policy counsel for Consumers Union, said of the government's suit to block AT&T/Time Warner this year but to allow Comcast/NBCUniversal. "One benefited from being filed in 2009 when combined content and distribution companies were falling out of fashion and no one had heard of, much less imagined, [the growth of internet-based TV services]. And the other was filed seven years later amidst a very different landscape."

The government, he said, thinks there could be "exponential damage" to consumers and competitors with AT&T/Time Warner and Comcast/NBCUniversal controlling pay-TV systems and studios.

How did this unequal tale of two mergers come about?

Under President Barack Obama, the Justice Department embraced time-limited good-behavior conditions to protect consumers in big deals such as Comcast/NBCUniversal.

But Trump appointee Makan Delrahim, the new assistant attorney general in the Justice Department with oversight of the Antitrust Division, has said the government is more likely to require companies to sell assets to obtain regulatory approvals than to agree to good-behavior conditions.

"Behavioral remedies often fail," Delrahim told a meeting of the American Bar Association's antitrust lawyers days before the Justice Department acted to block the AT&T deal. "A behavioral remedy supplants competition with regulation."

Delrahim's oversight of the AT&T/Time Warner deal is complicated by Trump's public trashing of the proposed AT&T/Time Warner deal on the campaign trail. As part of the trial, AT&T lawyers could investigate whether Trump influenced Delrahim in his decision to sue.

Experts seem divided over how much — or whether — politics played into Delrahim's decision. But many agree that regulators are moving away from requiring good-behavior merger conditions.

"It's pretty clear that the Justice Department is taking a different approach to AT&T/Time Warner than it did with Comcast/NBCU," said Kevin Werbach, an associate professor of legal and business ethics studies at Wharton.

"The tide has turned in antitrust with [the Justice Department] being more skeptical of media and technology deals," he said. Werbach said it was "entirely possible" that a Hillary Clinton administration also would have blocked an AT&T/Time Warner deal.

"We are seeing a shift  in the enforcement landscape as it pertains to conduct remedies," agreed Diana Moss, president of the American Antitrust Institute.

Both Comcast and AT&T say the federal concerns are misplaced in the rapidly changing TV business. Comcast, in particular, has no economic incentive to make NBCU shows and cable channels exclusive to its Xfinity service because its cable areas cover only part of the United States and exclude New York and Los Angeles, two of the biggest TV markets, its executives say. Comcast would like to sell NBCU content to as many TV distributors to reach as many viewers as possible.

AT&T has a national distribution platform with the satellite-TV operator DirecTV, which it bought, along with launching the mobile streaming service DirecTV Now.

The Justice Department's suit warns that  "after the merger AT&T/DirecTV and Comcast/NBCU, which together have almost half the country's [pay-TV] customers, would have an increased incentive and ability to harm competition by impeding emerging online competition that they consider a threat, and increasing the prices for networks they own."

In 2018, the Federal Communications Commission conditions on Comcast/NBCUniversal expire in January and the Justice Department conditions sunset in September. Those agreements contain some of the same provisions.

"When Comcast announced the NBCUniversal transaction, we made a series of extensive pledges affirming how we would deliver public interest and consumer benefits.  We've fulfilled all of those pledges and the conditions placed by the government on the deal – and in many cases exceeded them," such as adding Netflix and YouTube to its X1 platform, Comcast spokeswoman Sena Fitzmaurice said. "Our strategy of supporting competition and innovation won't change."

But as the conditions expire, consumer advocates and others will be watching what the Philadelphia company does. Comcast has been threatened by cord-cutters who cancel their cable service, replacing it with lower-cost options on the internet. Its stock, now trading about 12 percent off its 52-week high, took a hit this fall when the company reported losing 125,000 TV subscribers.

"Comcast is very aware that it is still under a microscope," Wharton's Werbach said. "They won't do anything blatant" to violate the merger conditions, he suggested. "They are too smart for that."