Comcast, NBC Deal Will Face Tough Antitrust Review

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Associated Press

Comcast, NBC Deal Will Face Tough Antitrust Review

by
Joelle Tessler

WASHINGTON - Comcast Corp. will likely have to accept substantial
conditions if the cable TV provider wants to win regulatory approval
for control of NBC Universal's broadcast network, cable channels and
movie studios.

Although federal regulators probably won't block a
deal outright on anticompetitive grounds, they could prohibit Comcast,
for instance, from denying rival subscription-TV services such as
DirecTV access to NBC channels and other popular programming.

Under
a deal expected to be announced Thursday, Comcast would control the
Peacock network and about two dozen cable channels such as Bravo, CNBC
and SyFy along with the cable lines to roughly a quarter of all U.S.
households that pay for TV.

The regulatory review remains the
biggest question mark now that all the corporate pieces appear to be in
place. Vivendi SA is expected to sell General Electric Co. the portion
of NBC Universal it doesn't already own. GE, in turn, would sell a 51
percent stake in the entire unit to Comcast.

A review by the
Federal Communications Commission and either the Justice Department or
the Federal Trade Commission could take a year or longer.

The
deal is bound to face tougher scrutiny than past ones given a
Democratic administration that has vowed to encourage diversity in
media ownership and ramp up antitrust oversight overall.

"This is
a new administration that has promised to be a tough cop on the beat,"
said Corie Wright, policy counsel for Free Press, a public interest
group that opposes the deal. "Any conditions it exacts should and will
be painful because this would be a tremendous consolidation of market
power."

Regulators probably won't stop the deal entirely because
the two companies are in two different businesses with little overlap,
Concept Capital analyst Paul Gallant said.

But federal reviewers
will have to sort out the implications of allowing a company that
already provides cable and Internet connections to so many Americans to
take control of a vast media empire, too.

NBC Universal owns the
NBC and Telemundo broadcast networks; 26 local TV stations; an array of
popular cable channels including CNBC, Bravo and Oxygen; the Universal
Pictures movie studio and theme parks; and a stake in Hulu, which
distributes free television programming online.

Comcast,
meanwhile, has 23.8 million cable TV customers, 15.7 million high-speed
Internet subscribers and 7.4 million customers for its phone service.
The company also owns some cable channels already, including E!
Entertainment and the Golf Channel, and a controlling interest in the
Philadelphia 76ers and Flyers.

The biggest concern facing
regulators centers on what happens when one company owns both
distribution platforms and content, said Stifel Nicolaus analyst
Rebecca Arbogast.

Before approving America Online Inc.'s purchase
of Time Warner Inc. in 2001, regulators required Time Warner to offer
online services other than just AOL on its high-speed cable Internet
network.

In clearing News Corp.'s 2003 acquisition of satellite
provider DirecTV, regulators prohibited the combined company from
discriminating against competing subscription TV services and channels
it didn't own.

A key challenge in these types of deals, Arbogast
explained, is ensuring that rivals in the subscription TV market can
still get access to popular programming owned by the merged company.

In
this case, government regulators may prohibit Comcast from denying
access to NBC channels and sports programming to DirecTV, Echostar
Corp.'s Dish Network, Verizon Communications Inc.'s FiOS and other
competitors. Regulators could also mandate binding arbitration in
disputes over access fees and terms.

Regulators may also consider
closing the so-called "terrestrial loophole" for Comcast. Federal rules
require cable TV operators that own programming to grant competitors
access to that programming if it is delivered over satellite. But
Comcast and other cable companies have managed to avoid those
obligations with popular sports programs by sending it over landlines
instead.

Dish Chief Executive Charles Ergen, for one, has
complained that Dish has been unable to carry Philadelphia sports games
shown on Comcast's regional sports network. A merger condition,
however, could end such practices.

Another key challenge lies in
ensuring that the subscription TV service - in this case, Comcast's
cable system - can't drop smaller, independent channels from its
lineup. This could be handled by prohibiting Comcast from
discriminating against cable channels that it doesn't own.

Regulators
are certain to take a particularly hard look at markets where Comcast
already owns the local cable system and would now acquire a local NBC
or Telemundo broadcast station. Those include parts of the San
Francisco Bay Area, Philadelphia and Washington, D.C. Regulators might
even require Comcast to divest the local stations out of fear that the
combined company would be too powerful in negotiations over programming
and advertising rates.

While the federal review of News Corp.'s
acquisition of DirecTV does offer some guidance for regulators this
time around, the current deal does raise new issues, too, Arbogast
noted. That's because Comcast is also a major broadband provider.

Public
interest groups are especially concerned that a combined company could
try to use its control over high-speed Internet connections to favor
its own media content on the Web.

This would violate proposed
"network neutrality" rules the Federal Communications Commission is
considering to require broadband providers to give equal treatment to
Internet traffic. Last year, the FCC ordered Comcast to stop blocking
subscribers from using an online file-sharing service called BitTorrent
in a ruling Comcast is challenging in court.

Public interest
groups are also concerned that Comcast could begin charging for Hulu
and denying other online video sites access to its media content
because Internet video may represent a threat to its core cable TV
operations.

"The question is: Can Comcast slow the rise of Net video as a competitor to its cable TV business?" Gallant said.

Indeed,
Comcast and Time Warner Inc. are preparing to launch a new service that
will make cable programming from about two dozen channels available
online. Although Comcast will not charge an additional fee for the
service, it will be available only to cable subscribers.

While
all of these issues will be on the table, any conditions that the
government ultimately imposes will be shaped by the conversations with
competing channels, video providers, public interest groups and other
affected parties.

Still, "there is little doubt that there would
have to be significant concessions for this to pass regulatory muster,"
said Andrew Jay Schwartzman, head of the public interest group Media
Access Project. "It will be a long list before we're done."

AP Business Writer Deborah Yao in Philadelphia contributed to this story.

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