Fcc chairman tom wheeler commented. Joining us on the communicators this week to discuss this, craig aaron, who is president and ceo of free press, and former fcc commissioner rocket Mcdowell Robert mcdowell. Commissioner mcdowell, can the fcc put the kibosh on comcast Time Warner Cable mergersome. Guest oh, it could, absolutely. And the department of justice could try to do so as well. Sometime in the past when mergers have been proposed not necessarily at the announcement stage weve heard words such as unthinkable. They havent put the kibosh on it just yet, and the application, i dont think, has even been filed at the fcc. But, sure, as a matter of law, its ability, it could deny the merger if it wanted to. Host from what youve read about this, do you think the fcc should stop this merrier . Guest well, so, actually, i think the better question is will it. And i dont think it will. And, you know, im in a think tank now, the hudson institute, so i have in dog in the fight. So trying to look at objectively, not as a commissioner in my past role, and you dont have to keep calling me commissioner anyway, its not like the house of lords where we carry on these titles photographer. Anyway, it could be viewed as an opportunity to view Public Policy that the fcc might not be able to do as quickly or in the same way. And this happens frequently with big mergers of this type. So youve got the Largest Cable Company buying the second Largest Cable Company, and comcast is already the largest Internet Service provider, one of the largest content companies. The big hurdle really for them was the vertical integration with the Nbc Universal, legal big hurdle, antitrust review, things of that nature. And comcast agreed to a lot of stringent conditions there for Net Neutrality, the sharing of content that they own, the carriage of content from others that today that they dont own, pricing buildout and all the rest. So if you, if youre sitting at the fcc and were in the wake of last months Net Neutrality decision by the court and, of course, the fcc just made a big announcement on that yesterday which im sure well talk about and there are other Public Policy objectives that you have, and im not saying this is the way i would do it at all, but transactions are frequently used as a way to shape markets. So there are a lot of conditions that could be placed on the countrys largest Internet Service provider, be it Net Neutrality, low cost offering, being perhaps a buildout to schools for the president s connect Ed Initiative to upgrade Internet Access to 99 of americas schools. There are a whole host of things that are similar to conditions that come Tsa A Comcast agreed to a little over three years ago when it bought nbc universe universal. So it could see it being considered as something they would approve with a lot of conditions. Host craig aaron, what do you think of this merger proposal . Guest well, i think its absolutely a disaster for consumers. I think its going to go straight to their wallets. Comcast has admitted as much in all the touting of the supposed consumer benefits, you never hear prices going down. Theyre going to go up, and i think theyre probably going to go up rapidly. I hi this is simply way too much media power to put in one companys hands. Theyre already the biggest Internet Service provider, theyll be even bigger, the biggest cable company. If this deal is completed, i think it puts comcast at the nexus, the center of every major media policy debate were going to have. I dont think the fcc i dont see it being in the Public Interest, i think the fcc should block this merger. I think its why we have antitrust laws, to prevent these kinds of deals, and i think for most americans a deal like this seems unthinkable and that its gotten this far, its being debated, i think, really says a lot. But for me theres really no conditions thats good enough to let a deal like this go through. Host well, 33 million customers if this deal goes through divesting of 3 million comcast has said, so theyll be below the 30 level. So thatd be about 30 million customers or so. Netflix has 31 million customers. Isnt there competition out there . Guest well, the problem is that if you want to get netflix, you need a connection to the internet. And for comcast, theyre going to be that connection for probably about half of americans. Comcast, a new giant comcast if this deal is done, theyll be the only really viable option for highspeed broadband. Most americans dont face a choice. In a few places in some of the big cities, maybe you can get verizonfy cross, although your fios, but its few and far between. And i think this would give comcast so much power including power over Companies Like netflix that otherwise do at least compete with them in some of the video space. This makes comcast the gatekeeper over everything, for netflix, theyre the gatekeeper if you would hope to get a cable channel, a few years from now when those old conditions expire over, you know, who can thriver on the thrive on the internet, which web sites will work and which wont. That is so much power. And once this deal is done, therell really be nothing standing in their way. Guest so, actually, you know, i know and understand and appreciate free press being absolutely opposed to this, and im not taking sides on the transaction itself. But a lot of what craig outlined could be resolved through merger conditions. Now, its no secret, its out in the press that the fcc originally wanted a tenyear term on the conditions for the comcast Nbc Universal merger conditions. Comcast said five, so the compromise, i guess, was seven. Comcast has done pretty well in the past three years since that merger, so i would look for similar merger conditions to be imposed and maybe for a longer period of time including maybe some price controls. Keep in mind also from an antitrust perspective, comcast is not taking out a rival, right . So Time Warner Cable doesnt compete in the same territory as comcast. Theyre going to divest maybe three million subs, i understand, to try to stay under that philosophical its not legal, but a philosophical cap of 30 cable customers. But i think whats really interesting, whats threatening Cable Companies in general right now is overthetop video. And craig is right, you have to get that through a broadband pipe. But from a programming perspective, you know, we see house of cards as being the hot topic of the past few days through netflix, but youtube and amazon and other stuff thats user generated is quickly being looked at not just through a cable screen, but through a mobile screen. And actually, thats quickly becoming the number one screen. Some of thats through licensed wireless, some of its through unlicensed wireless. But there are a lot of interesting dynamics in this marketplace right now. So it will be very interesting to see what kind of antitrust scrutiny there is. Craig talked about buying power for content, theres also the argument that does this give comcast more of a balance of power with other broadcasters for retransmission consent in those areas where it doesnt have broadcast property . What about cableonly outfits like viacom, does it give them more Bargaining Power for that, will that actually keep, you know, those prices in check . So there are a lot of questions to be asked. This will take the better part of the year if not more than a year to resolve. Guest and i think thats right, already a lot of questions to be asked, but im having trouble seeing the benefits of merger like this. And i think because it will comcast so much power the many so many places, you know, theyre going to be able to right now Time Warner Cable is a local monopoly. I dont think thats a good reason to create an even bigger monopoly, the fact that weve carved out a cable cartel all across the country, but in their own way, Time Warner Cable isnt a programmer anymore, so they had some reason to rye to keep down the cost of try to keep down the cost of programming. Comcast doesnt. If the cost goes up, they just move it from one pocket to the other. So i think there are so many and i see why comcast wants to do this deal. Theres amazing economies of scale for them. But from the public perspective for what were already paying for, i pay, you know, in my case verizon a lot of money because i want to watch netflix. Thats what my 80, 90 goes to. And thats where all of this is going, into an ondemand world. I think from a consumers perspective, what you dont want to see happen is a world in which in order to get this content, ive also got to pay for my cable sup subscription. I understand that, thats comcasts model, but from a consumer end, theres no Real Advantage there. Give me what i want. Im happy to pay for it, and if theres actually choice in competition, if youre not doing it, i can go somewhere else. What comcast and time warner for that matter have already done is really limited those choices, so i think allowing a merger like this to go through just makes things that much worse for the average american. Host does the department of justice have a role in this potential merger . Guest i mean, certainly. I think theyre, obviously, going to have to review it. Its all going to be about what how are they going to draw these markets. Theres ways they can draw them that says these guys dont compete head to head, lets just move them along. But certainly in the broadband market how dominant they will be. In about half the country, this new, giant company would be the only game in town. I think thats a problem. I think they need to look at the triple play market, so voice, video, internet together. This combined company would be about 52 of that market. Thats very concentrated. I think those are the kinds of issues that justice really needs to scrutinize and look closely x. Theres some signs. The Obama Administration did stop the at t tmobile merger. At first glance, those might have been more obvious, but i think we need to look out five years ahead, where do we want to be in five years when all these merger conditions go away from the deal and look at what that market is likely to look at in weighing this decision. So i think theres a role for justice, absolutely, and i think, obviously, theres a role for the fcc which, as commissioner mcdowell knows, has a different standard. Their standard is, is this deal in the Public Interest. I dont see how theyre going to make the case that it is in the Public Interest, but i think that is a very important measure before approving a deal leak this. Host like this. Host two questions from your former fcc perspective, in a case like this, how would you work or interact with the department of justice from the fcc . And how much lobbying would be done by different groups, perhaps free press or perhaps comcast at the fcc . Guest excellent questions. So the fcc has a dedicated team of career public servants, lawyers, economists, engineers and other professionals who work on merger transactions just like this. And they integrate very closely with the department of justice or the federal trade commission depending on whos getting the review. And so hay work very well they work very well together. Sometimes theyre meeting or talking to each other throughout the day for the duration of the review of the transaction. Some of those can go beyond a year. And they are look at all sorts of issues, some of which we flagged earlier. Economic issues, competition issues, Consumer Protection issues, sometimes integration of Technology Types of issues. And so its rare, i get asked frequently, so what if doj went one way and fcc went the other . Ive been in this business for about a quart or century, and i dont know when thats happened, craig, feel free to i dont remember that happening, and thats because the teams are integrated, and they tend to arrive at the same destination. Also, you know, politically, so the department of Justice Antitrust Division theres an assistant attorney general in charge of that, thats a president ial appointment. Its a political appointment. Antitrust division has some great career people there, but it is a political appointment. And, of course, the fcc commissioners are political appointees. So youre going to see probably the same philosophy given whoever the president is at doj and the fcc to work through these things. But come at it from different perspectives, the whole antitrust body of laws is different from the Public Interest body of law that, as craig pointed out, Public Interest is sort of illdefined and broad and all the rest, antitrust has, you know, well over a century of precedent there. But i cant think of when the two agencies have diverged, and so im sure they will reach the same conclusion at roughly the same time, not necessarily exactly at the same time. But its a very interesting process to watch from the outside. Host craig aaron, will Congress Play a role in this . Guest absolutely. I mean, i think the signals coming from the hill are really going to matter in this merger. Also, you know, senator klobuchars already called for hearings. I think hearings on a deal like this are one of the few places where the public really gets that window into whats being discussed. Hopefully, the fcc will do their own set of hearings. Justice, of course, theres not a lot of ways percent public to engage in their process. So i think thats key for congress, and thats probably the way that people who are, perhaps, dissatisfied with their Cable Service and both these companies regularly rank among the Worst Companies in america when it comes to customer service, where theyre going to have their chance to weigh in. I think they have a really Important Role to play here in elevating this is and letting people know just how big a deal this merger is. Host what is free press . Guest what is free press . Sure, thanks. We should have started there. No [inaudible conversations] free press is a national, nonprofit, nonpartisan organization. We advocate on behalf of the public on media and technology issues. We try to give the public a voice in these debates that theyve traditionally been excluded from. Host if you could make the decision, how would you see comcast structured . How would you see comcast as part of Telecommunications World . Guest well, you know, i think consumers benefit when there is lots of competition. So, you know, i think weve already let these Companies Get too big. I think anything that the agencies can do to encourage choice, more competition, give people ability to vote with their feet if they can when theyre dissatisfied with their service, i think thats very important and very valuable. I think in cases where there is something of a natural monopoly where its very expensive certainly at this point to build up with these guys, then we need the fcc to step in and protect Internet Users, protect cable users, make sure theyre not being abused by these companies to play that watchdog role. Comcast has gotten too big already. We were staunch opponents of the previous merger with nbc. You know, in my fantasy fcc, theres and youre on that, by the way, commissioner. [laughter] theres, the fcc is doing their part to, you know, rein in this incredible concentrated power, begin to break it up, encourage competition in local markets and not allow this kind of runaway consolidation to continue. Host Robert Mcdowell, is there competition in the Telecommunications World today . Guest so, you know, there is. And its interesting, theres the video distribution market, theres the mobile markets. It depends on how youre defining telecommunications. You know, for the most part americans have a choice of three pay of tv providers we call them mvpds in the business. Sometimes with a fio to s or an overbuilder and some others. So there is competition there. And there is a growing trend which is interesting. It is dependent upon a broadband pipe or a wiewrless Broadband Access and, by the way, wireless broadbands the Fastest Growing segment of the broadband market, and has folks who are kind of shaving or relying on over the top only. Theyre not buying a video package, they are just buying a broadband pipe, relying on overtheair broadcast and also downloading whatever they can find from hulu or from netflix, amenson prime, youtube or amazon prime or whatever it is theyre looking at. And for years some of the estimates hovered at around 1 of households were in that sort of experimentation. And ive started seeing some data recently it could be 5 , it could be more. Its hard to quantify. But i i think thats going to be an interesting trend to watch, and as you see a lot of content companies, programmers and Cable Companies themselves are very concerned about this as a competitive threat. Where does it go especially as the mobile screen becomes more and more the first screen . You know, my best focus group are my kids, 14, 12 and 6, and by far their first screen is the mobile screen, and by far what theyre watching is over the top and or usergenerated content. And that tells me a lot, but also when i start reading more empirical studies, we see similar trends bearing out there too. Host craig aaron, what about the Wireless World . Its not part of this regulation in many ways. Guest well, i think that what were looking at here is, you know, a couple of Big Companies have really divided up the market. Theyre operating, frankly, like a cartel where youve got the wire line side. Theyve split up the country. Theyre not competing. Now were hearing, oh, thats why this deal doesnt matter, but we allowed that to happen. And on wireless side, we have a handful of dominant providers. Fortunately, the Obama Administration did step this to make sure there are at least four major competitors. I think wireless is absolutely growing. We all want it. Right now that is not a substitute for the line going into your home in terms of speed, in terms of, you know, what you can do with that connection. I dont think its going to be a substitute anytime soon, and i think most of these companies see that theyre hoping to get realizing that most of their customers are going to want both. If they have to choose, youre right, theyll probably go with mobile. But for those that can do both, theyre getting a connection into their home, theyre getting that mobile connection. As we get into the spectrum debates and things like that, theres interesting things that could happen, and comcast when this deal is done is going to have, potentially, a very big wifi Network Running off peoples boxes. I think it remains to be seen how exactly thats going to shake out, but i dont see it as right now a competitive substitute. What i worry about is really having so few choices in both arenas that customers are really tied together. Host so comcast would control a lot of the last mile, in other words. Guest absolutely. And we see these guys already working together. I mean, in the spectrum proceeding that went on at the fcc, theyve essentially said, well, hey, in the places verizon hasnt built yet, why dont we just market together . We see that because peoples prices arent going down. Their monthly bills are not going down. They just go up and up and up some more, and i think that is the really all the evidence we need that this market is very, very broken. Guest a couple of quick points. So with spectrum co, that was a Wireless Company owned by Cable Companies that they then sold, a lot of Cable Companies have. Some are also involved with clearwire which they got out of that as well and, of course, soft bank bought sprint clearwire out of japan, so its interesting to see cable step out of the licensed wireless business more into the unlicensed business to try to hold on to their customers through wifi. So if you walk around the washington area, you can see cox and comcast have a lot of wifi hot spots in order to try to hold on to those customers, because they do see the mobile screen as becoming the first screen. So also keep in mind that back to at t tmobile, that that was viewed as two competitors combining. So number two taking out competitor number four at the time. That is different, and craig has the same passion, im sure, either way. But that is different from whats going on here. Comcast is not taking out a competitor. These are geographic markets. Time warner cable didnt compete against comcast. Guest only because thats how we split things up and its so broken. The companies essentially agreed, hey, were going to carve out our different territories. Now number one wants to take number two, and the way most people are going to experience that, in their wallets, thats not a good outcome. Guest and, again, i mean, if i think the fcc does approve it, therell be price controls there. Craig can argue about how long the terms should be, maybe forever in your view, but it could be for a very long time in terms of price controls. So look for that should it be approved as being part of the deal. And by the way, the swapping for verizon and spectrum co. Back in the day, the crossmarketing dissolved because it didnt work. So they backed out of it. Host im trying to recall, did yo vote on the you vote on the at t tmobile merger, and how did you vote . Guest excellent question. It didnt come to a vote at the fcc. So the doj host doj. Guest at t tried to take that to court, then the fcc a few weeks later came out at least the staff came out with a staff report that was voluminous and rather damning of the whole idea of the combination, and at that point after a brief deliberation, at t withdrew. Host if you had come to a vote, do you know how you would have voted . Guest i dont, and heres why. Im not just dodging the question, although i am dodging the question, but heres why. I was not presented with, essentially, the case file. As commissioners you dont get those files until the staff is done with its review. Then they send it up to what we call the eighth floor where the commissioners offices are. So the other commissioners all commented on the staff report. I felt as if it wasnt appropriate, sort of like a panel of judges saying im going to comment on this case even though the plaintiffs withdrew. But i just didnt feel it was appropriate to do that because i never reviewed the case file. Host well, weve got at piece of another piece of news that we need to discuss before we run out of time, and thats tom wheelers statements on the Net Neutrality, verizon v. The fcc decision. This is how i interpreted reading his statement. They want to strengthen the Net Neutrality rules, and theyre leaving title ii on the table potentially to make broadband a common carrier. Is that, is that a good interpretation . Guest well, i think thats how theyre describing it, for sure. I do think this is a discuss appointing move from the a disappointing move from the administration. I dont think its actually going to strengthen Net Neutrality, and i think it ignores in some ways what the court did. I think theyre trying to salvage a victory out of a defeat. Theyre trying to paste together the shreds of authority that the court left them, but its not enough the what your concern is, is Net Neutrality. If you want to stop blocking on the internet, if you want to stop discrimination, interfering with web services, then i think your only option is title ii reclassification. And i think the court made that very clear in their decision. They told the fcc, theyve now come to them twice saying, well, no, we think we can do it this way, ancillary authority, no, no, no, we have other theory, and the court rejected it out of hand. They told them this is not the way to do it. Were not saying Net Neutrality is a bad policy, were saying you cant do it this way. And yet here comes the fcc again saying, well, maybe might work on a casebycase basis, were not sure. I dont think thats what the millions and millions of Internet Users who have contacted them are requesting for. Asking for. Theyre asking for Decisive Action from the fcc, and thats not what they got this week. Host well, tom wheeler left title ii on the table. Guest he certainly did. Thats the only notice of proposed rulemaking i flat out dissented on because the idea was counterproductive that we have, basically, a form of of regulation that was formed in the 17th century with canal regulation and then 19th Century Railroad regulation, foisting that on the internet which operates in a completely different way. So lets rethink this. Thats why we need a Communications Act update that looks at all of this through the lens of Consumer Protection and competition law rather than legacy regulation based on what you used to do in terms of how you used to have your technology. But, you know, i agree this is a news flash i agree with craig and part of what he said in terms of i think the fccs Going Forward its going to be risky on appeal Going Forward if, indeed, they try to enact another nondiscrimination regulation. Which is what was in the chairmans outline yesterday. That, the court said, looks like common carriage regulation. And under 706 or title i and all these other lawyer buzzwords is just not going to stand up on appeal. But what also might happen if they have a complete tally different panel of judges, the 706 theory might also be blown up. Judge silverman wrote a remembering think and thoughtful d lengthy and thoughtful dissent, i thought, on why the majority was wrong on the 706 authority argument. And it could be a different panel of judges follows that dissent to say the last court got it wrong, really the fcc doesnt have authority here. And we have a whole other program where we could talk about that. But theres some risk there as well. One other point, too, on title ii, title iis not a guarantee if that were to happen to win on appeal either for a variety of reasons, you know . Change in law, changing factor, there are a lot there that could be attacked on appeal, and it could be blown up guest i mean, anything the fcc does is going to find them back in court, but theyre on much stronger footing with title ii. You have to go back and look at how youre classifying broadband before we can consider, you know, any of these protections which are crucial, important protections. And i think theres been this real effort to demonize common carrier regulation when thats absolutely what worked to help build so much of amazing internet we have. Its absolutely whats working elsewhere this the world where you can get a lot faster internet and pay a lot less for it. And i think that really common carrier at its core is about free speech. Its about, you know, not just being able to stand up on that soap box, but actually have what youre talking about, your words reach that audience theyre going to do. And i think its very dangerous for the fcc to continue to try to conflate the wires, the pathways that come into our homes and bring us this great, amazing content and the content itself. Those are not the same thing. They shouldnt be treated the same under the law, and i think the approach that started during the Bush Administration and has been furthered by the Obama Administration has been a failure. Thats why they continue to lose in court and put all these protections in jeopardy, this murky legal limbo whereas going back under the law, looking at the 96 act as it was written and, you know, so great that theyve left it on the table. Good, its the law of the land. It should be on the table. Thats what the fcc needs to do, and i think, you know, most outside observers really see that, and the judges themselves made it very clear to the fcc if you want to protect Internet Users, you have to look at title ii. To pretend otherwise doesnt actually give them the authority they need. Guest i disagree with the last part that the judges were inviting the fcc to reclassify. Computertocomputer communications reviewed by the fcc starting in the 1970s is, actually, not being regulated under common carriage. Under the computer inquiries roman numeral one, two and three, under both republican and democratcontrolled fccs, they operated differently from phone networks in the ma bell monopoly. It actually was under chairman bill kinard in the second clinton term where the path was made to permanently insulate the internet and computertocomputer communications from common carriage. And so those types of communication were never regulated under title ii, they didnt grow up out of title ii at all. Theyve always been out of title iis reach. And thats, actually, thats actually what has helped grow the internet that we have today. And same with, you know, wireless broadband. Wireless broadband has proliferated precisely because it has not been burdened by these old sort of command and control style regulations. Host last word. Guest well, you know, obviously to, i disagree. Have to save some of that for a longer time, but i think its very clear that what were talking about is a telecommunications or transmission service. And if were going to protect Internet Users, if were going to make sure they cant be abused, cant be discriminated, web sites cant be blocked, the only viable way is through broadband reclassification, and thats what the pcc should do. Host fcc should do. Host very quickly, do you agree with Robert Mcdowell that its time to rewrite the Telecommunications Laws in this country wholesale . Guest i think the explorations make sense, but i think we should go back and look at that 996 act. What it actually says and start not trying to whittle it away, but actually enforce at