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Peter Slen:
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David Cohen is the executive vice president of Comcast Corporation. He’s our guest this week on The Communicators. Mr Cohen, when it comes to the Comcast Time Warner Cable proposed merger, what’s the biggest hurdle that you see facing Comcast?
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David Cohen:
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So, what a surprise that we should start with that question. Well obviously we’re going to have a serious governmental review of the transaction, but I’ll be honest with you, I think the transaction is a lot less scary, a lot less large, and a lot less complicated than some people would like to make it. So when you think about it in the video space it’s not a horizontal deal, we don’t compete with Time Warner Cable anywhere, there isn’t a consumer in America who has a choice between buying Comcast products and Time Warner Cable products and at the end of the day we’re going to have under thirty percent of the market so, not particularly scary. There’s one thing that is appropriate to think about and to discuss, it is the implications on the broadband side, I think there’s a very good story there as well, lots of pro-competitive impacts, pro-consumer impacts with the transaction as a result of the increased scale and the increased investment and again not a very scary story when you look at market share—something less that forty percent of the wireline broadband share but if you factor in wireless and I just think it’s indisputable today that wireless is beginning to be an effective competitor and substitiute for at least many uses of broadband—market share is as low at twenty percent. Again, national share in broadband, not sure what that matters, the issue is local share and in no local market will there be less choice after the transaction then there was before the transaction.
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Peter Slen:
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I want you to respond to what David Carr from the New York Times wrote after the announcement of the proposed merger. “For the consumers, cable is not just television anymore, it is where the internet comes from and should this deal go through, more people who want to cut the cable cord will still have to buy their broadband from a cable company where prices only go one way: up.”
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David Cohen:
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So…lot of respect for David Carr but lot of mistakes in that statement. First of all, in terms of buying broadband today, consumers are going to have the same choices after this transaction as they had before this transaction. And the implication of that particular theory is that somehow this transaction is going to reduce choice for the purchase of broadband—that is just not true at all. Number two, according to the FCC, ninety..and ninety-three percent of Americans have access to broadband, to wireline broadband, today. And ninety seven percent of them have a choice of at least two broadband providers. So, it’s not a single choice market, again, as Mr. Carr represents, and last, the notion that prices on broadband only go one direction, which is to go up, is again, only true if you look at sticker price but with promotions prices for broadband have been amazingly stable when you realize the additional speed and the additional capacity that we have built into our broadband network, today Comcast consumers pay ninety-two percent less per megabit down of speed that is delivered to their homes than they did a decade ago—so sharply declining effective prices in the broadband market.
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Peter Slen:
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Well joining our conversation today on the Communicators is Howard Buskirk of Communications Daily where he serves as executive senior editor.
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Howard Buskirk:
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You have yet to file your merger application at the FCC, can you tell us what the timetable is and what seems to be taking a little time in getting that in?
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David Cohen:
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Sure, so, we’re, the current plan…there’s no definitive date for this but the current plan is to do our Hart-Scott-Rodino filings and our public interest statement and applications for license transfer early in April, my guess would be in the second week of April—that’s roughly the time period that we always said this would take…as you know, you’ve covered transactions before, the public interest statement is a major, major filing and it does take a considerable amount of time to prepare and to prepare thoroughly though this is all just part of the mechanics to get the, to get the process started at both the FCC and the Justice Department.
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Howard Buskirk:
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One transaction I spent a lot of time covering was AT&T T-Mobile and I realize that the fact set is totally different here but we’re starting to see a lot of opposition to this, there’s social media…and I’m just wondering are you concerned about the level of opposition that you’re starting to see?
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David Cohen:
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So I…I mean, there’s clearly been opposition expressed to the transaction but I also think it’s safe to say that in any media transaction that has been, media or telecom transaction, that’s been unveiled in the last twenty years there’s always been opposition, tends to come from the same group of people whose basic argument is that anytime there’s any consolidation in the media or telecom space the sky is going to fall in, the world is going to end as we know it, the internet is going to end as we know it and those, those predictions have largely been discredited and disproven in the multiple prior transactions. I think they’re equally untrue today and I’ll say I think I’ve been struck by the absence of rational, knowledgeable voices in this space coming out in opposition or even raising serious question about the transaction unlike AT&T T-Mobile where you had really credible, and serious economists and anti-trust experts and anti-trust lawyers saying from the outset what is AT&T thinking here—its number one competitor acquiring its number four competitor in a straight horizontal transaction absolutely eliminating or reducing consumer choice and you haven’t heard any of those voices weigh in on this transaction because of the fundamental differences in the transactions.
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Howard Buskirk:
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Well you don’t have the psychological problem of taking one of the four national competitors out of the market that you did with T-Mobile but I think a
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| lot of the questions have circulated around the issue of, that with this acquisition you would control, I think, forty percent of the national broadband market and there’s questions, I think there’s starting to be questions about when is big too big and, I mean, is there some limit to the size of how big one operator can get? | ||
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David Cohen:
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So, great questions let me sort of start, I mean a lot of the opposition from this group of people, as I said, who oppose everything is based upon, big is bad. And, whenever you get big, that’s a bad thing. And sometimes, big is bad, I will acknowledge that, but sometimes, big is really important, really necessary, and really good and that would tend to be in high capital expenditure industries in industries where innovation is fast moving and where you need a lot of investment in R&D and innovation to be able to keep pace and that’s our industry so the size, the rationale, for this transaction is all about scale—we’re going to get bigger, I’m not walking away from that, but that is, the critical benefits from this transaction will run from that scale the ability to invest more, to spread the investment in plant and in R&D across a larger customer base to enable us to compete against our real competitors, Time Warner Cable is not a competitor, Charter’s not a competitor, Cablevision isn’t a competitor, our real competitors are DirecTV—national company—Dish—national company—AT&T—global company—Verizon—global company—increasingly Netflix—national, quasi-global company, and most of those companies are bigger than we are, they all have a larger geographic reach, most of them are bigger by revenues, market capitalization, and or by customers. So this transaction is all about increasing competition, creating more consumer benefit as a result of gaining additional scale. That shouldn’t be scary to people and I think knowledgeable people will look at the transaction and will say, hey, this is a really good thing for consumers to create a near national cable and broadband competitor in order to compete against the national and global players that are shaping this marketplace in the future. In terms of broadband market share, I want to reiterate because it’s just so important—if you only look at wireline broadband and we would have a market share of something less than forty percent, but as soon as you factor wireless it’s the market share of twenty percent. Twenty percent is not scary. I’d argue that forty percent is not scary because the relevant market here is not national. The relevant market if for you, for Peter, for anyone watching this show, what are my broadband choices, what are the choices for where I live in terms of broadband, and there’s nothing in this transaction that is going to reduce broadband choice for any consumer in America.
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Peter Slen:
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David Cohen, when Comcast bought NBCUniversal, there were conditions put on by the FCC, including some net neutrality conditions, what conditions would Comcast accept to get this deal done.
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David Cohen:
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So, other than what we’ve already said about extending the NBCUniversal conditions including our commitment to abide by the FCC’s Open Internet rules which make us the only ISP in the country that is legally bound by those rules today, other than extending those conditions to this transaction, we need to wait and see what the regulators say. We really don’t think there’s really a need for additional conditions here but we are very respectful of the process and, as Howard pointed out, we haven’t even had a chance to start the process yet, so when the time is right we’ll have discussions about that with the Justice Department and the FCC.
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Howard Buskirk:
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With the FCC, for example in the wireless space, there is a psychological thing where they’ve been pretty clear that they want to have four national carriers. Do you think, psychologically, that they’re going to have some kind
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| of perspective on how big is too big and whether – I know what you were saying about overall market share but don’t you think at some point they start to draw the line? | ||
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David Cohen:
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Again, I have huge respect for the FCC, for the career folks at the FCC, I have a tremendous amount of respect for Tom Wheeler, the current chair, and all four of the current commissioners. I think they’re going to look at this based on the law and based on the facts and not on an emotional to something amorphous about how big is too big. But specifically, I think the good news for American consumers, the good news for this transaction, is that the FCC has spent a lot of time working on the question of how big is too big in the multichannel video marketplace. In two extended proceedings about the question of how big a share one company can have in this marketplace, both times the commission concluded that they wanted to set a 30% horizontal ownership cap, shouldn’t get higher than 30% of the multichannel video marketplace. In both cases, the DC Circuit struck down that ownership cap, finding that the FCC’s conclusions were arbitrary and capricious, unsupported by the facts, unsupported by the law. And that, in fact, a single company could have a much higher market share than what the FCC had determined and still not have adverse impacts on the market. Notwithstanding that ruling which is the law of the land today, we have agreed that we will divest up to about 3 million customers to bring us underneath the 30% horizontal ownership cap that the FCC twice tried to put into place. So I think, to the extent there’s an emotional attachment to the question of how big is too big, I think that we are coming in underneath the level at which that emotional attachment might exist.
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Howard Buskirk:
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One other question. You mentioned Tom Wheeler. After the February FCC meeting, Wheeler was asked about his meeting with the Sprint officials, about the possible acquisition of T-Mobile. And one of the things he said was ‘well, at least they came in, and Comcast never did before announcing its deal.’ Was there a reason, or was that a mistake not to go see the Chairman before?
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David Cohen:
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I don’t think he quite said ‘at least they came in.’
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Howard Buskirk:
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He did say ‘Comcast never did.’
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David Cohen:
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He said we did not come in, that was a factual statement. We don’t believe that the FCC is in the business of issuing advisory opinions, and I think it was out of respect for the FCC process and a long history that we’ve had with the FCC that it’s never in our interest to put an FCC Chairman or an FCC as an institution on the spot to ask for an advisory opinion without the benefit of a filing and a full analysis and review of any transaction. So I didn’t perceive Tom Wheeler as being critical. I think he was making a factual observation and as somewhat of a professional in this space, I’d sort of take it as a compliment. I’m not sure he meant it as a compliment, but I take it as a compliment that we understood the role of the FCC and the way the process works and maybe Spring and Softbank didn’t quite understand those rules.
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Peter Slen:
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David Cohen, one other factor in all of this is Congress, and will you be testifying before Congress when hey hold some hearings on this
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David Cohen:
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We only have one hearing scheduled so far, which is the Senate Judiciary Committee hearing which will be April 9 as currently scheduled. I will be the Comcast witness at that hearing. And again we’ve been to this rodeo a few times before, we thoroughly respect the role that Congress has and its oversight role of the Justice Department and of the FCC even though there’s no decision making role by Congress. And, frankly, we look forward to the
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public hearings as an opportunity, like appearing on The Communicators is, to make our case and to spell out in very clear terms the strong pro-competitive, pro-consumer benefits of this transaction, and the absence of any material risk of any competitive activity as a result of it.
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Peter Slen:
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So many of the articles after the merger was announced were about you and your political influence. What do you think about those articles?
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David Cohen:
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I’m always a little humored by articles like that, and, Peter you’ve known me for a long time, it is not my favorite thing to wake up in the morning and see an article about me, but, you know, look, I like government, I like politics, I’ve been involved in politics and government for twenty-five years and there’s that old, classic line “some of my best friends are elected officials” and they really are. I respect the work that is done and I enjoy my relationships with them but, having been involved in the political arena I know there are no quid pro quos, there are no guarantees, there are no, any set expectations—any good elected official, and I’d like to think that the many elected officials who are my friends are all great elected officials are going to make decisions on the merits based upon what they believe is the truth based upon the facts and the law at the time that they look at it. And, at the end of the day, if an elected official who we have a relationship with thinks that this transaction is awful for consumers or doesn’t agree, doesn’t believe the facts that we’re setting forth they’re going to oppose this transaction and that’s their job as elected officials and I’ll respect that judgment just as much as I’d respect the judgment in favor of the transaction.
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Howard Buskirk:
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I wanted to ask how much data you anticipate having to file with regulators to get this thing approved, I mean are we talking boxcar loads full of documents?
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David Cohen:
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Yeah, I’m sure, I’m sure there will be a significant amount of data. Remember what we file at the Justice Department is not public. That is a private process. What we file at the FCC is largely public although confidential and proprietary data may be redacted and there may be certain things that are filed that are not part of the public record. So, in connection with our public interest statement we will be filing applications for license transfer and there are hundreds of licenses involved here so that will be, those will be voluminous, there will be the public interest statement itself, there will be several affidavits that are attached to the public interest statement and on which the public interest statement relies, so you’ll have, you know, hundreds of pages of public filings right on day one in terms of what follows, that really does to what the commission asks us to file in supplement which will come a little bit further in the process than with filing of the public interest statement.
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Howard Buskirk:
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Sometimes in cases like this, the FCC will take a broader view and they’ll seek information from competitors and they want to try to do sort of a market snapshot, do you anticipate that that’s likely in this case?
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David Cohen:
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So, I, again, Justice Department, I think the Justice Department will clearly talk to competitors, programmers, others in the ecosystem. With the FCC process, what will happen is, we will make our, we will file our applications and public interest statement and then in some amount of time, a week, two weeks, three weeks, the Commission will issue an order which puts that public interest statement on what’s called public notice and they’ll set a schedule, and there will be some amount of time for people to file at the FCC and some amount of time for people to reply to those filings so you’ll actually see the positions, and people will come in and meet with FCC staff and individual FCC commissioners and they’ll be ex parte letters filed that
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disclose the existence of those meetings roughly speaking what was said in those meetings so all of that becomes a part of the public record.
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Howard Buskirk:
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Right so, sometimes they go beyond that though and it’s more, and they’re trying to build more of an industry snapshot because they want to see more, because that’s where the questions about how big is too big in the broadband market.
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David Cohen:
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Again, I, I mean, maybe, but not, I mean, remember a lot, a lot of entities, the FCC doesn’t even have jurisdiction over so most of what happens at the FCC is going to build off of the record that is created as a result of putting the public interest statement on public notice and creating a process for anyone who has any interest in the transaction to make filings with the commission that’s where, I’m not going to say they’re not going to solicit additional comments, but, the FCC process is so public, it’s very unlike that DOJ process that almost anything they do, they will want to make part of this public record proceeding.
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Peter Slen:
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David Cohen is Executive Vice President of the Comcast Corporation, he also serves as the Chair of The Trustees of University of Pennsylvania, where he graduated from law school. He also serves on the National Boards of the Urban League and the National Council of La Raza. Mr. Cohen, how long has Comcast had it eye on Time Warner Cable? Is that something you’d answer?
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David Cohen:
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Well you know it is pretty easy to answer because we did file our S4 with the proxy and so it is safe to say that we always are interested in looking at possible attractive acquisition opportunities. For or a year or two before this was announced there were off and on light conversations about whether it made sense for Comcast and Time Warner Cable to be put together. Over the course of a year there were discussions among multiple players in the industry with Comcast and with others about cable consolidation and most particularly conversations between Charter and Comcast, Charter and Time Warner Cable, between Charter and Time Warner Cable and Comcast, and then ultimately the deal we struck between Time Warner Cable and Comcast. We are very disciplined in the way in which we think about financial transactions. We want to make sure that anything we do is financially accretive for our shareholders; anything we do is digestible from an operational perspective. Comcast Cable, under the leadership of Neil Smit is functioning at the highest level it that it ever has, and really in a distinctive way from the rest of the cable industry, and we would never want to do anything that takes away from the operational excellence we have at Comcast Cable, but with Brian Roberts and Michael Angelakis so focused on the future of the company and our balance sheet. Brian loves to ask the question we are very comfortable with were we are today but 5 years, 10 years from today, what is this competitive landscape going to look like? As I said the additional scale that comes from this transaction gives us the ability to continue to invest in innovation and R&D, to ensure that we remain at the head of the class in terms of delivering high quality, very attractive and appropriately priced video, high-speed data and telephone services to residential customers and to business customers. Brian keeps all of our eyes focused on that ball in a great way and it’s that frame of how do we continue to be completive and impactful in the space with the balance sheet and financial discipline that Michael brings to the table and the operational excellence that a Neil Smit on the cable side and a Steve Burke at NBCUniversal bring to the table.
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Peter Slen:
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In the few minute we have remaining; I want to ask you about a couple of other issues Comcast is working on right now – peering agreements, is that the wave of the future?
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David Cohen:
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I don’t know if it is the wave of the future but it is the wave of the past. Peering agreements and internet connection agreements have been in existence since the birth of the internet. It is how the internet was built; it is how the internet functions. There are currently 40 traffic providers, content delivery networks that are out in the marketplace very aggressively competing to sell access to the Comcast Network. We have over 8,000 internet edge providers who access our internet through a variety of interconnection and peering agreements, mostly derivative through those 40 effectively “wholesalers” of access to our internet. Internet interconnection and peering agreements, the vast majority of which, by the way, are settlement free; that is they are free connections to the internet is how the internet was built up and it is absolutely impossible to imagine an internet that does not continue to rely upon that web of agreements in a very completive market and one that is working extremely well from a completive and financial perspective.
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Howard Buskirk:
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Somewhat famously, Netflix CEO, Reed Hastings was very critical recently of these paid peering agreements and he said “this kind of leverage is effective against Netflix which is pretty large; imagine the plight of smaller services today and in the future.” And my two questions about that are, one do you expect the FCC to look more closely at this this issue? And second, how do you respond to Mr. Hastings?
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David Cohen:
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The first question is easy. I do expect the FCC to look at this. I think they were looking at this before Reed Hastings spoke and again I have tremendous confidence in the FCC and in the current leadership of the FCC and I think we will be able to make a case along the lines of what we just made in response to Peter’s question, that this is not a place where government intervention is helpful or necessary. In terms of Mr. Hastings, I have a huge amount of respect for him, he has built and amazing business and he has been a great partner of Comcast. And by the way, I think he would say that Comcast has been a great partner of his because if it wasn’t for Comcast and the cable industry and the investments we have made in broadband, Netflix wouldn’t be as successful as it is. And Netflix has clearly enabled us to sell more broadband subscriptions but his argument, with all due respect on this issue, is essentially hogwash. It has nothing to do with access to the internet, that has nothing to do with net neutrality, it’s not a matter of stronger net neutrality, which is what the talked about. The transit market is intensely completive, as I said there are 40 companies who are out there selling access to our pipe and to our broadband and the history if it ever becomes known was that it was Netflix that is the moving party in terms of making this deal with Comcast and the reason why was because they wanted to cut out the wholesaler, deal directly us, controlling more than 30% of the traffic on the internet, they said “why do we have to pay a wholesaler? We can get a better deal by going and dealing directly with Comcast.” And that is exactly what they did.
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Peter Slen:
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Finally Mr. Cohen, recently the Wall Street Journal had a headline that Apple and Comcast are exploring a TV deal. I didn’t see you quoted in this article. What is your response to that headline? And what is the advantage to working with Apple?
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David Cohen:
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Well you didn’t see anyone from Comcast or Apple quoted in that story. I’m just going to say that we talk to people all the time and I’m not going to have
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| anything specific to say about the discussions with Apple, other than to point out that there is another example of how intensely competitive and fast evolving the entire multichannel video space is, here you have a company, you know the most valuable company in the world by market capitalization, a company that generates forty to fifty billion dollars a year in cash flow and they’re working as hard as they can to figure out an entry into this market which would be a new competitor that isn’t there now and it further underscores why there shouldn’t be any material concern about the Comcast Time Warner Cable transactions because there’s nothing but more, different and more interesting competition that is coming in this space down the road. | ||
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Peter Slen:
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David Cohen, executive vice president of Comcast and Howard Buskirk of Communications Daily.
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