An Ex-Regulator's Take on Comcast-NBCU

The Federal Communications Commission has approved Comcast's acquisition of NBC Universal.

Historically speaking, the nation's largest cable operator acquiring a leading broadcast network is a little like the New York Yankees deciding to buy the New York Mets. On many issues in Washington, not to mention a variety of business negotiations, these are longtime enemies -- fighting, often bitterly, over retransmission of broadcast shows on cable channels and so forth.

But the rise of the Internet and the massive upheaval in the media industry has changed everything. Strange bedfellows is the name of the game. The type of company you used to be matters a lot less than the type of company you want to become.

Today, a computer company such as Apple, a Web company such as Google, a cable company such as Comcast, telephone/wireless companies such as Verizon and AT&T, and newcomers such as Netflix (which really doesn't fit into any category) all want to become the same thing--the folks that you turn to when you want to watch something, any place, any time, on any screen (ranging from your iPhone to your 52-inch plasma TV). (For more, read this.)

And the FCC's endorsement of the idea that the government has a role in encouraging this competition is probably the most important aspect of its decision today.

First, some background: How mergers at the FCC will play out is notoriously hard to predict, but the ultimate result is not. The historical truth is that, in virtually every instance, the commission will approve any major proposed transaction. The only time in recent memory that the commission declined to do so was the proposed merger of the two leading satellite-TV providers (Echostar and DirecTV) -- and that marriage was running into problems with other agencies long before the FCC put the final nail in the coffin.

(Yes, then-Chairman Reed Hundt also famously ended rumors of an AT&T and Southwestern Bell merger in 1997 by preemptively declaring it "unthinkable." But those companies simply had to wait until 2005, when a different FCC chairman let it go through.)

The real action at the FCC involves what "conditions" the agency will put on a merger. These are supposed to be narrowly tailored to address specific harms raised by the merger at issue. But, regardless of who is in charge at the agency, it's all relative.

Often, the conditions applied to a particular merger have more to do with what the chairman and commissioners at the time want to achieve on an industrywide basis. It's just easier to get these things done when you have the extraordinary leverage of controlling the timing of a multibillion-dollar transaction that the parties are desperate to consummate.

Conditions reached as a bitter compromise in one merger often become the floor for the those imposed on the very next merger. Network neutrality began as a set of four unenforceable conditions endorsed by the FCC as part of a grand compromise that involved a split commission (two Republicans, two Democrats) deregulating broadband. In the next major merger (SBC-AT&T and Verizon-MCI), the conditions were made mandatory (as they applied to those parties). And in the next major merger (AT&T-BellSouth), a fifth condition was added. The history here is incredibly complex and certainly there were many factors. But it's basically correct to say that all these steps played an important, incremental role in the 3-2 decision last December to implement industrywide net-neutrality rules. (Full disclosure: Until last summer, I was a staffer at the FCC -- for Commissioner Michael Copps and Chairman Julius Genachowski -- and played a role in many of the foregoing decisions, although not the Comcast-NBCU merger.)

The FCC's list of conditions in this merger are pretty straightforward and expected -- for the most part. Rules about Comcast-NBCU not refusing to sell programming to other cable and satellite programmers. Not refusing to carry other programmers' content. Not getting rid of local news, public interest, and children's programming. And so forth.

But the really interesting ones are about the development of online video programming, including by companies (such as Netflix, Apple, and Google) that don't own their own distribution networks.

These "over the top" video providers are, in essence, trying to build businesses to defeat such companies as Comcast, Verizon, and AT&T by delivering bits to consumers over Comcast, AT&T, and Verizon's own broadband networks. A fraught business, to say the least.

The FCC's rules, as described in the press release announcing the merger, appear to be aimed at ensuring that "over the top" providers have fair access to programming (which the NBCU part of Comcast-NBCU will provide), as well as to consumers (which the Comcast part of Comcast-NBCU will provide).

This is, by far, the strongest statement yet from the commission about the importance of over the top video competition. But the business and regulatory stakes in this fight are only going to increase over time. Indeed, the two Republican commissioners (Robert McDowell and Meredith Attwell Baker) issued separate statements saying they have concerns over whether the FCC should be writing rules to encourage over the top video. So this is likely to be the first skirmish in what will surely be a long and bloody war.

In the weeks ahead, the lawyers will be able to parse the specific provisions to see where the loopholes are and how it will all play out in practice. The details surely matter. But years from now, the specifics of what was decided in this merger may mean a lot less than the fact that the FCC is now deeply involved in the multifront war to decide who will win online video.