FTC Provides Senate Testimony on Sports Programming and Cable Distribution

The Federal Trade Commission’s Bureau of Economics Director Michael Salinger testified today before the U.S. Senate Committee on the Judiciary about the FTC’s January 2006 closure of its investigation into the proposed acquisition by Comcast Corporation and Time Warner Cable Inc. (TWC) of the cable assets of Adephia Communications Corporation (Adelphia).

Salinger explained the work of the agency that went into the investigation, how the transaction was structured, and why the Commission decided to close the case without taking antitrust enforcement action. In the course of the investigation, according to the testimony, the FTC staff gathered significant evidence on the workings of sports programming markets, as well as each of the relevant geographic markets affected by the transaction. In each of these markets, the staff reviewed whether TWC or Comcast would be able to enter into exclusionary sports programming contracts, whether such contracts would be a viable strategy from the perspective of the sports team itself, and whether exclusive contracts would be profitable for TWC or Comcast.

“After careful consideration, the staff concluded for various reasons that the evidence did not indicate that the proposed transaction was likely to make exclusive contracts profitable for either Comcast or TWC in the geographic markets impacted by the transaction,” the testimony continued.

Even if the staff had found that the transaction likely would have led to additional exclusionary conduct in sports broadcasting, the testimony stated, that fact alone would have been insufficient to conclude the transaction would violate Section 7 of the Clayton Act – the act the FTC can use to bring an antitrust enforcement action. For a transaction to violate Section 7, it would have to create a likely risk of substantial harm to competition. “That means, in essence, that the transaction would need to make consumers worse off in the balance” than if it did not take place. The Commission majority concluded that the investigation did not produce such evidence.

The testimony continued by stating that in certain industries, specialized regulatory agencies, in addition to the antitrust enforcement authorities, may review mergers. In the communications industry, that jurisdiction is with the Federal Communications Commission (FCC), which may, at times, prohibit a transaction under a broad “public interest” standard. In this case, however, FCC also investigated the transaction, finding “the potential public interest harms . . . are outweighed by the public interest benefits.”

The testimony concluded by noting that while the Comcast/TWC/Adelphia merger is now completed, this “does not mean that [the FTC] cannot or will not intervene in these markets in the future,” and that the types of exclusionary conduct by cable companies that would cause consumer harm, “would be directly actionable under Sections 1 and 2 of the Sherman Act.”

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 5-0. The written statement represents the views of the FTC, while the oral presentation and responses to questions are solely those of the Director of the Bureau of Economics.

Copies of the Commission’s testimony are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition, working with the Bureau of Economics, seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

The Division of Advertising Practices within the FTC’s Bureau of Consumer Protection enforces the FCLCA and the Contact Lens Rule. Complaints about alleged violations of the FCLCA or the Rule, as opposed to those about vertical restraints within the contact lens industry, should be forwarded to that division of the Commission.

(FTC File No. P052103)