A Clue in 2000 Ruling?

Fourteen years ago in a prior wave of telecom mergers, Justice Department officials determined that combining two of the nation's largest Internet portals, Excite@Home and Road Runner, posed a "gatekeeper" threat to fledgling Internet-based content companies.

For a content company to reach American consumers over the Internet, they would have to go through the Excite@Home or Road Runner portals.

This was too much market power concentrated in one company, and the Justice Department forced MediaOne Group Inc. to sell Road Runner before it could be acquired by AT&T.

Netflix, the popular online entertainment streamer, is now citing that decision as a precedent for the government to reject Comcast Corp.'s proposed $45.2 billion deal for Time Warner Cable Inc.

The on-demand streamer says the combined Comcast/Time Warner Cable - whose network has the capacity to provide the superfast Internet speeds for streamers - poses the same gatekeeping threat to consumers as Excite@Home/Road Runner.

The two portals had about 40 percent of the residential Internet market in 2000, while Comcast/Time Warner Cable will serve about 40 percent of the residential Internet subscribers, Netflix says.

"Comcast/Time Warner will have enormous power over whether and how online content reaches consumers," Corie Wright, Netflix's director of global public policy, said last week. "Comcast already can and has exercised this power; the merger will make it worse."

Netflix and other online video streamers are considered a cheaper alternative to Comcast and Time Warner Cable's cable-TV businesses.

Comcast says that it has not engaged in anticompetitive behavior with Netflix and that bringing up the 2000 case during the deal review is "grasping by Netflix."

Comcast is expected to respond Tuesday to public comments about the merger before the Federal Communications Commission, and regulators are expected to make a decision on the transaction in early 2015.

The portals business model that the Justice Department was so concerned about in 2000 was quickly marginalized. Excite@Home filed for bankruptcy protection a year after the Justice Department decision.

Moreover, Comcast says, the "national broadband market share isn't relevant." The relevant economic observation, it says, is that, because Comcast and Time Warner Cable don't compete with each other, the merger will not eliminate any broadband provider for consumers.

Christopher S. Yoo, a law professor and telecommunications expert at the University of Pennsylvania, who supports the Comcast/Time Warner Cable deal, said the decline of the Excite@Home and RoadRunner portals was a "good example of how technological change rendered a business model obsolete."

The two Internet portals never came close to the huge threat to content companies that the Justice Department feared, Yoo said.

But in their comments to the FCC, Dish Network, Cogent Communications Group Inc., and the American Antitrust Institute also cite the 2000 Justice Department decision.

"Business models change all the time, but the competitive problems stay the same," said Diana Moss, vice president of the nonprofit American Antitrust Institute, in Washington. "This is an age-old problem of exclusionary gatekeeping. When you stand there at the gate to the consumer, you have an incredible amount of power."

Comcast and Time Warner Cable are the nation's two largest cable companies.

Allen P. Grunes, a former Justice Department antitrust official and a Washington lawyer, who has criticized Comcast's proposed deal, called Netflix's point valid, but he also did not think it was "the end of the game" for Comcast.

Broadband competition - or companies that can compete with Comcast/Time Warner Cable - will be a critical component of the review, experts say.

If consumers don't like the Internet service offered by Comcast/Time Warner Cable for their Netflix stream, can they switch to a new provider?

Earlier this month, FCC Chairman Tom Wheeler indicated in a speech in Washington that he was concerned about the consumer choices beyond cable companies for high-speed Internet.

Because of the growth of Netflix and other streamers, in addition to the proliferation of WiFi-connected electronic devices in homes, consumers will need ever-faster Internet speeds, a service dominated by cable, Wheeler said.

"Today, cable companies provide the overwhelming percentage of high-speed-broadband connections in America," Wheeler said. "Industry observers believe," he added, that cable's advantage over DSL technologies will continue for the foreseeable future.

Wheeler noted that the choices narrowed sharply for consumers at Internet speeds of 25 megabits per second and faster, which is where the market is heading.

Wheeler did not comment directly on the Comcast/Time Warner Cable review, but Comcast executive and chief lobbyist David Cohen said in a blog post the next day that new technologies were coming that would offer alternatives to cable - high-speed wireless and advanced DSL.

As it so happens in the monopoly game of telecom deals, AT&T sold the Road Runner portal to what is now Time Warner Cable to satisfy the Justice Department's antitrust concerns 14 years ago.

Comcast separately purchased AT&T's cable-TV and Internet businesses in the early 2000s.

So if the government approves the Comcast/Time Warner Cable transaction, the deal will bring together, in successor forms, the Internet businesses that the government broke up about a decade ago.

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