Constantine & Partners
Competition Law Enforcement And
The Media/Telecommunications
Industry
By
Matthew L. Cantor
Constantine & Partners, PC
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Why Is This Interesting?
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Why Is This Interesting?
• Affects manner in which ideas are relayed
to persons.
• Cannot underestimate the importance of
media to our culture for all persons
regardless of race, creed or age.
– News
– Educational
– Entertainment Options
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Competition Law And The
Media/Telecommunications
Paradox
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Competition Law And The
Media/Telecommunications Paradox
• On the one hand,
media/telecommunications
is an all important and
unique industry that is
responsible for
communicating current
events, educational
initiatives and various
entertainment options to
all Americans.
• On the other hand,
competition law (a.k.a. the
antitrust laws) views
media/telecommunications
as no different than any
other industries. The
antitrust laws apply to the
media in the same way
that they apply to, for
example, the toy industry.
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The Federal Communications
Commission: The Answer To
The Paradox
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The FCC: The Answer To The Paradox
• Regulatory agency that requires that certain
media/telecom transactions not only be acceptable
under antitrust law, but that they be in the “public
interest.”
• Only transactions that concern FCC license fall
within FCC jurisdiction.
– Generally transactions concerning media distribution.
– Not transactions merely concerning programming
mergers.
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The FCC: The Answer To The Paradox
• The FCC has also adopted a number of bright line rules that
purportedly ensure that media/telecommunications markets perform
competitively and ensure “diversity.”
– National Television Station Ownership Rule -- Cannot own
television stations that reach more than 35% of nationwide
audience.
– National cable ownership cap -- Cannot own cable systems that
reach more than 35% of multi-channel video programming
subscribers.
– Local Television Station Ownership Rule -- Cannot own more than
two stations in any given local market.
• Many of the FCC’s rules are under attack legally and some, like the
NTSO and cable cap rule, have been struck down.
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Review Of Media/Telecom
Mergers
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Review Of Media Mergers
Antitrust Authorities
FCC
• Under 47 U.S.C. § 310 (d),
• Under Clayton Act § 7, 15
mergers are reviewed by the
U.S.C. § 18 mergers are
FCC to determine whether
reviewed to see whether
they are in the “public
they likely will result in a
interest,” i.e., whether they
“substantial lessening” of
satisfy competition law
competition or whether they
precepts, comport with
likely will “tend to create a
national security goals, and
monopoly… in any line of
allow for sufficient “diversity.”
commerce in any section of
the country.”
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Clayton Act Section 7 Standard
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Clayton Act Section 7 Standard
• Determine whether merger will likely lead to the
acquisition of market power.
– Market power is defined as “the power to control market prices or
exclude competition.” U.S. v. E.I. Du Pont de Nemours & Co.,
351 U.S. 377, 391 (1956)
• In order to make determination, enforcers follow 1992
Federal Trade Commission/Department Of Justice
Guidelines, as amended in 1997. Guidelines are to inform
prosecutorial discretion of enforcers, although certain
courts have relied on them as law.
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Section 7 Standard: Evaluation
Under Merger Guidelines
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Section 7 Standard: Evaluation Under Merger
Guidelines
• Market definition -- test for deciding scope of particular
relevant market, which is prerequisite to determining
whether power will be acquired by the merged entity.
• HHI Calculations -- Mathematical calculation that
determines whether the merger is presumptively illegal.
– Utilizes market share information
• Analysis of Efficiencies -- Where mergers do not lead to
extreme consolidation may benefit consumers by gaining
cost reductions. Can rebut presumption of illegal merger.
– E.g., increased economies of scale can lead to reduced cost of
product.
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Procedure For Review Of Media
Transactions
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Procedure For Review Of Media/Telecom
Transactions
• Pre-merger notification
must be filed with
FTC/DOJ. Agencies have
thirty days to review
merger. Thirty day period
can be extended if
requests for additional
information and
documentation are made.
• Application for transfer of
FCC license must be filed
with FCC. FCC has selfimposed 180 day period to
rule on transaction, but
FCC review has not been
historically dictated by
this deadline.
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Summary of Recent Reviews of Major
Media/Telecom Transactions By
Antitrust Authorities
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Radio Station Mergers
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Radio Station Mergers
• Westinghouse Electric (CBS)/Infinity Broadcasting (1996)
– Deal: CBS station ownership group seeks to acquire additional
station group.
– Issue: Would ownership of stations constituting 40% of Boston
radio “market” and 45% in Philadelphia radio “market” lead to
increase for radio advertising rates?
• DOJ alleges that it is especially concerned because many of the radio
stations that would be owned by merged entity competed for the ears
of same demographic group (males 18-54)?
– Conclusion/Enforcement Action Taken: Divestiture of major
station in Philadelphia and Boston.
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Radio Station Mergers
• Clear Channel Communications/AMFM (2000)
• Clear Channel Communications/Jacor
Communications (1999)
– Same issues as in Westinghouse/Infinity.
– Both deals led to divestitures.
– Question on market definition: Is market broad
(advertising on all radio stations) or is it more narrow
(advertising on radio stations that appeal to same
demographic.)
• DOJ alleges the former.
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Television Station Mergers
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Television Station Mergers
• Chris-Craft/Fox (2001)
– Deal: Fox attempts to acquire second television broadcast station
in NY (UPN affiliate), LA (UPN affiliate), PHO (UPN affiliate)
and SLC (ABC affiliate).
– Issue: Would merger cause hike in local spot advertising rates
charged by television stations, where Fox would was acquiring
second television station in a particular regional market?
– Conclusion/Enforcement Action: DOJ concluded that a market for
local broadcast programming, separate and apart from cable
programming, exists. Because Fox was to own both Fox and ABC
affiliate in Salt Lake City, which would have given Fox about a
40% share of the ad revenues in that market, DOJ required
divestiture of Salt Lake City station. (FCC rule mandated this
divestiture in any event.) In all other respects, deal cleared by
DOJ.
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Television Programming
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Television Programming
• CBS/Viacom (1998)
– Deal: Viacom, 50% owner of UPN network, attempts
to acquire second television network.
– Issue: Does the acquisition of second network give
Viacom market power in sale of advertisements for
network programming?
– Conclusion/Enforcement Action: Deal is cleared.
Viacom is not forced to sell its stake in UPN.
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Television Programming
• Fox Family/Disney (2001)
– Deal: Disney, owner of Disney channel and tremendous amount of family
programming, acquires cable network and all of its distribution rights.
– Conclusion/Enforcement Action: Deal clears in 30 day waiting period.
• Time Warner/Turner (1996)
– Deal: Vertically-integrated programmer/cable provider (second largest
cable provider) acquirers largest cable programmer.
– Conclusion/Enforcement Action: Deal approved on horizontal aspects. In
other words, no divestiture caused as a result of deal.
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Cable
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Cable
• Turner/Time Warner (1996)
– Deal: Cable provider (Second largest) acquiring largest programmer.
– Issues:
• By acquisition, will Time Warner be able to foreclose competition
(reduce output) in programming market by denying access to its
cable pipes.
• By acquisition, will Time Warner foreclose competition in
cable/multi-channel video programming distribution (“MVPD”)
markets by refusing to grant competitors access to its programming.
– Conclusions/Enforcement Action: Time Warner agrees to must carry on
competitive programming, e.g., it agrees to distribute Fox News and
MSNBC which is competitive with CNN. Also, Time Warner agrees to
provide its programming to competitive MVPDs.
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Cable
• AOL/Time Warner (2000)
– Deal: Largest Internet Service Provider acquires second largest
cable distributor.
– Issue: Can Time Warner foreclose competition in the ISP market
by refusing to grant access to competitive ISPs who will need
cable pipes for distribution?
– Conclusion/Enforcement Action: FTC requires that AOL/Time
Warner provide access to its cable pipes on fair and reasonable
terms to at least three ISP competitors, including Earthlink.
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Cable
Horizontal Deals
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Cable - Horizontal Deals
• AT&T/TCI (1999)
• AT&T/MediaOne (1999)
• Numerous Time Warner Cable Acquisitions
– clustering: attempts to increase scope of monopoly in specific regions has
led to swaps among cable systems.
• Concern about creation of monopsonies
– e.g. entities with massive buying, rather than selling, power. Could lead
to reduction in output if programming bought at sub-competitive rates.
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DBS
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DBS
• PrimeStar attempted acquisition of News
Corporation satellite assets.
– Deal: News Corp. attempts to sell license to orbital slot to
PrimeStar, which is owned by cable companies.
– Issue: Will PrimeStar use DBS assets aggressively to compete
with cable?
– Conclusion: DOJ sues and deal folds.
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Current Deals
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Current Deals
• EchoStar/DirecTV
– Deal: Only two DBS providers attempting to merge.
– Issue: Will merger lead to an increase in market power in MVPD
markets?
• AT&T/Comcast
– Deal: Third largest cable monopoly seeking to buy largest cable
monopoly.
– Issue: Will deal result in monopsony or entity with substantial buying
power of programming? If so, is there a likelihood that programming
output will be decreased due to dealing with entity that will only
purchase programming at sub-competitive rates.
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