Will the NY PSC Find Comcast’s Proposed Takeover of Time Warner Cable is in the “Public Interest”?

Comcast and Time Warner  filed a Joint Petition with the New York State Public Service Commission (NYPSC) on May 15, 2014 seeking the state regulators’ approval that is necessary to effectuate the proposed national takeover of Time Warner Cable by Comcast.  Comcast, headquartered in Philadelphia, is the largest mass media and communications company in the world by revenue, the largest cable company and home Internet service provider in the United States,  and the nation’s third largest home telephone service provider.   Time Warner Cable, headquartered in New York City,  is the second largest cable company in the U.S. behind only Comcast.    Comcast would buy Time Warner Cable subsidiaries in New York.  

The before and after corporate organization charts filed with the Joint Petition show that merger will be accomplished upstream of the New York subsidiaries of Comcast and Time Warner that provide direct services to New York customers.

Time Warner has facilities in most of New York’s counties, serving approximately 2.6 million cable customers, while Comcast’s footprint in New York is quite small, consisting of about 20,000 customers, mainly north of New York City.  Time Warner also has about 1.2 million phone customers, who receive VOIP phone service over cable lines.

New York’s Statutes Regarding  Review of Cable TV and Telephone Company Mergers

The merger will need to be approved by the Public Service Commission under laws governing cable TV and telephone company mergers.  Regarding cable TV, the recently enacted Section 222 of the New York Public Service law provides:

“3. (a) The commission shall approve the application for renewal or amendment of a franchise unless it finds that the applicant or the cable television system does not conform to the standards established in the regulations promulgated by the commission pursuant to section two hundred fifteen of this article or that approval would be in violation of law, any regulation or standard promulgated by the commission or the public interest, provided however, that a failure to conform to the standards established in the regulations promulgated by the commission shall not preclude approval of any such application if the commission finds that such approval would serve the public interest. (b) The commission shall not approve the application for a transfer of a franchise, any transfer of control of a franchise or certificate of
confirmation, or of facilities constituting a significant part of any cable television system unless the applicant demonstrates that the proposed transferee and the cable television system conform to the
standards established in the regulations promulgated by the commission pursuant to section two hundred fifteen of this article, that approval would not be be in violation of law, or any regulation or standard
promulgated by the commission, and that the transfer is otherwise in the public interest; provided, however, that a failure to conform to the standards established in the regulations promulgated by the commission shall not preclude approval of any such application if the commission finds that such approval would serve the public interest.”

Clearly, the statute requires a review of whether merging parties are in compliance with existing cable TV standards.  PSL § 215, referenced by the merger review law, empowers the Commission to

“prescribe standards for the construction and operation of cable television systems, which standards shall be designed to promote (i) safe, adequate and reliable service to subscribers, (ii) the construction and operation of systems consistent with most advanced state of the art, (iii) a construction schedule providing for maximum penetration as rapidly as possible within the limitations of economic feasibility, (iv) the construction of systems with the maximum practicable channel capacity, facilities for local program origination, facilities to provide service in areas conforming to various community interests, facilities with the technical capacity for interconnection with other systems within regions as established in the commission’s statewide plan and facilities capable of transmitting signals from subscribers to the cable television company or to other points; and (v) the prompt handling of inquiries, complaints and requests for repairs;”

The statutes thus recognize the social goals of universal television service (“maximum penetration ….), “safe, adequate and reliable service”,  and customer protection (“handling of inquiries, complaints and requests for repairs….”).   The Commission has adopted regulations containing its cable TV standards and consumer protection rules at 16 NYCRR Part 890.  A thorough assessment of the petitioners’ Compliance with all these rules, and correction of any deficiencies, clearly is contemplated by the cable merger statute.

New York Public Service Law § 100.3  requires PSC approval of any transfer of ownership of a telephone company.  This law also applies, because Time Warner Cable Information Services (TWCIS) NY is a phone company. It contains the following requirement:

“No consent shall be given by the commission to the acquisition of any stock in accordance with this section unless it shall have been shown that such acquisition is in the public interest; provided, however, that any such consent shall be deemed to be granted by the commission ninety days after such corporation applies to the commission for its consent, unless the commission, or its designee, determines and informs the applicant in writing within such ninety day period that the public interest requires the commission’s review and its written consent.”

The telephone merger statute does not explicitly mention or require an assessment of compliance with standards that the more recently enacted cable TV merger law requires, but a review of Time Warner’s compliance with the PSC telephone service standards  and telephone consumer protection standards certainly would be a relevant and appropriate area for PSC inquiry, and for possible merger conditions.

In sum, the statutes governing both cable TV and the telephone company ownership changes require, as a condition of any PSC approval, that the Commission must  find that the transaction is in the “public interest.”

The PSC’s Standard for Determining Whether a Proposed Ownership Change is in the “Public Interest”

Last year, in Order approving the takeover of Central Hudson Gas & Electric by Fortis, Inc., subject to conditions, the Commission reviewed and summarized the standard it applies to determine if a change in utility ownership is in the “public interest,” stating

“the public interest analysis …. starts by requiring Petitioners to make a three-part showing: that the transaction would provide customers positive net benefits, after considering

  1. the expected benefits properly attributable to the transaction, offset by
  2. any risks or detriments that would remain after applying
  3. reasonable mitigation measures.

“Once we have gauged the net benefits by comparing the transaction’s intrinsic benefits versus its detriments and risks, we can assess whether the achievement of net positive benefits requires that the intrinsic benefits be supplemented with monetized benefits (sometimes described as “positive benefit adjustments” or PBAs). Then, if necessary, we establish a quantified PBA requirement, “as an exercise of informed judgment because there is no mathematical formula on which to base such a decision.”

In all likelihood, in deciding whether to approve the merger, the New York PSC will apply this three-part standard in determining whether the proposed takeover of Time Warner Cable’s New York companies  would be in the “public interest.”

The Utility Project last week indicated in a Statement at a PSC forum that there is not sufficient evidence to show that there are net positive benefits to New York flowing from the proposed transaction.  See  TELEPHONE AND BROADBAND UNIVERSAL SERVICE, CONSUMER PROTECTION, AND RATE CONCERNS RAISED AT HEARING ON COMCAST TAKEOVER OF TIME WARNER, and TIME WARNER REQUIRED TO PROVIDE REDACTED REPORTS ON SERVICE QUALITY.

At this point, the public record of the New York PSC proceeding consists mainly of the Joint Petition and a host of public comments, mostly questioning or opposing the proposed transaction.  The Utility Project has indicated in a Statement that there are  universal service, subscribership, Lifeline, broadband, and consumer protection issues insufficiently addressed in the Joint Petition, and that there is not sufficient evidence in the record to show that there are net positive benefits to New York flowing from the transaction.  See  TELEPHONE AND BROADBAND UNIVERSAL SERVICE, CONSUMER PROTECTION, AND RATE CONCERNS RAISED AT HEARING ON COMCAST TAKEOVER OF TIME WARNER, and TIME WARNER REQUIRED TO PROVIDE REDACTED REPORTS ON SERVICE QUALITY.

In a further installment we will discuss the putative benefits of the takeover of Time Warner’s New York companies by Comcast, risks or detriments, and potentially mitigating measures.

Gerald A. Norlander

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