The Justice Department is conducting a broad antitrust investigation into cable companies to determine whether they are acting improperly to crush new competition from online video, reported the Wall Street Journal, citing people familiar with the matter. A key part of the DOJ's investigation into competition practices in the online video space focuses on what types of content cable Internet service providers decide to count or not count against monthly data caps.
"Justice Department officials have spoken to several online video providers, including Netflix Inc. and Hulu LLC, those people said," reported the WSJ. "Investigators have also questioned Comcast Corp., Time Warner Cable Inc. and other cable companies about issues such as setting data caps, limits to the amount of data a subscriber can download each month, these people said."
In simpler terms, most favored nation agreements or managed services, i.e. cable and telecom companies, are expected to provide a vast array of options for consumers, and these options should not count as data caps. AT&T chief executive Randall Stephenson telegraphed such options to the Washington Post's Cecilia Kang.
"Customers are beginning to understand that as you use more, you pay for more," Stephenson explained last month at the Sanford C. Bernstein investors conference in New York, as cited by the Washington Post. "If the customer is now apprehensive, you can envision where that content provider may want to come to a carrier and say, look, we'd like to engage in a model where...the customer isn't willing to pay, but we are willing to pay for it." The Post takes a shot at a translation, hinting it would be something like ABC paying AT&T to offer a free channel for consumers on mobile devices.
Competition
Such options, however, pose new concerns over competition for Silicon Valley Web companies, as they are competing against streaming video services that cable and media firms offer at much more appealing prices, according to analysts. "Media and telecommunications giants, which can be one and the same, should not be able to take advantage of their size and reach to eliminate competition and to harm consumers through data caps which favor some content over other based on business relationships, through contract terms that could restrict where programming can be shown, or other means," said Harold Feld, vice president at public interest group Public Knowledge, as cited by the Washington Post.
According to the WSJ's sources, the Justice Department is looking into whether Comcast's Xbox policy violated legal commitments the company made last year to obtain antitrust approval for its takeover of NBCUniversal. Under the terms of that legal settlement, Comcast pledged it would not "unreasonably discriminate" against other companies sending data via its pipes, or treat its own content any differently. Comcast said it is in full compliance with the terms of the settlement and isn't engaging in discriminatory practices against other companies' content. Moreover, the company highlighted that Xfinity is not like Netflix' Internet video service or other such services because it travels over Comcast's own network, not the public Internet.
"We have consistently treated all video carried over the public Internet the same whether it comes from our sites or anywhere else on the public Internet," Comcast said in May. At the time, the company also announced plans to suspend its data caps and start testing a new system so heavy users could pay for more data.
Another part of the investigation is whether cable companies are acting anticompetitively by requiring viewers to have a cable subscription in order to access certain online programming. For instance, several cable companies, including Comcast, have verifications systems that require viewers to enter their cable subscription details if they want to watch certain programs such as ESPN on a tablet.
In their defense, cable companies argue their intention is to enable subscribers to watch their programming on any devices, instead of being limited to their TVs. Content owner Time Warner Inc. is one of the strongest supporters of the verification system, as it wants to entice consumers to keep buying packages of online channels. According to some public-interest groups, such "paywalls" discourage people from ditching their cable subscriptions and buying channels individually online instead.
The DOJ's investigation is also focusing on the contracts signed by programmers in order to be distributed on cable systems. Some of these contracts reportedly include most-favored nation clauses, meaning, among other conditions, that programmers give the best price to the biggest cable companies. The DOJ is now investigating whether such terms are backed by legitimate business reasons or whether they are aiming to stop programmers from trying other forms of online distribution, said one of the WSJ's sources.
