Netflix gloves come off against Comcast-Time Warner Cable merger

Tue Apr 22, 2014 8:47am IST

The headquarters of Netflix is shown in Los Gatos, California in this file photo taken September 20, 2011. REUTERS/Robert Galbraith/Files

The headquarters of Netflix is shown in Los Gatos, California in this file photo taken September 20, 2011.

Credit: Reuters/Robert Galbraith/Files

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REUTERS - Video streaming service Netflix on Monday became the most visible company with a business relationship with Comcast to oppose the No. 1 cable operator's $45.3 billion merger with Time Warner Cable.

"It's more in the public interest to either not have them merge or if the government goes ahead with it, to at least put some significant merger agreements, settlements in there," Netflix Chief Executive Officer Reed Hastings said in a webcast following the company's quarterly results.

Netflix added in a quarterly letter to shareholders that Comcast would control access to broadband in a majority of U.S. homes while also having "anticompetitive leverage" to charge arbitrary fees on companies that rely on its Internet service.

Until now, the only vocal advocates calling for an outright rejection of Comcast-Time Warner Cable merger had been public interest and consumer groups such as Public Knowledge and the Consumers Union, as well as Senator Al Franken, a Minnesota Democrat who has often opposed media concentration.

Netflix has tussled with the cable operator in recent months over the speed Comcast delivers the online streaming service to its cable customers. In February, Netflix struck a deal to pay Comcast for faster online delivery of its movies and TV shows through a practice known as interconnection, after customers complained about slow service.

While Netflix and Comcast announced the news in a joint statement that sounded friendly at the time, just a month later, Netflix's Hastings blasted Comcast for charging these interconnection fees in a blog post.

In an interview with Reuters on Monday, the Netflix executive said he favors the federal government imposing "some enduring form of no-fee interconnect" if the merger is approved by regulators.

Comcast quickly responded with a lengthy statement.

"Netflix's opposition to our Time Warner Cable transaction is based on inaccurate claims and arguments," the cable operator said. "There has been no company that has had a stronger commitment to openness of the Internet than Comcast."

The cable operator noted that, as part of its 2011 acquisition of NBC Universal, it is the only Internet provider that is legally bound to follow the U.S. Federal Communications Commission' net neutrality rules.

Comcast charged that Netflix is using the interconnection argument to "shift its costs from its customers to all Internet customers, regardless of whether they subscribe to Netflix or not."

A DEAL HURDLE?

Netflix's decision to publicly oppose Comcast's plan to merge with Time Warner Cable may give the company headaches when it makes its case to the Justice Department that their deal is legal under antitrust law, said Allen Grunes, an antitrust expert with Geyer Gorey LLP law firm.

   "The significance here is that we know from the (2011) Comcast NBCU deal that DOJ (Justice Department) was worried about Netflix," said Grunes. "I suspect that Netflix has a whole bunch of information and concerns that could support DOJ bringing a case because this is the person whose business is placed at risk."

Critics of the merger say that a bigger, more powerful Comcast would have the power to throttle Internet traffic.

Since announcing its bid for Time Warner Cable in February, Comcast has underscored that the merger combines two companies that do not directly compete in any markets, meaning no consumer would lose a choice of an Internet or cable provider.

It has argued that Time Warner Cable's customers would see a boost in quality of their services and Internet speeds.

(Reporting by Liana B. Baker; additional reporting by Diane Bartz and Lisa Richwine; Editing by Ronald Grover, Bernard Orr)

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