Congress airs its concerns over Comcast-Time Warner Cable deal

By Diane Bartz

WASHINGTON (Reuters) - Lawmakers expressed concern about combining the top two U.S. cable operators at a congressional hearing Thursday to discuss Comcast's plan to merge with Time Warner Cable Inc.

While none of the lawmakers asked regulators to block the transaction, both Republicans and Democrats cautioned there were potential negatives in the $45 billion deal.

Representative Blake Farenthold, a Texas Republican, worried that small programmers may not be able to sell video to cable operators. "I don't want to sound hostile to this merger," he said, but noted constituents and interest groups have raised concerns.

Representative John Conyers, a Democratic critic of big mergers in general, said a combined Comcast/Time Warner Cable would have 30 percent of the cable market, at least 40 percent of the broadband market, 19 of the 20 biggest cable markets and a major Spanish-language channel, as well as movies and television shows and sports programming.

"Comcast is a cable company and a programmer. That raises a double concern with me," said Conyers. "I don't know if it's resolvable."

Comcast Executive Vice President David Cohen tried to allay the concerns. "This transaction has the potential to slow the increase in prices. ... Consumers are going to be the big winners," he told a hearing of the House of Representatives' antitrust panel.

A trio of lawmakers pressed Cohen on why the company decided to reduce the number of areas where it showed programming from Rural Media Group, whose founder, Patrick Gottsch, testified.

Representative Doug Collins, a Georgia Republican, said: "A lot of people who move from the farm to the urban area still want to be connected to the farm."

Cohen said the decision was made because of a shortage of bandwidth, and was not necessarily permanent.

"We carry 160 independent programming networks," he said. "We're a company that really tries to find the niches of programming that customers in particular markets are interested in."

Comcast faced tough criticism from Dave Schaeffer, CEO of Cogent Communications Group Inc, which has been a high-speed go-between for Netflix Inc and Comcast. In February, Netflix agreed to pay Comcast to connect directly.

Schaeffer said that, after years of free connections, Comcast demanded Cogent pay to remedy Netflix's balky speed. Schaeffer said Cogent offered to pay some hardware costs, but that Comcast had remained silent and no agreement was reached.

"That's not a free market. That's an abuse of market power," he said.

Cohen disagreed. "We did not force Netflix to enter into an interconnection deal with us. That was Netflix' idea," he said, noting that the company said it wanted to "cut out the middleman."

Cohen said he could not disclose the terms of the deal but added, "It has been publicly reported that Netflix is paying not more to us under this agreement, but less (than they paid Cogent)."

Netflix has been critical of the agreement it made, with one executive calling it "double-dipping" since Comcast customers and Netflix both pay to have the movies and TV shows delivered to living rooms.

The American Cable Association's Matthew Polka also worried about video programming and urged the Justice Department and the Federal Communications Commission, which must review the deal, to ensure Comcast does not raise prices or withhold shows from smaller rivals.

Comcast said on April 28 that it was willing to divest nearly 4 million subscribers to win approval for the deal. That would leave it with 29 million subscribers if the deal goes through.

(Reporting by Diane Bartz; Editing by Ros Krasny, Doina Chiacu, Andre Grenon, Nick Zieminski and Dan Grebler)

[Image: A Comcast sign is shown on the entrance to its store in San Francisco, California February 13, 2014. By Robert Galbraith for Reuters]