Photographer: Patrick T. Fallon/Bloomberg
technology

RCN CEO Testifies That AT&T Merger Will Hurt Competition

Updated on
  • Cable company chief called as witness by Justice Department
  • Government wraps up its case against $85 billion takeover

RCN Corp. Chief Executive Officer Jim Holanda told the judge weighing AT&T Inc.’s takeover of Time Warner Inc. that the combination could hurt the U.S.’s sixth-biggest cable provider at a time when it’s already burdened by rapidly rising programming costs.

RCN, owned by the private-equity firm TPG and Google parent Alphabet Inc.’s venture capital fund, stands to lose ground if AT&T gains leverage through control of Time Warner’s popular Turner Broadcasting content, Holanda testified Tuesday. RCN’s business suffered after the 2011 acquisition of NBCUniversal by Comcast Corp., the executive said.

AT&T “will use Turner programming to disadvantage us,” Holanda said in Washington federal court, raising the “same concerns” RCN had with the Comcast deal.

U.S. antitrust enforcers sued to stop AT&T’s takeover of Time Warner, saying the $85 billion deal will raise costs for cable and satellite-TV subscribers by more than $400 million a year. The government’s case, now in its fifth week, wrapped up with the conclusion of Holanda’s testimony.

The CEO testified that programming costs are RCN’s single biggest outlay, and that in recent years the expenses have increased at five times to eight times the rate of inflation. About 80 percent of the price increases are passed along to customers, he said.

Cable Background

In describing his background to the court, Holanda said he started in the industry as a cable installer for Comcast just out of college more than two decades ago before eventually joining RCN. The Princeton, New Jersey-based company, with just shy of 1 million customers, competes with companies like Comcast in some of the biggest U.S. markets, he said.

Under cross-examination by AT&T attorney Rob Walters, Holanda conceded that RCN didn’t have any empirical data to back his claim that the company could lose subscribers as a result of the merger.

Holanda also conceded that many of the subscribers RCN is currently losing are cord-cutters who stream programming, suggesting AT&T’s deal isn’t really the problem. Holanda also agreed that many of the changes in the industry, such as improved choice and availability, have been good for consumers, undercutting the claim that consumers are bound to be hurt by AT&T’s deal.

But Walters saved his biggest attack for Holanda’s view on an arbitration offer AT&T and Time Warner made to distributors in a failed effort to win their support, guaranteeing they wouldn’t withhold Turner content as a bargaining chip in programming talks.

Holanda testified that the “baseball-style” arbitration was insufficient because it required RCN to make its “best and final bid” first without seeing what others are paying.

Seeing other offers first “would be unprecedented in baseball arbitration, wouldn’t it?” Walters asked. “Aren’t you effectively saying ‘I don’t want to bet until I see your cards?’” Walters asked.

Holanda disagreed.

(Updates with cross-examination by AT&T attorney.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE