We have frequently written of Comcast’s anti-consumer actions past posts, so we were not surprised to learn that the Department of Justice (DOJ) recently decided to investigate the cable company for antitrust. The borders between antitrust and hyper competitive business practices are grey; Comcast has experimented in the shadows on more than one occasion. We looked into one nine-year-old case, that recently advanced in the Pennsylvania courts.
The Behrend v. Comcast class action case began in 2003 against the cable giant. The suit alleges that Comcast violated the Sherman Antitrust Act by building itself into an “illegal monopoly.” The plaintiffs are current and former customers of Comcast and damages are estimated at $876 million, although the amount could be tripled under the Act.
The plaintiffs claim that Comcast’s strategy was to “cluster” as a way to eliminate competition and be able to raise rates above the market. “Clustering” involved acquiring the cable systems of other large multi-system operators that operated and offered multichannel video programming distributor service in various franchise areas in the Philadelphia area. There are internal documents, referred to in the April 12 Summary Judgment Memorandum [pdf], supporting the argument that Comcast’s business strategy was to eliminate competition through clustering.
Growing by gobbling up smaller entities in the same industry is not a new idea and certainly not illegal on its face. The issues in the 2003 case were how Comcast went about expanding, why they did it, and to what extent they took steps to hinder competition. There was a cable system asset swap with AT&T and the two worked together to divide up the Philadelphia assets of former MediaOne, rather than compete with each other during the bidding process. Other swaps involved Aldelphia, Time Warner, and even smaller operators, like Patriot Media & Communications.
Swapping and clustering with intent to eliminate competition may be considered Sherman Act violations. There were also allegations that Comcast took steps to prevent a new company from overbuilding, including requiring contractors to enter into non-compete agreements. They offered long term contracts with special discounts and penalty provisions in the areas where the possible competition planned on competing.
Allegations are that such practices harmed the members of the class – the customers. By eliminating competition and creating barriers to new competition, Comcast was able to keep the rates artificially high.
Comcast argued that no company wants to compete in the Philly areas they serve. Another cable company, RCN, tried to overbuild;the Philly market at the time and failed. Whether or not it was due to RCN’s failures, Comcast’s activities, or both, will be examined at trial. Comcast has also argued that the philosophy of clustering allowed it to offer new products and the benefits should justify their business decisions.
Seeing as how Comcast has tremendous margins on its products, particularly broadband, and it is consistently rated as one of the most hated corporations in America, we find it very hard to believe that other companies simply don’t want to go head to head with them. The question is whether the legal system is equipped to deal with the harm Comcast is doing to millions of American households.