World politics may be important, but messing with TV is serious business. The proposal of combining operations among two of the nation’s largest cable and Internet providers has unleashed a firestorm of debate online and on Capitol Hill.
Actually, there are two proposed mega-deals pending in the world of pay TV and each may actually improve the chances of the other gaining approval.
What is the Comcast/Time Warner merger debate all about?
In February, Comcast announced plans to acquire Time Warner Cable, just as it did with NBC a few years ago. At that time, Comcast cited Time Warner Cable as evidence that it faced significant competition, even if the two didn’t directly compete in any specific market. Obviously, those arguments no longer apply.
The other potential marriage of giants on the horizon would be the purchase of DirectTV by AT&T. The FCC and the Justice Department tend to treat satellite TV providers and phone companies as the main competitors with cable companies, so the potential of that deal going through makes the proposed $45 billion Comcast/Time Warner deal look more reasonable. The likelihood of these deals gaining regulatory approval is generating ripples of merger talks throughout the industry.
The case for merging
In its filing with the FCC, Comcast argued that it needs this merger to survive in the new world of streaming video giants like Verizon, Apple, and Google. Google will become the biggest threat as it rolls out ultra-fast Google Fiber to more cities over the next few years. Consumers will gain faster Internet in more locations with more on-demand options, according to Comcast’s executive VP David Cohen. “We are looking for scale to take on our competitors. Without it, we have one arm tied behind our backs.”
Comcast currently provides blazing broadband speeds of 10 GB for businesses in major cities such as New York and Los Angeles. A national Comcast would presumably make those kinds of services available in more cities. The deal certainly has strong allies in Washington, such as William Baer, head of Antitrust at the Justice Department and former representative for Comcast in its successful merger with NBC. Also, one of only four commissioners investigating the deal for the FCC is Maureen Ohlhausen, former legal counsel to Comcast.
The case for blocking
The New York Times came out unequivocally against the deal in a recent editorial. They pointed out that if the two companies merge, the new entity will control 30 percent of the cable market and 40 percent of the ISP market. In Congress, Senator Al Franken (D-Minn.) has been leading the charge to block the deal. Franken told company execs in a special Senate hearing on the merger, “I believe this deal will result in fewer choices, higher prices and even worse service for my constituents.” In response, Comcast’s Cohen said that he was bothered that Comcast cannot provide high-quality customer service, but did not specify whether or not he was so bothered that he intends to fix it.
Netflix, which has already complained to the FCC about Comcast’s fees being anti-competitive for some companies, vigorously opposes the deal on the basis of awarding too much traffic control to a single source. Reed Hastings, CEO of Netflix, explained, “I don’t know that we want anybody to control half of the US internet. That’s the real basis of our objection to the merger.”
Fragmented markets
In the rest of the world, particularly in Europe, mega-mergers like this are much harder to arrange due to competing national interests. Despite recent acquisitions of tiny companies by Deutsche Telekom and Telefónica, the EU is generally opposed to mergers. Robert Grindle, head of telecommunications at Espírito Santo bank in London pointed out, “Europe will remain a fragmented market for the foreseeable future. It’s a very different market structure compared to the U.S.”
Perhaps it is merely a coincidence, but the majority of Americans now experience a slower, more expensive Internet than the rest of the world, according to a study by the Open Technology Institute called The Cost of Connectivity. The US saw very few new service offerings or greater coverage over the past year while consumers in places like Riga, Latvia, and Seoul, Korea, achieved greatly improved download speeds and lower monthly bills. Correlation is not causation but it does deserve greater investigation.
Concessions
The Comcast/Time Warner deal has been approved by shareholders on both sides, but is still awaiting clearance from regulators. To get past this next hurdle, both sides may have to make some concessions. If those concessions include commitments to open up their top services to new markets and measurable improvements in customer service, the public would be very well served by the deal. The coming competition for streaming TV between Chromecast, Apple TV, Roku, and Amazon Fire may make it all a moot point in any case. When it comes to Internet service, however, American consumers may find it necessary to travel to Latvia to pick up a good signal.
Net neutrality
Of course, the Comcast/Time Warner merger is part of a much bigger debate around net neutrality, with cable companies accused of trying to create an unequal playing field for internet speeds. For those not up to speed on this issue, John Oliver provides a highly entertaining explanation, letting viewers know how they can voice their displeasure to the FCC.
