The Comcast-Time Warner Cable Merger: A Cause for Concern

March 03, 2014

On February 13, Comcast Corporation announced its agreement to acquire Time Warner Cable in a $45.2 billion stock-for-stock transaction.  The merger of the nation’s two largest cable companies and the first and third largest Internet service providers would create a massive cable and broadband company with at least 30 million managed subscribers.[1] Federal regulators have grave reason to scrutinize the proposed giant, which would eclipse the size of the next largest cable and high-speed Internet providers.

Although supporters of the acquisition have argued that the merger will not reduce competition because Time Warner and Comcast do not operate in the same geographical areas, this argument simply ignores the numerous ways in which Comcast would exercise more power as a result of the merger, including through:

  • An increased ability to demand payments and obtain price or other concessions from both content providers and the infrastructure companies that operate the networks at the core of the Internet (“backbone” providers).  This could hinder competition from upstart providers and stifle innovation.[2]
  • Added leverage during franchise agreement negotiations with government entities.
  • Enhanced political influence.  Comcast spent over $18 million on lobbying in 2013.  The merged company would have even greater sway in Washington.
  • The imposition, after January 2018, of business practices that favor certain content providers over other providers wishing to utilize its network.[3]

These issues matter.  Let’s hope that Tom Wheeler—the new FCC chairman and former cable industry lobbyist—exercises some true oversight of the public interest and protects the “primacy of ‘competition, competition, competition’” when he is called upon to evaluate the merger.

 

Footnotes:

[1] Comcast has offered to divest roughly three million managed subscribers “to reduce competitive concerns.”

[2] On February 23, Comcast announced “a mutually beneficial interconnection agreement” with Netflix, Inc. Pursuant to this agreement, Netflix will pay Comcast for direct access to its broadband network.  Details of the deal—which comes on the heels of complaints that Comcast’s delivery speed of Netflix content had declined significantly—have not been made public, so it is difficult to assess how much, if at all, the agreement will increase costs for Netflix (and ultimately consumers) and any implications the deal may have for the viability of start-up providers.

[3] As part of its purchase of NBCUniversal (the television channel and partial owner of Hulu) in 2011, Comcast agreed to adhere to the Federal Communications Commission’s net-neutrality regulations and refrain from discriminating against certain digital content providers.  Although that agreement would extend to Time Warner if the merger is approved, Comcast’s commitment expires in January 2018, at which time it will be free (and certainly incentivized) to favor its own services.  Although the Federal Communications Commission has indicated that it will reintroduce new net-neutrality regulations following a recent appellate decision vacating its Open Internet rules, any new regulation will surely face intense legal scrutiny.

Photo Credit: MoneyBlogNewz

 


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