Comcast and Time Warner Cable today made official what had been rumored in recent days: They are abandoning their prospective merger in the face of mounting opposition from government regulators.
Goodbye and good riddance. For consumers, start-up companies, the telecommunications industry and the future of broadband and the Internet, this was a bad deal from the start. The funny thing is that it took so long for federal regulators to come to the same conclusion.
The combination of Comcast and Time Warner Cable would have given one company a dominant share of the broadband market and an outsized slice of the pay TV industry. From that position, the combined company would have been even more insulated from competition than the two companies are now and would have had a freer hand to raise prices. It also would have posed a huge, looming threat to start-up companies and non-traditional competitors like Netflix and Sling TV.
Telecommunications combinations like this one are evaluated by the Department of Justice and the Federal Communications Commission as well as state regulators. For the FCC, the chief yardstick on whether to approve a merger is whether it’s in the public interest. In a statement today, FCC Chairman Tom Wheeler made it clear that he and the agency had come to feel that the deal was not in that interest.
“Comcast and Time Warner Cable’s decision to end Comcast’s proposed acquisition of Time Warner Cable is in the best interests of consumers,” Wheeler said in the statement. “The proposed merger would have posed an unacceptable risk to competition and innovation, including to the ability of online video providers to reach and serve consumers.”
The thing is that if you read through all their propaganda, Comcast and Time Warner were pretty clear from nearly the start that the deal wasn’t going to address the public’s two biggest concerns about the company’s service: the prices they charge and the customer service they provide. Indeed, Comcast executive vice president David Cohen made it clear early on that whatever savings the company’s might see from their combination would not be passed on to customers.
Instead, in pitching the deal to the media and regulators, Comcast and Time Warner Cable officials focused on how Comcast promised to upgrade Time Warner Cable’s network to make it faster and more reliable. The companies promised to expand Comcast’s Internet essentials program for low-income residents. And Comcast promised to continue to abide by the net neutrality terms it agreed to when it bought NBC Universal and extend them to Time Warner Cable customers.
But those weren’t terribly significant promises. Time Warner Cable is already upgrading customers’ service even without the Comcast deal. There have been many complaints among consumer groups that Comcast hasn’t signed up many people to its Internet essentials program amid charges that it has only halfheartedly promoted it. And with net neutrality the law of the land thanks to a new FCC rule, there’s little need to force Comcast and Time Warner to agree to such provisions separately as part of their deal.
In arguing for the merger, the two companies also tried to make a much of the fact that they don’t directly compete with one another. In no area do consumers have the choice of Comcast and Time Warner Cable for their broadband service.
But that argument ignored several factors. As consumer advocates noted, the two companies do compete indirectly. Time Warner Cable customers in Southern California might not be able to switch to Comcast, but they can compare the prices they pay and the service they receive with Comcast customers they know in Northern California. That indirect competition can help inform consumers about the relative reasonableness of the prices they are paying.
And just because the two companies don’t compete now doesn’t mean that they would never compete in the future. The lack of competition is a legacy of how the cable networks were built out in this country, with local cities and towns effectively granting monopolies to the cable providers who built networks in their neighborhoods 30 to 40 years ago.
While regulators and the local, state and national level in recent years have been encouraging the build out of competing networks, those networks are expensive to build and few companies have found the resources to do that. The cable companies in particular have been content to expand their networks by buying up smaller competitors who operate in other areas rather than to build out networks that overlap with rivals.
But thanks to the Internet, there’s a new option. Instead of going through the expense of building out new networks to offer telecommunications services, companies can offer virtual services.
There are plenty of companies — Ooma, Vonage, Magic Jack — that offer voice calling services over the Internet. And in recent months, we’ve seen the launch of new pay TV services that are delivered over the Internet. To receive Dish’s Sling TV service, for example, you don’t need a satellite dish or a special set-top box; instead, you can get it on any Internet connected computer, smartphone or tablet and through a variety of Internet-connected digital media players, including Roku’s boxes.
At an event in San Francisco last fall, Comcast CEO Brian Roberts said that one of the reasons his company was excited about the Time Warner Cable deal was that it could offer its services in the Los Angeles market, where Comcast doesn’t presently have a presence. He made that statement at an event in which he and other Comcast officials were showing off the company’s new cloud DVR services, in which subscribers’ channel guide and recordings are stored on Comcast’s servers, rather than on users’ set-top boxes.
The irony of the presentation was that Comcast could offer such a service in Los Angeles today without buying Time Warner Cable’s network and without building out a competing network of its own. All it would have to do is make that service available to Los Angeles area customers over the Internet, in much the same way that Dish is offering Sling TV.
Sure, there may be some rights issues Comcast would have to navigate, but there’s no technical reason thwarting such a service. And Dish has shown that the rights issues can be overcome.
So, the deal would have reduced indirect and potential competition, posed a threat to companies like Netflix, further insulated the combined company from competition and customer complains and would have provided few tangible benefits to consumers. We can only cheer that the regulators got up the gumption to put a stop to it.
Photo courtesy of Comcast.
