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Comcast Makes $45 Billion Bid for Time Warner Cable

We live in an age of Big Media, and it keeps getting bigger. Last week, America’s largest Internet service and cable television provider Comcast announced plans to merge with Time Warner Cable, America’s second-largest Internet service and cable television provider. The deal is valued at $45.2 billion. If the transaction is approved by regulators, the combined company would control about one third of U.S. cable television service and more than half of so-called “triple play” service bundles that combine voice, television, and Internet service. Comcast already owns NBCUniversal and Time Warner owns local TV
stations in many states, so a combined company would also be one of the largest content providers and news distributors in the country.

Comcast and Time Warner (which previously used the Road Runner High Speed Online name for Internet service) say the takeover will benefit consumers: they claim economies of scale and operating efficiencies will enable them to offer better, faster services to customers much sooner than they’d be able to separately.

Almost everyone else is skeptical: Americans hold cable companies in low regard (both firms are well below national customer satisfaction rates as either cable providers or ISPs), and “operating efficiencies” have never led to lower cable bills. After all, the price of cable TV has been doubling about every ten years.

So what’s going on here, and what could the merger mean for you?

The Bigger They Are… — Time Warner Cable is an echo of another Big Media merger: the $160 billion blending of Time Warner and AOL 14 years ago (see “AOL Buying Time Warner,” 10 January 2000). When that didn’t work out, Time Warner looked to slim down to its fundamental film and television businesses, so AOL, Time Inc., Warner Music, and others spun off on their own. Time Warner Cable was part of that process, becoming a separate company in 2009.

Time Warner Cable might be America’s second-largest cable and Internet service provider, but its subscriber base is about half that of Comcast (although it added about 750,000 customers by taking over Insight Communications in 2011). However, both Comcast and Time Warner Cable have been steadily losing television subscribers as customers drop cable TV in favor of so-called “over the top” Internet video services like Netflix, Amazon Instant Video, Hulu, Xbox Live, PlayStation Network, and iTunes that bring video content to the home over an Internet connection. Part of that trend has been driven by ever-increasing fees for cable service, and by consumers cutting back on monthly bills during the housing crunch and Great
Recession. Some lightweight Internet users are even going mobile-only, relying on 3G/4G mobile service for all their Internet needs.

A combined Comcast and Time Warner Cable would be able to offer voice, television, and (most importantly) Internet service in 43 of the 50 largest metropolitan areas in the United States. That’s a significant jump for both companies (Comcast is currently in 31 of those markets). The combined companies could cut costs by eliminating overlaps in accounting, customer support, and other areas of duplication. Yes, that means firing people, but improved margins make investors happy.

What About Antitrust Laws? — At first glance, combining America’s two largest cable companies might seem like a blatant violation of antitrust laws, but it doesn’t work out like that. The combined company plans to sacrifice about three million subscribers (to retain less than 30 percent of the U.S. cable television market), but for the most part both firms are already regional monopolies, with little geographic overlap in their markets. The combination wouldn’t create a new monopoly. There’s very little competition in the U.S. cable market, and the monopolies are already in place.

That doesn’t mean a combined Comcast and Time Warner Cable doesn’t raise concerns. Right now, cable dominates American broadband. DSL is widely available from phone companies, but its throughput is highly variable: while it can be great, many DSL connections can’t support high-definition Internet video streaming. Satellite is too laggy for interactive services (like FaceTime, Skype, and gaming), and fiber is uncommon: right now, Google Fiber is operating only in Kansas City (with Provo, Utah slated to come online shortly and Austin, Texas planned); AT&T U-verse is mainly available in parts of the South, Midwest, and California; and Verizon has no plans to expand FiOS availability. In many places, cable is consumers’ only realistic broadband option, and — thanks to local and regional monopolies — it’s usually available only from a single company.

Got You By The Broadband — Sure, on some levels a Comcast-Time Warner merger is about expanding market share and reducing costs, but it’s also about getting a firmer grip on America’s Internet access and the business opportunities that come along with that.

What sorts of opportunities? Comcast was instrumental in striking down the Federal Communications Commission’s “net neutrality” rules that required ISPs treat all lawful Internet data with equal priority (see “Net Neutrality Is Down, but Not Out,” 20 January 2014), and the company is already making sweetheart deals so preferred partners are exempt from broadband data caps. Although Comcast agreed to abide by net neutrality provisions as part of its 2011 acquisition of NBCUniversal, those terms expire in 2018, and there’s already mounting evidence Comcast is degrading Netflix performance on its network so its preferred streaming and video-on-demand offerings work better in comparison.

By acting as a gatekeeper to about a third of the U.S. broadband market, a combined Comcast/Time Warner would be in a nearly unassailable negotiating position with video services like Netflix, Internet giants like Google and Facebook, and other content companies like Sony and Disney. This could also have serious impacts on the types of news and content that gets produced and distributed at all. Former FCC commissioner Michael Copps recently penned an essay lamenting how media consolidation in the last decade has changed the nature of media, including drastically reducing activities clearly in the public interest, like long-form and investigative journalism.

Public Knowledge’s John Bergmayer characterized an expanded Comcast as “the bully in the schoolyard,” able to control Internet performance not just for the vast majority of Americans, but also increasingly able to dictate what content and services they can access easily, if at all. Comcast could also leverage its ownership of Universal Studios, the NBC broadcast network, and innumerable cable channels to dictate terms to other Internet and television service providers who have almost no choice but to pay whatever Comcast wants for that content. That’s one reason services like Netflix and Amazon are working so hard to build up stables of
original content like “House of Cards” and “The After” — like HBO and Showtime, they want to have content Comcast’s customers’ demand so they don’t get squeezed out.

What’s Next? — Comcast hopes the acquisition will close by the end of 2014; however, it took the company over a year to win approval of its merger with NBCUniversal. Both the FCC and the Department of Justice will certainly scrutinize the deal very closely, but Comcast has been working for years to support potentially friendly lawmakers, including over $850,000 in contributions in since 2001 to members of the committee with jurisdiction over the FCC, according to a MapLight analysis of data from the Center for Responsive Politics. Current FCC chairman Tom Wheeler is new enough to the
position that it’s difficult to predict how he will respond.

In the meantime, Comcast’s effort to take over Time Warner Cable may renew interest in municipal broadband networks that aren’t owned by private companies, although any new efforts in that direction aren’t likely to get off the ground until long after Comcast and Time Warner Cable’s fate is decided.

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