It can be hard to understand the tricky policy questions behind the recently announced merger attempt between giant U.S. cable companies Comcast and Time Warner Cable. The merger would create the largest cable provider in the country by far, but the merger wouldn't necessarily hit all consumers in all markets. "But how will this affect me?" you might ask. "Will my prices go up?"
Our Feb. 17 hour tried to unpack Federal communications and anti-monopoly policies surrounding the deal, and opened up with a terribly informative debrief from the very excellent Shalini Ramachandran of The Wall Street Journal. Ramashandran explained the basic nuts and bolts parts of the proposed merger, and her segment is worth a read through or listen here.
Tom Ashbrook: Joining me first today from New York is Shalini Ramachandran, she covers cable TV and the broadband industry for The Wall Street Journal’s media and marketing bureau in New York. Shalini, welcome to On Point, thanks for being here.
Shalini Ramachandran: Hi Tom, thank you.
TA: Forty five point six billion dollars, Comcast would swallow Time Warner Cable. They’re already the biggest in this country. Is that an anti-trust issue on the face of it, Shalini? Is it clear that this will be challenged in Washington?
SR: You know, right now, it’s very clear that there will no doubt be a lengthy review. Even Comcast says that they think it’ll take at least a year. The chances are difficult right now to predict in light of new leadership at the F.C.C. and the D.O.J. But there are some facts that are indisputable, and that’s that this merger gives the F.C.C. an opportunity to come back at net neutrality rules, which it recently lost in D.C. court. So this could allow it to broaden the scope of how it regulates the Internet through this merger review.
TA: Why does Comcast wanna buy Time Warner Cable? Maybe it’s obvious, but spell it out for us.
SR: Sure! Well, so the cable industry has been losing subscribers for a few years now. And it faces intense competition from satellite TV providers and from online video folks like Netflix. Cable is inherently regional, whereas satellite is national, and online video like Netflix is international. So they want scale. They want scale to invest in technology, they want scale to push back on rising programming costs that TV channel owners are providing. So this provides them the scale to become a national company essentially.
TA: Now, they’ve been losing subscribers, everybody I guess in cable has, because, why? People are quote unquote “cutting the cord,” going directly to get their video off the Internet?
SR: There are definitely some people doing that, and others are opting for satellite operator competition like DirectTV or Dish, and others are opting for newer competitors like Verizon FIOS, and AT&T UVerse, which are the phone companies’ cable TV units.
TA: This isn’t just about cable television, obviously. Cable companies provide an awful lot of the broadband Internet access service in this country. American broadband high speed Internet access is pretty lousy compared to the rest of the industrialized world. Why is that? And does this help or hurt if these two get together?
SR: In one sense, you could argue that it could help, because a lot of times the cable operator, which are regional, argue that if they were bigger, they’d be able to invest more to boost those speeds. And Comcast does have the fastest speeds of any of the cable operators. Time Warner Cable didn’t even come close to it in the speeds that it offered customers. So you could argue it could help. But on the other hand, this would give Comcast huge pricing power. While Comcast does compete with other competitors like satellite and phone in video, in broadband, these cable operators are often the only choice you have, maybe you have two other choices. One could argue that this could give a lot of power to them, to raise those prices.
TA: Shalini, when the CEO of Comcast came out to talk about this last week, he said, ‘Look, there’s no competiton problem here because,’ as you say, ‘cable companies are regional and we don’t compete with Time Warner Cable in any significant region.’ Is that the only way in which competition could be seen as an issue here?
SR: No, I think competition would largely be focused on the broadband issue. I think the video market is fairly clear that the cable operators have a lot of competition to deal with. But broadband – they have enormous power. And you can already see that Netflix is eyeing this merger as a way to maybe push more regulation on cable operators because it wants to increase the amount of regulation that those folks face in the Internet.
TA: If they get into a full-on battle over this, what is that likely to look like? I’m reading David Carr in the New York Times here this morning pointing out that one the Federal Communications Commission regulators who approved when Comcast bought the NBC Universal deal, that was a huge deal, and not long ago, Meredith Atwell Baker, now works for Comcast as a lobbyist. Also pointing out that the F.C.C. itself has had a change in leadership, it’s not run by Tom Wheeler, he was previously chief lobbyist for the cable industry. And Comcast has put millions, eighteen million dollars into lobbying in 2013 alone. Are they so wired in that they’re not going to be seriously, ultimately challenged on this deal by Washington?
SR: It’s a good question. Comcast is highly connected with both the Obama administration and these regulatory firms. I mean, the D.O.J. anti-trust chief is the former top private practice anti-trust lawyer that represented NBCU in its earlier deal with Comcast. So they’re very linked with, they’re highly connected. Chairman Brian Roberts and their top D.C. executive David Cohen you know, golf with the President. But at the end of the day, the F.C.C. and the D.O.J. have indicated that they’re very committed to doing tough scrutiny. I think what is more likely that this deal will go through with a lot of concessions that they’ll demand from Comcast.
TA: Concessions, like what, Shalini?
SR: Well, in one case, as I mentioned, in the Internet. Comcast has agreed that it would abide by net neutrality, basically saying, we’re not gonna favor some traffic over another. Even though those rules have been tossed out by the court, Comcast has said it would abide by it until 2018 as part of its previous merger agreement. Now what could happen is the F.C.C. could broaden the scope of net neutrality. It could say, this should cover these Internet inner-connections called ‘peering’ which is a whole other subject that is causing some difficulties right now between online video providers, like Netflix, and broadband providers like Verizon. So it could bring new regulations to a now unregulated part of the weekend.
TA: And could they extend that net neutrality requirement beyond 2018?
SR: That could also be a possibility. Comcast has committed right now to making sure that whatever it has committed to in net neutrality will also be applied to the Time Warner Cable systems it now has.