Move Along Folks, No Monopolies To See Here

After rumors began circulating a few days ago, Comcast confirmed on Thursday that it was planning to purchase Time Warner Cable, making the nation's two largest cable and internet providers one megaconglomerate. That is, if the regulators at the Department of Justice and FCC don't reject it as an anti-competitive merger. For its part, Comcast doesn't believe the merger will reduce competition at all. Comcast's CEO told investors on a public call Thursday, "It is pro-consumer, pro-competitive, and strongly in the public interest...Comcast and Time Warner Cable do not compete in a single zip code in America." 

Comcast will also take action to make their merger with TWC seem less like a grab for monopoly power. It will spin off about 3 million of TWC's current customers in order to stay under the FCC's mandatory 30%   market share cap (those 3 million subscribers must be elated to hear they will no longer have to send their money to one of the two most hated companies in the US). Still, Comcast will increase their customer base to 22 million to 30 million Americans. 

Between the divestment and Roberts' comments, it's clear that Comcast wants to create the perception that this will be good for consumers. It would be silly for them not to. But doesn't this sounds like Roberts is doing his best Jedi Mind Trick?

Nevertheless, Comcast isn't wrong about not directly hampering competition. That's because cable and high speed internet are already regional monopolies: 91% of consumers don't have a choice of cable companies. That is supposed to make the new cable and internet megaconglomerate innocuous, since it won't decrease competition from where it stands today. There are a few reasons I'm skeptical about that claim:

Comcast's Previous Acquisitions

This year it's Time Warner, but this time last year Comcast was finishing up its purchase of NBC Universal. Comcast purchased a 49% stake in NBC in 2011 and, only after the Department of Justice dropped its anti-trust lawsuit, took over the other 51% in March 2013. At the time, many opponents of the deal questioned the US's largest cable and internet company purchasing one of its largest media companies. Would the new behemoth use its power to collude against other television networks? For instance, Comcast could push NBC programs on its customers and make it more difficult to find ABC programs. NBC could play hardball with other cable companies, like TWC and Charter, and demand higher prices for broadcasting its suite of networks - which include CNBC, Bravo, E!, and many more in addition to NBC.

I can't help but wonder if Comcast has been strategic in its acquisitions to game the regulatory system. The NBC-Comcast merger was controversial enough at the time with Comcast only having 22% of the cable market share. Would the merger have been approved if Comcast had already purchased TWC - in which case Comcast would already be the absolute largest it could be without violating FCC regulations? That would be a different story, and I don't think the Comcast-NBC merger would have been approved. What this tells me is that Comcast is aggressively moving to consolidate the entire media landscape into its own garden, which could have terrible implications for consumers.

Net Neutrality

It's only been a month since a federal court struck down the FCC's net neutrality rules. Now cable and internet companies are free to throttle whatever website they want and demand ransom to stop. Many big content providers have already pushed back and threatened to play hardball if it happens to them. But with the vertical integration between Comcast, TWC, and NBC Universal, I think we all know whose content won't be throttled by the biggest internet provider in the country. The access to NBC content will be crystal clear for all Comcast subscribers. All the other content, from Hulu and Netflix and ABC however, may be a different story.

With Comcast increasing its subscriber base and consolidating power in the internet market, their threats towards content providers become more credible. The great content war between Netflix and Comcast was already slated to begin soon, but now the battle will be that much uglier now.

High Price, Low Quality

John Cassidy at the New Yorker has already put together some compelling figures about how expensive TV and internet access is in the US. It dwarfs the costs of similar service in France, South Korea, and elsewhere. That's before the two biggest players in the industry become one. These high costs are just going to be cemented as part of American life with Comcast's dwindling competition. 

There's one caveat on the outrage of high US prices: the US is really big. That means that cable companies in the US have to spend a hell of a lot more on infrastructure than their friends in South Korea. Cable is a natural monopoly: there are huge costs in building that infrastructure, so it's more efficient to have one company run the entire system. That said, it doesn't need to be run unregulated. In the past, like with telephone service up until the 1970s, the US allowed one company to have a monopoly and make healthy profits in exchange for providing a high quality of universal service. New technology was rapidly being integrated into the system and infrastructure was being kept up to date. 

The difference between telephone service and cable/internet service today is that Comcast has no commitment to invest in superior infrastructure. That will just add costs, and since their monopoly is not threatened by sagging quality, they won't be likely to upgrade the system. That's what we will see with the new megaconglomerate: massive underinvestment in networks. It's like the worst of both the regulated and the unregulated worlds. 

Interestingly enough, there are three metropolitan areas in the US where the competition in high-speed internet has managed to survive (thanks, Google Fiber!). In each of those places - Austin, TX, Provo, UT, and Kansas City, MO - there is now legitimate competition in the industry. You won't believe what happened next: prices went down and quality went up. As crazy as it sounds, that could happen in lots of metropolitan areas if there was an effort to squash monopolies in internet and cable services, or at least their power was kept at bay. 

The new FCC Chairman has a lot on his plate with the Comcast merger and net neutrality. Presuming he will try to follow through with his commitment to prioritize competition, competition, and competition, then he will be picking a lot of fights with lobbyists. Hopefully he'll be up to it, because the last month's news has been the prologue to a dystopian internet future.