The federal review process for Comcast’s $45.2 billion acquisition of Time Warner Cable kicked off today with a mammoth blog post and a 180 page regulatory filing to the Federal Communications Commission. Tomorrow will see Comcast(s cmcsa) go before the Senate Judiciary Committee. It’s a familiar dog-and-pony show for the nation’s largest cable company, which last played this role in 2010 when it acquired NBC-Universal.
Then the fear was of vertical integration — the idea that Comcast would own the pipes and the content flowing over them– and today the fear is about horizontal integration — that with this deal Comcast will own a third of the cable TV market and about 40 percent of the U.S. broadband market. Pay attention to the broadband, because that’s what this deal is all about — control of the most important pipe coming into the home outside of water or electricity. Everything else is just dazzle, meant to keep regulators thinking of Comcast’s services through an old lens that doesn’t reflect the world of IP communications today.
So far, Comcast has focused its regulatory battle on convincing folks in D.C. that this deal will be good for consumers via faster broadband service, better pay TV offerings, more Wi-Fi hotspots and an expansion of Comcast’s low-income Internet Essentials program. It also will extend the network neutrality provisions that were vacated this year by the U.S. Federal Court of Appeals to more consumers. Those rules were a merger condition from 2011 when Comcast acquired NBC-Universal and regulators feared it might prioritize NBC content over other traffic.
These are good things. I have long said that Comcast offers a compelling on-demand pay TV offering and it has been a leader in upgrading broadband speeds on its network (in part because it had more geographic areas competing against Verizon’s FiOS network). But it also was planning to advance public Wi-Fi regardless of the merger as more and more customers demanded the service to feed their need for a constant connection, and as a way to compete eventually against the wireless providers. And its Internet Essentials program started out with anemic upload and download speeds that only improved after Google said it would offer free service to Google Fiber customers at 5 Mbps/1Mbps speeds.
Seeding the issues
The question over the next few months will be whether regulators will question Comcast EVP David Cohen, the man in charge of getting this deal through Washington, simply on the arguments that Comcast is putting forth — which only represent a small aspect of the overall competition picture — or on all of the issues in play. Let’s break some of those big arguments down.
In a fit of honesty, Cohen has told reporters that despite the cost efficiencies that Comcast is touting to Wall Street, the deal will not result in lower bills for consumers. Comcast representatives have also insisted that the 300 GB broadband data cap that Comcast currently has is not a cap, calling it instead a “data threshhold.”
Regulators should ask Comcast why cost savings won’t be passed along to consumers and what role the data caps have in keeping the average revenue per subscriber at a set rate. Compared with broadband rates in other parts of the world, it’s bizarre that U.S. wireline communications bills just keep rising.
Comcast spends a lot of time in its filing arguing that scale is essential in building out innovative technology because large players dominate the market, and because scale attracts developers and results in lower costs of infrastructure. While its true that Apple(s aapl), Amazon(s amzn), Google(s goog) and more are large, they also operate in a competitive environment with new entrants coming from around the world. Comcast’s competitive environment is pretty stagnant, leaving it competing against a local telco monopoly in most of its geographic footprint.
Yet Comcast sees this differently, arguing that in all but 1.6 percent of the country there are other providers including DSL, which Comcast views as a sufficient substitute for cable on the grounds that providers are offering DSL speeds that reach 15 or 25 Mbps today and promise to go to 100 Mbps. This ignores that those speeds are not yet realized in all DSL markets and that those 100 Mbps speeds don’t exist today and may only reach a small percent of the population because of how distances decreases speed on DSL networks.
And, as we’ve written extensively, broadband competition only matters if you have it at your home or place of business. And the federal government lacks the basic data to even assess this because ISPs refuse to give out address-level data on the homes they serve.
So regulators should address competition not on a national geographic scale, but at the most granular local level they can. Ideally, they will subpoena address-level data in a few select areas to see how many homes truly have access to how many different broadband providers, and compare the speeds those providers offer.
Finally, there is the issue of pay TV and the farce of continuing to view pay TV as a service limited by the location of Comcast’s physical pipes. Comcast’s services are digital and could theoretically be delivered anywhere — during its Watchathon weeks even I as a non-subscriber — am offered access to the services via a password.
Regulators should ask about the deals that prevent Comcast from going over the top and truly creating what could be a competitive platform for delivering subscription cable content. That would shake up the pay TV market far more than this merger and would shift discussion of the merger back to where it should be focused — on broadband and access to a network.
The filings touch on a variety of other topics worth teasing out, such as a section on delivering dynamic and addressable advertising, which consumers might expect online, but could be disturbing for users surfing bad TV late at night or if we are concerned about how people market to young children. There’s also the likelihood that the FCC will focus on the peering agreement that Comcast signed with Netflix in February to determine if Comcast is abusing its market power to force providers to pay a toll to connect to its network.
New questions for a new era
As this regulatory discussion unfolds, we’re going to hear a lot about broadband and pay TV in the terms that Comcast has set. But given that IP has changed the nature of telecommunications and TV, regulators should seek to hold the discussion on their own terms in order to explain how, with everything going over IP, the barriers and modes of looking at communications have changed dramatically. What’s important here isn’t TV, it’s how people access the internet. That access is where the U.S. lacks competition and needs it most.
All the other services, be they cool on-demand video options or even voice phone calls, are available via IP if those underlying pipes are open and competitive. If you look at the world and this merger from that point of view, then questions about caps, competition for access and interconnection become the points where regulators should focus their time an energy. Comcast knows this, which is why it is spending so much time touting its services –services it could and should be able to deliver in a world where broadband access itself is cheap, abundant and competitive.