A year later, is the huge Comcast-Time Warner Cable deal doomed?

10 Comments

One year ago, Comcast, the largest cable provider in the country announced it would buy Time Warner Cable, the nation’s second largest cable provider, in a deal valued at $45 billion. Not since AT&T tried to scoop up T-Mobile had a communications deal rallied consumers and activists to a cause in such a huge way. At the time, the deal was perceived to be a mistake, but something that would likely pass muster with regulatory agencies. However, a year in, things have changed.

When it was announced, we argued that the deal was about achieving broadband dominance, noting that even if Comcast pledged to reduce its pay TV customers by ditching subscribers in select markets to reduce its overall pay TV market share to below 30 percent, judging the deal by television standards was looking into the past. This deal wasn’t about TV, it was about controlling the only pipe that mattered, which in this case was the coaxial cable that brought broadband into the home.

coax cable

With that, Comcast already offers on-demand video, voice, home alarm and automation services and even could one day offer mobile if it wants to get aggressive as its cable colleague Cablevision has done. A year ago, regulators and even the mainstream media seemed fixated on the value of television and what this deal would mean for media companies, cable TV customers and the like. But in a year, that too has changed.

Streaming media has become more popular. Live TV viewing was down by 12.7 percent in January this year compared to the year before. HBO plans to launch a stand alone streaming service this year as does Nickelodeon.

As television follows voice over to broadband, more of the industry recognizes that pay TV — where the combined Comcast and Time Warner cable would hold less than 30 percent of the market share after the deal closes — means little. They are taking a closer look at the broadband market where the combined entity would hold about 35 percent of the market. That number is even higher — as high as 55 percent under a new definition of broadband that the FCC approved in January that defines the service as at least 25 Mbps downstream and 3 Mbps upstream.

In a post-transaction world only 37 percent of U.S. households would have access to multiple providers for 25/3 Mbps service, the new FCC definition of broadband, according to merger papers filed with the FCC.

In a post-transaction world only 37 percent of U.S. households would have access to multiple providers for 25/3 Mbps service, the new FCC definition of broadband, according to merger papers filed with the FCC.

BTIG Tech and Media Analyst Rich Greenfield has pointed out that because the FCC has shifted its perspective on broadband being of greater importance than television (because TV is increasingly reliant on broadband) and because the post-merger Comcast would have such a dominant position providing the faster speeds necessary to deliver high quality television services over broadband, the deal is unlikely to pass. He wrote on February 4:

Over time, the fear is that Comcast will favor its own IP-delivered video services versus third parties, similar to how it is able to offer Comcast IP-based video services as a “managed” service that does not count against bandwidth caps, while third-party OTT services that look similar count against bandwidth caps (remember this Hastings/Roberts debate from 2012, link). As we see a rapid rise in niche, OTT subscription services and virtual MVPDs, the natural inclination will be for the incumbent video provider to protect their business (think usage based caps that only apply to outsiders, peering/interconnection fees, etc.).[/blockquote]

Since then the FCC has only become more bold in what is indicative of perhaps the most important change that has occurred in the year since the merger was announced. The FCC has stepped up as a force for consumer advocacy when it comes to broadband competition and access. The agency, which has acted as a rubber stamp at worst and as a priggish scold doing little more than wagging a finger at the industry when it steps too far out of line at best, has changed.

That is the change that has thrown the deal into the most doubt. Last week the FCC Chairman Tom Wheeler proposed reclassifying broadband under Title II of the Communications Act in an about face for the agency that has been five years in the making. By classifying cable, DSL, wireless and other broadband services as transport rather than information , Wheeler subjects them to greater FCC authority and allows the agency to place strong network neutrality rules on providers — rules the ISPs were trying to avoid.

FCC Chairman Tom Wheeler

FCC Chairman Tom Wheeler

And while AT&T and now the National Cable and Telecommunications Association has threatened to sue if the agency passes those new rules, the markets are concerned that this newly brazen FCC has recognized the importance of broadband. And with this recognition that broadband is an essential service that could be better in parts of the U.S., as well as the recognition that the Comcast and Time Warner deal is really about broadband, the markets are concerned that regulators at the FCC and the Department of Justice may stop the deal.

They should. In a year a lot has changed. But here at Gigaom we have seen that change coming for almost a decade. We have argued for faster broadband, more competition, network neutrality and an elimination of broadband data caps. Because we are aware that broadband is platform on which our current innovations spring, and if we hand Comcast control 55 percent of the U.S. broadband market, even with the strong network neutrality rules that the agency has proposed, we are handing the future of half of our nation’s households to a company that has shown a willingness to invest in the future so far as it immediately benefits its bottom line.

Comcast doesn’t believe in disruption from startups. It believes in squashing them using its enormous market power and networks. It understands that it has to continue investing in new products and builds very good ones; its Xfinity home products are well designed and have a nice interface. But it’s not going to push pricing down. It’s not going to disrupt its business models and it’s certainly not going to change the way it treats its customers once it has more power.

A lot has changed in a year, but Comcast hasn’t. Is the federal government finally ready to show that it understands what’s at stake?

10 Comments

Sherrie B

I hope this merger will NOT happen. TWC has sorry Customer Service on a good day, but Comcast never has a good day. They are beyond words horrible..Dealt with them a few years back when trying to cancel service due to the DEATH of my mother-in-law and it was beyond a nightmare. That representative even tried to say that we would have to produce a Death Certificate and newspaper obituary in order to cancel.. Unbelievable..Needless to say that didn’t happen and I did escalate the call to higher up management, but even then it took 2 more billing cycles before it was settled and then they hounded for the balance!! Wanted to know the “new address”…These people at Comcast are morons.

Richard Bennett

Given that you believe in faster broadband and Title II regulation for the Internet, it’s inconsistent to punish the company that provides the fastest broadband under the heaviest regulations in entire broadband sector. I’d like to see a more detailed explanation of reasons than this post provides. Comcast and TWC aren’t going to compete against each other anyway, so the best way to provoke competition is to free up pole attachments in other towns, like Austin has done. If you want higher caps to privilege hipsters over grannies, the merger can be conditioned on them. And if you care about poor people, you can condition the merger on hitting targets for signups to Internet Essentials at $10/mo.

Many people with opinions in the Internet policy space seem more motivated to inflict damage on ISPs than concerned about making things better all the way around and especially for the underprivileged. I find that odd. How does blocking this merger help anybody but the DSL folks?

Darrin Evans

Richard as usual you raise some good points. I think your answer, however, is in your post. I think the reason people want this merger to be denied is the lack of competition. We can spout all the statistics we want, however, most of us have one choice for broadband. The industry talking points don’t comport to the reality we live in. I do think you bring up some good points about conditioning the merger on certain benchmarks, but with the amount of regulatory capture and the revolving door nature of this space most consumers are skeptical of that. I’m just thankful I live in Raleigh and will be free from this duopoly as soon as GF deploys. I enjoy reading your perspective on this vital issue.

Richard Bennett

I didn’t spout any statistics in that comment, Darrin. I know facts make people’s heads hurt, so I rely on emotional manipulation instead.

Darrin Evans

Richard I wasn’t suggesting that you did; I was just trying to make a point. I like that you bring a different perspective to this and I actually listen to your arguments. LOL this is an emotional issue for most people me included, I just hate the lousy customer service I get with TWC and I guess that makes me a bit prejudiced against ISP’s. Well no one’s perfect. I did google the broadband report and did read it. I think this whole debate comes down to the lack of competition (not the fault of the ISP’s) and the less than exemplary customer service most get from their ISP’s that makes this such a hot button issue.

Richard Bennett

I’m no fan of cable company customer service, but from what I’ve heard Comcast is less bad than TWC.

But yes, more competition would be a good thing, and I think Google has shown that the bottleneck if often regulations at the city and county level.

In any event, mobile broadband is competitive, and before too long we aren’t going to care that much about the wires. At least that’s my guess.

Darrin Evans

I shudder to think that someone could be worse than TWC. I hope your prediction about mobile broadband comes true. Right now with the data caps and overage fees it’s just not competitive, but who knows in a few years right? Thanks for bringing some cold hard analysis to this often emotional issue. I do think the lack of competition is the over regulation at the city and county level, but I feel that’s changing. Michael Powell said in a recent interview that he thinks the terrible customer service is a result of the cable companies rapid growth. i don’t see how joining these 2 companies won’t compound that problem. It also bothers me that comcast would control NYC, LA, Chicago, Boston, and San Francisco. I just don’t think that’s a good idea, but you raise good points about attaching some conditions to the merger, but would those conditions really be enforced? I’d like to hear your perspective on why this merger should go through.

Shiggity

It’s immediately clear to me Richard that your business model / your livelihood does not depend on Mbits / $ / uptime.

If your money actually was generated from this you would be saying different.

Imagine if your competitor was paying 1/4 the price for electricity than you were, you would have no chance. This is the state of US broadband.

If you aren’t comparing US broadband to all other G8 / G20 countries, then you’re just not seeing the picture correctly. Comparing US broadband to other US broadband is a waste of time.

Richard Bennett

Funny you should mention comparisons of US broadband to other countries. Have you read “G7 Broadband Dynamics: How policy affects broadband quality in powerhouse nations”? Google it and read it. GigaOm hasn’t reported on it, but Vox wrote a nice story about it, “American broadband is better than you think”.

Thanks.

EVVJSK

Just like the AT&T/T-Mobile merger would not have been good for consumers, so would this merger be a disaster. When left to compete, T-Mobile cut prices and expanded offerings. Thereby makingnAT&T and Vererizon follow suit. A cable merger will only help CIOs make more money, something not needed at this juncture !

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