Do Recent Cable Mergers Signal Worse Customer Satisfaction?

cable customer with barcode on forehead

Do Recent Cable Mergers Signal Worse Customer Satisfaction?
| Published May 20, 2014 |

By Thursday Review staff

Even though big mergers have become more commonplace in a highly deregulated technological marketplace, a few recent marriages have been staggering to behold.

Disney’s massive merger with ABC ESPN (followed by its acquisition of Pixar) was a monster deal. Comcast, which just a few years ago purchased outright NBC Universal, just this February announced its intention to buy a controlling stake in Time Warner for a hefty $45 billion—effectively merging the two largest cable television companies into one mega system. Then, in mid-May, AT&T and DirecTV announced their own merger plans, a $48.5 billion marriage that tops any previous buyout in history.

Comcast’s recent merger plans have met little resistance, either before Congress or among the various regulatory agencies whose approval is required before the deal can be signed. In the meantime, Comcast has sought to preempt concerns by agreeing to two important concessions: continued net neutrality, at least for a couple of years; and a selloff of some of its footprint to rival Charter. (See: Comcast: The Enemy of My Enemy is My Friend; Thursday Review; April 29, 2014).

Comcast expects to win the day with regulators, in part because of its recent concessions, and in part because its lobbying efforts may be the most intensive and slick in Washington. Despite some of the worst case fears by consumer advocates, a few business analysts suggest very little will change in the way of customer experience or exposure—and certainly not within the first year or two.

In the meantime, AT&T’s proposed merger with DirecTV—though its price tag is even bigger—may ultimately face less scrutiny in Washington. AT&T and DirecTV do not compete in any traditional sense. DirecTV supplies millions of North Americans with access to television and cable channels via its network of small dishes. It also has some exclusive programming of its own, including a popular NFL package which allows sports fans in many markets to have access to pro games not otherwise available to them with the local broadcasters or their cable company. AT&T has a product called U-verse, a cable-like service which provides direct access to television programming through AT&T’s architecture.

The two behemoths do not compete, at least not using a conventional apples-to-apples comparison. For that reason, regulators may have fewer specific grievances about the proposed merger, other than the general concern about lack of competitiveness on a global scale—i.e., yet another major merger in which there will be fewer content and delivery options for U.S. television viewers and internet users.

But what about the matter of customer satisfaction? A recent report by the independent consumer organization, American Customer Satisfaction Index (a component of the Ross School of Business at the University of Michigan), cable television companies, satellite dish firms and internet providers are rated as the worst in the U.S. in terms of satisfaction. The ACSI Index measures customer happiness across a variety of fields, retail footprints and service industries. ASCI tracks 43 industries in its annual survey. Internet service providers fell to a score of 63 out of 100, and cable TV companies fell to 65 out of a possible 100. AT&T and DirecTV occupy a middle spot in the low range on that same survey. Dish Network receives a worse score that DirecTV, and Cox Communications (cable and internet) comes in even lower with a low score of 63.

But Comcast and Time Warner, separately, give even lower scores on the most recent survey. Comcast receives a rating of 60, and Time Warner comes in dead last with a score of 56—the lowest ever. (Wireless and cell phone companies had a big improvement in recent years, and the current survey shows an uptick in scores for Verizon and Samsung; Samsung beat out rival Apple for the first time in the ASCI tracking).

So this begs the question—obvious and even compelling to many Americans, but not so easily asked by members of Congress and Federal regulators: why doesn’t customer satisfaction play a greater role in debates and discussions when such massive mergers are brought to the table?

“Comcast and Time Warner assert their proposed merger will not reduce competition because there is little overlap in their service territories,” says David VanAmburg, director of the ASCI project, “still, it’s a concern whenever two poor-performing service providers combine operations.”

VanAmburg says that under such circumstances, customer service remains poor, and in some case deteriorates further. Indeed, AT&T’s brief foray into cable TV over a decade ago showed how badly these things can go for customers. AT&T famously outbid Comcast for control of Media One in 1999. At the time, Media One had a poor reputation among its customer base—long on hold waits, frequent outages, long delays in service calls and repairs. After AT&T folded Media One’s operations into its own, things actually got worse. In many markets, local and state governments were flooded with complaints as there were reports of on-hold waits of 45 minutes or more, lines that lasted an hour in local offices, and repair and service delays that could last three to four days.

Comcast’s argument—and it will likely be the same argument deployed by AT&T—is that the newly merged giant will have economies of scale crucial in a rapidly-evolving technological landscape: improved technology, integrated operations and digital platforms, greater bargaining strength with broadcasters and content creators. Plus, merged customer operations will be more efficient, and can incorporate the combined strengths of the two giants. Comcast says it needs the merger to remain competitive with technology giants like Amazon, Google and Apple. But there are plenty of skeptics, to say the least.

“It’s hard to see how combining two negatives will be a positive for consumers,” said VanAmburg.

Particularly low on ACSI’s scale are internet providers. “High prices, slow data transmission and unreliable service,” the report says, “drag satisfaction to record lows, as customers have few alternatives beyond the largest Internet providers.” The report cites ISPs with low scores of 63. More telling perhaps is that non-traditional forms of internet have seen scores increase. Verizon’s FiOS leads the category.

The emergence and rapid development of mobile and handheld tools for internet access has challenged the business model for many of the largest cable and telephony companies. The survey cites the continued decline in land line usage as millions of Americans migrate toward households which use only cell phones and other mobile devices.

Related Thursday Review articles:

Kings of Content: Why Comcast is Inevitable; R. Alan Clanton; Thursday Review; February 28, 2014.

Comcast: Don’t Worry, Be Happy; R. Alan Clanton; Thursday Review; April 9, 2014.