Comcast: Don't Worry, Be Happy

Comcast and Congress

Comcast: Don't Worry, Be Happy
| Published April 9, 2014 |

By R. Alan Clanton
Thursday Review editor

When Comcast’s CEO Brian Roberts announced in February that the Philadelphia-based cable giant was proposing marriage to rival Time Warner, tens of millions of cable and internet customers across the U.S. feared the worst: longer on-hold waits, slower response to cable outages, sluggish internet speeds, and unbridled rate increases. After all, Comcast would have little, if any, real competition. Consumer groups hoisted their battle flags, and there were plenty of people on Capitol Hill who said the merger would meet resistance.

But fending off widespread criticism in the business press and among consumer groups and politicians, Comcast says its proposed $45.2 billion buyout of Time Warner is merely the next logical step in the growing, rapidly escalating competition between companies even larger than Comcast. In other words, Comcast can’t possibly have a monopoly when there are even bigger predators in the jungle.

And who, you might ask, could possibly be larger than Comcast?

In its recent filing with the Federal Communications Commission and the U.S. Justice Department, Comcast says it needs those technical and creative collaborations with Time Warner to enable it to remain competitive with Google, Amazon, Microsoft, and Apple—four companies with their own designs on controlling content, on a truly global scale.

Comcast says that in essence it already faces day-to-day competition from the non-traditional, non-cable entertainment and technology providers, and that any attempt to pigeon-hole it as “cable & internet” does a disservice to a complex and nuanced marketplace where communication and content can flow just as easily over your laptop, your smartphone, your wireless device, or—someday very soon—even your eyeglasses and your wristwatch. And new applications are introduced almost daily which allow smartphone users access to, well, just about anything, any time, any place, circumventing the role Comcast and others have played as gatekeepers and keymasters.

Not content to define them as mere competitors, Comcast sees Google, Amazon, Apple, and Microsoft as virtual monopolies, especially as these companies move so forcefully into arenas once traditionally managed by television networks and cable companies. Comcast argues that it also faces intense competition from Dish Network, DirecTV, and Netflix. Comcast’s position is simple: If you think we’re big, try letting Google or Microsoft run the world (a concern some folks have expressed for over a decade).

Cable companies have had a rough stretch. In fact, after decades of nearly vertical growth, cable companies have actually lost ground in the last few years, especially as many younger people spend less time sitting in traditional couch-potato positions in front of televisions, and in many cases spending even less time in front of desktop computers. Using Roku devices, Apple and Google are each invading cable's turf with smart boxes able to stream vast quantities of television and film content. Amazon has recently introduced something called Fire TV, a compact box enabled to stream loads of movies, TV shows and sports to any newer HDMI enabled TV set or computer. Fire TV will also act as a user-friendly platform for Netflix and Hulu. Content is going nimble, mobile, freeform—even rogue—and Comcast will make the argument to federal regulators and Congress that it is suffering from a variety of new forms of competition, from all directions. If anything, Comcast will argue, the merger with Time Warner is intended to save TV viewers from mayhem and monolithic powers.

Will that reasoning pass muster with U.S. Representatives and Senators? One could argue that since Congress has turned a blind eye to previous mega mergers, why should this deal be any different?

Besides, Comcast’s impeccable strategic skills and substantial lobbying efforts mean that by the time Roberts announced the deal back in February, most Washington decision-makers were probably already on board. Indeed, Comcast is now the nation’s largest lobbyist, exceeding even Northrop Grumman, Lockheed Martin, General Motors, and General Electric in terms of lobbying personnel. Furthermore, the National Cable & Telecommunications Association (NCTI) is now the fifth biggest spender of lobbying cash (nearly $20 million in 2013).

Talk about a slam dunk.

Nevertheless, Comcast does concede that there are plenty of people out there with concerns about the mega merger. So it says it will divest itself of some cable systems and some cable plant footprints to alleviate the obvious fear of a cable giant which could control up to one third of the pay TV market. Its proposed merger with Time Warner would eliminate any first-tier competition in the wired-cable marketplace, leaving Comcast with only second-tier and third-tier competitors.

Comcast spends little of its time worrying about companies like Mediacom, Brighthouse, WOW /Knology, or Charter Communications. This is the point its representatives will make to Congress: Comcast’s genuine threats are coming from outside the box (pun intended), and have emerged as a result of the great de-alignment from the traditional cable model. In a world in which consumers can view their favorite TV show on a cell phone, or watch a movie on their handheld device, or download this week’s edition of Game of Thrones to their laptop—why worry that in some markets customers may have only one company providing that coaxial cable from the street to the house?

In its filings to Feds, Comcast has made the argument that it does not compete with Time Warner in any markets (this is not entirely true: Comcast and Time Warner do compete head-to-head in plenty of markets, just not in major markets; on the utility pole outside my window, as I write this article, I can see cable plant for both Time Warner and Comcast, and nearly every resident of my town of 90,000 has a choice between the two).

Comcast’s genuine threat—it will argue to Congress—is found along its unprotected flanks, which explains its net loss of subscribers over the last two years. Even its previous mega-marriage with NBC Universal was not enough to guarantee that content alone could retain subscriber loyalty in an increasingly fragmented entertainment marketplace. (See Kings of Content; Thursday Review; February 28, 2014).

Comcast also says that its merger with Time Warner will produce more reliable internet capacity in an increasingly crowded, high-traffic web. It argues that it has already built a superior network for connectivity, and it will upgrade all Time Warner internet footprints to meet or exceed current standards. That, coupled with its “net neutrality” mandate—imposed by the Feds as a pre-condition to its massive merger with NBC Universal and stipulated as company policy through the end of 2018—means that Comcast will be giving more than it receives.

Public interest groups and consumer advocates aren’t buying that argument, and even a few of the politicians in Washington normally disinclined to interfere with the organic processes of competition are worried that this deal goes too far. Regardless of how it is marketed as a benign merger and technological upgrade, opponents say Comcast will be a de facto monopoly—in essence controlling nearly all the content, and its value, along its vast network of headends, data centers, and broadband traffic. Comcast will reap the benefits not only of those who pay for cable, phone and internet, but it will also have total authority over the price of advertising and placement in those same venues.

Additionally, opponents fear that customers nationwide will see substantial price increases once the deal is complete.

In the end it will be up to a variety of Congressional and Federal decision-makers whether or not to accept Comcast’s justification for the mega merger. Even once the deal is approved, the complete transition could take years, which means cable customers may not experience the pluses or the minuses of the newly formed giant until the moment they get that first bill.

Related Thursday Review articles:

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

Mega Cable, Mega Merger; R. Alan Clanton; Thursday Review; February 13, 2014.