Former FCC Chairman Reed Hundt
hosts The Digital Show on Business Radio 24/7-- Business Talk from Wharton, channel
111 on Sirius/XM satellite radio. He
invites major thinkers on telecom and Internet issues to chat Mondays from 5-7
p.m. in the Eastern time zone.
Mr. Cohen provided clarity on why the company wants to acquire greater market share in the video and broadband marketplace. The merged company would serve about 30 million cable television and broadband households. In broadband, the company’s market share will likely grow significantly in light of the fact that Digital Subscriber Line service cannot increase bit transmission speeds to satisfy growing demand for video downloading. Additionally, AT&T and Verizon have largely refrained from investing more funds to expand their high speed, digital fiber or hybrid copper/fiber networks. So Comcast can only improve its ability to extract even higher payments from retail subscribers, particularly broadband users likely to face lower downloading allowances and more expensive tiers of service. The company also can extract additional peering and transiting payments from upstream ISPs and content providers as evidenced by the recent paid peering deal with Netflix. Also the company has greater “balloon squeezing” leverage with content providers, far greater than even Google. That megafirm won’t have anything near the scale of Comcast even with an expanded footprint of 37 or so metropolitan areas.
On March 10th,
the program featured prominent buy side analyst Craig Moffett, Comcast
E.V.P. David Cohen, Free Press Policy Director Matt Wood and yours truly. I wish Sirius/XM archived the program, because
you would hear the points for and against the Comcast-TWC acquisition in an
understandable and comprehensible forum.
Each
presenter made his arguments effectively. Mr. Cohen offered the view that the
acquisition is not such a big deal, particularly in light of the fact that
Comcast and TWC “don’t compete,” while Comcast operates in a fiercely
competitive marketplace for both video content and Internet access.
Clearly
Comcast does not operate as a charity, but Mr. Cohen recognized the duty to make
the case for the deal based on some articulation of how the public benefits, or
at least is “not threatened.” He emphasized that Comcast needs to acquire even
greater scale to operate effectively and to provide consumers with the best
quality of service, a robust research and development budget and a wealth of
next generation services, including a new state of the art set top box. He did not mention the prospect for lower
prices even though larger scale may support the company’s ability to extract
lower content prices and better Internet peering terms, in the same manner as Walmart.
Chairman
Hundt used the phrase “balloon squeezing” to provide a visual reference for the
enhanced ability of the company to reduce its costs even as smaller ventures
incur higher prices for access to the same content and Internet network links.
Mr. Cohen provided clarity on why the company wants to acquire greater market share in the video and broadband marketplace. The merged company would serve about 30 million cable television and broadband households. In broadband, the company’s market share will likely grow significantly in light of the fact that Digital Subscriber Line service cannot increase bit transmission speeds to satisfy growing demand for video downloading. Additionally, AT&T and Verizon have largely refrained from investing more funds to expand their high speed, digital fiber or hybrid copper/fiber networks. So Comcast can only improve its ability to extract even higher payments from retail subscribers, particularly broadband users likely to face lower downloading allowances and more expensive tiers of service. The company also can extract additional peering and transiting payments from upstream ISPs and content providers as evidenced by the recent paid peering deal with Netflix. Also the company has greater “balloon squeezing” leverage with content providers, far greater than even Google. That megafirm won’t have anything near the scale of Comcast even with an expanded footprint of 37 or so metropolitan areas.
Case
closed? Matt Wood offered a fine
rebuttal and the case for the FCC and Department of Justice to reject the
deal. The scale argument and the lack of
competition among Comcast and TWC stand as two major elements why the issue of
bigness is threatening to consumers and to a robustly competitive marketplace. Standing as a toll bridge or bottleneck operator between consumers and content
sources, Comcast would have even greater leverage to extract higher charges
without having to enhance the value proposition on either side.
My concern
focused on what happens when Comcast can buy out a significant player in the
cable and broadband marketplace. The
fact that operators like Comcast and TWC have implicitly agreed not to compete
(a mutual non-aggression pact) does not mean that their combination will lack
impact. Without TWC, cable and
broadband companies have even less incentives to innovate and to sharpen their
pricing pencils.
Consider
the wireless marketplace with a company like T-Mobile and one where AT&T acquired
the company. In the former, consumers
benefit by having the fourth among equals forced—perhaps kicking and screaming—
to compete aggressively. In just a few
weeks T-Mobile departed from conscious parallelism—simply duplicating the price
points and service terms of AT&T and Verizon—to becoming an innovator. The company has made a huge impact with lower
rates for consumers who bring their own devices, roam internationally and want
to change carriers in fewer than every two years.
With its
acquisition of TWC, the odds decline even further for a maverick innovator to
offer a better value proposition for consumers, e.g., the opportunity to pick
and choose networks on an a la carte basis instead of a large “enhanced basic”
tier of channels. Who would evidence “best
practices” when doing so results in sleepless afternoons competing and
the potential for being targeted by Comcast for balloon squeezing?
Matt Wood
made a series of convincing arguments that most consumers will suffer from the
deal, but I would not bet against conditional approval in this
politicized, pay to play environment.
3 comments:
TWC and Comcast have "agreed not to compete"? I'm sure you've seen a map of their respective footprints, so I'm not sure why you'd say this.
There's very little overlap. If, by "agreed not to compete" you mean that TWC doesn't attempt to provide service to, say, SF Bay Area households using its Los Angeles network, then yes, they've agreed not to compete. Otherwise this statement is just false.
Why erode your credibility with claims that are manifestly false, when there are other, legitimate arguments to be raised re the CC-TWC deal?
Thank you for your comment.
My "agree not to compete" phrase refers to the fact that neither company overbuilds into the other company's service territory. Think of it as a mutual non-aggression pact.
Nothing prevents Comcast and TWC from offering facilities-based competition in the same franchise area. Local cable television franchises cannot be exclusive to one company. Yet the fact speaks for themselves: little facilities-based competition, and few buy a natural monopoly rationale.
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