Friday, February 14, 2014

A Free Pass for Comcast to Acquire Time Warner, Because They Don't Compete With Each Other?

            Two rationales supporting the Comcast acquisition of Time Warner don’t make sense to me. 

First Comcast touts the existence of Netflix, Hulu and Google as ample evidence that content competition exists.  Of course the two sources of content mentioned reach end users primarily via last mile broadband providers like Comcast.  Goggle Fiber serves three metropolitan areas and is nothing more than a test and demonstration project that Gigabit fiber is commercially and technically viable. 

Would Comcast meddle with Netflix traffic, say to tilt the competitive playing field in favor of Comcast’s pay per view options?   Why would it, particularly if in a two-sided market total revenues might decline if Comcast were to retard broadband demand?  So Comcast would have no incentive to throttle traffic and otherwise mess with the traffic of content competitors who need its network to reach end users.

Does this rationale pass the smell test?  Was Comcast merely “experimenting” with network management techniques when it previously meddled with peer-to-peer traffic?  Why are retail broadband carriers demanding surcharge payments from Netflix on top of the transit payments they receive from Content Distribution Networks like Level 3, plus the end user subscriptions that have three digit margins? 

Absent a four year network neutrality commitment as part of its acquisition of NBC, profit maximizing Comcast surely would try to squeeze every last dollar, particularly from competitors who need its downstream delivery.  Remember what Ann and Gordon told us: “Greed is good.”

Second, Comcast asserts that because it does not compete with Time Warner, no one should worry about lost competition and consumer welfare.  Would not a more concentrated cable television market have even less likelihood that some operator somewhere would experiment with new pricing models, e.g., offering ala carte channel access in lieu of bloated channel bundles? Isn’t it easier for Comcast to reduce the broadband value proposition by capping download allotments and upselling higher amounts, or agreeing not to debit the now single digit Gigabyte allotment in exchange for a surcharge paid by content sources?  Note that AT&T Wireless announced such a "toll free data” option just a few weeks ago.

Bottom line: Comcast may not compete with Time Warner, but a bigger Comcast makes it more likely that the company can claw back consumer welfare gains and reduce the value proposition of both cable television and broadband subscriptions without significant customer churn.

Thursday, February 13, 2014

Comcast-TWC: Why Compete and Innovate When You Can Buy Market Share?


            Expect a charm offensive as Comcast and scores of sponsored researchers explain how acquiring Time Warner Cable will promote competition and enhance consumer welfare.  You might not hear too much about two traditional concerns remedied by actual facilities-based competition: incentives to innovate and reduce prices.

            Comcast will frame its acquisition as necessary to achieve even greater scale to compete with other sources of video content and maybe to compete with the limited other sources of broadband access.  Granted cable television operators have to provide consumers with a compelling value proposition particularly given the pricing model they use that runs up the bill—often to three digits—with a large bundle of channels for which few consumers have any significant preference.

            But Comcast is not acquiring TWC as a defense strategy to shore up the viability of cable television.  Comcast is exploiting the apparent inability of government—even one with a Democratic President and Senate majority—to enforce viable competition policy.  A concentrated market used to trigger concern about whether one or more survivors would continue to compete, or simply agree not to devote sleepless hours innovating.

            Just what happens when markets concentrate?  How can one doubt that the incentive to innovate and compete recedes?  Consider commercial aviation: when a single airline controls an airport, rates to and from that market skyrocket.  Consider wireless service: when AT&T could not acquire TMobile, TMobile got serious about innovating and competing.  Reluctantly Verizon and AT&T have had to respond to TMobile’s initiatives like lower rates for subscribers using their own handsets, lower roaming charges abroad and refunds of early termination penalties.  Would AT&T, Verizon and even Sprint have introduced these enhancements if TMobile did not exist?

            The balance of power has shifted from consumers to providers in the telecommunications marketplace.  Companies like Comcast can invoke scale and efficiency arguments that obscure the fact that consumers will have to pay more for less. So-called competitors can “close ranks” and implicitly agree not to compete.   

            Consider access to Olympics content.  Comcast-NBC wants to make it certain that consumers access this content only via prescribed means, firewalled so that they control access via new technological options like the Internet.  If Comcast did not have the goal of maintaining the status quo, why would it care whether viewers watched commercials on a computer monitor, smartphone screen, or tablet in lieu of the television set?

            Reduced to its simplest terms Comcast’s acquisition of TWC enhances shareholder value at consumers’ expense.   The only silver lining might be FCC-imposed conditions that impose otherwise unlawful requirements,  Of course the Commission would have to enforce them in the face of relentless claims that the requirements are “job killing,” unnecessary and unconstitutional.  What politically savvy civil servant would want to take on a “too big to fail” venture like Comcast?