Award Winning Blog

Wednesday, May 27, 2015

FCC Chairman Tom Wheeler, the Wall Street Journal and the Secondary Meaning of Incontinent

          Today the Wall Street Journal reached a new nadir of snark and journalist irresponsibility.  In one op ed, Holman W. Jenkins, Jr. misrepresented the nature of FCC broadband oversight as “monopoly regulation,” and implied that Chairman Wheeler is a liar and Obama pawn. See

            Additionally, Mr. Jenkins accused Chairman Wheeler of incontinence, which I now know has a secondary meaning of lacking in moderation or self-control; unceasing or unrestrained.  So Mr. Jenkins wasn’t making a medical diagnosis. Okay, but I know an (begin encryption) ick pray when I see one.
            This kind of op-editorial is shameful. 
            If the FCC is engaging in monopoly broadband regulation, how can there be multiple broadband operators who want to merge?  Bear in mind that these merging ventures will take pains to explain the robust competitiveness and non-monopolistic nature of the broadband market.  Mr. Jenkins must be referring to price, or rate of return regulation, but guess what Mr. (begin encryption) Ace in the Hole?  The FCC expressly doesn’t reserve the option of doing either.
            So Mr. Jenkins doesn’t believe the FCC or Mr. Wheeler.  Perhaps you should have similar skepticism about Mr. Jenkins’s verisimilitude.

Tuesday, May 26, 2015

If You Like the Airlines’ Consolidation, You Might Love an Even More Concentrated Broadband and Cable Marketplace

          With several cable television operations in play, perhaps we should consider what’s behind the urge to consolidate?  Bear in mind that the broadband and cable television business already is quite profitable and concentrated, a key difference with the U.S. airline industry that lacked profits and high concentration before its flurry of mergers.

            The answer: more concentration makes it easier for the survivors to avoid sleepless afternoons innovating, competing and enhancing the value proposition for consumers.  It is that simple: with fewer major players, the odds decline substantially that a maverick will buck the incentive to match the terms and conditions set by the major operators.  Why offer something faster, better, smarter, cheaper and more innovative in lieu of operating within the price, service and customer care umbrella established by the top one or two operators?

           Consider the consequences on innovation and competition If AT&T has succeeded in acquiring TMobile.  Does anyone (including Wall Street Journal editorial writers) believe consumers would enjoy the benefits of data rollovers, cheaper rates, lower roaming fees and the option to bring their own devices?

            In a concentrated industry, operators have great incentives to match each other’s rates and service. That’s what consumers get from the spate of recent airline mergers.  Even the industry maverick Southwest has “gotten with the program” on fares and many of the highly lucrative extra fees. Call it collusion, consensus, or conscious parallelism: the airlines offer roughly the same fares and fees?  Can you recall a highly advertised sale in the last year?

            I don’t see much upside to consumers in having a stronger number two cable and broadband provider.  Recall that Comcast executives emphasized how their company does not compete with Time Warner Cable.  Comcast’s logic was that if it didn’t compete with Time Warner, then there shouldn’t be any problems in acquiring their market share.  So how would a larger number two cable and broadband operator become a more aggressive competitor of Comcast?

           Extreme concentration of one old media market (cable) and one new media market (broadband) has little impact beyond further enriching managers and stockholders.  With extreme barriers to market entry concentration does not stimulate new competition.
            Highly concentrated media markets make it easier for the creation of platforms and bottlenecks through which a substantial portion of video content must travel.  On the buy side, an even larger content distributor might extract greater concessions from content providers.  Maybe size and scale matters, but the risk lies in creating a near monopsony marketplace where only a handful of players compete for content.  Also what incentive does New Charter have in passing program acquisition savings to subscribers?  The airlines haven't had to share a 40% drop in fuel costs.
            On the delivery side, what good will result when two companies control nearly 30% of the distribution grid for actual broadband consumption?  I emphasize current broadband usage and not potential competitors who offer a broadband option, albeit one that costs vastly more on a per Megabyte basis (terrestrial and satellite broadband).

            Lastly this deal combines companies that join Comcast at the absolute bottom in terms of customer service.  Ask any 10 cable subscribers if they have had a billing or service hassle and 9 or more will answer yes.  So how would a merger improve service when the companies involved already have determined they don’t have to improve customer care?