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?
