Proposed buyout of Time Warner Cable will change the competitive landscape
The moment Comcast, the nation’s biggest cable company, announced it would buy Time Warner Cable, the second largest, an army of lawyers and PR operatives fanned out to tell cable subscribers how great this deal will be for them.
The proponents of this $45.2-billion buyout argue that Comcast and TWC don’t compete now, so the merger won’t eliminate any competition. That half-truth obscures a real fact about the oxymoron of cable competition and a very big lie. Comcast and TWC don’t compete, at least for subscribers, because each has a virtual monopoly in most communities they serve.
Cable companies could compete and in very rare circumstances have, by challenging an incumbent’s cable franchise or building a superior competing system. But cable companies virtually never compete that way. Instead, they acquire other monopoly cable companies to make their national footprint larger, culminating in this competitive monstrosity, combining numbers one and two.
Comcast, TWC and other cable companies currently compete on the price and terms by which they will or won’t carry broadcast networks like CBS, ABC and Fox (Comcast bought NBC) and cable channels such as ESPN, MTV and Comedy Central (Comcast owns USA, SyFy, Bravo and many others).
Cable subscribers sadly have come to learn that “must see” programs they counted on are not available during disputes over price and terms of carriage, and often because a provider like Comcast discriminates against a competitor like the Tennis Channel in favor of its own Golf Channel.
As cable companies get bigger, so do subscriber bills, leading some to become cable cutters, who receive their video content via the Internet. But it’s not so easy to escape the power and grasp of Big Cable, as it is the dominant broadband provider in most communities, while telephone and satellite companies scramble to upgrade and offer competitive “triple plays,” bundling video, phone and Internet service.
The Federal Communications Commission’s “net neutrality” rules attempted to assure that broadband providers did not discriminate by charging different prices and delivering content at different speeds to favor their own content or premium programming to hamper its competitors. The FCC wanted to prevent a broadband provider like Comcast from favoring its own Weather Channel over competing services like Weather Underground or charging Netflix a premium to slow up delivery of programming from Hulu.
A federal appeals court killed the net neutrality rule.
The FCC’s other major pro-consumer initiative, called “a la carte” pricing, also appears dead. That would have allowed cable subscribers to buy only the channels they want and not pay for the hundreds they never watch, let alone know exist. Prix fixe cable bundling allows Comcast to lard up their subscribers lineups with content it owns or is paid to push. Contracts for favored placement are ubiquitous in American business, such as brands paying for more and better shelf space in supermarkets. But generally there are many choices for buying groceries, not just one as with cable.
Allowing Comcast, already by far the largest cable company, to get so much bigger, not because of superiority, but by acquisition, will simply invite it to exercise power over competing content providers, using Comcast’s monopoly cable and dominant broadband pipes. It will also severely reduce Comcast’s already small incentive to innovate.
The mere announcement of the Comcast/TWC merger has caused others to plan defensive mergers, further reducing competition. Content producers like Disney, Discovery, AMC and Viacom must now consider merging in an attempt to match the enormous leverage Comcast would gain. Other cable companies, including Charter, Cablevision and Cox now feel the need to merge in order to attain some fraction of the size and power of the new Comcast.
All of this will harm consumers, who benefit from competition on price, quality and innovation.
Consumers are not powerless against the army of lawyers, investment bankers and spin doctors who will be paid upward of a billion dollars to lubricate and attempt to sanitize this anti-competitive merger. Members of Congress in both houses and from both parties will hold hearings and must hear from constituents. The federal antitrust division, the FCC and state attorneys general — Eric Schneiderman of New York among them — all profess to be guardians of competition and the public interest.
In 2002, when massive consumer pressure was directed at Congress and these agencies concerning the similarly anti-competitive proposed merger of DirecTV and Dish Network, the antitrust enforcers sued and the transaction was abandoned. That precedent should serve as a model for precisely what must occur now. Or be silent and suffer the consequences.