When Comcast sneezes, will too much of the technology industry catch a cold?
That may be the central question facing regulators reviewing the company's $45 billion takeover of Time Warner Cable, a deal that again expands it cable television and, perhaps more importantly, its broadband Internet businesses. The deal will be scrutinized in a Senate judiciary hearing Wednesday and by regulators who will study Comcast’s arguments filed Tuesday to the Federal Communications Commission and filed last week to the Justice Department.
The merger on its face may not appear anticompetitive because Time Warner Cable and Comcast don’t compete in the same territories, analysts say. And that’s what Comcast stressed in its government filings, adding that it would commit to a string of conditions to assure it won’t squeeze out competition as the first-ever nationwide cable service provider.
But the problem isn’t only about getting bigger, public interest groups and smaller competitors say. It’s about the outsized power Comcast could have over an ecosystem of media, telecom and tech companies. After the merger, Comcast would have more than 40 percent of the home broadband market and 30 percent of cable subscribers.
With its purchase of NBC Universal three years ago, Comcast took a powerful seat in the middle of the media and Internet universe. It already has tremendous sway over practices across the industry, from consumer bills, to deals for licensing programs, to advertising rates, to the back-room charges paid by Web giants such as Netflix to ensure fast downloads of their sites, analysts and public interest groups say. Netflix relented in a long fight over fees for smooth streams of its videos to Comcast customers because the Web giant felt it couldn’t win against a powerful gatekeeper to so many consumers’ homes, Netflix officials said on the condition of anonymity.
With Time Warner Cable, Comcast will go into negotiations with Web services, advertisers, device makers and programmers with even more power, critics say.
In a study released Tuesday, the Consumer Federation of America, a public interest group, said the merger should be blocked because Comcast’s sprawling business would give it too much power over programming costs, advertising in Time Warner Cable’s valuable reach into New York, Los Angeles and Dallas, and negotiations with Web firms from Facebook to tiny startups that will have to pay for guarantees that their sites will download smoothly. That kind of control would make it harder for consumers to break free from the unpopular cable bundle, the group said.
Marc Cooper, a researcher for CFA and author of the report, asks: Would regulators have allowed Comcast to buy NBC Universal if it had bought Time Warner Cable first? “The overwhelmingly dominant firm that would result from this merger would be uniquely capable of coordinating . . . industry-wide efforts to undermine competition,” Cooper said. “This merger would deal a severe, if not a death, blow to emerging competition.”
Comcast refutes criticism that the deal is anticompetitive. It points to a thriving entertainment market where Netflix and Amazon compete with Comcast’s bundled cable television services. In the broadband market, Comcast points to competition from satellite firms, telecom companies such as Verizon with its FiOs service, and Google’s plans to expand its ultra-fast fiber service to dozens of cities. But critics say satellite and wireless aren’t true broadband competitors because they're unable to deliver comparable fast downloads of videos and other large files. FiOs is in limited markets, and Google’s plans are years off in the future, they note.
But Comcast said it will commit to conditions to placate concerns. It will divest subscribers to keep its reach at 30 percent of the cable market, a benchmark that regulators say ensures competition between cable and satellite operators with programmers. It will extend net neutrality conditions that it commited to with the NBC merger. And it will continue to offer a low-income broadband service.
“The FCC’s standard for whether two providers of broadband, video, or voice compete is whether they offer service to the same customers – the same standard reflected in the DOJ’s and FTC’s Horizontal Merger Guidelines,” Comcast wrote in its public interest filing to the FCC. “Because the Parties Do Not Compete for Consumers, There Is No Plausible Theory of Competitive Harm Arising from the Horizontal Elements of the
Public interest groups are skeptical, however, that the conditions attached to the NBC Universal deal make sense. Those agreements with government officials were made without the foresight of Comcast’s plans to so aggressively expand its footprint into Time Warner Cable’s markets. Indeed, Comcast has again caught industry analysts, lawmakers and regulators by surprise with its push to become such a dominant force in media and Internet technology, just as the nation shifts its viewing habits online, analysts say.
But, looking back, the company’s plans have been clear. Comcast chief executive Brian Roberts has fastidiously built the original Mississippi franchise with more than $90 billion in acquisitions over more than a decade. Roberts has talked about plans to make the company a bigger global media and tech powerhouse.
Analysts say lawmakers will likely grill the companies in a string of hearings, but they forecast the merger will be approved with strong conditions. The biggest question is if the FCC will force “peering” conditions so that the company changes how it charges Web firms to connect to its network.
“We still think the lack of core competition concern and service quality upgrades for Time Warner Cable are likely to lead regulators to approve the merger,” said Paul Gallant, an analyst at Guggenheim Securities.