The Washington PostDemocracy Dies in Darkness

Comcast, the soon-to-be gazillion-pound technology gorilla

( <a href="">Mr. T in DC</a> )

Comcast has struck a deal with Time Warner Cable that would combine the nation's two biggest cable companies at a price of $45.2 billion, the companies said Thursday. The result will see Comcast serving around 30 million U.S. customers, or just under a third of the American pay-TV market.

It's far from certain that the proposed deal will actually happen. The two companies hope to close the deal by the end of the year, but it still has to be approved by shareholders — and hawkish regulators. William Baer, the Justice Department's top antitrust official, said last month he'd take a skeptical view of any proposed consolidation in the cable industry, though Time Warner Cable (TWC) and Comcast operate in different geographic areas. The Federal Communications Commission, meanwhile, has also signaled that a Comcast-Time Warner Cable merger would face trouble. A thumbs-down from either agency would likely be enough to kill the deal, so it might not happen at all.

But if it does happen, it would put tremendous power in the hands of Comcast, policy experts say — not just over a greater number of consumers, but also in terms of the deals it can strike with TV programmers, its relationship with rival Internet providers and even wireless carriers. An enlarged Comcast could effectively dictate the future of telecommunications.

Why would Comcast merge with Time Warner Cable?

To understand the implications of the proposal, it helps to know how we got here. Rumors about a TWC sale began last summer when another cable company, Charter Communications, sought it out. At the time, Charter chairman John Malone told investors he saw the smaller company as a "horizontal acquisition machine." Malone hoped to merge with TWC so that the two companies could more effectively take on Comcast. Analysts viewed a Charter deal as something of a long shot; after all, Charter is the country's fourth-largest cable firm, and TWC was worth a whopping 2.5 times more. But the reports quickly drove up Time Warner's stock price, indicating investors were intrigued by the idea. Since then, the company's stock has continued climbing and is now up 36 percent from late June.

In October, Charter submitted a bid for below $130 a share, but was rebuffed. Later Charter upped its offer in January to $132.50 a share. TWC called the idea "grossly inadequate," countering with $160 a share. TWC shareholders were willing to accept slightly less, around $140-$150 a share.

Comcast's bid disclosed Thursday blows Charter's out of the water, at $158.52 per share. And it offers a glimpse into the larger company's strategy to dominate both the production of programming and the networks that carry it to viewers.

Comcast, the gazillion-pound tech gorilla in waiting

The TWC announcement follows another major merger last year that smushed Comcast together with another industry behemoth, NBC Universal. You can think of these two deals as going hand-in-hand; one gives Comcast ownership over a massive content empire spanning the Universal film studio as well as several cable channels including MSNBC, SyFy and Bravo. The other gives Comcast a way to transmit that content to more consumers. 

For TWC customers, that'll likely mean easier access to popular shows. But public interest advocates also find the vertical integration worrisome.

"The real danger is just the gatekeeper power on the rest of the ecosystem," said John Bergmayer, a senior staff attorney at Public Knowledge.

A Comcast-TWC merger is a big deal not just because it puts a huge number of subscribers underneath a single roof. It's a big deal because, thanks to ongoing industry trends, Comcast is already poised to become vastly more powerful without having to lift a finger.

Here's one example. When you use your mobile device outside or on public transit, chances are you're on 3G or LTE networks owned and operated by your wireless carrier. But anytime you're indoors — at home or at work — you're probably on WiFi, meaning that your traffic is ultimately getting shunted onto a fixed or wired network. Guess who owns those cables? For many homes, it's Comcast.

This sets up an uneven relationship between cable companies and wireless carriers, the latter of which are growing increasingly reliant on fixed broadband as a safety valve for demand. As the New America Foundation's Michael Calabrese notes in a 2013 white paper, "cell site bottleneck is a very real constraint." Cisco estimates that 57 percent of all U.S. mobile device traffic was offloaded to WiFi last year. That figure is expected to top 64 percent by 2018.

Pushing what otherwise would be 3G traffic onto Comcast's fixed broadband gives Comcast a significant boost in bargaining power. The company will also be at an even greater advantage in talks with content providers, said Bergmayer. Eliminating TWC makes it harder for those who create shows and films to play one company off the other for more favorable contract terms.

The Comcast-TWC merger could also affect the fate of streaming services like Netflix. Netflix has a complicated relationship with cable companies; the video service reaches many Comcast subscribers now over broadband but is seeking to be put on set-top boxes. Some say Netflix will have trouble meeting its aggressive growth targets without the help of pay-TV customers. By adding TWC's customers to its own, Comcast may soon have much more to offer Netflix, which would put Netflix at a greater bargaining disadvantage.

In another example of the merger's far-reaching implications, Comcast has effectively thrown a wrench in Apple's plan to partner with Time Warner Cable on a new version of Apple TV. TWC was reportedly in talks to make cable programming accessible on Apple's media box. It would have been Apple's first deal with a pay-TV provider. While that's not to say Apple couldn't reach a similar agreement with Comcast, analysts say Comcast could wind up slowing down the release of Apple TV. More broadly, it means Comcast's influence over Apple and other end-user companies is growing.

All of this is taking place against the backdrop of the recent net neutrality court decision that made it legal for Internet providers to block or throttle Web traffic. While there's no concrete evidence yet that this is occurring, the ruling inherently gives ISPs such as Comcast greater control over how consumers experience the Internet. As a result of the merger, Comcast will be taking on 8 million TWC subscribers, all of whom will be newly subject to Comcast's bandwidth policies.

That the cable industry is consolidating isn't really a surprise. But a merger of this magnitude is going to have major downstream effects.