[Amazing Comcast even tried this. It is a sign that government regulation appears as pliable as corporations have money to spend on politicians.]
The Real Problem with the Comcast Merger
Among household expenses, few things have risen quite as quickly as the cable bill. As recently as the nineteen-nineties, cable prices ranged from seven dollars to eleven dollars and fifty cents per month. After years of price hikes, a decent cable package is now over sixty dollars a month; the average cost is eighty-six dollars. Comcast, in 2013, collected about a hundred and fifty-six dollars a month on average, per customer—and some people are paying much more than that. Outpacing inflation, cable is now so expensive that it creates poverty issues: in poorer households it competes with basics like food, rent, or health insurance. If you wanted to help the poor, you could do worse than cutting cable bills.
It is in this environment that Comcast proposes to acquire Time Warner Cable. But the Federal Communications Commission, by law, is only supposed to approve the merger if it finds that it serves “the public interest.” Given recent history, and in today’s cable business, the public’s interest can be captured in two words: “lower prices.” The F.C.C., in fact, is supposed to ensure that cable prices are “reasonable.” Here’s a simple rule of thumb: unless the F.C.C. thinks that there is a realistic chance that the deal will reverse two decades of rising prices, it should stop the merger.
Comcast, in announcing its deal, has said nothing about how it might save consumers money. Instead, it calls the deal “an exciting opportunity” for its customers, promising “accelerated deployment of existing and new innovative products and services.” I suspect that I’m not alone in thinking that a lack of excitement isn’t what most customers call to complain about. Everyone, even people in the industry, knows that the prices are too damn high. But tellingly, nowhere in any of its materials does Comcast suggest a plan to do anything about it. So just what makes this merger in the public’s interest?
Defending the deal, Comcast’s C.E.O., Brian Roberts, relies on the wholly uninspiring argument that at least the merger won’t reduce existing competition (that is, from companies like Dish or FiOS). But even that’s not true. With a larger customer base and more buying power, Comcast would be left with several time-tested techniques for reducing competition and increasing prices. For Comcast, that’s the exciting part.
First, a key strategy, which Comcast has already used to great effect, is to either use ownership or exclusive contracts of important channels to freeze out rivals or increase their costs. In its takeover of the Philadelphia market in the early aughts, Comcast relied on local demand for Phillies, Flyers, and 76ers games to depress satellite competition and thereby maintain high prices. Comcast has repeated the regional-sports strategy across the country; if it gains unfettered control over Time Warner, Comcast can simply reuse the strategy in its new territories.
Second, the merger would leave Comcast in a better position to wage war on those annoying Internet firms like Netflix, YouTube, or Amazon TV, all of whom, by cable standards, deliver way too much stuff for way too little money. (Consider that Netflix's fee of $7.95 a month is what Comcast charges you to lease a modem.) The most straightforward tactic is to use Comcast’s increased power to demand special fees (technically a net-neutrality violation), or to make deals with Hollywood that starve its rivals of good or recent content.
Third, on the price-hike side, a larger footprint will yield interesting new ways to get more money out of broadband, which is already ludicrously profitable (it costs less than five dollars a month to provide, and is sold for between forty and sixty dollars a month). Adding data caps to Time Warner’s customers would be a nice place to start—as the phone companies have shown, overage fees are a sweet deal. Comcast’s larger size will make it easier to make expensive broadband the national norm.
The crazy part is that this deal would actually put Comcast in a position to lower prices, if it wanted to. It could use efficiencies of scale to cut the price and increase the speed of broadband. It could use its buying power to negotiate better deals with ESPN, Viacom, and other programmers, passing on the savings to customers. That’s what the company would do in a parallel universe where it faced actual competition. But passing on savings has never been part of Comcast’s business model, and, absent a corporate lobotomy, it may never be.
In short, the acquisition of Time Warner is brimming with tasty strategic possibilities for an enlarged Comcast. But one looks in vain for anything—anything!—for the consumer and the public. Even A.T.&T., when it tried to buy T-Mobile, had more to promise customers than this. It is the sworn duty of the Federal Communications Commission to stand up for the public; the public-interest standard cannot be satisfied by a few vague platitudes. Give us lower prices, or let’s block the deal.
Tim Wu is a professor at Columbia Law School and the author of “The Master Switch.” He has previously served as a senior advisor to the Federal Trade Commission; the chair of Free Press, an Internet advocacy organization; and a fellow at Google.
Above: Comcast C.E.O. Brian Roberts. Photograph by Andrew Harrer/Bloomberg/Getty.
Comcast, in announcing its deal, has said nothing about how it might save consumers money. Instead, it calls the deal “an exciting opportunity” for its customers, promising “accelerated deployment of existing and new innovative products and services.” I suspect that I’m not alone in thinking that a lack of excitement isn’t what most customers call to complain about. Everyone, even people in the industry, knows that the prices are too damn high. But tellingly, nowhere in any of its materials does Comcast suggest a plan to do anything about it. So just what makes this merger in the public’s interest?
Defending the deal, Comcast’s C.E.O., Brian Roberts, relies on the wholly uninspiring argument that at least the merger won’t reduce existing competition (that is, from companies like Dish or FiOS). But even that’s not true. With a larger customer base and more buying power, Comcast would be left with several time-tested techniques for reducing competition and increasing prices. For Comcast, that’s the exciting part.
First, a key strategy, which Comcast has already used to great effect, is to either use ownership or exclusive contracts of important channels to freeze out rivals or increase their costs. In its takeover of the Philadelphia market in the early aughts, Comcast relied on local demand for Phillies, Flyers, and 76ers games to depress satellite competition and thereby maintain high prices. Comcast has repeated the regional-sports strategy across the country; if it gains unfettered control over Time Warner, Comcast can simply reuse the strategy in its new territories.
Second, the merger would leave Comcast in a better position to wage war on those annoying Internet firms like Netflix, YouTube, or Amazon TV, all of whom, by cable standards, deliver way too much stuff for way too little money. (Consider that Netflix's fee of $7.95 a month is what Comcast charges you to lease a modem.) The most straightforward tactic is to use Comcast’s increased power to demand special fees (technically a net-neutrality violation), or to make deals with Hollywood that starve its rivals of good or recent content.
Third, on the price-hike side, a larger footprint will yield interesting new ways to get more money out of broadband, which is already ludicrously profitable (it costs less than five dollars a month to provide, and is sold for between forty and sixty dollars a month). Adding data caps to Time Warner’s customers would be a nice place to start—as the phone companies have shown, overage fees are a sweet deal. Comcast’s larger size will make it easier to make expensive broadband the national norm.
The crazy part is that this deal would actually put Comcast in a position to lower prices, if it wanted to. It could use efficiencies of scale to cut the price and increase the speed of broadband. It could use its buying power to negotiate better deals with ESPN, Viacom, and other programmers, passing on the savings to customers. That’s what the company would do in a parallel universe where it faced actual competition. But passing on savings has never been part of Comcast’s business model, and, absent a corporate lobotomy, it may never be.
In short, the acquisition of Time Warner is brimming with tasty strategic possibilities for an enlarged Comcast. But one looks in vain for anything—anything!—for the consumer and the public. Even A.T.&T., when it tried to buy T-Mobile, had more to promise customers than this. It is the sworn duty of the Federal Communications Commission to stand up for the public; the public-interest standard cannot be satisfied by a few vague platitudes. Give us lower prices, or let’s block the deal.
Tim Wu is a professor at Columbia Law School and the author of “The Master Switch.” He has previously served as a senior advisor to the Federal Trade Commission; the chair of Free Press, an Internet advocacy organization; and a fellow at Google.
Above: Comcast C.E.O. Brian Roberts. Photograph by Andrew Harrer/Bloomberg/Getty.
