The proposed $45.2 billion acquisition of Time Warner Cable by Comcast—the nation's two largest cable and home Internet providers—has once again raised the specter of monopoly control over yet another American utility. Are these fears overblown? Nope! It's really that bad.
Would Comcast-TWC Count as a Monopoly?
Monopolies aren't like porn; you can't just know one when you see it. There is actually a spectrum of competition—ranging from perfect competition to complete monopoly—that each market fits into. But in general terms, a monopoly happens when a single seller controls the market, and there are no alternatives for the seller's product. They're also formed when one or more barriers to entry into the market prevent other companies from competing with the reigning champ. Stop me when this sounds familiar.
These barriers to entry can be generated from a number of factors including the exclusive ownership of a key resource—like Lena Blackburne Baseball Rubbing Mud, which is used by every MLB club for taking the shine off of new baseballs—the award of a government franchise—such as Amtrak's national passenger train service or the the United States Postal Service, for residential mail delivery—or intellectual property rights. Basically, you have to make a very good argument as to why you deserve to be the only game in town.
At this point you might be wondering how Comcast and other ISPs get away with what feel like localized monopolies. The argument is that when a market is better served (in terms of economies of scale, not how reasonable your monthly bill is) by a single company, rather than a number of smaller competing firms, you have a justifiable natural monopoly. Often it is the first company to make the infrastructure investment—i.e. laying railroad tracks, putting up telephone poles, drilling oil wells, or running fiber optic lines—that becomes the monopolist, because it's simply too expensive for smaller companies to turn a profit at the prices the natural monopoly is able to.
So how does Comcast qualify? As Jack Shafer of Reuters writes:
In the founding days of the industry, local municipalities mistakenly insisted that cable TV was a "natural monopoly" that must be regulated like telephone service. In nearly every case, the selection of a cable operator was a political one, with the most flattering supplicant winning the right from city councils to string wire on utility poles and cross right-of-ways to sell cable service. The municipalities collected franchise fees from the cable companies, shook them down for sweeteners like municipal channels and public access studios, regulated their rates, and required the operators to wire all if not most of their jurisdiction.
While Comcast certainly had assistance from the government in its early days—not unlike Amtrak and the USPS—by the time that deregulation efforts began in the 1990's to open up the protected cable TV market, new competitors faced both a regulatory maze of applications and an already-established competitor. Just because the field of competition was technically open, didn't mean that the barriers to entry were any lower.
As for Comcast-TWC, "It's not really a cable TV merger, it's more of a broadband Internet merger." John Bergmayer, a senior staff attorney for the advocacy group Public Knowledge, told Gizmodo recently. "Both of these companies sell bundled broadband and video, and both of them are smart enough to see that the future of video delivery is tied up with broadband, so they're really one and the same."
Monopolies also aren't just about market share, mind you. They're also about a company's market power, its ability to affect the overall market for its own benefit. And with this merger, Comcast will have plenty of leverage.
As Derek Turner, Senior Researcher at the consumer advocacy group Free Press, writes:
If Comcast acquires Time Warner Cable, it will control 55 percent of the U.S. market's pay-TV/Internet bundled customers. It will be the only provider of this advanced communications package to nearly four out of every 10 U.S. homes. With this much control over the platform we all use to communicate and share with the outside world, the new normal will be whatever Comcast wants it to be.
The cable company could, according to both Bergmayer and Turner, wind up acting as a gatekeeper to the Internet, much the same way Ma Bell acted as gatekeeper for earlier telephone infrastructure.
As Turner explained to Gizmodo, Comcast could theoretically position itself in the center of a monopsony (which is similar to a monopoly except that Comcast would act as the sole buyer of the television content product rather than the sole seller). What's more, the merger would expand Comcast's service reach to nearly two-thirds of the nation's homes, providing the company tremendous power at the local, state, and federal levels to shape the future of public policy in its own image.
Bergmayer is inclined to agree. Comcast "will have significant market power," he told Gizmodo. "I think that because the combined company would have control over more than 30 million households, they would be in a position to dictate terms and people would really have no choice than to do business with them."
And that's just the start of the trouble we could be in if the Comcast merger is approved. Per the Public Knowledge statement in response to the initial merger announcement:
If Comcast takes over Time Warner Cable, it would wield unprecedented gatekeeper power in several important markets. It is already the nation's largest ISP, the nation's largest video provider, and one of the nation's largest home phone providers. It also controls a movie studio, broadcast network, and many popular cable channels.
With this much market klout, Comcast would be able to dictate terms as to how content creators, distributors, and consumers would be able to access one another, not to mention how much each side would have to pay to reach the others. And just as AT&T stifled telephone innovation when it was a monopoly, there's not much motivation for Comcast—which similarly rents you your cable box, not sells—to make any investment in its infrastructure, equipment, or service. That's why your cablebox is so terrible, and why it will continue to be forever and ever.
So yes, Comcast-TWC would be a monopoly. And the effects of that would be even more brutal than what you're currently living with.
We're Already Seeing the Effects
Even without filing the paperwork, Comcast has already been throwing its weight around, most recently brow-beating Netflix into paying what Turner describes as an "Internet video tax." So not only is Comcast being paid by its subscribers to access Internet services like Netflix, it's also charging Netflix to reach Comcast subscribers. "And I think that only happens once you have control over so many customers," Bergmayer told Giz. "If you're not carried by Comcast, you're in serious trouble."
That deal doesn't violate net neutrality, as some have speculated that it might. It just cuts out a middle man to Comcast's advantage. But while the ISP giant is technically under obligation until January 2018 to abide by the FCC's Open Internet rules—one small silver lining from its NBC acquisition—Turner explains, "This deal with Netflix shows that all they have to do is move the shenanigans up the chain a little" and avoid FCC oversight completely.
And with no FCC oversight, things can get ugly, quickly. Without regulation, any semblance of net neutrality that isn't already dead will be. After its ceasefire lifts in less than four years, Comcast could in theory, decide that Comcast-owned NBC content,could get priority over other television channels. It could decide that 4K Netflix feeds are taking up "too much" of its bandwidth and throttle that traffic unless consumers and distributors pay an extra fee. Just like it already has.
The other side of Comcast's newly erected Internet toll booth isn't any better, either. The company has recently begun enforcing a system of caps and overage fees for customers that go over their prescribed 300 GB of data each month. It'll be a rude awakening for TWC customers, who currently don't live under any such restrictions, and the combined size of the two companies would be enough to standardize broadband data caps. It's only a matter of time until they're they norm.
But Will It Go Through?
On the one hand, the U.S. government—both at the state and federal levels—has steadily fought against market hegemony since the days of the Industrial Revolution using antitrust statutes designed to break up an offending company's market stranglehold. On the other hand, today's FCC is chickenshit.
The deal likely won't be officially filed with the FCC until March, at which point both the FCC and the Justice Department will begin reviewing the transaction. The DoJ's proceedings typically happen behind closed doors. The FCC, on the other hand, will hold public proceedings where those potentially affected by the merger can speak out either for or against it. The Senate Judiciary committee has already set a March 26th date to review the proposed merger.
If recent history is any guide, we're in trouble.
When Comcast sought to merge with NBC in 2010, the FCC's decision process was heavily lobbied by both sides. And while the FCC did eventually allow the acquisition to go through by a vote of 4 to 1, the agency attached a litany of conditions—guaranteeing the new company wouldn't discriminate against its programming, distribution, or ISP rivals—that Comcast would have to abide by for seven years.
But even these unusually long condition terms may not have been strong enough. As the lone dissenter from the FCC, senior Democratic commissioner, Michael J. Copps, told the NYT, "The Comcast-NBCU joint venture opens the door to the cable-ization of the open Internet. The potential for walled gardens, toll booths, content prioritization, access fees to reach end users, and a stake in the heart of independent content production is now very real." And it looks like Comcast is going to do it again.
Even more disturbing is the revolving door policy that appears to exist between the the FCC and the industries that it regulates. For example, after signing off on the Comcast-NBC deal, then-FCC Commissioner Meredith Attwell Baker left the agency for, you guessed it, Comcast. And it would appear that the regulatory shenanigans will continue during the Comcast-TWC approval process as well. The Republic Report notes that at least two top current regulatory officials, those in charge of overseeing antitrust actions, have uncomfortably close ties to the companies they're supposed to manage:
The recently installed head of the Department of Justice Antitrust Division, William Baer, was a lawyer representing GE and NBC in their push for the merger with Comcast. At the time, Baer was an attorney with the firm Arnold & Porter. To his credit, Baer said last month that he is skeptical of further consolidation of the cable market. Disclosures reviewed by Republic Report show that Baer will continue receiving payments from Arnold & Porter for the next eleven years as part of his retirement package.
Maureen Ohlhausen, one of four commissioners on the Federal Trade Commission, which oversees antitrust enforcement, provided legal counsel for Comcast as an attorney just before joining the FTC. She also represented NBC Universal in the year before before becoming a commissioner in April of 2012. NBC Universal completed its merger with Comcast in January of 2011.
And while Congress doesn't directly decide on the merger, Bergmayer points out, "they do supervise the FCC and DoJ—they hold the purse strings—so they have a lot of influence even if it is indirect."
So what can be done? Your best bet is to start yelling at Congress, and at the FCC. "A lot of people are very cynical about money in politics, however the purpose of money in politics is ultimately to influence voters," Bergmayer told Gizmodo. "If the voters are outraged about something, very often that overcomes money on the other side because representatives are not going to alienate their constituency." You can find contact information for your representative here.
Sure, the threat of rankling voters doesn't always work. But if it's your only shot, it's one worth taking. [LA Times, Public Knowledge 1, 2 - Free Press - About - Investopedia - Wikipedia - Stanford - Federal Communications Commission - Republic Report]