Last month, cable TV giant Comcast announced it had agreed to buy Time Warner Cable for U.S. $45 billion, merging the largest and second-largest cable companies in the U.S.
While the raging debate over the advisability of the merger focuses primarily on TV, ultimately the far larger question will be our future access to the Internet.
For cable TV users, the impact of the merger on fees and (cough) service is clearly of concern. But the more important, complex — and cloudy — discussion should be about the future of our connection to the Web. Most of us could face major changes to how we view content in the Internet — and at what cost?
In this first installment of a two-part series, I’ll provide some background on the Comcast/Time Warner Cable merger — and some of the more obvious ways it could impact the millions of affected broadband users.
Merging markets: The art of the deal
On the surface, Comcast’s proposed purchase of Time Warner Cable looks like any other billion-dollar merger of an industry’s two largest players: consolidated operations, reduced overlap, economies of scale, and larger customer base are all supposed to lower customer costs and provide better service. (Show me one case where all that has come to pass.)
But the Comcast/Time Warner Cable merger is especially complex — far more so than, say, the melding of Compaq and HP. Because for the cable industry, the Holy Grail is to both own and deliver content — to essentially control the media you want to watch and the pipes that deliver it.
And Comcast has worked on that goal more diligently than most. For example, it bought NBC Universal a year ago. Watch a show on NBC, and you’re watching Comcast. Pay to see a movie from Universal, and it’s Comcast. Operating under the XFINITY brand, the company has about 22 million cable customers in 40 states. With about $65 billion a year in revenues, Comcast is widely recognized as the largest media and communications company in the world.
Time Warner Cable, on the other hand, has recently encountered some tough times. It was spun off from Time Warner proper five years ago. So it has no connection to Time Warner media outlets such as Time Magazine, CNN, HBO, Warner Bros., or Cartoon Network. Time Warner Cable claims 13 million customers in 29 states and about $22 billion in revenues. The company, led by its new CEO, Rob Marcus, is in the middle of a turnaround plan.
But Time Warner Cable was also the focus of a bidding war. Recently, the much smaller Charter Communications (7 million customers; $7 billion in revenues) tried to swallow Time Warner Cable but couldn’t compete with Comcast’s $45 billion, all-stock offer.
The merger isn’t a done deal yet; it’s still subject to congressional oversight (or undersight). If you haven’t seen Senator Al Franken’s scathing review of the takeover (“bad for consumers, cable TV, and the Internet”), it’s well worth a look on its YouTube page.
A recent Forbes op-ed piece by antitrust expert Warren Grimes also summarizes the deal well. He states, “Television distribution in the United States is broken. The system denies consumers reasonable choices at affordable prices. Comcast’s proposed acquisition of Time Warner Cable will make a dismally performing and anticompetitive industry even worse.”
Personally, I’m not overly concerned about television. I cut the cord years ago. I’ve become adept at bobbing and weaving around the Web to get what entertainment my family and I want. What hasn’t been so clearly discussed is how the merger will impact Comcast’s and Time Warner Cable’s Internet business.
The case for Comcast and Time Warner
Comcast claims there are few antitrust concerns, primarily because Comcast and Time Warner Cable (TWC) have very little overlap in customer base; i.e., places with Comcast don’t have TWC, and vice-versa. The takeover thus wouldn’t stifle competition. Moreover, 3 million TWC pay-TV customers would be cut loose — moved to rival services — to prove the point.
If the merger proceeds under those terms, the resulting company would have less than 30 percent of the pay-TV market. That, according to the Comcastians, doesn’t constitute a move into monopoly territory.
Still, Comcast sees this as a chance to expand rapidly, pulling in a large chunk of pay-TV market share in what is a relatively slow-moving industry.
For Time Warner Cable, the merger is a chance to clean out the deadwood. The turnaround hasn’t gone as well as expected. Charter Communications has been nipping at TWC’s heels and pulling some embarrassing stunts — such as nominating a new set of directors for Time Warner Cable’s board, as reported in a New York Times story. A deal with Comcast would effectively eliminate the threat from Charter along with TWC’s other problems.
Comcast’s liberal donations of money to congressional members might also help consummate the deal. In a recent Politico report, Tony Romm described Comcast’s congressional net this way: “In fact, money from Comcast’s political action committee has flowed to all but three members of the Senate Judiciary Committee. … the cable giant has donated in some way to 32 of the 39 members of the House Judiciary Committee, which is planning a hearing of its own. And Comcast has canvassed the two congressional panels that chiefly regulate cable, broadband, and other telecom issues, donating to practically every lawmaker there. …”
At this point, if you truly think the U.S. Congress will block the takeover, I have some offshore investments I’d like to discuss with you.
The merger’s implications for broadband
In his Feb. 12 Gigaom post, “Comcast and Time Warner Cable: Forget TV, it is all about broadband,” Om Malik (one of my favorite tech writers) dissected the deal. He surmises — correctly, I believe — that what we’re witnessing isn’t so much a relatively technology-addled cable-TV play; it’s a battle for the future of broadband itself.
Malik quotes one of his analysts, Stacey Higginbotham, as saying, “So the cable industry, if it can consolidate, gets access to the most important pipe coming into people’s homes (after power and water), and the fewer cable companies there are, the more unified the rate structure might appear.”
It seems obvious that the intention of a combined Comcast/TWC, long-term, is to quickly consolidate control over fast Internet access to about a third of U.S. households. And they’ll accomplish that goal in the simplest possible way: they’ll own the digital pipes into the house.
Today, DSL is on the decline and fiber on the rise. AT&T and Verizon are the only companies that have widespread broadband pipes into consumers’ homes — and they’re both switching from DSL to fiber as quickly as they can. There’s also a handful of much smaller players — such as Google and regional carriers — filling the void.
In the TV sphere, providers such as DirecTV offer stiff competition. And for wireless, LTE (more info) gives good speeds at small volumes.
But for the increasingly important task of stuffing bits into peoples’ houses, a combined Comcast and Time Warner cable could gain a huge advantage.
Let me give you an example of why that worries me. I have a Comcast broadband line (DOCSIS; more info), and it works well — up to a point. Comcast has started rolling out data caps. If you go over 300GB per month, you get hit with a $10 surcharge for each additional 50GB. The caps started in Nashville about a year ago, moved to Atlanta in December, and are now poised to roll over much of the South. If Comcast gave me a warning about data caps when I signed up, I sure missed it. But there’s no missing the fact that the caps are in force.
(Heaven help you if you want to talk with somebody inside Comcast to ask about your data usage. By reputation and by personal experience, service is not Comcast’s strong suit.)
If you believe that ISPs have placed data caps in response to network congestion due mostly to customer overuse, a DSLReports.com article states that caps are about profits — not congestion. It notes, “Does raising rates on a product that already sees 90 percent profit margins sound like ‘fairness’ to you?”)
If Comcast absorbs Time Warner Cable, more customers might see their Internet use capped. And that might be only the beginning of new limitations.
So what can you, the consumer, do? If you agree that the merger is not in our best interests, you might want to see whether your congressional reps (both senators and representatives) oppose the merger. A quick Google search will usually unmask their proclivities. Better yet, sign up for the Free Press effort (site ) to block the merger. You can also join Consumers Union (site), the group behind Consumer Reports. And check out Senator Al Franken’s video — pass it around and give it a thumbs-up.
Finally, if you have a chance to help bring one of the alternate fiber companies to your area — Google Fiber comes immediately to mind, but there are regional providers, too — do it!
In my next column, I’ll discuss further the consequences of the Comcast/Time Warner Cable merger — and stir in thoughts about the recent Comcast/Netflix deal and its impact on net neutrality.
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