Policy

Comcast: Without Time Warner Cable, we can’t compete against Google, Netflix

Comcast says it has "one arm tied behind our back" on eve of Senate hearing.

Jon Brodkin – Apr 8, 2014 4:16 PM | 196

Credit: Comcast

Comcast today filed a 175-page "public interest statement" with the Federal Communications Commission to explain why its proposed $45.2 billion purchase of Time Warner Cable will be good for consumers. The country's largest cable and broadband Internet provider is already meeting opposition in its quest to buy the second largest cable provider, however.

As Comcast prepares for a Senate Judiciary Committee hearing scheduled for tomorrow, more than 50 public interest groups "submitted a letter to FCC Chairman Tom Wheeler calling a market takeover of this scale 'unthinkable' and urging the agency to block the deal," said an announcement from consumer advocacy group Free Press. "The coalition delivered the same letter to Attorney General Eric Holder at the Department of Justice, which is also charged with reviewing the merger."

While consumer groups think buying Time Warner Cable will give Comcast too much power, Comcast Executive VP David Cohen said in a conference call today that it needs extra scale to compete against Google, Netflix, and other companies in the broadband and video markets. Google is only offering fiber Internet in a few markets today, but "the point is, Google is coming," Cohen said. "They are a company with global scale, enormous resources, [that] is substantially larger than we are. The business reasoning behind the transaction is that we also need the scale to be able to compete with the Googles and other generations of competitors that are going to continue to flood the multi-channel video marketplace."

Other competitors he named include Netflix, DirectTV, Dish, AT&T, Verizon, Apple, and Sony.

Ars Video

"The difference between all of those competitors and us is they all have national or global market scale, and with that scale comes marketing advantages in the way they can sell their products on a national basis, but it also brings scale to make investments, to make investments in R&D, in innovation, and in infrastructure and technology," Cohen said.

Comcast's mention of Netflix as a competitor comes shortly after Netflix grudgingly agreed to pay Comcast for a connection to its network that will improve video streaming, which had been degrading in quality for months. Netflix has asked the FCC to implement net neutrality rules that would prevent it from having to make such payments. That's a topic that could come up during the merger proceedings, though Comcast argues that interconnection agreements should not be subject to net neutrality rules.

Cohen also summarized the merger's potential benefits to Time Warner customers in a press release:

Together, Comcast and TWC will bring millions of consumers the next-generation of broadband Internet, video, voice, and related technologies. The scale created by this transaction will accelerate investments in R&D, innovation, and infrastructure. And by combining the companies’ technological developments and know-how, their geographic reach, and Comcast’s strong balance sheet and investment culture, the post-transaction company will improve the experience for customers today and forge ahead to meet future challenges and needs.

For consumers, this means:

Faster Internet speeds, especially for current TWC customers;

High-speed broadband services available on bundled and standalone bases;

A fully upgraded network that provides highly reliable and secure service;

The extension of the FCC’s Open Internet rules on network neutrality to TWC customers;

A nationally acclaimed and comprehensive low-income broadband adoption program;

The most robust and advanced video-on-demand (VOD) and TV Everywhere experience;

The best-in-class video technology and user interface;

The most successful alternative to traditional voice services; and

A commitment to diversity and inclusion and to making video and high-speed data services accessible to people with disabilities.

“Monopsony” power

The coalition of public interest groups wasn't impressed by Comcast's argument. "The proposed Comcast-Time Warner Cable merger would give one company enormous power over our nation's media and communications infrastructure," the groups wrote to the FCC and Justice officials. "This massive consolidation would position Comcast as our communications gatekeeper, giving it the power to dictate the future of numerous industries across the Internet, television, and telecommunications landscape.

"In the last four years, Comcast has raised its basic cable rates in some of its markets by nearly 70 percent, while Time Warner Cable has actually cut costs for consumers," the group wrote further.Acquisitions often raise concerns about monopolies, in which one seller holds disproportionate share of a market. Comcast/Time Warner is raising concerns about "monopsony," a condition in which one buyer controls a market, giving it increased power over sellers.

Comcast's increased size would give it greater negotiating power when buying programming, when demanding interconnection payments from companies like Netflix, and when negotiating with phone providers for call completion with Comcast's digital voice network.

Comcast has argued that the merger will bring cost savings and efficiencies that benefit consumers, but not lower prices for customers. Cohen said in February that "We're certainly not promising that customer bills are going to go down or even increase less rapidly."

Today, he wrote that Comcast's increased scale after absorbing TWC will let it make "larger investments in R&D, innovation, and infrastructure" and that this in turn will spur competitors to invest as well.

Comcast used a few maps to illustrate why the acquisition doesn't raise any major competition concerns. The "number one reason" is the fact that Comcast and Time Warner don't compete against each other, Comcast said.

The map above shows that Comcast and Time Warner do not compete in any individual market for home customers, so the proposed merger wouldn't lessen the number of cable choices for individual households.

While there are few cable competitors for Comcast to contend with, Comcast believes its real competition comes from elsewhere.

"Today, Google competes as a network, video, and technology provider, and 8 out 9 of the next Google Fiber markets the company announced are in Comcast or TWC areas," Comcast said. "Apple tablets are viewing platforms for cable services even while Apple offers an online video service, Apple TV, and explores development of an Apple set-top box. Microsoft just announced that it will feature ads on the Xbox One, creating a new video advertising platform. And just last week, Amazon announced its own set-top box while it continues to leverage its unequaled sales platform and family of competitive tablets to promote its burgeoning Prime Instant Video business."

Comcast also argued that it faces growing competition from DSL services. "AT&T offers speeds up to 45Mbps through its DSL-based U-verse service and plans to offer speeds as high as 100Mbps in the future," Comcast said.

While few consumers would view cellular connectivity as a replacement for a home broadband connection, Comcast argued that wireless is "becoming a more and more important competitor to wired broadband given the accelerating speed and reliability of advanced wireless networks, the growing value of mobility, and the fact that consumers increasingly use tablets and smartphones as 'first screens.'" This map shows the robust competition Comcast faces from LTE, the company said:

Even LTE can't approach the top speeds of cable Internet, and wireless data caps of around 2GB would make using LTE instead of home Internet impossible for any moderate-to-heavy Internet user.

In another graphic showing that Comcast faces dozens of broadband competitors, Comcast included cellular carriers to boost the numbers:

Comcast’s big lobbying budget

Sen. Al Franken (D-MN) has raised concerns about the Comcast/TWC deal, but Comcast spent $18.8 million on lobbying last year and $1.8 million in political contributions in the current electoral cycle to make sure it has friends in Congress. Although the Senate Judiciary Committee is examining the merger's impact on consumers, the deal's fate will rest mainly with the FCC and Justice Department.

Even if approved, Comcast could have to face a variety of conditions. When Comcast purchased NBCUniversal in 2011, it was required to comply with network neutrality provisions until 2018. The federal government could extend those conditions or impose other obligations on Comcast.

The public interest groups who wrote to the FCC and Justice department urged the agencies to look to Comcast's past when deciding its future.

"Comcast has repeatedly flexed its corporate and political muscles to get what it wants, even if that has meant harming competition, consumers and communities," the public interest groups said. "Around the country Comcast has fought community efforts to bridge the digital divide with municipal broadband networks. It has blocked its customers' Internet traffic. And it was fined for failing to fulfill the commitments it made to secure approval of its merger with NBCUniversal."

Gene Kimmelman, CEO of consumer advocacy group Public Knowledge, will testify in tomorrow's hearing. In a statement today, he said, "this merger would give Comcast the incentive and ability to stifle competition, thwart innovation from online services, and impose higher costs on rival video and online services, which will eventually be paid for by consumers. This merger would have dire consequences for innovative online service providers and for consumers."

Listing image: Comcast

Jon Brodkin Senior IT Reporter

Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.

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