Some Thoughts on the Comcast-Time Warner Cable Merger and Net Neutrality

The big news today is the announcement that Comcast is acquiring Time-Warner Cable (TWC) for $45 billion.  Internet activists are aghast at the idea as it has the potential to reduce competition between Internet service providers in markets served by both companies.  A petition is already posted on the White House web site urging the rejection of the merger.  Comcast has stated that it believes the merger will likely be approved, albeit with conditions.  It’s already stated that it would shed some 3,000,000 customers for the combined company to stay under or maintain a 30% market share.

I have a funny feeling that the merger will be approved as well due to the politics surrounding it.  I believe activists are right in that competition will suffer.  How many cable and Internet services exist in any given area?  Usually it’s one or two and in some major metropolitan areas it can be three or four.  The FCC wants to foster competition in cable and Internet services and approving the merger would seem to go against that policy.

About three weeks or so ago, the FCC lost a major case where its net neutrality rules were struck down.  The Court said that the FCC didn’t have the power under its rules to regulate information service providers.  The Court said that the FCC has the power to reclassify Internet providers as telecommunications carriers if it wanted to.  These can be regulated.  FCC chairman has made statements that he will take the Court up on its suggestion.  The problem, of course, is that the reclassification is a time consuming process subject to political pressure.

Regulation would prevent an Internet Service Provider from slowing down or blocking traffic from Internet companies.  A deliberately slow connection for Netflix or Amazon media streams isn’t good for that either company.  Payments from either would solve that problem without regulation.  It’s that kind of business model which is at stake.  Congress is not of one mind when it comes to allowing the FCC to regulate in this area or not.  Lobbyists, start your cash machines.

Let’s harken back several years when Comcast merged with NBC.  The FCC lost a similar case when it tried to prevent Comcast from slowing bit torrent traffic on its network.  The FCC’s leverage at that point was to impose net neutrality-like conditions on Comcast in approving the merger.  I suspect that there will be a similar result in this case.  The FCC, in this scenario, will get Comcast to abide by net neutrality principles in exchange for its takeover of TMC.  It’s a politically expedient outcome that will give the Commission more time to work on its net neutrality strategies.

One can only hope that Google starts building out last-mile fiber connections in more places than Kansas City and Austin to expand competition between carriers.  It takes a huge financial investment to wire up a city and Google is one of the few companies with both the money or interest in taking on the challenge.  – Mark

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