Comcast and Time Warner – Time for a New Solution?

The proposed merger between Time Warner Cable(TWC), and Comcast/NBCUniversal is a boon for the company, but a disaster waiting to happen for consumers all across the US, if not the world. The impact isn’t just on Comcast subscribers, or NBC viewers, or the TWC consumers, but all across the US, as a massive incumbent poised to dominate both content and content delivery.

The underlying problem is the way the US cable infrastructure is set up. It’s an integrated monopoly where the nation is divided up between the various cable companies, allowed no competition, and a captive market. And it’s not just a captive market where you’re limited to one cable company, it’s the excluded market, where you’re unable to get even one company, that’s a major issue. Excluded markets happen where you have an area that is ‘claimed’ by one cable company, but where they have decided not to bother with service, often because it’s not considered cost effective enough

Since the cable company owns the infrastructure, they get to decide who uses it (and for how much), which means… themselves. Why would they allow other companies to use their infrastructure and risk losing money through competition and be forced to spend more on ‘keeping competitive’.

So without competition, cable companies have little incentive to reduce prices, push the technological envelope, or even provide good customer service. Instead the claimed competition comes from technologically diverse systems, such as satellite TV and DSL internet, differing technologies with their own sets of pros and cons. It’s like trying to compare bicycles with cars.

As anti-competitive actions continue, it undermines much of the internet. Datacaps reduce the market for new services and “network management” can make or break new or disruptive internet technologies.

When we say things will get worse, let’s be honest, when you have a captive market, you’ve no incentive to improve things. Cable company customers can’t go to another cable company, and if they’re locked into a contract, there’s very little they can do. Likewise for internet service, and increasingly phone service; the likes of Verizon and AT&T are increasingly attempting to divest themselves of their fixed-line services to focus on wireless.

Any merger would be argued on the basis of ‘economies of scale’, but let’s be honest, if it were not going to increase profitability, there would be no economic reason for it. However, on the question of that cost benefit being passed on to customers, it’s already been dismissed, as reported by ArsTechnica:

“The impact on customer bills is always hard to quantify. We’re certainly not promising that customer bills are going to go down or even increase less rapidly,” Comcast Executive VP David Cohen said in a conference call

So perhaps it’s time to rethink the way we look at the cable system. The best situation for consumers would be actual competition, so how to spur this on? Twenty years ago, Congress recognised there was a serious problem, and passed the Cable Television Consumer Protection and Competition Act (1992) but it’s failed to deal with the major issues. Attempting to mandate competition-by-effect hasn’t worked, so competition-by-order may be in order.

The ideal solution would be to encourage competition directly, as it requires the least amount of change. A mechanism of local-loop unbundling, and a requirement for competitiveness would be the low-regulatory method, mandating a certain minimum percentage of service-area to be served by multiple providers, such as a minimum of 15% served by 2 more and 5% by 3 or more.

Enforced competition areas would eventually end up competitive for those in the competing area, but may be of questionable benefit for those still in a monopoly area, or those deemed uneconomical.

So perhaps we should look to another legislative decision from the past, specifically the breakup of AT&T in 1982. Then, as now, a vertically integrated communication company was investigated for antitrust concerns, and the proposed solution was a breakup of the company.

Instead of a regional breakup, which in this case would do very little to cure the problem. Instead the solution would be to address the issue that most customers have the problems with – separating the infrastructure provider from the service provider.

Divesting the cable infrastructure from the cable service providers would have much to commend it. While Comcast, or indeed any other company, has little incentive for increased network upgrades or expansion, beyond the bare minimum. A company that’s focused on the infrastructure would allow for necessary upgrades, and would focus on expansion to expand the potential customer base. It can also enable more startups and new competition.

Divesting the infrastructure from the user-end also means that Comcast can focus on customer delivery services and foster competition. An impartial party administering the infrastructure can also ensure that FRAND (a handy term from patent usage, that means Fair, Reasonable And Non-Discriminatory) licensing enables all cable companies potential access to as many customers as they desire.

And that’s something we should all be looking forward to.