Cable deal casts a wider Net

Brian Hunt , at right, amid cables and routers at a Comcast center in Florida where video, high-speed data, and voice are sent out. Getty Images
Brian Hunt , at right, amid cables and routers at a Comcast center in Florida where video, high-speed data, and voice are sent out. Getty Images

The media giant would serve 1 in 3 U.S. Internet subscribers. A consumer advocate warned of a potential "choke point."

Posted: February 17, 2014

Everyone talks of Comcast Corp. in terms of cable TV, and in the hours after the Philadelphia company announced Thursday its $45.2 billion megadeal for Time Warner Cable Inc., Comcast executives signaled to Washington regulators that they were willing to divest three million cable-TV subscribers to obtain approvals for the deal.

But for some consumer advocates there was a much more important issue: the power that the combined Comcast and Time Warner Cable will have in the residential Internet market, which many consider to be the delivery platform of the future for video and information into American homes.

After eight consecutive years of adding one million new Internet customers, Comcast today is the nation's largest residential broadband provider, with about 19 million subscribers.

Combining that customer base with Time Warner Cable's Internet customers amounts to a corporate entity serving more than 1 in 3 Internet wireline subscribers in the United States, or about 35 percent of the market, according to the Leichtman Research Group and University of Pennsylvania law professor Christopher Yoo.

Not only is this larger than Comcast/Time Warner Cable's share of the pay-TV market, but both Comcast and TWC are rapidly adding new Internet customers while consistently losing TV customers.

Policy experts and consumer advocates view online video-streaming companies, such as Netflix or Amazon Prime, as the biggest threat to the pay-TV business - the traditional cable TV, with its constantly escalating cable bills.

Because of this, analysts say cable-TV companies have an economic incentive to thwart new online services delivered over their Internet networks. Cable providers could disadvantage the new online services to protect their legacy pay-TV businesses.

One method could be metering Internet usage so that heavy Netflix customers paid more. Another might be slowing Netflix's video stream.

Mark Cooper, director of research at the Consumer Federation of America, describes the Comcast/Time Warner Cable merger as potentially wielding "bottleneck power" or creating a "choke point" on the Internet.

"They have shown me that they are willing to use that control over access to consumers to promote their products and undermine competition," said Cooper, who says that federal regulators need to place significant conditions on a merger of Comcast and Time Warner Cable that protect online video streamers and other new video competitors.

Comcast chief executive Brian L. Roberts announced the all-stock deal Thursday morning with Time Warner Cable chief executive Robert Marcus. Time Warner Cable was facing a hostile proxy fight with smaller rival Charter Communications Inc. when it agreed to the deal with Comcast.

Comcast executives expect that an antitrust and public-interest regulatory review by the Justice Department and the Federal Communications Commission will take months, perhaps the rest of 2014.

Comcast spokeswoman Sena Fitzmaurice said Friday that it was unclear how much of the total residential Internet market the combined Comcast/Time Warner Cable would control. That is because of people who rely on a high-speed wireless provider, such as Verizon Wireless, for Internet access.

"A lot of people might not have a landline broadband connection," she said.

After a merger, Fitzmaurice said, the combined entity expects to have about 30 percent of the nation's pay-TV business and 30 percent of the landline broadband connections.

As for growth in Internet customers at Comcast and Time Warner Cable, Fitzmaurice said it had "leveled off."

Comcast, in its presentations on the public benefits of the proposed merger, said the deal could enhance the nation's Internet service because it intends to upgrade Time Warner Cable's network and offer faster speeds. Comcast also said it would market its discounted broadband service for low-income families with school-age children, branded as Internet Essentials, to Time Warner Cable areas.

Comcast also has agreed to voluntarily comply with the FCC's "open Internet protections." This means the company treats all Internet traffic the same; it can't slow down Netflix data traffic, or those of other online content companies.

Some advocates, however, believe those rules can be undermined.

"You have the conditions, but they are only as good as the agency that enforces them," said John Bergmayer, staff attorney for the nonprofit advocacy group Public Knowledge, referring to the FCC.

Yoo, the Penn law professor and telecommunications expert, said, "It's easy to throw out hypothetical ways that consumers can be hurt."

But, he added: "We can't block mergers because of mere possibilities. We have to look at real-world scenarios backed by real-world data."


INSIDE

A blow to cable competition? Some ask, What competition? Jeff Gelles, D3.


bfernandez@phillynews.com

215-854-5897

@bobfernandez1

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