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From the FSF Blog                              May 1, 2014

 

Charter-ing the Way Forward    

 

by

  

Randolph J. May

 

Aside from whether you think the proposed Comcast - Time Warner Cable merger ultimately should be approved or not, it's hard to suggest that Comcast's announcement that it will divest 3.9 million subscribers does not advance the company's pro-merger case by alleviating claimed competitive concerns. Without getting into the complexities of the proposed three-party subscriber divestiture transactions involving Comcast, TWC, and Charter Communications, the end result is that, as Comcast promised when the merger was announced in February, Comcast's total number of subscribers, post-merger, will be less than 30% of the total number of U. S. cable subscribers.

 

Of course, "30%" is the figure that represented the FCC's subscriber ownership cap that twice was held unlawful by the D.C. Circuit. Each time, first in 2001 and then in 2009, the appeals court ruled that the agency could not justify such an arbitrarily low national ownership limit in light of the increasing competition in the video marketplace. Since the cap was last invalidated in 2009, there is no doubt the video marketplace - with satellite operators, telephone and fiber companies, and wireless firms all vying for customers -- has only become more competitive.

 

By all rights, you might think - or at least you would have good reason to think - that Comcast's announcement concerning the planned subscriber divestitures to Charter would ease the concerns of those that claim the merger would give Comcast too much market power. After all, not only will the subscriber divestitures bring Comcast below the now defunct 30% ownership cap, they will also materially strengthen Charter's own market position as the second largest cable operator.

 

You might think so. But you would be wrong.

 

According to the April 29 edition of TR Daily, here is what Free Press's Matt Wood had to say in response to the subscriber divestiture announcement: "Cable barons have always been great at dividing up the country and refusing to compete with each other. Transforming three giant companies into two behemoths gives no comfort to content providers or consumers."

 

The emphasis is mine - in case you might have missed the point that Mr. Wood considers the subject cable companies to be large. I do puzzle a bit over whether - had I been in the position of trying to make Mr. Wood's argument - I might have rearranged the second sentence to read: "Transforming three behemoth companies into two giants gives no comfort to content providers or consumers."

 

Are giants more easily divided into behemoths, or vice versa?

 

No matter, really. Because this is all semantics, and semantics has nothing at all to do with the merits of the question.

 

Anyone who knows anything about the realities of constructing and operating increasingly costly high-speed broadband networks knows that it takes scale - that is, large companies - to raise the enormous amount of private capital needed to undertake the job. Indeed, common estimates of capital investments by broadband operators are in the range of $60 - $70 billion per year for the past several years.

 

But I don't want to argue the merits of the proposed merger here. And, after all, the review process is just getting underway. It just strikes me as a bit out of sorts to use the occasion of Comcast's announcement of its promised subscriber divestitures as another opportunity to engage in overheated anti-merger rhetoric. It would seem more fitting to acknowledge that such subscriber divestitures at least lessen professed concerns about concentration.

 

Again, I don't want to engage in a full discussion concerning the merits of the proposed merger here. But it's worth pointing out that, in the midst of all his rhetoric concerning barons, giants, and behemoths, Mr. Wood says that the cable operators have "refused" to compete with each other. Regardless whether "refused" is the proper word, the reality is that the cable operators - in this case Comcast and TWC - do not presently compete directly against each other, so the proposed merger will not lessen competition, or reduce the number of competitors in the "cable" marketplace, one bit. In any event, Charter looks to emerge as a stronger cable competitor as a result of the proposed subscriber divestitures.

 

The more important reality is that the cable operators do compete in the broader broadband marketplace - the market in which they seek to provide customers with high-speed data, video, and voice services - against facilities-based telephone companies, wireless companies, fiber providers like Google, and satellite operators. It is the competitive impact of the proposed combination relative to this broad broadband marketplace that should be the primary focus of the merger review.

 

For now, I am happy to give Comcast credit for advancing its case early in the review process by announcing the details of its subscriber divestiture plan. You should have no problem with giving such credit as well.

 

      
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