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Why the FCC Shouldn’t Let Comcast Buy Time Warner Cable

August 26, 2014 , , , ,

Yesterday, Public Knowledge and the Open Technology Institute joined many other organizations in filing our formal Petition to Deny with the FCC, asking it to stop the merger between Comcast and Time Warner Cable.

In the filing, we point out many of the harms that would come about if the country's largest cable and broadband company buys the second-largest.  We detail harms to customer service levels, consumer privacy, access to diversity of content, and the IP transition, among other things.

However, the most pressing of this merger's dangers relate to “gatekeeper power”–the harms the result from a single company having a dominant position as a distributor of content.

One of the first things that regulators do when analyzing a merger is to define the relevant market.  A merger between Coke and Pepsi might be troubling because those companies compete in the same product market, and together make up a large part of it.  A merger between the only two grocery stores in your city might be troubling because they compete in the same product market and the same geographic market, even though there are plenty of other grocery stores nationwide.

Comcast and Time Warner Cable want regulators and the public to focus on the wrong market–local residential broadband access, from the consumer perspective.  They argue that this merger can't be bad for consumers because the two companies don't compete in the same geographic markets–there are no homes that currently have a choice of both Comcast and Time Warner Cable, and this merger wouldn't directly reduce the number of broadband competitors in any local market.  

But in this case the correct analysis is not the residential broadband access market, but the distribution market.  Policymakers have long understood this–when it looked at a broadband merger in 2000, the Department of Justice correctly understood that the relevant market was “the nationwide market for the aggregation, promotion, and distribution of residential broadband content.”

It's easy to see why the DoJ defined the market in this way.  Programmers and Internet content companies depend on last-mile broadband and cable TV providers to reach the public.  This merger would reduce their options, by giving Comcast significantly more leverage against them.  If they can survive this, their costs would go up–and customers would ultimately pay the price.  Imagine if just a single shipping and trucking company controlled the distribution of food to supermarkets.  If this company raised its rates indiscriminately, and charged both farmers and grocery stores for delivering the same truckload of food, consumers would end up paying higher prices, or having reduced choice, or both.  Comcast would be in the same position as this hypothetical shipping company, able to extract fees from both side of the market, users and content companies, while facing no competitive pressure to bring prices down.  

People who are outside of Comcast/Time Warner Cable's service area also have cause for concern.  Imagine if an Internet content company had to raise its prices (or reduce its quality, or run more ads) to counteract Comcast's anticompetitive actions.  The effects of this would be felt everywhere.

Because this merger's effects would last for years to come, for this proceeding we argue that the FCC should define “broadband” as wireline connections capable of at least 25 Mbps downstream.  This means cable and fiber.  This is a future-looking definition, but this merger is all about the controlling the future.  If it buys Time Warner Cable, Comcast would control access to about half of residential broadband customers with these truly high-speed connections.

While the proper lens for this merger is distribution, the local broadband choice issue is not irrelevant. Most Comcast customers have little broadband choice–only a small percentage of post-merger Comcast customers would have the option to switch to another cable or a fiber provider.  This would amplify Comcast's market power after a merger, since it wouldn't just control a large proportion of the relevant market–most of its subscribers couldn't switch to another truly high-speed broadband provider even if they wanted to.

There is hope for Internet users, however.  The FCC has been asking Comcast some very hard questions.  Thousands of ordinary Internet users and TV viewers have made their voices heard at the FCC.  Many consumer organizations, companies, agencies, and politicians have told the FCC that a merger like this does not serve the public interest.  There's a chance that we can stop this, but we'll have to work hard to make sure that the voice of the public is heard loud and clear.