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The Comcast/TWC Merger: As Big Cable Gets Bigger, Your Bill Will, Too

Rob Pegoraro
Tech Columnist
Yahoo Tech
February 18, 2014

The Comcast/TWC Merger: As Big Cable Gets Bigger, Your Bill Will, Too

Rob Pegoraro
Tech Columnist
Yahoo Tech
February 18, 2014

The biggest cable operator in America announced an agreement last week to buy the second biggest. Should you feel good about that?

Comcast and Time Warner Cable say, yes, you should: It’s not like you can choose between them today.

“We have no direct overlap,” Comcast CEO Brian Roberts said on a Thursday-morning conference call as he outlined his Philadelphia firm’s plan to buy its New York non-rival for about $45.2 billion in stock.

Public-policy VP David Cohen echoed the point minutes later: “We’re not removing a choice from any consumer.”

That is absolutely and unfortunately correct. In many ways, this proposed union of the No. 1 and No. 2 pay-TV companies in America would not make cable TV any worse. But it couldn’t make it much better, either. This deal’s most likely effect would be to pour another layer of cement around policy and market failures that began decades ago. 

Start with the most obvious question you may have: Will my cable bill go up as a result of this? Answer: Yes, it’s only a question of degree. Cohen himself said so on the third of three calls Thursday: “We’re certainly not promising that customer bills are going to go down, or even that they’re going to increase less rapidly.”

The best-case scenario here is one Cohen may not want to make publicly: The combined firm’s power — even after divesting 3 million TWC subscribers in smaller markets, Comcast would have some 30 million “subs” and close to 30 percent of the pay-TV market — should help it tell networks seeking higher carriage fees to go pound sand.

“Everyone assumes that market power is always bad,” said Berin Szoka, president of the Washington think tank Tech Freedom. Here, though, “market power for cable operators can really be good for consumers.”

He’s right there: Semi-popular channels love to demand ever-higher payment — not to mention placement in standard bundles — or they’ll let a carriage agreement expire. It’s harder for a network to use that kind of brinkmanship to lay claim to other people’s money as its potential lost audience increases.

(Note that Szoka, like me, dropped subscription-TV service years ago. As cord cutters, we’re largely insulated from those fights, if not from varying over-the-air reception and a spotty online selection.)

But Comcast and TWC also constitute part of the content-cost problem. Comcast owns NBCUniversal, and both firms also own regional sports networks — a leading contributor to ever-escalating pay-TV bills. Time Warner Cable, for example, is about to launch a new SportsNet LA network as part of an $8 billion deal with the Dodgers that will add $4 to $5 a month to the area subscriptions.

Here are some more questions you may have about the merger:

Will service overall improve? The record here doesn’t allow for much optimism. Comcast and TWC bring up the rear in the American Customer Satisfaction Index’s annual surveys; in 2013, they netted scores of 63 and 60 out of 100 for TV service and 63 and 62 for Internet access

That same year, the worst-rated health-insurance company, Aetna, had a score of 69; the worst investor-owned power utility, Consolidated Edison, had a 70. This cable duo can, however, take comfort in being no worse than some airlines: United scored 62 last year.

Will this deal upgrade the cable-box user interface and the fees attached to it? It might. Comcast has done some good work on its cable boxes. Reviewers genuinely like its sharp X1 interface, and the company deserves credit for moving early to ship smartphone and tablet remote-control apps that can replace the traditional 53-button remote.

But if you don’t want Comcast to provide your TV’s dashboard, then your only option is to get a TiVo or one of a few other CableCARD devices. (At least TiVo subscribers can retain access to Comcast video on demand this way; other cable operators don’t offer “VOD” to them.) Time Warner Cable, however, thought differently and has allowed users to escape both cable-box and TiVo fees by providing apps for Roku boxes and Xbox game consoles that deliver up to 300 channels live, plus VOD.

Will Comcast extend that device-fee-free option to its subscribers? Although it offers apps to watch VOD fare on TVs, its Xfinity Go live-viewing apps for Android and iOS block wireless video to Chromecast and Apple TV devices plugged into HDTVs. So I’m guessing not.

Will I have a bandwidth cap? You probably will: After testing a 300-gigabyte cap in some markets, Comcast now looks to be extending this limit (and its $10 fee for each extra 50 GB) to other cities. Time Warner Cable had abandoned an earlier attempt to impose even more stringent plans in 2009 but last spring began offering some customers a measly $5 discount if they accepted a 5 GB limit.

300 GB looks far more generous, but if you watch enough Netflix and other streaming video services, and then use an online backup service, you could find that boundary approaching quicker than expected.

How powerful will the new company be? The number Comcast wants you to keep in mind is “30” — as in, only 30 percent of the pay-TV market. But if you consider the broadband-Internet market, the number jumps to 38 percent or more, depending on what minimum speeds you include in your definition of broadband.

For example, Derek Turner, research director for the Washington-based tech group Free Press, crunched research data from SNL Kagan to calculate that the merged company would have 49 percent of triple-play voice/video/Internet subscribers before any divestiture.

(Disclosure: I moderated a panel discussion about cord cutting at Free Press’s policy conference in Denver last spring.) 

That could give the company much more leverage in negotiating peering contracts and other hard-to-monitor internetworking arrangements that affect whether you can watch Netflix without it hiccuping constantly.

Will the feds let this go through? It depends a lot on whether the Federal Communications Commission sees this as another pay-TV combination or a more fundamental change in the Internet business — and how tough it gets in imposing conditions that can’t easily be litigated away.

“Comcast wants to have this treated as a typical cable merger,” said Harold Feld, senior vice president at Public Knowledge. “I don’t think that flies, but Comcast is also very good at working the refs.”

(Feld gets his TV and Internet through RCN, one of a few alternative cable companies that began challenging incumbents in the ’90s.)

If the FCC would require that the merged company let other Internet providers resell its capacity — or even if it followed the less-ambitious example of Canadian regulators in requiring that it let viewers buy some channels a la carte instead of in bundles — you might see a dramatic change.

But when the FCC first has to figure out how to rebuild net-neutrality rules after a court gutted its earlier regulations, I don’t know that it has this particular fight in it. Which would leave us with the same basic problems we had before this deal.

Years ago, cities and counties cut cable a deal: They’d give local companies a monopoly if they’d build out TV service — subject to local regulation. But mergers eroded the local ownership without leading to bigger cable operators challenging one another’s turf — and state and federal attempts to clarify the rules and encourage phone companies to get into the TV business undercut local oversight. 

Then broadband began to matter, and phone-based digital-subscriber lines couldn’t match cable’s accelerating speeds. Wireless broadband can but imposes punishing data caps. And satellite Internet is capped and still slow — and sends your data on a roughly 44,000-mile detour to and from geosynchronous orbit that bogs down real-time uses like video calling and online games.

So outside of a minority of areas with competing cable services or high-speed fiber from Verizon, Google, municipally owned firms or independent providers like the Bay Area’s Sonic.net, cable’s local lock still looks like a done deal even if the Comcast-TWC deal may not.

Email Rob at rob@robpegoraro.com; follow him on Twitter at @robpegoraroYahoo Tech is a brand-new tech site from David Pogue and an all-star team of writers. Follow us on Facebook for all the latest.