Why the Comcast Merger Is Bad for Innovation and You
Just a few weeks ago, the Federal Communications Committee threw net neutrality out the window, effectively allowing cable companies to charge different prices for different levels of access. Now the two largest cable companies in the U.S. announced Thursday they plan to merge.
The U.S. Department of Justice must still rule on whether Comcast's $45 billion acquisition of Time Warner Cable represents an anti-trust danger, and the FCC needs to weigh in on whether the merger is in the public's interest. But it could be a game-changer for your company if the merger goes through--and not in a good way.
Your business may depend either entirely or in part on the Web for business, and if it does, it would be at the mercy of this gargantuan provider. You'll have few options for an alternative and affordable service. It'll be hard to switch providers because there won't be others in your area, and you could be locked into substandard connection speeds. Should that come to pass, innovation may suffer as new companies could face cost barriers if they're suddenly required to pay more for faster service. Conceivably, some companies may even get blocked entirely.
“The implications for broadband access to the Internet, where we in the United States pay more for slower speeds than most of the rest of the industrialized world are dire," John Simpson, director of Consumer Watchdog’s Privacy Project said in a statement. "Comcast would have no incentive to improve broadband service and would have the power to do what it wants.”
The combined entity, which will have 30 million subscribers, will also own about forty percent of the broadband market and fifty percent of the market that combines voice, internet and cable services, will be led by Comcast president and CEO Neil Smit.
Comcast's timing could not be more perfect, coming just days after a federal appeals court in Washington, D.C. ruled that cable companies no longer have to conform to common carrier rules, as telecom companies do. Although common carrier regulations have many components, one of their most critical assurances is for nondiscriminatory access, essentially granting everyone a level playing field for service. Since the federal court ruling, the FCC qualifies cable carriers as information services, which do not have to follow the same rules.
For its part, Comcast also owns vast empires of content through its 2013 purchase of NBC Universal, which includes NBC News, MSNBC, and Universal Studios, to name just a few. So if your company creates content that competes with the content Comcast owns, you could find yourself paying more for speedy access, or facing drastically reduced speeds for delivery of your own content.
If you don't think that's possible, look no further than Netflix, which depends on fast, high-capacity connections to the Web to route its streaming video service. It's stock plummeted after the federal court ruling in January. And according to one analyst's estimate, Netflix could pay an extra billion dollars every year to stream its content to users.
Bad for Innovation
The combined situation of the merger and the end of net neutrality is also bad for innovation. Author Susan Crawford, a visiting professor at Harvard Law School and author of Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age, says the U.S. is already falling behind the rest of the world as a result of our lower connection speeds. Cable companies have spent billions of dollars building out cable networks, and they have a vested interest in maintaining those.
But the rest of the world is now using much faster, higher capacity fiber optic cables. Crawford estimates that New York City, the world's financial capital, operates with connection speeds comparable to Istanbul, but for many times the cost.
Similarly, "in Stockholm you can get a connection that's 18 times faster than the one I have in my New York City apartment for a quarter of the price," Crawford said in a recent radio interview on National Public Radio. "In Seoul you can get a similarly, you know, many multiples of times faster connection for a fifth of the price."
Fortunately, the battle won't go down easy. The House Judiciary Committee has already vowed to act, with chairmen Bob Goodlatte (R., Va.) Spencer Bachus (R., Ala.) promising an investigation.
“The proposed merger between Comcast and Time Warner Cable could have a significant impact on competition in the video and broadband marketplace," the chairmen said in a statement Thursday. "The House Judiciary Committee…intends [to conduct] a hearing to examine the proposed merger to ensure that the interests of American consumers and overall competition in the marketplace are protected.”