Like to join over 150,000 people -- on its way to 200,000 -- who are protesting this merger? Click here for information: http://www.credomobilize.com/petitions/help-me-stop-the-comcast-time-warner-merger-2
Why should you care? Because of this merger's impact on our nation in general, and on you and your children's online life in particular.
America's Internet and cable access services are already in bad shape, and this proposed $45 billion merger will make them worse, not better. The provision of access to Internet and cable television networks ought to be, like the interstate highway system, a part of the basic, public infrastructure of this country -- as it is in countries with far better Internet service than what we have. Since America refuses to go down that path, a provider of Internet and cable access should at least be perceived and regulated as the common carrier public utility it is -- with a prohibition on common ownership of the content we want and the conduit through which it comes -- like the former AT&T network. But America has a reluctance to learn from the wisdom of other nations. That is why we have not joined the near-unanimous major nations that provide their citizens with universal single-payer healthcare. We are quite willing to pay more while getting less in order to avoid having to modify our ideology. So it is highly likely that, for the immediate future, we will continue to pay more and get less for our cable and Internet access as well.
The merger will only provide incentives for more mergers, provide the merged company with more monopoly power to raise rates while simultaneously requiring less investment in innovation and the kind of more, better and cheaper broadband service available to the citizens of other countries (thereby leaving us lagging even further behind our global competitors) -- while making Comcast the sole source for business' broadband access in 19 of our 20 largest metropolitan areas; create a presence in more congressional districts, thereby increasing its political power, along with even more money to spend on campaign contributions and lobbying. It is a bad deal for America, for Iowa families, for entrepreneurs and the creative community, and even -- as some of the analyses below point out -- for investors in these two companies.
For starters, any companies that provide services as essential as connection to the Internet (and cable television programming), whose excesses are restrained by neither vigorous marketplace competition nor effective regulation, ought to be treated as common carrier public utilities. No matter how the conflicting views of this merger are ultimately resolved, we are "starting off backing up," with our hopes limited to the possibility we can figure out "how to do the wrong things better" (as John Carver has characterized most efforts to reform school board governance; Nicholas Johnson, "Board Governance: Theory and Practice").
To understand why this is so, and what this merger is really all about, we need a little background.
Historically, there have been some industries and companies thought to be so important, and potentially dangerous, that many countries required that they be owned and operated by the government -- with regard to communications, an agency often called a "Postal, Telegraph and Telephone Service," or "PTT." Our preferred compromise (between government ownership-operation on the one hand, and unregulated private ownership-operation on the other) was to permit private ownership, but subject the firms to regulation of everything from their rate of return on investment to the quality of their customer service.
Such companies usually had two qualities. (1) They provided what many would consider to be "essential services." (2) Because they were often natural monopolies, their prices and quality of service were not controlled by a competitive free market.
For example, railroads are an essential service for manufacturers who want to ship their products to customers and retail outlets. And the cost of creating and maintaining track, locomotives and rolling stock make it economically infeasible to have two or more railroad companies serving the same route.
President Theodore Roosevelt explained, "The Government must in increasing degree supervise and regulate the workings of the railways engaged in interstate commerce. [It] is the only alternative to an increase of the present evils on the one hand or a still more radical policy on the other. Above all else, we must strive to keep the highways of commerce open to all on equal terms; and to do this it is necessary to put a complete stop to all rebates." See "Railroad Regulation" in "Presidency of Theodore Roosevelt," Wikipedia.org.
Such companies are called public utilities, or common carriers.
The Civil Aeronautics Board, from its inception in 1938 until its abolition in 1985, did for another form of transportation, the airline industry, what the ICC did for railroads. Water is supplied to most American homes by a municipally-owned agency or regulated public utility. Electricity and natural gas companies are regulated monopolies. Our original effort to create a nationwide telephone "universal service," using the monopoly AT&T, was regulated as a public utility. A similar commitment to another form of "universal service" to benefit every American took the form of our national Postal Service.
By every rational, historical, legal, and economic analysis the monopolists providing Internet access and cable television (often "bundled" with phone service as well) should be conceived of, and regulated as, common carrier public utilities. (a) Internet access, and to a somewhat lesser degree, cable television, are as essential to Americans in the early 21st Century as electricity and telephone service were to those in the early 20th Century. (b) And they are similarly monopolistic -- unconstrained in price setting and truly lousy customer service by either the forces of a truly competitive market or effective regulation.
Indeed, it is the consumer satisfaction indices that tell the tale. The industry with the absolute lowest level of consumer satisfaction? Cable television. And not insignificant with regard to this proposed merger, who is at the bottom -- not near the bottom, or among those at the bottom -- but at the very bottom of the list of cable companies for consumer satisfaction? Comcast and Time Warner Cable.
There is little or no justification for permitting any cable companies to merge. But if just one merger was to be approved, why on earth would one select and reward the two worst companies in the industry by permitting them to merge? See Adam Pasick, "A Comcast-Time Warner Cable Deal Would Combine Two of America's Most-Reviled Companies," Quartz, Feb. 13, 2014 (the 2013 rankings of Internet service providers in the American Customer Service Index ranged, for the top five, from 64 to 71; Comcast, at 62, was at the very bottom, and Time Warner Cable was immediately above it, at 63).
There is another problem that will persist no matter how the requested merger is resolved. Those providing our path to cable television and Internet content will also own some of that content, which they can favor in various ways over the content of their competitors. This creates a potential for enormous innovative mischief, destroys a fully competitive marketplace, is unfair to their competitors, and harms consumers in a variety of ways.
Why is this so? Once again, we need a little background.
Benjamin Franklin, "Old Citizen," Pennsylvania Gazette, Feb. 4, 1735. [Photo source: commons.wikimedia.org.]
Prevention of corporate abuse (as by forbidding the mergers that make it possible) is simply more effective, cheaper for taxpayers, better serves consumers, is fairer for competitors, and produces a healthier economy than any alternative.
And so it is with "the separation of content and conduit."
The one-time telephone monopoly, AT&T (1875-1984), was the occasional butt of jokes. Lilly Tomlin's routine, as the AT&T spokesperson "Ernestine," was one of the best known. In response to customer complaints, she finally concludes, "We don't care. We don't have to. We're the Phone Company." "The Phone Company," Saturday Night Live Transcripts, Season 2, Episode 1, 76a, Sept. 18, 1976.
But none of the complaints about AT&T, whether serious or dressed in humor, at least so far as I recall, ever involved the company's preferences of some customers over others, or a control of the content of their conversations. I don't believe the American Civil Liberties Union ever had to sue AT&T for its restraints on the content of customers' conversations. Law enforcement agencies might care if you used your phone for harassing or stalking someone, the fraudulent promotion of a stock, sale of an illegal substance, or the disclosure of classified information. However, so far as AT&T was concerned, you were (with possibly insignificant exceptions) free to speak to anyone you wished, for as long as you wished, about anything you wished -- for a flat monthly fee.
AT&T just provided the conduit -- including the twisted pair of wires that carried those voice conversations into your home and ultimately your black telephone. Everyone who wanted a phone was entitled to have a phone. Everyone's calls moved through the network at the same speed. (And, not incidentally, the service for local calls was cheap -- about $2.00 or $3.00 a month as I remember from my youth. "Universal service" not only provided everyone a phone, it also subsidized the cost of that local phone service with the prices charged for business phones and "long distance" calls.)
There was, in short, a total separation of "content" (what was said) from "conduit" (the ownership and operation of the network of cables and switches).
Just as it was explained above, "by every rational, historical, legal, and economic analysis the monopolists providing Internet access and cable television [should be considered, and regulated as, common carriers]," so too (and for similar reasons) should they have the same separation of content and conduit as the old AT&T.
Why? Because in a business of offering access to cable programming, or the Internet's vast content, there are thousands of potential unfair competitive advantages available to the company that owns both the programming and the wires (or towers) through which it travels. It can slow download speeds for its competitors' programming, or degrade the signal quality. It can block customers' access to some sites entirely. It can exact extra payment from its competitors in exchange for a slight improvement in its customers' access to competitors' programming. The opportunities are endless.
So to what extent is Comcast in the programming business? Here's the list that freepress.net put together:
Company Overview. In 2011, the Federal Communications Commission approved Comcast’s takeover of a majority share of NBCUniversal from General Electric. This merger combines the nation's largest cable company and residential Internet service provider and one of the world's biggest producers of TV shows and motion pictures. Comcast’s media holdings now reach almost every home in America. It serves customers in 39 states and the District of Columbia. In addition to its vast NBCUniversal holdings, Comcast has 23.6 million cable subscribers, 18 million digital cable subscribers, 15.9 million high-speed Internet customers and 7.6 million voice customers. Comcast recently entered into a partnership with Verizon in which each company will market and sell the other's services.One would think those holdings sufficient to satisfy even the most aggressive investor's wildest dreams of avarice. Why would Comcast also need to own, set the standards, operate, and profit from the pipe that delivers that content, along with that of its competitors, to roughly one-third of all American homes?
TV: NBCUniversal; twenty-four television stations and the NBC television network; Telemundo; USA Network; SyFy; CNBC; MSNBC; Bravo; Oxygen; Chiller; CNBC World; E!; the Golf Channel; Sleuth; mun2; Universal HD; VERSUS; Style; G4; Comcast SportsNet (Philadelphia), Comcast SportsNet Mid-Atlantic (Baltimore/Washington, D.C.), Cable Sports Southeast, Comcast SportsNet Chicago, MountainWest Sports Network, Comcast SportsNet California (Sacramento), Comcast SportsNet New England (Boston), Comcast SportsNet Northwest (Portland, Ore.), Comcast Sports Southwest (Houston), Comcast SportsNet Bay Area (San Francisco), New England Cable News (Boston), Comcast Network Philadelphia, Comcast Network Mid-Atlantic (Baltimore/Washington, D.C.); the Weather Channel (25 percent stake); A&E (16 percent stake); the History Channel (16 percent stake); the Biography Channel (16 percent stake); Lifetime (16 percent stake); the Crime and Investigation Channel (16 percent stake); Pittsburgh Cable News Channel (30 percent stake); FEARnet (31 percent stake); PBS KIDS Sprout (40 percent stake); TV One (34 percent stake); Houston Regional Sports Network (23 percent stake); SportsNet New York (8 percent stake)
Online Holdings: MSNBC.com (50 percent stake); Hulu (32 percent stake); DailyCandy; iVillage; Fandango
Telecom: Clearwire Communications (9 percent stake)
Other: Comcast Interactive Media; Plaxo; Universal Studios Hollywood; Wet 'n Wild theme park; Universal Studios Florida; Universal Islands of Adventure; Philadelphia 76ers; Philadelphia Flyers; Wells Fargo Center; iN DEMAND; Music Choice (12 percent stake); SpectrumCo (64 percent stake)
So far we have only addressed the problems inherent in the pre-merger marketplace -- the failure to prevent Comcast and Time Warner Cable from becoming as big as each already is, the failure to treat both as common carrier public utilities, and the failure to insist that they make a choice between operating the conduit or providing the programming, rather than permitting them to do both.
We now proceed to our equivalent of the question put to Mrs. Lincoln after her husband was assassinated in the Ford Theater: "Apart from that Mrs. Lincoln, how did you enjoy the play?" (the line is attributed to Tom Lehrer). That is, apart from the fact that consumers and competitors are going to continue to be abused by these companies regardless of how the merger is resolved, how might this merger make matters even worse?
As Elizabeth Barrett Browning said when asked about this merger, "Let me count the ways."
"[C]ompanies are profit-driven, and . . . work toward the specific incentive of making more money. . . . This . . . does not bode well for consumers . . .. [They would] merge control of about a third of the country's cable customers into one company. Customers are already stuck paying whatever these companies decide . . . where they are the only option for cable. [They do not compete] in any of the same zip codes across the country. In addition, these two companies have placed at the absolute bottom of customer service quality lists for years. Putting them together does not suggest an improvement . . .." Karl Avard, "Time Warner-Comcast Merger: A Bad Move for Both Companies," The Motley Fool, Feb. 21, 2014.
The Motley Fool?! Yes, that's right. This story is designed for investors, not cable subscribers. If you care, it's Avard's judgment that this merger isn't so great for investors either: "this merger will ultimately be bad for the business and stock prices of both Comcast and Time Warner Cable because it will mark the tipping point for consumers to start 'cord-cutting.'" Never mind what's meant by "cord-cutting." The point is that this merger is not only bad for consumers, it's even bad for investors according to this investment advisory source.
Oh my, here's what Bloomberg published: Susan Crawford, "Comcast's Time Warner Deal Is Bad for America," Bloomberg View, Feb. 13, 2014. [Photo credit: Benjamin N. Cardozo School of Law, Yeshiva University.]
So why does Bloomberg feel obliged to let its readers know that this merger "Is Bad for America"? Here are some excerpts from Ms. Crawford's piece:
David Cohen, Comcast Corp.'s executive vice president and the mastermind behind its deal to buy Time Warner Cable Inc., . . . had to acknowledge that the public might be worried about the power of this combination. "It may sound scary," he said.As she noted earlier for Bloomberg, "cable is a business that relies on scale; the game is to increase the number of subscribers and lower all possible costs, then grind away with one price increase after another. And when big operators get bigger, their scale grows." Susan Crawford, "Time Warner Cable Sale Will Cost Us All," Bloomberg View, Jan. 27, 2014.
Indeed it does. . . . Ninety-one percent of Americans who subscribe to data services also buy video services, so the relevant market for them is the bundle. When it comes to bundles, satellite companies Dish Network Corp. and DIRECTV can't offer the data capacity that Comcast can . . ..
[F]or the vast majority of businesses in 19 of the 20 largest metropolitan areas in the country, their only choice for a high-capacity wired connection will be Comcast. Comcast, in turn, has its own built-in conflicts of interest: It will be serving the interests of its shareholders by keeping investments in its network as low as possible -- in particular, making no move to provide the world-class fiber-optic connections that are now standard and cheap in other countries -- and extracting as much rent as it can . . ..
For a country attempting to compete on the global stage, this is a problem. It's time to recognize that industrial policy -- true leadership, the kinds of initiatives that brought us the federal highway system and national electrification -- is called for. If regulating these guys is too difficult, let's allow mayors to build alternative fiber-optic networks such as the one in Chattanooga, Tennessee, that has lured businesses and spurred economic growth. We can't allow our future to be captured by the short-term cash flow desires of Comcast's investors. . . .
Cohen . . . [points] out that these two companies don't compete in a single ZIP code in America. That's because they long ago clustered their operations and divided markets . . ..
The Department of Justice . . . can't create competition where none exists. It can't mandate that all U.S. businesses have world-class, inexpensive fiber-optic connections. But the Federal Communications Commission and the executive branch can. . . .
We're all the people of Fort Lee, New Jersey, trying to get on the George Washington Bridge. There's a bully narrowing our access to the world whose interests aren't aligned with ours. . . . Let's be clear: This is old-school monopolistic behavior. . . .
High-speed wired connections are now infrastructure, just like bridges, roads, and water. We [must ensure] that American businesses aren't forced to pay whatever tribute Comcast demands in order to thrive.
The Business section of Time isn't any more sanguine about this deal. It quotes John Bergmayer of Public Knowledge, "An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks . . . and distributors who must access its content [which would] raise costs for consumers, who ultimately pay the bill." Its story notes that "Comcast already owns NBCUniversal, one of the giants of American media and entertainment . . . [and that the merger] will mean fewer competitive incentives to invest in network infrastructure, and will likely lead to higher prices and less innovation." Sam Gustin, "Massive Cable Deal Means Your Bill May Jump," Technology & Media, Business & Money, Time, Feb. 14, 2014.
Not surprisingly, these sentiments were shared over on the Huffington Post. Mark Gongloff, "Comcast, Time Warner Cable Deal Is A Disaster for Consumers," Huffington Post, Feb. 20, 2014. Here are excerpts:
They say two wrongs don't make a right, and consumers are about to get proof of that with the merger of Comcast and Time Warner Cable.So that's how I see this potential merger.
The $45 billion merger announced Thursday . . . will be no victory for their combined 30 million customers, who are already among the least-happy customers in all of Corporate America.
The two companies last year were the lowest-scoring cable companies in the American Customer Satisfaction Index, mainly because of the weakness of their customer service. That made them the least-loved companies in one of the least-loved industries for customer satisfaction. The only two industries with worse customer-satisfaction ratings, according to Consumerist, are newspapers and internet providers. By the way, Comcast and Time Warner Cable are also internet providers.
Little wonder, then, that the two companies were near the top of Consumerist's Worst Company In America contest last year . . .. Comcast . . . took home the title of Worst Company in 2010 . . ..
The history of mergers suggests customer service might only get worse for these two companies. Coupling companies typically struggle to knit together their massive systems, and customers get lost in the process. When Comcast bought AT&T Broadband for $50 billion in 2002, customer billing problems led to such a backlash that the company ultimately launched a "Think Customer First" training program.
A BusinessWeek study of 28 mergers between 1997 and 2002 found that customer-satisfaction ratings dropped significantly after the unions, with the effect lasting for years. Cable companies suffered some of the biggest drops in that study.. . .
"So much can go wrong — computer integration snafus, recordkeeping glitches, you name it," Cahill [Joe Cahill of Crain's Chicago Business] wrote, "and almost all of it affects customers." . . .
[C]ompanies scramble to keep customers from fleeing. But after a long history of industry consolidation, Comcast and Time Warner Cable have so little competition that their customers might have nowhere to flee.
As I began, . . . Things are already bad, and this proposed merger will make them worse, not better. The provision of access to Internet and cable television networks ought to be, like the interstate highway system, a part of the basic, public infrastructure of this country -- as it is in countries with far better Internet service than what we have. Since America refuses to go down that path, a provider of Internet and cable access should at least be perceived and regulated as the common carrier public utility it is -- with a prohibition on common ownership of the content we want and the conduit through which it comes -- like the former AT&T network. But America has a reluctance to learn from the wisdom of other nations. That is why we have not joined the near-unanimous major nations that provide their citizens with universal single-payer healthcare. We are quite willing to pay more while getting less in order to avoid having to modify our ideology. So it is highly likely that, for the immediate future, we will also be paying more and getting less for our cable and Internet access as well.
The merger will only provide incentives for more mergers; provide the merged company with more monopoly power to raise rates while simultaneously requiring less investment in innovation and the kind of more, better and cheaper broadband service available to the citizens of other countries (thereby leaving us lagging even further behind our global competitors) -- while making Comcast the sole source for business' broadband access in 19 of our 20 largest metropolitan areas; create a presence in more congressional districts, thereby increasing its political power, along with even more money to spend on campaign contributions and lobbying. It is a bad deal for America, for Iowa families, for entrepreneurs and the creative community, and even -- as some of the analyses above point out -- for investors in these two companies.
If you'd like to join over 150,000 people -- on their way to 200,000 -- who are protesting this merger, click here for information: http://www.credomobilize.com/petitions/help-me-stop-the-comcast-time-warner-merger-2