This week a last-gasp letter was addressed to the FCC aimed at blocking the merger between Charter, Time Warner Cable and Bright House Networks, sent by a conglomeration of organizations, largely oriented around consumer protection including Common Cause, Fight for the future, Free Press and the Future of music Coalition.
The last minute action follows reports that the FCC involvement is more or less a done deal and that it will shortly announce conditions associated with the deal, mostly relating to cheap broadband for the poor and content diversity – conditions some say have been flagrantly ignored by Comcast in the past.
Faultline is neither in favor of or against such a merger, but we see this as too little, too late, and by far the lesser of two evils for US consumers – a Comcast TWC merger would have created huge changes in the value of content and the ability of some smaller content players to survive. In short, this letter is a symptom that a deal is about to be sanctioned.
The truth is that any merger that does not create something approaching a monopoly cannot be demonstrated to be against the public interest, and no-one has any business interfering. The fact that the two top broadband companies happen to be cable companies is a matter of some concern, but arguments which say that new Charter plus Comcast has broadband dominance are as uninteresting as saying that Comcast and AT&T between them have dominance, or that AT&T and Verizon have cellular dominance – monopoly effects only cut in when one company has around a third of the total market – prior to that markets are generally accepted as being healthy.
And anyway the existence of Comcast with such a dominant 21 million home market share in broadband, makes it tough to block a deal that would reach nowhere near that.
No market will have less broadband players than it has today after the deal, because cable is not an over-build market. And there is every chance that AT&T and Verizon will find they have even sharper competition, as these three organizations produce a single broadband initiative. In other words, there is every chance that broadband will be slightly more competitive, through efficiencies in some markets in the US.
The answer to making broadband competitive in the US is to promote OTT video, so that multiple providers of video can access markets, and that means keeping strict net neutrality rules, and to get AT&T and Verizon to become competitive in broadband – a move that was very much fostered by the conditions of the AT&T DirecTV merger, which provides for AT&T offering 45 Mbps or better to 12.5 million more homes over the coming few years.
The merger may still snag at the Justice Department level, but we see that as unlikely, especially as John Malone, a major shareholder in the merged entity, through his experience in Europe, is very much more experienced than Comcast is, not only in engaging with authorities over issues of competition, but inviting their intervention to prevent unfair market leads, and agreeing policing measures. The European Commission is a much tougher nut to crack than the Department of Justice on that score, held up to greater anti-monopoly scrutiny, and Malone pulled off an unfancied merger in Europe for Liberty Global by agreeing to fairly extreme content competition and OTT conditions.
The letter makes the point that the merger serves no one but the companies backing it and concludes that on that basis it should be blocked, but of course that’s what mergers are supposed to achieve.
The latter bases its complaint on the continued dominance of cable companies as video providers at a time when cable companies are witnessing cord cutting on a grand scale.
The letter also argues that broadband prices, like cable TV video prices, will now go up, but all the evidence and the recent market activity legislates against that, and broadband prices are likely to be stable or to continue falling.
Another point the letter raises is that because Charter will be heavily indebted ($66 billion) it will need to charge more to generate windfall profits – where were those naysayers when Comcast came to power acquiring AT&T Broadband in 2001/2 timeframe. Comcast has since obliterated that debt with continued profits, and as yet has had broadband prices remain stable throughout that time. If that was a basis for the deal being off, then most private equity deals would go south.
And finally it makes that point that broadband adoption is low in poorer households, so by the FCC insisting on cheap pricing for these homes – one of the rumored conditions around the deal – it can reasonably claim it has dealt with that issue up front.
For the FCC to see through competition in broadband it merely needs to stimulate Verizon and AT&T into greater broadband efforts, and blocking this deal won’t help it at all. We predict, as we have since February 2014 when Comcast outbid Charter for Time Warner Cable, that Charter would win the day and create a counterweight to Comcast in the market, and this letter only serves to increase our confidence that such a deal will be done.
Such a deal will mean that less content companies gain highly lucrative cable deals with market leaders, but that will just serve to push them further down the OTT route, a route that given the Title II maneuvers of the FCC, would now seem assured. The biggest disaster for US OTT video would be the Courts telling the FCC that it could not impose Title II, a move that would result in OTT being killed stone dead in the US, and pricing for TV going through the roof.