The Death of Competition Coming to a Router Near You

comtastic-738582In today’s society, access to the internet is essential to perform the tasks required to go about everyday life. However, it is becoming increasing expensive to subscribe to this service. To put this in perspective in the 1990’s internet bills “ranged from $7 to $11.50” a month. Now the average internet bill is around $86! Has the cost of providing this service increased that exponentially? Considering it costs less than $5 a month to provide this service to consumers, I’m going to say the increased cost comes from an increased profit margin. Why are cable companies able to do this? Why hasn’t competition driven prices down? Simply put, there is no competition. Many regions, especially rural areas, have only one option for cable or internet service making it easy for companies to charge what they please. As one customer put it, “when you call and threaten to unhook, they all but laugh.” Into this bleak picture enters the Comcast-Time Warner Cable Merger. At $159 per share, Comcast hopes to buy out TWC for $45.2 billion. The 2 largest providers of cable hope to combine forces to monopolize an already concentrated market. In the merger, Comcast would engulf TWC and replace their services with that of Comcast. While this seems simple enough, the debate behind it is anything but. On both sides of the table, experts are concerned about its impact on consumers. Additionally, government officials are tasked with determining if this will be detrimental to public good or violate antitrust laws. Taking into consideration all these factors, I believe the Comcast-Time Warner Cable merger should be blocked. It will not benefit the public interest by stifling competition and creating higher prices.

Currently, Comcast provides cable service to about 40% of the market and TWC to 30%. Therefore if they combine forces they will own a whopping 70% of market share. “Their combined share of over 30 million households would dwarf rival cable firms and would be 50% larger than the largest satellite distributor (Direct TV).” Even if they “divest distribution facilities serving 3 million subscribers”, as promised, they will still occupy the vast majority of the market. Additionally, post-merger Comcast would provide 40% of nation’s broadband internet service. This is gravely concerning. However, it’s at this point in the argument where proponents are quick to remind that Comcast and TWC barely compete in any regional markets. Therefore the judiciary committee would have no grounds to reject this merger based on antitrust laws. Antitrust laws stipulate that mergers are prohibited when the effect “may be substantial to lessen competition, or tend to create a monopoly.” Further that any “companies planning large mergers or acquisitions [are] to notify the government of their plans in advance.” Basically, if the merger lessons pre- existing competition or creates a monopoly of service, the merger is rejected. This is where regional competition is key. While Comcast may harness 70% of the cable market nationally, they are traditionally reviewed for competitiveness on a regional level. Thus Comcast is not worried about FCC review. However, recent proposed mergers, such as the AT&T-mobile merger, were reviewed on a national level and paved the way for this merger to be reviewed nationally due to the type of service they provide.

For this merger to pass antitrust laws, it needs to pass the Herfindahl–Hirschman Index or HHI. This is an antitrust law “test the government’s lawyers apply if they want to see whether a proposed merger would create monopoly-like conditions.” The HHI ranks services on a scale of 0 to 10,000. A score of 0 means lots of small business all providing relatively the same service, and a score of 10,000 means a complete monopoly where one company provides all services in the market. “If an industry scores above 2,500, it’s considered ‘highly concentrated’ and any merger increases an industry’s HHI by more than 200 points in a highly concentrated market sounds alarm bells at the Department of Justice.” According to Andrew Chin, a law professor at University of North Carolina, the Comcast-TWC merger would bump the market up 2,454 points! That’s a huge increase and most certainly raises concern over changing the competitive environment. The merger should be blocked on this statistic alone! However, the judiciary committee reviews mergers in regards to 2 separate criteria. First, the aforementioned antitrust laws and second, public interest; which I will discuss next.

A monopoly “is characterized by an absence of competition, which often results in high prices and inferior products.” Internet speeds in America rank 31st in the world. As the country that invented the internet is quite embarrassing to be ranked below countries like Estonia and Uruguay. Again, this all leads back to lack of competition.

The 1996 Telecommunications Act allowed cable companies and telecoms companies to simply divide markets and merge their way to monopoly, allowing them to charge customers higher and higher prices without the kind of investment in internet infrastructure, especially in next-generation fiber optic connections, that is ongoing in other countries

In other words, companies were allowed to decide which method they wanted to provide internet and cable such as wired, wireless, cable, or satellite and specialize. While this was meant to encourage companies to invest in new technology and compete, instead companies broke up the market so they didn’t have to. When you consider this market environment, allowing the 2 biggest companies to merge will not foster innovation as proponents claim but will foster higher prices as that is the proven market response to change. As Senator Al Franken, a member of the Senate Judiciary, puts it “there’s not enough competition in this space; we need more competition. This is going in the wrong direction.”

Comcast has proven in the past its willingness to stifle competition and this merger will be no different. Proponents claim that this merger will benefit the public because it will bring ‘net neutrality’ to more consumers. Net neutrality is “a level playing field where consumers can make their own choices about what services to use, and where consumers are free to decide what content they want.” Comcast is required, due to its NBC merger, to be neutral and open in its business dealing to ensure no conflict of interest occurs. The FCC required that Comcast must “neighborhood cable channels into categories, so that programming not owned by Comcast wouldn’t be relegated to the far reaches of the dial where viewers would be unlikely to find it.” This business policy would actually be beneficial to the public, if you could count on Comcast to uphold their end of the bargain. However, once the NBC deal went though Comcast proceeded to hide its rival financial channel Bloomberg News far away from their NBC and MSNBC channels. Additionally, Comcast was required to sell a non-bundled internet service so customers wouldn’t be locked into buy cable if they wanted to choose alternative, non-Comcast, sources for content. And they did, they just didn’t tell anyone about it. The FCC ended up fining Comcast $800,000.00 for “not adequately marketing its standalone broadband services.”

Comcast has used this anti-competition tactic in the past as well. In Philadelphia, when it was just a small regional cable company, it used ownership of key sports channels to “to freeze out rivals or increase their costs…Comcast relied on local demand for Phillies, Flyers, and 76ers games to depress satellite competition and thereby maintain high prices. Comcast has repeated the regional-sports strategy across the country.”If the merger with TWC goes through, Comcast would be in a far more powerful position to freeze out rival cable companies by denying them access to NBC, MSNBC, and USA Network content. Don’t believe me? They did this with their internet service earlier this year. Netflix was forced to pay Comcast a fee to ensure their content was delivered to their subscribers as Comcast was intentionally throttling streaming speeds. Why would Comcast do this? Comcast doesn’t bear the financial burden of delivering the content as “Netflix is itself shouldering the costs and performing the transport.” Netflix does however pose a huge threat to their cable service. “Cutting the cord” movements are picking up pace through the country and their primary alternatives to cable are service like Netflix and Hulu, all whom rely on the companies they are rendering obsolete. According to Netflix Vice President “Comcast already controls access and sets the terms of access to a substantial portion of people who connect to the Internet in the United States. We’re very concerned that a combined Comcast-TWC will place toll taking above consumer interests and will use their combined market power to the detriment of a vibrant and efficient Internet.”It is suffice to say, approving the merger would decrease competition in a market where competition is already struggling to exist. This merger will therefore not promote the public good in anyway.

Oh, but let’s not forget prices! Proponents of this merger claim that combining these two companies would decrease the cost of providing cable and internet service and that saving could be passed onto the consumer. Whiles it’s true this merger has the possibility to decrease costs by increasing Comcast’s bargaining power over content providers, I highly doubt the saving would be passed onto the consumer. The CFO of Comcast was even over heard on a conference call saying the company has no plans to lower prices post-merger.  Why would a company decreasing prices when there is no competition that forces them to? To be fair, this already a standing problem in the cable/internet industry that desperately needs to be addresses but approving this merger would be making a bad situation worse. It would send a message that there is no foreseeable future where the government or the market will demand companies to lower prices.

This merger should be blocked to send a message that companies cannot continually increase prices and monopolize the market. According to Mr. Roberts, CEO of Comcast, “The alternative was to sit around and let cable die a slow death…cable is a relic of an antiquated model, when municipalities doled out local monopolies to cable operators.” Very true! Yet, the answer to decreasing profits is not to consolidate and charge more for worse service, but to open the market up to new competition and technology. Consumers are leaving the market in droves because it’s unresponsive their demands. When a company laughs at you for threatening to leave you know something needs to be done. Approving this merger would give Comcast the opportunity to make the market worse, not better. For this reason alone, the FCC should find this merger against the public interest and not approve it. “In an already uncompetitive market with high prices that keep going up and up, a merger of the two biggest cable companies should be unthinkable. The deal would be a disaster for consumers and must be stopped.”

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