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Why The Comcast/Time Warner Merger Is Bad News For Cable

By / 02.13.14

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As you may have heard, Time Warner and Comcast are planning on merging, which would make Comcast a cable broadband provider for literally one third of the country. In theory, this will solidify Comcast’s position and spare Time Warner Cable from further pain. In reality, it’s going to mark the end of the cable industry.

It May Not Happen

Honestly, the Federal Communications Commission has every reason to take one look at this deal and just start laughing, and if they don’t, the Department of Justice probably will. You might remember that the last time two telecom companies tried to merge, the FCC shut it down. If that happens here, and it’s likely that it will, cable companies are going to start panicking; the whole reason this merger is happening is because they’re starting on the death spiral that sees the entire industry implode in the next ten years. If the government tells them they can’t merge their way out of this, things are going to get ugly.

Comcast May Have To Give Up More Than It Can Tolerate

If the merger does go through, it seems unlikely that Comcast can just surrender a few million subscribers and have done with it like they’re hoping. It’s especially disingenuous because it’s trying to pretend that Netflix is the same thing as a cable company, which seems laughably insincere, at best. Comcast is essentially hoping that they can pull a $45 billion fast one.

It seems more likely regulators will require Comcast to concede a lot more than it wants to. At the very least, it’s unlikely they’re going to be allowed to continue to cap broadband. Furthermore, that’ll create a precedent for other cable companies, and limit their avenues to choke off streaming video.

Cable Loses Control Of Its Cables

The simple fact of the matter is that, right now, cable companies rely on having regional monopolies for their entire business model. The municipality collects franchise fees, the cable company gets the monopoly or de facto monopoly, and everybody except the consumer is happy.

Except that system is on the verge of changing. Municipalities are getting tired of channel blackouts and politicians are feeling pressure as cable bills keep rising and their constituents complain. Internet access is becoming more and more important to our society as a whole. And it’s getting harder and harder to argue that cable companies deserve the sovereign right over the cables they laid back in the ’80s that have paid for themselves a thousand times over.

Declaring Comcast controls 30% of cable traffic means all these rules are going to come under scrutiny, and Comcast will have a hard time arguing it doesn’t have an advantage. That might be enough to force some fairly major changes. Expect to see at least one municipality, in the next year, try to force Comcast to allow competition on its cables. If that catches on, it’ll be a free-for-all.

It Motivates Private Enterprise

Finally, this is the kind of situation that draws sharks. Google, in particular, stands out; they’ve been aggressively promoting white space broadband and, of course, there’s Google Fiber.

But there’s no reason other companies couldn’t do the same thing. If a struggling TV station decides it’ll make more money pumping out broadband signals, there’s not a lot Comcast can do about that. And while two to four megabytes per second isn’t blazing Internet speed, and will make for crappy Netflix viewing, it’s still Internet access, and it’ll be cheaper than Comcast.

It’s true that this would cost a lot of money, but by the same token, there’s a lot of money to be made. Cable bills are expected to hit $200 by 2020, something this merger will only accelerate. Building a fiber network is enormously expensive, but if the motivation is there, it’ll happen.

In short, if Comcast and Time Warner are smart, they’ll drop this idea. It may be a short-term fix, but long-term, they can’t stave off the inevitable.


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