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Comcast-TWC: Why Compete and Innovate When You Can Buy Market Share?

Rob Frieden

Expect a charm offensive as Comcast and scores of sponsored researchers explain how acquiring Time Warner Cable will promote competition and enhance consumer welfare. You might not hear too much about two traditional concerns remedied by actual facilities-based competition: incentives to innovate and reduce prices.

Comcast will frame its acquisition as necessary to achieve even greater scale to compete with other sources of video content and maybe to compete with the limited other sources of broadband access. Granted cable television operators have to provide consumers with a compelling value proposition particularly given the pricing model they use that runs up the bill — often to three digits — with a large bundle of channels for which few consumers have any significant preference.

But Comcast is not acquiring TWC as a defense strategy to shore up the viability of cable television. Comcast is exploiting the apparent inability of government — even one with a Democratic President and Senate majority — to enforce viable competition policy. A concentrated market used to trigger concern about whether one or more survivors would continue to compete, or simply agree not to devote sleepless hours innovating.

Just what happens when markets concentrate? How can one doubt that the incentive to innovate and compete recedes? Consider commercial aviation: when a single airline controls an airport, rates to and from that market skyrocket. Consider wireless service: when AT&T could not acquire TMobile, TMobile got serious about innovating and competing. Reluctantly Verizon and AT&T have had to respond to TMobile's initiatives like lower rates for subscribers using their own handsets, lower roaming charges abroad and refunds of early termination penalties. Would AT&T, Verizon and even Sprint have introduced these enhancements if TMobile did not exist?

The balance of power has shifted from consumers to providers in the telecommunications marketplace. Companies like Comcast can invoke scale and efficiency arguments that obscure the fact that consumers will have to pay more for less. So-called competitors can "close ranks" and implicitly agree not to compete.

Consider access to Olympic content. Comcast-NBC wants to make it certain that consumers access this content only via prescribed means, firewalled so that they control access via new technological options like the Internet. If Comcast did not have the goal of maintaining the status quo, why would it care whether viewers watched commercials on a computer monitor, smartphone screen, or tablet in lieu of the television set?

Reduced to its simplest terms Comcast's acquisition of TWC enhances shareholder value at consumers' expense. The only silver lining might be FCC-imposed conditions that impose otherwise unlawful requirements. Of course the Commission would have to enforce them in the fact of relentless claims that the requirements are "job killing," unnecessary and unconstitutional. What politically savvy civil servant would want to take on a "too big to fail" venture like Comcast?

By Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law
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Competition Frank Bulk  –  Feb 13, 2014 5:16 PM PST

Where do these two MSO's compete today?  Their markets don't overlap.  There really is no competition between the two today, so we're not really losing much.

MSO Competition Rob Frieden  –  Feb 13, 2014 6:06 PM PST

Frank correctly notes that cable Multiple System Operators do not compete head to head in any specific geographical market.  However what these companies do in terms of pricing, tiering, broadband services, etc. establish an industry average, but also best practices.

If a tight oligopoly controls most of the cable market, no single venture has much of an incentive to enhance the consumer value proposition.  For example, it becomes easier for a cable operator to reduce subscribers' download allotments closer to the lower wireless level if no company sees the need to maintain or increase the amount.

Companies like Comcast eventually will push the fairness envelope with lower download caps that they won't debit for downloads from corporate affiliates, or third parties willing to pay a surcharge like Microsoft Xbox.

Satellite providers act as a check and Frank Bulk  –  Feb 13, 2014 6:16 PM PST

Satellite providers act as a check and balance for all facilities-based MVPDs.  And don't forget that Verizon FiOS and AT&T;UVerse are in some markets. 

Even if they're not geographically competing providers, I do believe variety helps bring genetic-like variety to market.  Different companies will have different marketing and technology groups, and their competitors will learn and build on (or differentiate from) them.

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Promoted Post

Buying or Selling IPv4 Addresses?

Watch this video to discover how ACCELR/8, a transformative trading platform developed by industry veterans Marc Lindsey and Janine Goodman, enables organizations to buy or sell IPv4 blocks as small as /20s.