Why the Comcast-Time Warner Deal Is Far More Dangerous Than You Think

The proposed mega merger of Comcast and Time Warner could send ripples throughout countless industries.

Feb 14, 2014 at 6:00PM

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This article was written by Wired.com -- the leading provider of technology and innovation news.

The Comcast-Time Warner Cable (NASDAQ:CMCSA) (NYSE:TWC) deal is bigger than you think.

In agreeing to pay $45 billion for Time Warner Cable, Comcast hopes to create not only an enormous cable TV provider, but the largest broadband Internet provider in the United States and a company that controls about half of all "triple play" services, which bundle cable TV and broadband alongside Internet-based telephone connections.

And that only begins to describe the magnitude of the deal.

If approved by federal regulators, the merger would reverberate through myriad markets beyond the cable TV, commercial broadband, and telephone industries. The deal could impact satellite TV, television programmers like ESPN and Fox, online video providers like Netflix (NASDAQ:NFLX) and YouTube, and the massive networks at the very heart of the Internet.

Announced this week, the pact certainly makes sense for Comcast — already the nation's largest cable provider — giving it far more power to compete in the rapidly changing communications world. The company expects to close the deal by the end of year. But because it affects so many industries, the merger of the nation's two biggest cable outfits is sure to receive intense scrutiny from regulators. The government may even block the deal, as it did with the proposed merger between wireless phone service providers AT&T and T-Mobile in 2011.

Many public advocates oppose the proposed merger, saying it would ultimately mean consumers pay more money for both their communication services and their everyday entertainment. "We think a Comcast-Time Warner Cable merger would give Comcast unprecedented gatekeeper power–both on the content side and the user side–in a variety of communications markets," says Jodie Griffin, senior staff attorney for Public Knowledge, an advocacy group that believes in open access to media. "The FCC and the antitrust authorities need to block it."

Others argue that regulatory policies and market forces already exist to keep the combined company in check, that Comcast-Time Warner would still have key incentives to improve its infrastructure and drive down prices. "Any merger of this size deserves close scrutiny, but...there's real competition for Comcast from providers with other platforms," says Randolph May, the president of the Free State Foundation, a think tank that specializes in communication issues. "I think that things will remain competitive, because of telephone companies and satellite TV providers and wireless companies as well as other cable companies."

But the issues go far beyond whether consumers have access to other types of services. Most importantly, this merger would give Comcast added leverage in its relationships with television channels, content providers such as Netflix, and the companies that operate the infrastructure underpinning the Internet. That could shift the balance in the battle over net neutrality, which seeks to prevent companies like Comcast from discriminating against traffic from providers like Netflix, and it could create a world in which there are even more walls dividing what and how you view content online.

Comcast, the TV channel
This isn't the first time Comcast has tried to navigate such waters. It has already acquired NBCUniversal, the major TV channel and movie producer. Regulators spent about a year scrutinizing the deal, and ultimately placed some restrictions on the combined company.

Since merging with NBC, Comcast not only offers TV and Internet service, it provides all sorts of content for those services. It could give preferential treatment to NBC channels and content, or decline to share that content with competing services. But in negotiating with regulators, Comcast agreed to share its programming with other providers and to follow the FCC's open Internet rules, which require Internet service providers to, in most cases, treat all traffic equally.

On one level, this appears to bode well for a Comcast-Time Warner merger, as it suggests regulators could enforce similar rules across a combined company. But the FCC open Internet rules — aka net neutrality — were recently struck down by a federal court, and it seems a provider like Comcast can now discriminate against traffic as it sees fit, asking companies like Netflix, for example, to pay extra in order to have its content delivered at high speed. Comcast has said it will honor its agreement with the FCC, but this issue is hardly cut and dry.

The fact that Comcast owns NBC only makes the Time Warner deal more complicated, according to Sarah Morris, the policy counsel at the Open Technology Institute. "It underscores the integrated nature of the industry and the potential harms that might result," she says.

One of the big losers could be the Netflixes and the YouTubes. As Jodie Griffin of Public Knowledge notes, with Time Warner Cable under its belt, Comcast would have even more power to squeeze money from online video companies. "Netflix is in the unenviable position of needing to find ways to get a whole lot of data over these networks to users who are asking for it," she says. "As Comcast acquires more subscribers, it have more leverage against the content companies."

Breaking the Internet backbone
That is just one of the ways Comcast could gain leverage in this new world of communications and programming. One thing often overlooked in the Internet game — because it happens behind the scenes, in the arcane world of network switches and routers — is the vital role of Internet infrastructure companies like Level 3. If Comcast merges with Time Warner, the new behemoth would have added control over its relationship with these providers.

Whereas Comcast runs Internet connections to homes, a company like Level 3 runs the networks at the core of the Internet. It's a symbiotic relationship that delivers content to the world's consumers. In acquiring Time Warner Cable, Comcast would be in a stronger position to negotiate the deals that govern the exchange of traffic with companies like Level 3, giving it even more power to dictate if and when certain traffic is treated differently.

Similar issues bubbled to the surface in recent years when Comcast fought a very public battle with Level 3 over its "peering" relationship with the company. At the heart of the matter was the massive amounts of video from companies like Netflix that Level 3 was sending over Comcast's network without paying a fee.

These types of relationships are complicated, but the bottom line here it that we could be inching toward a world in which the core of the Internet rests in the hands of just a few large companies. "The worry is that we have fewer and fewer interconnection points among networks," says Griffin. "We not quite sure how this is going to go, but this could push things even further in that direction."

Comcast, the NFL channel
Control of content. Net Neutrality. Internet backbone traffic. Although these things effect the content we see on our devices and the price we pay for it, they aren't something people spend much time thinking about. But what about professional football? That might get people's attention.

If Comcast and Time Warner Cable merge, the company could be in a position to negotiate directly with Big Sports for access to games. In other words, it could go straight to the NFL to negotiate for live football games, rather than going through a TV channel like ESPN. This gives Comcast added power over the likes of Disney (NYSE:DIS), which owns ESPN, and other companies that run TV networks. But it could also change the television landscape in other ways.

In short, it could lead to more situations where particular content is only available to people who pay for cable television. What consumers really want is a world in which all content is available on all the devices, from TVs to PCs, tablets, and phones. But in many cases, cable providers and TV channels are ensuring that you can only watch their content online if you pay for a cable connection. NBC's coverage of the 2014 Winter Olympic Games is a case in point.

In a world where Comcast merges with Time Warner and has yet more power to control content, this situation may only worsen, says John Bergmayer, another senior staff attorney with Public Knowledge. "What if the NFL made an online product that was only available to customers of certain Internet service providers?" he says. "That's really not that different from things we're already seeing, where there's online content but you have to verify you're a cable subscribers before you can assess it. It's a way of tying the Internet to cable TV."

As it stands, Bergmayer says, the Federal Communications Commission is — with rare exceptions — no longer enforcing old rules that would force cable companies to share sports packages and other content with competitors. "Those rules worked against any cable company that wanted exclusive," he says, "but they have largely been sunsetted."

To wit, regulators couldn't stop a combined Comcast-Time Warner Cable from, say, walling off access to certain NFL games unless they changed the existing regulatory rules. But Bergmayer says there's an easier way to deal with the issue. "The best way forward," he explains, "is to just prevent anticompetitive mergers."

Written by Cade Metz at Wired.com. 

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