Bad enough

A big company needs a big name, and so what if you can’t say it out loud, so long as your check reaches the cable cartel on time to avoid those inconvenient late fees.

The shock waves of the $45 billion dollar proposed merger of Comcast and Time Warner Cable (not to mention AT&T and DirecTV) have reached as far as Great Britain where appalled editorial writers in the British press are pondering whether Washington has lost its mind or just its integrity… or a combination of both, by actually contemplating the unthinkable rebirth of the American Robber Baron.

Only instead of railroads powering America’s early 20th century economy, today its broadband. Overseas, broadband is plentiful, fast, and cheap. Back home, cable operators are hard at work in a comfortable monopoly/duopoly working on excuses to justify Internet rationing with usage caps, outrageous equipment rental fees, rate hikes, and usage billing for a product about as cheap to offer as a phone call on one of those unlimited calling plans you probably already have.

From The Economist:

“On “OUTLAW”, a drama that aired on NBC, a Supreme Court justice leaves the bench to join a law firm. In real life he might have begun working for Comcast, America’s largest cable company, which owns NBC. Many of Washington’s top brass are on Comcast’s payroll, including Margaret Attwell Baker, a former commissioner of the Federal Communications Commission (FCC), America’s telecoms regulator, who in government had helped approve Comcast’s takeover of NBCUniversal in 2011. Even Barack Obama has Comcast ties. “I have been here so much, the only thing I haven’t done in this house is have seder dinner,” he quipped at a fundraiser hosted last year at the home of David Cohen, Comcast’s chief lobbyist.

“It helps to have influential friends, especially if you are seeking to expand your grip on America’s pay-TV and broadband markets.

“[…] The deal would create a Goliath far more fearsome than the latest ride at the Universal Studios theme park (also Comcast-owned). Comcast has said it would forfeit 3m subscribers, but even with that concession the combination of the two firms would have around 30m—more than 30% of all TV subscribers and around 33% of broadband customers. In the cable market alone (ie, not counting suppliers of satellite services such as DirecTV), Comcast has as much as 55% of all TV and broadband subscribers.

Worse

“Comcast will argue that its share of customers in any individual market is not increasing. That is true only because cable companies decided years ago not to compete head-to-head, and divided the country among themselves. More than three-quarters of households have no choice other than their local cable monopoly for high-speed, high-capacity internet.

“For consumers the deal would mean the union of two companies that are already reviled for their poor customer service and high prices. Greater size will fix neither problem. Mr Cohen has said, “We’re certainly not promising that customer bills are going to go down or even that they’re going to increase less rapidly.” Between 1995 and 2012 the average price of a cable subscription increased at a compound annual rate of more than 6%.”

Before blaming it all on President Obama’s close relationship with Comcast’s top executives, it was the Republicans in Washington that set this tragic monopolistic farce into motion. Michael Powell, President George W. Bush’s idea of the best man in America to protect the public interest at the FCC, represented the American people about as well as ‘Heckuva Job Brownie.’ Instead of promoting competition, Powell used his time to beef-up his résumé for a very cushy post-government job heading America’s top cable lobby – the National Cable & Telecommunications Association. Attwell-Baker was even more shameless, departing the FCC for her sweet new executive digs at Comcast just a short time after enthusiastically voting in favor of its NBCUniversal merger deal.

Powell and others made certain that Internet Service Providers would not be classified as “common carriers,” which would require them to rent their broadband pipes at a reasonable wholesale rate to competitors. The industry and their well-compensated friends in the House and Senate argued such a status would destroy investment in broadband expansion and innovation. Instead it destroyed the family budget as prices for mediocre service in uncompetitive markets soared. Today, consumers in common carrier countries including France and Britain pay a fraction of what Americans do for Internet access, and get faster speeds as well.

Letting Comcast grow even larger, The Economist argues, will allow one company to dominate not just your Internet experience, but also the content consumers access and at what speed.

“There is plenty for Mr Obama and Mr Cohen to discuss at their next dinner,” concludes the magazine. “But better yet, officials could keep their distance from Comcast, and reject a merger that would reduce competition, provide no benefit to consumers and sap the incentive to innovate.”

Considering the enormous sums of money Comcast has shown a willingness to spend on winning over supporters for its business agenda, restraint on the part of Washington will need voter vigilance, much the same way calling out non-profits who gush over Comcast while quietly cashing their contribution checks must also be fully exposed to regulators who will ultimately decide the fate of the merger.

[flv]http://www.phillipdampier.com/video/Antitrust Us.mp4[/flv]

Antitrust Us: Cartoonist Mark Fiore takes on the corporate idea that merging cable companies together creates more competition. (1:50)

Companies in the Pacific Coastal region of California are concerned about losing wholesale access to Time Warner Cable’s business fiber network if the cable company is acquired by Comcast.

Independent business communications providers acquire connectivity at wholesale rates from providers like Time Warner Cable and provide competition in the telecommunications marketplace.

“Time Warner Cable actually provides wholesale access, at least to its fiber network,” Dave Clark, president of Santa Barbara-based Impulse Advanced Communications, told the Pacific Coast Business Times. “From a competitive telecom perspective, they cooperate and work with competitive telecoms. Comcast does not. The big fear in the competitive telecom industry is that Comcast buys Time Warner and cuts [wholesale access] off.”

Currently, third-party access to cable broadband technology is provided on a voluntary basis by cable operators. Regulated telephone companies like Verizon and AT&T that serve California are required to offer open access to competitors, at least on their copper line networks.

If Comcast decides it won’t continue wholesale access to Time Warner’s network, it can cut off access almost immediately.

“The worst impact is going to be Ventura County, which has chunks of Time Warner,” Clark told the newspaper. “If Time Warner down there stops providing any wholesale access to facilities, those customers will be worse off. They’ll have fewer competitive options.”

Customers in Ventura, San Luis Obispo, and Santa Barbara counties would see the number of cable providers serving the area cut in half, from four providers to two. Charter and Time Warner Cable customers would be transferred to Comcast. That’s a major development, because Comcast now only operates in a tiny area of Santa Maria and the Santa Ynez Valley. Now the company would be dominant in Ventura and San Luis Obispo counties. Cox would still serve its customers in the South Coast region.

Robert D. Marcus has plenty to be excited about. After less than two full months on the job as CEO, he agreed to sell Time Warner Cable and exit his management role if and when the merger is approved. But he won’t be hurting, because he negotiated a bountiful golden parachute that will award him more than $56 million in exit compensation the day he leaves.

Courtesy: Jacobson

That is but one example of the kind of “innovation” Comzilla will offer Time Warner Cable customers. Others include charging top dollar cable modem rental fees, a broadcast TV surcharge, a completely arbitrary usage cap on broadband service, and an offshore customer service experience even more despised than what Time Warner Cable customers get. 

Without actual head-to-head competition, there is no doubt we will hear executives crow to Wall Street that a supersized Comcast has plenty of room to raise broadband prices even higher and to cut company investments in innovation it won’t need to succeed in a controlled duopoly market.

AT&T and Verizon executives — Comcast’s largest competitors — have shrugged their shoulders about the merger deal, believing it will have almost no effect on their bottom lines. Why should it? Comcast has found a growth formula that works — a tap dance away from competition — buy out other cable companies to grow the customer base instead of winning ex-customers back with better service and a lower price.

It appears Marcus’ grand vision for turning Time Warner Cable around with a massive investment in faster speeds and better service is now dead. All that is left on the table is the vague notion of a “significant investment to improve reliability and to enhance our customer service.” In other words – we’ll do a better job to make sure the service you already pay big money to receive actually works and we’ll do a better job answering our phones.

Survey results show the proposed merger is not at all popular with Time Warner customers.

Nothing about Marcus’ spammed e-mail to customers is likely to change that perception.

China’s top economic planning agency is assessing a monopoly case involving two large telecom companies and will make a ruling soon as the Beijing government declares uncompetitive broadband against the interests of the people.

The National Development and Reform Commission (NDRC) began to investigate the duopoly of China Telecom and China Unicom in the broadband business two years ago. The two companies, fearing reprisals, promised to end the questionable practices that brought scores of complaints from Chinese citizens over network incompatibilities, rising prices, and slow service.

The two companies together maintain a 90 percent market share of Chinese broadband, and both could face fines up to 10 percent of their annual Internet revenues if the NDRC finds they are acting as an abusive duopoly.

The Chinese government passed strict anti-monopoly laws in 2008 and has enforced them. Beijing has been particularly concerned about price discrimination against other Internet Service Providers and relentless rate hikes, even as costs to offer the service have dropped dramatically.

The NDRC said on Wednesday that the two companies submitted evidence that suggested both had significantly raised network integration, extended the direct-link bandwidth of their backbone networks, raised broadband speeds and lowered prices.

Although the Chinese government’s free market policies have brought investment and economic change to China, the government has grown increasingly concerned about leaving vital sectors of the economy unregulated. In several instances, the result has been bad for consumers and generally reduced innovation, as handfuls of conglomerates found it easier to enforce market power, reduce investment, and raise prices. The Chinese consider the country’s online networks critical to its participation in the global digital economy, with the NDRC acting as a check against uneven playing fields and abusive business practices.

Phillip “Ouch!” Dampier

Spending the day watching cable business news channels gush approval of last night’s surprise announcement that Comcast would acquire Time Warner Cable is just one excellent reason this deal should never be approved.

CNBC, owned by Comcast, particularly fell all over itself praising the transaction. Some of the reporters — many Time Warner Cable customers — actually believed Comcast would be a significant improvement over TWC. It is, if you want higher modem rental fees, higher cable TV bills, and faster broadband speeds you can’t use because of the company’s looming reintroduction of usage caps. CNBC didn’t bother to mention any of that, and why should they? CNBC reporter David Faber was the first to break the story of the merger last evening and among the first this morning to score an extended, friendly interview with the CEOs of both Comcast and Time Warner Cable, pitching softball questions to the two of them for nearly 15 minutes.

That’s a problem. How often do you hear news reports that include the fact the parent company of the channel has an ownership interest in one of the players. Do you think you are getting the full story when a Comcast employee asks Comcast’s CEO about a multi-billion dollar deal on a network owned and operated by Comcast. Incorporating Time Warner Cable and its news operations into Comcast only makes the problem worse.

As far as cable business news networks and the parade of Wall Street analysts are concerned, this is a fine deal for shareholders, consumers, and the cable business. Ironically, several on-air reporters and commentators defended the merger claiming it isn’t an antitrust issue because Comcast and Time Warner Cable never compete with each other. They never asked why that is so.

They’re here!

Comcast is hoping the government will give its merger a pass with few conditions for the same reason, without bothering to note the cable industry has existed as a cartel in the United States for decades, each company with a territory they informally agree not to cross. With this deal, Comcast’s fiefdom will now cover about half of all cable subscribers in the U.S., covering 43 of the 50 largest metropolitan markets, and have about a 30% total market share among all competing providers — by far the largest. An 800 pound gorilla is born.

Three million current Time Warner Cable subscribers will not be coming along for the ride and will likely be auctioned off to Charter or another cable operator in a token gesture to keep Comcast’s total market share at the 30% mark the FCC formerly insisted on as an absolute ownership limit — before Comcast successfully sued to have that limit overturned.

The rest of us can say goodbye to our unlimited broadband plans and get ready to pay substantially more for cable and broadband service. Despite claims from remarkably shallow media reports, an analysis of Comcast and Time Warner Cable’s rates clearly show TWC charges lower prices with fewer “gotcha” fees.

Reviewing some recent promotional offers for new customers, Comcast customers pay nearly $35 more for a triple play package than Time Warner customers pay:

Time Warner Cable’s Rob Marcus gets a $56.5 million golden parachute after 43 days on the job as CEO.

The Comcast Starter plan costs $99 per month for the first 12 months with a 2-year agreement that includes a nasty divorce penalty. After 12 months, your price increases to $119.99 for the remaining year. The $99 plan accidentally doesn’t bother to mention that customers renting a Comcast cable modem/gateway will pay an extra $8 a month, which raises the price. Since many cable subscribers also want HD DVR service, that only comes free for the first six months, after which Comcast slaps on a charge ranging from $16-27 a month for the next 18 months. Assuming you are happy with the limited channel lineup of the Starter package (and many are not), you will pay up to $154 a month. Oh, we forgot to mention the Broadcast TV surcharge just introduced that increases the bill another $1.50 a month.

Time Warner Cable’s new customer promotions typically cost around $96 a month, including their annoying modem rental fee. DVR service can range from free to $23 a month depending on the promotion, making your monthly rate around $119 a month for 12 months, with no contract and no penalty if you decide to cancel.

“It is pro-consumer, pro-competitive, and strongly in the public interest,” said Comcast CEO Brian Roberts, defending the deal.

Actually, it is in Comcast’s interest. If approved, the biggest investment Comcast will make is spending $10 billion — not to upgrade Time Warner Cable systems — but to launch a major stock buyback program that will directly benefit shareholders.

“On a personal level, it’s never easy to cede control of a company,” said Rob Marcus, Time Warner Cable’s chief executive. “However in this case, it just makes too much sense.”

Before reaching for a Kleenex to wipe any tears away, consider the fact Marcus will do just fine giving up his leadership of TWC just over a month after taking over. His generous goodbye package is worth $56.5 million, not bad for 43 days of work. Time Warner Cable employees won’t share that bounty. In fact, with $1.5 billion in promised savings from the deal’s “synergies” — code language for layoffs, among other things — a substantial number of Time Warner Cable employees can expect to be fired during the first year of the combined company.

The biggest impact of this deal is a further cementing of the duopoly of cable and phone companies into their cozy positions. Instead of encouraging competition, Comcast’s new size-up will guarantee fewer competitors thanks to the concept of volume discounts. The largest providers get the best prices from cable programmers, while smaller ones pay considerably more for access to CNN, ESPN, and other popular channels. Comcast will benefit from reduced pricing for cable programming, which we suspect will never reach customers through price reductions. But any potential startup will have to think twice before selling television programming at all because the prices they will pay make it impossible to compete with Comcast.

Another satisfied customer

Frontier discovered this problem after acquiring FiOS systems from Verizon in Indiana and the Pacific Northwest. When Verizon’s volume discount prices expired, Frontier’s much smaller customer base meant much higher programming costs on renewal. They were so high, in fact, Frontier literally marketed FiOS customers asking them to give up fiber optic television in favor of satellite.

Unless you have pockets as deep as Google, offering cable TV programming may be too expensive for Comcast’s competitors to offer.

Broadband is already immensely profitable for both Time Warner Cable and Comcast, but now it can be even more profitable as Comcast persuades customers to adopt their wireless gateway/modems (for a price) and imposes a usage cap of around 300GB per month. Yes, Comcast will deliver speed increases Time Warner Cable couldn’t be bothered to offer, but with a pervasive usage cap, the value of more Internet speed may prove limited. It’s a case of moving away from Time Warner’s argument that you don’t need faster Internet speed to Comcast’s offer of faster speed that you can’t use.

Customers hoping for a better customer service experience may have been cheered by this misleading passage in today’s New York Times:

Nonetheless, about 8 million current Time Warner Cable customers will become Comcast customers. That may be a good thing for those customers, as Comcast is seen as an industry leader in terms of providing high-quality television and Internet services, while Time Warner Cable has a reputation for poor customer service.

It may be seen as an industry leader by Comcast itself, but consumers despise Comcast just as much as they hate Time Warner Cable. In fact, the American Consumer Satisfaction Index found Comcast was hardly a prize:

• ACSI’s lowest rated ISP
• Second-lowest ranked TV service
• Third-lowest ranked phone service

Comcast consistently scores as one of the lowest rated companies across all the segments it participates in. It has the dubious description of being the lowest rated company in the lowest rated industry.

Higher prices, usage caps, surcharges, and fewer channels for more money. What’s not to love about that?

Just about a week ago, Rob Marcus unveiled his vision of an upgraded Time Warner Cable that looked good to us, and retained unlimited use broadband service. Apparently this is all a case of “never mind.”

The fact is, a merger of Comcast and Time Warner Cable will only benefit the companies, executives, and shareholders involved, while doing nothing to improve customer service, expand broadband, increase speeds, cut prices, and give customers the service they want. It is anti-consumer, further entrenches Comcast’s enormous market power (it also owns NBC and Universal Studios), and gives one company far too much control over content and distribution, particularly for customers who don’t have AT&T U-verse or Verizon FiOS or a community-owned provider as an alternative.

This deal needs to be rejected. When T-Mobile found itself out of a deal with AT&T, it survived on its own even better than expected. So can Time Warner Cable, with the right management team.