Supporting Comcast’s merger agenda

A conservative think tank with ties to corporate money and the American Legislative Exchange Council says the FCC should not reject the Comcast and Time Warner Cable merger for emotional, “big is bad” sloganeering.

Seth Cooper, a former director of the ALEC Telecommunications and Information Technology Task Force and current Amicus Counsel for the corporate group made his comments about the merger under the moniker of the Free State Foundation.

The FCC’s due diligence in that examination of the deal, Cooper says, must “disregard pleas for it to reject Comcast/TWC out of hand, based on appeals to emotional incredulity or ‘big is bad’ sloganeering; Stand firm against calls that, under the guise of protecting consumers, the agency impose conditions in order to protect market rivals…; reject dragging out its review process…; and avoid the imposition of any conditions on the merger unrelated to demonstrable concerns over market power and anticompetitive conduct.”

Cooper parrots Comcast’s press releases promoting the multi-billion dollar merger, claiming it will lead to a faster transition to digital cable, faster Internet speeds via DOCSIS 3.1, and expanded wireless backhaul services.

Unfortunately for Cooper, the facts are not on his side.

As part of Time Warner Cable’s Maxx initiative, the march to digital cable in unmistakable at Time Warner. TWC Maxx-upgraded cities now get faster speeds at a lower cost than what Comcast offers, and no data caps. Both cable companies are already in the wireless backhaul market, installing fiber to cell towers to support 4G LTE broadband. But LTE-enabled towers are highly likely to already have fiber connections, limiting future growth. A merger between the two cable companies won’t dramatically change that market reality.

CenturyLink does not believe it will face much of a competitive threat from AT&T and Verizon’s plans to decommission rural landline service in favor of fixed wireless broadband because the two companies’ offers are too expensive, overly usage-capped and too slow.

Both AT&T and Verizon have proposed mothballing traditional landline service in rural areas because both companies claim wireline financial returns are too low and ongoing maintenance costs are too high. In its place, both companies are developing rural fixed wireless solutions for voice and broadband service that will rely on 4G LTE networks.

CenturyLink does not traditionally compete against either AT&T or Verizon because their landline service areas do not overlap. But as both AT&T and Verizon Wireless continue to emphasize their nationwide wireless networks, independent phone companies are likely to face increased competition from wireless phone and broadband services.

CenturyLink isn’t worried.

“About two-thirds of our customers can get access to 10Mbps or higher [from us and] that continues to increase year by year,” CenturyLink chief financial officer Stewart Ewing told attendees at Bank of America Merrill Lynch’s 2014 Global Telecom & Media Conference. “Our belief is that with the increasing demands customers have for bandwidth — the Netflix bandwidth requirement — just the increasing amount of video that customers are watching and downloading over their Internet pipes, we believe will drive customers to using a provider that basically has a wire in their home because we believe you will get generally higher bandwidth and a much better experience at lower cost.”

Ewing

CenturyLink customers consume an average of slightly less than 50GB of Internet usage per month, and that number is growing. Ewing said that CenturyLink has long believed that as bandwidth demand increases, wireless becomes less and less capable of providing a good customer experience.

“At this point, we don’t really have any concerns because people on the margin — the folks that don’t use much bandwidth — probably use a wireless connection today to download,” Ewing said. “But as the bandwidth demands grow, the wireless connection becomes more and more expensive and that could tend to drive people our way. So as long as we have 10Mbps or better to the customers, we don’t really think there is that much exposure.”

CenturyLink does not measure the difference in Internet usage between urban and rural residential customers, but the company suspects rural customers might naturally use more because alternative outlets are fewer in number outside of urban America.

“Folks in rural areas might actually can use Internet more for buying things that they can’t source [easily], but it’s hard to really count,” said Ewing. “I think our customers in the rural areas probably are not that much different from folks in urban areas.”

Prism is CenturyLink’s fiber to the neighborhood service, similar to AT&T U-verse. It is getting only a modest expansion in 2014.

CenturyLink’s largest competitor remains Comcast, which co-exists in about 40% of CenturyLink’s markets. The merger with Time Warner Cable won’t have much impact on CenturyLink, increasing Comcast’s footprint in CenturyLink territory by only about only 6-7%. CenturyLink believes most of any new competition will come in the small business market segment. Comcast’s residential pricing is unlikely to attract current CenturyLink customers in Time Warner Cable territory to consider a switch to Comcast if the merger is approved.

Ewing also shared his thinking about several other CenturyLink initiatives that customers might see sometime this year:

• Don’t expect CenturyLink to expand Wi-Fi hotspot networks. The company found they are difficult to monetize and is unlikely to expand them further;
• Any change in the FCC’s definition of minimum broadband speed to qualify for federal broadband expansion funds would slow rural broadband expansion. Ewing admitted a 10Mbps speed minimum is considerably more difficult to achieve over DSL than a 4 or 6Mbps minimum;
• Don’t expect any more merger/acquisition activity from CenturyLink in the Competitive Local Exchange Carrier business. CenturyLink shows no sign of pursuing Frontier, Windstream, FairPoint, or other independent phone companies. It is focused on expanding business services, where 60% of CenturyLink’s revenue now comes;
• CenturyLink fiber expansion will primarily be focused on reaching business offices and commercial customers in 2014;
• CenturyLink will only modestly expand PrismTV, its fiber-to-the-neighborhood service, to an additional 300,000 homes this year. The company now offers the service to two million of its customers, with 200,000 signed up nationwide. Last year, CenturyLink expanded PrismTV availability to 800,000 homes.

And then there were three?

Deutsche Telekom has agreed to sell T-Mobile USA to the Japanese parent company of Sprint in a deal that would combine the third and fourth largest wireless companies in the United States under the Sprint brand.

Japan’s Kyodo News Agency said they learned about the buyout agreement from industry sources, but did not reveal any further details.

SoftBank CEO and Sprint chairman Masayoshi Son and his lobbyists have been promoting such a merger for weeks, so the outlines of a deal between the two companies come as no surprise.

Softbank CEO Masayoshi Son

U.S. regulators have repeatedly signaled their discomfort with any merger between Sprint and T-Mobile, however. Both the heads of the Federal Communications Commission and the U.S. Justice Department have repeatedly raised concerns about the emergence of just three national wireless competitors in the U.S.

AT&T is largely responsible for that perception after its failed attempt to buy T-Mobile in 2011. The large breakup fee and spectrum T-Mobile received after the deal collapsed helped T-Mobile relaunch as a feisty competitor that has forced competitors to cut prices. To regulators, it demonstrated the importance of having at least four national competitors, if only to check the dominance of leaders AT&T and Verizon Wireless. Both the FCC and Justice Department fear any additional mergers would lead to increased prices for U.S. consumers.

Son has argued that the four-competitor policy has left AT&T and Verizon dominant against their two much-weaker competitors. An enlarged Sprint would force broadband speeds upwards as a combined Sprint and T-Mobile launch a massive network upgrade that would force prices down.

Both Softbank and Deutsche Telekom seem eager to close a deal. Softbank is already arranging financing for the estimated $50 billion Deutsche Telekom is expected to ask for T-Mobile USA and the German owner of T-Mobile has sought to exit the U.S. market for at least two years, with the proceeds of any sale used to improve its operations in Germany and eastern Europe, where the company has been more profitable.

So far, Wall Street has had only a muted reaction to the merger news. Many analysts still expect U.S. regulators to shoot down any deal that proposes merging any of the four current large wireless carriers.

SoftBank CEO and Sprint chairman Masayoshi Son was interviewed at this week’s Code Conference. On the current state of wireless: “Oh my god, how can Americans live like this?” (1:23)

The New York Times recommends the Justice Department and Federal Communications Commission reject Comcast’s $45 billion purchase of Time Warner Cable, if only because the combined company will have an unregulated choke-hold on telecommunications services not seen since the days of the regulated AT&T/Bell monopoly.

In an editorial published Sunday, the newspaper called out many of the “merger benefit”-talking points claimed by the two cable giants as specious at best, hinting some even bordered on misleading:

By buying Time Warner Cable, Comcast would become a gatekeeper over what consumers watch, read and listen to. The company would have more power to compel Internet content companies like Netflix and Google, which owns YouTube, to pay Comcast for better access to its broadband network. Netflix, a dominant player in video streaming, has already signed such an agreement with the company. This could put start-ups and smaller companies without deep pockets at a competitive disadvantage.

There are also worries that a bigger Comcast would have more power to refuse to carry channels that compete with programming owned by NBC Universal, which it owns. Comcast executives say that they would not favor content the company controls at the expense of other media businesses.

The company argues that this deal would not reduce choice because the company does not directly compete with Time Warner Cable anywhere. Comcast would face plenty of competition in high-speed Internet service, they say, from telephone and wireless companies.

The reality is far different. At the end of 2012, according to the FCC, 64 percent of American homes had only one or at most two choices for Internet service that most people would consider broadband. Wireless services can handle streaming video, but many customers of Verizon or AT&T would blow through their monthly wireless data plan by streaming just one two-hour high-definition movie, at which point they would have to fork over extra fees.

Comcast executives argue that companies like Sprint are planning to provide very fast Internet service that will compete with wired broadband. But wireless companies have been working on such services for more than a decade with little success.

Those wireless services that do exist uniformly impose low usage caps and cost considerably more than traditional wired broadband plans, especially when considering the cost compared to the actual speed delivered to consumers.

The Times doesn’t believe imposing a litany of conditions in return for approving the deal, similar to those involving Comcast’s purchase of NBCUniversal, would be sufficient to protect consumers from monopoly abuse.

“This merger would fundamentally change the structure of this important industry and give one company too much control over what information, shows, movies and sports Americans can access on TVs and the Internet,” concluded the newspaper. “Federal regulators should challenge this deal.”

Comcast has at least 40 lobbying firms working on its merger deal with Time Warner Cable.

It’s shock and awe time in D.C. as Comcast pulls out all the stops to ram its $45 billion deal with Time Warner Cable down Washington’s throat.

The Hill reports Comcast is assembling one of the biggest lobbying teams ever seen inside the beltway, hiring at least seven additional lobbying firms on top of the 33 it already retains. Their mission: to pressure legislators and overwhelm regulators to accept the merger deal and ignore the critics.

The lobbying firms are loaded to the rafters with D.C.’s frequent revolving-door travelers — former legislators, staffers, regulators and their aides that worked in the Clinton and Bush Administrations who now work on behalf of the companies many used to oversee.

On Comcast’s generous payroll: former aides for the House Energy and Commerce Committee and the House and Senate Judiciary committees, in addition to the Justice Department and the Federal Communications Commission — precisely the agencies that will review the merger for anti-trust concerns.

“If you’ve worked on the committees, or if you’ve worked in an agency overseeing a transaction like this, you’ve got knowledge about how the process works and credibility with the staff — it’s that simple,” one lobbyist told the newspaper.

A quick review of some of the players from The Hill: