Big Telecom companies like Verizon and AT&T use phony numbers and perpetuate myths about broadband traffic and network investments that have conned investors out of at least $1 trillion in unnecessary investments and consolidation.

Alexander Goldman, former chief analyst for CTI’s American Recovery and Reinvestment Act grants, is warning Wall Street and investors they are at risk of losing millions more because some of the largest telecom companies in the country are engaged in disseminating bad math and conventional wisdom that relies more on repetition of their talking points than actual facts.

Goldman’s editorial, published by Broadband Breakfast, believes the campaign of misinformation is perpetuated by a media that accepts industry claims without examining the underlying facts and a pervasive echo chamber that delivers credibility only by the number of voices saying then same thing.

Goldman takes Verizon Communications CEO Lowell McAdam to task for an editorial published in 2013 in Verizon’s effort to beat back calls on regulators to oversee the broadband industry and correct some of its anti-competitive behavior.

McAdam claimed the U.S. built a global lead in broadband on investments of $1.2 trillion over 17 years to deploy “next generation broadband networks” because networks were deregulated.

Setting aside the fact the United States is not a broadband leader and continues to be outpaced by Europe and Asia, Goldman called McAdam’s impressive-sounding dollar figures meaningless, considering over the span of that 17 years, the United States progressed from dial-up to fiber broadband. Wired networks have been through a generational change that required infrastructure to be replaced and wireless networks have been through at least two significant generations of change over that time — mandatory investments that would have occurred with or without deregulation.

Over the past 17 years, the industry has gotten more of its numbers wrong than right. An explosion of fiber construction in the late 1990s based on predictions of data tsunamis turned out to be catastrophically wrong. University of Minnesota professor Andrew Odlyzko, the worst enemy of the telecom industry talking point, has been debunking claims of broadband traffic jams and the need to implement usage-based pricing and speed throttling for years. In 1998, when Wall Street was listening intently to forecasts produced by self-interested telecom companies like Worldcom that declared broadband traffic was going to double every 100 days, Odlyzko was telling his then-employer AT&T is was all a lot of nonsense. The broadband traffic emperor had no clothes, and statistics from rival telecom companies suggested Worldcom was telling tall tales. But AT&T executives didn’t listen.

“We just have to try harder to match those growth rates and catch up with WorldCom,” AT&T executives told Odlyzko and his colleagues, believing the problem was simply ineffective sales, not real broadband demand. When sales couldn’t generate those traffic numbers and Wall Street analysts began asking why, companies like Global Crossing and Qwest resorted to “hollow swaps” and other dubious tricks to fool analysts, prop up the stock price and executive bonuses, and invent sales.

Nobody bothered to ask for an independent analysis of the traffic boom that wasn’t. Wall Street and investors saw dollars waiting to be made, if only providers had the networks to handle the traffic. This began the fiber boom of the late 1990s, “an orgy of construction” as The Economist called it, all to prepare for a tidal wave of Internet traffic that never arrived.

After companies like Global Crossing and Worldcom failed in the biggest bankruptcies the country had ever seen at the time, Odlyzko believes important lessons were never learned. He blames Worldcom executives for inflating the Internet bubble more than anyone.

A bubble of another kind is forming today in America’s wireless industry, fueled by pernicious predictions of a growing spectrum crisis to anyone in DC willing to listen and hurry up spectrum auctions. Both AT&T and Verizon try to stun investors and politicians with enormous dollar numbers they claim are being spent to hurry upgraded wireless networks ready to handle an onslaught of high bandwidth wireless video. Both Verizon’s McAdam and AT&T’s Randall Stephenson intimidate Washington politicians with subtle threats that any enactment of industry reforms by the FCC or Congress will threaten the next $1.2 trillion in network investments, jobs, and America’s vital telecom infrastructure.

Odlyzko has seen this parade before, and he is not impressed. Streaming video on wireless networks is effectively constrained by miserly usage caps, not network capacity, and to Odlyzko, the more interesting story is Americans are abandoning voice calling for instant messages and texting.

That isn’t a problem for wireless carriers because texting is where the real money is made. Odlyzko notes that wireless carriers profit an average of $1,000 per megabyte for text messages, usually charged per-message or through subscription plan add ons or as part of a bundle. Cellular voice calling is much less profitable, earning about $1 per megabyte of digitized traffic.

Wireless carriers in the United States, particularly Verizon and AT&T, are immensely profitable and the industry as a whole haven’t invested more than 27% of their yearly revenue on network upgrades in over a decade. In fact, in 2011 carriers invested just 14.9% of their revenue, rising slightly to 16.3 percent in 2012 when companies collectively invested $30 billion on network improvements, but earned $185 billion along the way.

While Verizon preached “spectrum crisis” to the FCC and Congress and claimed it was urgently prioritizing network upgrades, company executives won approval of a plan to pay Vodafone, then a part owner of Verizon Wireless, $130 billion to buy them out. That represents the collective investment of every wireless provider in the country in network upgrades from 2005-2012. Verizon Wireless cannot find the money to upgrade their wireless networks to deliver customers a more generous data allowance (or an unlimited plan), but it had no trouble approving $130 billion to buy out its partner so it could keep future profits to itself.

Odlyzko concludes the obvious: “modern telecom is less about high capital investments and far more a game of territorial control, strategic alliances, services, and marketing, than of building a fixed infrastructure.”

That is why there is no money for Verizon FiOS expansion but there was plenty to pay Vodafone, and its executives who walked away with executive bonuses totaling $89.6 million.

As long as American wireless service remains largely in the hands of AT&T and Verizon Wireless, competition isn’t likely to seriously dent prices or profits. At least investors who are buying Verizon’s debt hope so.

Goldman again called attention to Odlyzko’s latest warning that the industry has its numbers (and priorities) wrong, and the last time Odlyzko had the numbers right and the telecommunications industry got its numbers wrong, telecommunications investors lost $1 trillion in the telecommunications dot.com bust.

As the drumbeat continues for further wireless consolidation and spectrum acquisition, investors have been told high network costs necessitate combining operations to improve efficiency and control expenses. Except the biggest costs faced by wireless carriers like Verizon are to implement strategic consolidation opportunities like the Vodafone deal, not maintain and grow their wireless network. AT&T is putting much of its spending in a proposed acquisition of DirecTV this year as well — at a cost of $48.5 billion. That could buy a lot of new cell towers and a much more consumer-friendly data plan.

Voice to text substitution (US)

Cell phone network companies (if you can believe their SEC filings) are incredibly profitable, and are spending relatively little on infrastructure:

Wall Street is increasingly pessimistic about Comcast and Time Warner Cable pulling off their merger deal as regulators stop the clock to take a closer look at the transaction.

The Capitol Forum, an in-depth news and analysis service dedicated to informing policymakers, investors, and industry stakeholders on how policy affects market competition, specializes in examining marketplace mergers and their potential impact on American consumers and the general economy. The group has shared a copy of their assessment — “Comcast/Time Warner Cable: A Closer Look at FCC, DOJ Decision Processes; Merits and Politics May Drive Merger Challenge, Especially as Wheeler Unlikely to Embrace Title II Regulation for Net Neutrality” — with Stop the Cap! and we’re sharing a summary of the report with our readers.

The two most important government agencies reviewing the merger proposal are the Federal Communications Commission and the Department of Justice. The FCC is responsible for overseeing telecommunications in the United States and is also tasked with reviewing telecom industry mergers to verify if they are in the public interest. The Department of Justice becomes involved in big mergers as well, concerned with compliance with antitrust and other laws.

In many instances, the two agencies work separately and independently to review merger proposals, but not so with Comcast and Time Warner Cable.

Sources tell Capitol Forum there is a high level of coordination and information sharing between DOJ and the FCC, potentially positioning the two agencies in a stronger legal position if they jointly challenge the merger. Readers may recall AT&T’s attempt to buy T-Mobile was thwarted in 2011 when the FCC followed the DOJ’s lead in jointly challenging the merger on competition and antitrust grounds. With a united front against the deal in Washington, AT&T quickly capitulated.

Despite a blizzard of Comcast talking points claiming the cable industry is fiercely competitive, Capitol Forum’s report indicates the DOJ staff level believes the cable industry suffers dearly from a lack of competition already, and allowing further marketplace concentration would exacerbate an already difficult problem.

Capitol Forum reports the DOJ’s staff is inclined to “take an aggressive posture with regards to [antitrust] enforcement.”

The DOJ would certainly not be walking the beltway plank to its political doom if it ultimately decides to oppose the merger.

Few on Capitol Hill are likely to fiercely advocate for a cable company generally despised by their constituents. The Capitol Forum report notes that Comcast faces powerful opposition and its political support is overstated. Comcast’s lobbying efforts and ties to President Obama and several high level Democrats have also been widely exposed in the media, which makes it more difficult for D.C.’s powerful to be seen carrying Comcast’s water.

In fact, the report indicates a regulatory challenge against Comcast and Time Warner Cable would face considerably less political opposition than what the FCC faces if it reclassifies broadband as a “telecommunications service,” protecting Net Neutrality and exposing the industry to stronger regulatory oversight.

The report suggests FCC Chairman Thomas Wheeler, who seems intent on opposing reclassification of broadband under Title II, may appease his critics by taking a stronger stance on the Comcast/Time Warner deal instead.

Wheeler has already expressed concern about the state of competitiveness of American broadband. He considers providers capable of delivering at least 25Mbps part of broadband’s key market, which in many communities means a monopoly for the local cable operator.

Understanding “The Public Interest” and the Implications of a Combined Comcast/Time Warner Cable on Competition

The FCC will review the transaction pursuant to Sections 214 and 310(d) of the Communications Act of 1934, in order to ensure that “public interest, convenience, and necessity will be served thereby.”

The merger proposal must also demonstrate it does not violate antitrust laws.

It is here that merger opponents have a wealth of arguments to use against Comcast and Time Warner Cable.

Despite Comcast’s insistence the deal would have no competitive implications, the Capitol Forum reports the merger’s potential anticompetitive effects are “widely recognized and evidence from the investigation could provide DOJ and FCC with a solid foundation to challenge the merger.”

Although the two cable companies don’t directly compete with each other (itself a warning sign of an already noncompetitive marketplace), the report finds “a wide array of anti-competitive effects and several antitrust theories” that would implicate the cable company in a Clayton Act violation.

Comcast is betting heavily on its surface argument that by the very fact customers will not see any change in the number of competitors delivering service to their area, the merger should easily clear any antitrust hurdles. That argument makes it more difficult for the DOJ to fall back on the usual market concentration precedents that would prevent such a colossal merger deal. To argue excessive horizontal integration — the enlarging of Comcast’s territory — the DOJ would first have to prove Comcast’s size in comparison with other cable companies is a reason for the courts to shoot down the deal. Or it could bypass Comcast’s favorite argument and move to the issue of vertical integration — one company’s ability to control not just the pipes that deliver content, but also the content itself.

Here the examples of potential abuse are plentiful:

• Comcast would enjoy increased power to force cable programmers to favor Comcast in cable programming pricing and policies while allowing it to demand restrictions on competitive online video competitors or restrict access to popular cable programming;
• Comcast could impose data caps and usage-based pricing to deter online viewing while exempting its own content by delivering it over a Wi-Fi enabled gateway, game console or set top box, claiming all are unrelated to Comcast’s broadband Internet service or network;
• Force consumers to use Comcast set top boxes that would not support competing providers’ online video;
• Use interconnection agreements as a clever way to bypass the paid prioritization Net Neutrality debate. Netflix and other content producers would be forced to compensate Comcast for reliable access to its broadband customers;
• Noting AT&T has declared U-verse can not effectively succeed in the cable television business without combining its customer base with DirecTV to qualify for better volume discounts, there is clear evidence that a super-sized Comcast could command discounts new entrants like Google Fiber could never hope to get, putting them at a distinct price disadvantage.

The FCC’s scrutiny of Comcast’s merger deal has already uncovered evidence previously unavailable because of non-disclosure agreements which show Comcast’s heavy hand already at work.

The report notes Michael Mooney, a senior vice president and group general counsel at Level 3, told the Capitol Forum the dispute earlier this year between Netflix and Comcast could have been resolved in about five minutes had Comcast added a port to relieve congestion at an interconnection point. The cost? Just $5,000. Had Comcast been willing to spend the money, millions of Comcast customers would have never experienced problems using Netflix.

Whether Comcast is ultimately deemed too large to permit another consolidating merger or whether it is given conditional approval to absorb Time Warner Cable remains a close call, according to the Capitol Forum, despite the fact consumers have urged regulators for something slightly more concrete – a single sentence, total denial of its application.

[flv]http://www.phillipdampier.com/video/Capitol Forum The Consumer Welfare Test.mp4[/flv]

The Capitol Forum broadly explores how the “consumer welfare standard” has become a part of the antitrust review process over the last 30 years. Sometimes, a strict antitrust test is not sufficient to protect “the public interest” of consumers, and allows the dominant player(s) to harm competition. In the digital economy, corporate mergers that empower companies to restrict innovation can prove far more damaging than classic monopoly abuse. (15:52)

The announced merger of Comcast and Time Warner Cable is expected to have far-reaching implications for other companies in the video and broadband business, with expectations 2014 could be one of the busiest years in a decade for telecom industry mergers and buyouts.

AT&T + DirecTV = Less Video Competition

Bloomberg News reports an announcement from AT&T that it intends to acquire DirecTV for as much as $50 billion could be forthcoming before Memorial Day. Such a merger would drop one satellite television competitor in AT&T landline service areas and promote nationwide bundling of AT&T wireless service with satellite television.

Historically low-interest rates would help AT&T finance such a deal and would turn DirecTV into a division of AT&T, easing concerns the satellite company has been at a disadvantage because it lacks a broadband and phone package.

“While the Comcast/TWC deal was the trigger, the backdrop of a slow macro economy, new competitors, shifts in technology and consumer habits all come together and force the need for more scale,” Todd Lowenstein, a fund manager at Highmark Capital Management Inc. in Los Angeles told Bloomberg.

Satellite television companies remain technologically disadvantaged to withstand the growing influence of online video and their subscriber numbers have peaked.

If AT&T buys DirecTV, the wireless giant could theoretically bundle its service with DirecTV’s video product, and in some areas of the country its U-verse high-speed broadband to the home, to compete with cable, said Amy Yong, an analyst at Macquarie Group in New York, in a note to clients.

Sprint + T-Mobile = Less Wireless Competition

Dish + T-Mobile = A Draw

In a less likely deal Sprint is still trying to pursue T-Mobile USA for a potential merger and if regulators reject that idea, Charles Ergen’s Dish Network is said to be interested.

To prepare Washington for another telecommunications deal, SoftBank founder Masayoshi Son’s lobbying firm, Carmen Group, has again been meeting with elected officials and regulators to argue the merits of a merger with T-Mobile, according to a person familiar with the matter.

Dish, which failed to buy Sprint last year, would be interested in acquiring T-Mobile if regulators block Sprint’s efforts, Ergen said. That hinges on whether SoftBank Corp. fails to win regulatory approval for its plan to buy T-Mobile, which is controlled by Deutsche Telekom AG, Ergen said last week. The Japanese wireless company owns 80 percent of Sprint.

All three deals carry a combined value of $170 billion in equity and debt and would impact 80 million Americans.

Suitors hope regulators will be in the mood to approve merger deals as they contemplate enlarging Comcast through its purchase of Time Warner Cable.

Even if all the deals don’t pass muster, Wall Street banks will still rake in millions in fees advising players on how to structure the deals. Goldman Sachs and J.P. Morgan would join executives winning considerable sums for reducing the number of competitors providing telecommunications services in the U.S.

Whether customers would benefit is a question open to much debate.

Phillip “Section 706 is a road to nowhere” Dampier

After thousands of consumers joined more than 100 Internet companies and two of five commissioners at the Federal Communications Commission to complain about Chairman Tom Wheeler’s vision of Net Neutrality, the head of the FCC claims he has revised his proposal to better enforce Internet traffic equality.

Last week, huge online companies like Amazon, eBay, and Facebook jointly called Wheeler’s ideas of Net Neutrality “a grave threat to the Internet.”

In response over the weekend, an official close to the chairman leaked word to the Wall Street Journal that Wheeler was changing his proposal. Despite that, a closer examination of Wheeler’s ideas continues to show his unwavering faith in providers voluntarily behaving themselves. Wheeler’s evolving definition of Net Neutrality is fine… if you live in OppositeLand. His proposal would allow Internet Service Providers and content companies to negotiate paid traffic prioritization agreements — the exact opposite of Net Neutrality — allowing certain Internet traffic to race to the front of the traffic line.

Such an idea is a non-starter among Net Neutrality advocates, precisely because it undermines a core principle of the Open Internet — discriminating for or against certain web traffic because of a paid arrangement creates an unfair playing field likely to harm Internet start-ups and other independent entities that can’t afford the “pay to play” prices ISPs may seek.

Paid traffic prioritization agreements only make business sense when a provider creates the network conditions that require their consideration. If a provider operated a robust network with plenty of capacity, there would be no incentive for such agreements because Internet traffic would have no trouble reaching customers with or without the agreement.

But as Netflix customers saw earlier this year, Comcast and several other cable operators are now in the bandwidth shortage business — unwilling to keep up investments in network upgrades required to allow paying customers to access the Internet content they want.

While there is some argument that the peering agreement between Comcast and Netflix is not a classic case of smashing Net Neutrality, the effect on customers is the same. If a provider refuses to upgrade connections to the Internet without financial compensation from content companies, the Internet slow lane for that content emerges. Message: Sign a paid contract for a better connection and your clogged content will suddenly arrive with ease.

Wheeler has ineffectively argued that his proposal to allow these kinds of paid arrangements do not inherently commercially segregate the Internet into fast and slow lanes.

But in fact it will, not by artificially throttling the speeds of deprioritized, non-paying content companies, but by consigning them to increasingly congested broadband pipes that only work in top form for prioritized, first class traffic.

With Wheeler’s philosophy “unchanged” according to the Journal, his defense of his revised Net Neutrality proposal continues to rely on non germane arguments.

For example, Wheeler claims he will make sure the FCC “scrutinizes deals to make sure that the broadband providers don’t unfairly put nonpaying companies’ content at a disadvantage.” But in Wheeler’s World of Net Neutrality, providers would have to blatantly and intentionally throttle traffic to cross the line.

“I won’t allow some companies to force Internet users into a slow lane so that others with special privileges can have superior service,” Mr. Wheeler wrote (emphasis ours) to Google and other companies.

But if your access to YouTube is slow because Google won’t pay Comcast for a direct connection with the cable company, it is doubtful Wheeler’s proposal would ever consider that a clear-cut case of Comcast “forcing” customers into a “slow lane.” After all, Comcast itself isn’t interfering with Netflix traffic, it just isn’t provisioning enough room on its network to accommodate customer demand.

Another side issue nobody has mentioned is usage cap discrimination. Comcast exempts certain traffic from the usage cap it is gradually reintroducing around the country. Its preferred partners can avoid usage-deterring caps while those not aligned with Comcast are left on the meter.

Wheeler

Some equipment manufacturers are producing even more sophisticated traffic management technology that could make it very difficult to identify fast and slow lanes, yet still opens the door to further monetization of Internet usage and performance in favor of a provider’s partners or against their competitors.

With Internet speeds and capacity gradually rising, the need for paid priority traffic agreements should decline, unless providers choose to cut back on upgrades to push another agenda. Already massively profitable, there is no excuse for providers not to incrementally upgrade their networks to meet customer demand. Prices for service have risen, even as the costs of providing the service have dropped overall.

Wheeler seems content to bend over backwards trying to shove a round Net Neutrality framework into a square regulatory black hole. Former chairman Julius Genachowski did the same, pretending that the FCC has oversight authority under Section 706 of the Telecommunications Act. But in fact that section is dedicated to expanding broadband access with restricted regulatory powers:

The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.

The spirit of the 1996 Telecom Act was  deregulation — that language pertaining to “regulatory forbearance” encourages regulators to restrain themselves from reflexively solving every problem with a new regulation. The words about “removing barriers to infrastructure investment” might as well be industry code language for the inevitable talking point: “deregulation removes barriers to investment.”

With a shaky foundation like that, any effort by the FCC to depend on Section 706 as its enabling authority to oversee the introduction of any significant broadband regulation is a house of cards.

The D.C. Circuit Court of Appeals agreed. In the Verizon network management case, the court found that the FCC was not allowed to use Section 706 to issue broad regulations that contradicted another part of the Communications Act.

U.S.C. 153(51) was and remains the FCC’s Section 706-Achilles Heel and the judge kicked it. This section of the Act says “a telecommunications carrier shall be treated as a common carrier under this [Act] only to the extent that it is engaged in providing telecommunications services.”

The current president of the National Cable & Telecommunications Association (NCTA) Michael Powell — coincidentally also former chairman of the FCC under President George W. Bush — helped see to it that broadband was not defined as a “telecommunications service.” Instead, it is considered an “information service” for regulatory purposes. This decision shielded emerging Internet providers (especially big phone and cable companies) from the kinds of traditional telecom utility regulations landline telephone companies lived with for decades. Of course, millions were also spent to lobby the telecom deregulation-friendly Clinton and Bush administrations with the idea to adopt “light touch” broadband regulatory policy. A Republican-dominated FCC had no trouble voluntarily limiting its own authority to oversee broadband by declaring both wired and wireless broadband providers “information services.”

Tom Wheeler is the former president of the National Cable & Telecommunications Association

So it was the FCC itself that caused this regulatory mess. But the Supreme Court provided a way out, by declaring it was within the FCC’s own discretion to decide how to regulate broadband, either under Title I as an information service or Title II as a telecommunications service. If the FCC declares broadband as a telecommunications service, the regulatory headaches largely disappear. The FCC has well-tested authority to impose common carrier regulations on providers, including Net Neutrality protections, under Title II.

In fact, the very definition of “common carrier” is tailor-made for Net Neutrality because it generally requires that all customers be offered service on a standardized and non-discriminatory basis, and may include a requirement that those services be priced reasonably.

Inexplicably, Chairman Wheeler last week announced his intention to keep ignoring the straight-line GPS-like directions from the court that would snatch the FCC’s attorneys from the jaws of defeat to victory and has recalculated another proposed trip over Section 706’s mysterious bumpy side streets and dirt roads. Assuming the FCC ever arrives at its destination, it is a sure bet it will be met by attorneys from AT&T, Comcast, or Verizon with yet more lawsuits claiming the FCC has violated their rights by exceeding their authority.

Wheeler also doesn’t mollify anyone with his commitment to set up yet another layer of FCC bureaucracy to protect Internet start-ups:

Mr. Wheeler’s updated draft would also propose a new ombudsman position with ‘significant enforcement authority’ to advocate on behalf of startups, according to one of the officials. The goal would be to ensure all parties have access to the FCC’s process for resolving disputes.

Anyone who has taken a dispute to the FCC knows how fun and exciting a process that is. But even worse than the legal expense and long delays, Wheeler’s excessively ambiguous definitions of what constitutes fair paid prioritization and slow and fast lanes is money in the bank for regulatory litigators that will sue when a company doesn’t get the resolution it wants.

Wheeler promises the revised proceeding will invite more comments from the public regarding whether paid prioritization is a good idea and whether Title II reclassification is the better option. While we appreciate the fact Wheeler is asking the questions, we’ve been too often disappointed by FCC chairmen that apply prioritization of a different sort — to those that routinely have business before the FCC, including phone and cable company executives. Chairman Genachowski’s Net Neutrality policy was largely drafted behind closed doors by FCC lawyers and telecom industry lobbyists. Consumers were not invited and we’re not certain the FCC is actually listening to us.

The Wall Street Journal indicates the road remains bumpy and pitted with potholes:

Mr. Wheeler’s insistence that his strategy would preserve an open Internet, without previously offering much insight into how, has been a source of disquiet within his agency. Of the five-member commission, both Republicans are against any form of net neutrality rules, which they view as unnecessary. Commission observers will be watching the reaction of the two Democrats, Ms. Rosenworcel and Mignon Clyburn, to Mr. Wheeler’s new language.

“There is a wide feeling on the eighth floor that this is a debacle and I think people would like to see a change of course,” said another FCC official. “We may not agree on the course, but we agree the road we’re on is to disaster.”

There is still time to recalculate, but we wonder if Mr. Wheeler, a longtime former lobbyist for the wireless and cable industries, is capable of sufficiently bending towards the public interest.

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.