6 Policy Effects of the Proposed Comcast Merger

by Mike Wendy on February 17, 2014

As you may know, last week Comcast announced that it will acquire Time Warner Cable for $45 billion in stock, making it about 30 million video subscribers large and the clear leader in the pay –TV industry.  This is not a done deal, however.  It faces tough sledding for approval by the FCC and DoJ – a murky, “art-filled” process that could take a year or more to see resolution.

To this end, I’ve quickly sketched out some of the more important U.S. communications policy outcomes which I believe the merger will affect or bring about:

  • Reclassification is dead: Though Comcast will reportedly extend its acceptance of the FCC’s (now illegal) Net Neutrality rules (which they initially agreed to when they purchased NBC-U in 2011), it’s very likely that Net Neutrality’s more restrictive parent – Title II reclassification for the ISP industry – will not happen. Ever.  Quite simply, what company would move ahead with such a merger proposal if its facilities had any chance of being opened up to third parties via old-fashioned telephone regulation? The answer: None.  Smart companies like Comcast do not roll the dice on this stuff.  Moving forward with their merger means Comcast “knows” Title II reclassification just isn’t in the cards.
  • Content is more powerful than once thought: For all the talk in the run up to the FCC’s Net Neutrality rules that content providers needed protection so that ISPs wouldn’t block them, it’s apparent that content is a big and powerful part of this deal.  Comcast’s content properties (like NBC-U) are doubtless an important differentiator and competitive tool for the company.  Still, bulking up will help it shore up new bargaining power relative to other pay-TV programming.  It will also ensure a softer landing from its declining pay-TV model as it seeks to survive in the complex Internet ecosystem – one which is seeing continued disruption by such potent content providers as Netflix, Amazon, YouTube, and Apple, among others.  The blanket notion within the now illegal Net Neutrality rules that content somehow deserves special coddling is, well, bunk.  That market is far more dynamic than the FCC’s regulations could ever admit.
  • Softbank-Sprint / T-Mo merger won’t get off the ground (for now): The Comcast merger likely stalls or stops talk of merger activity between Softbank-Sprint and T-Mobile (much to their chagrin).  There’s only so much the FCC and DoJ can do at once – both administratively and politically.  I could be wrong, but in the present anti-merger environment, I cannot see two significant mergers running in the same communications ecosystem at the same time.  Softbank-Sprint will have figure out “Plan B.”
  • “Plan B” – FCC will work harder to free up licensed and unlicensed spectrum: The delayed or halted Softbank-Sprint / T-Mo merger will put more pressure on the FCC to “level the playing field” (against Verizon and AT&T) in the upcoming incentive spectrum auctions in 2015.  Moreover, Softbank-Sprint’s stall, plus the Comcast merger (the latter making it a stronger wired Internet provider and rival to wireless options), will also have the effect of quickening the pace of the FCC’s efforts to unleash more spectrum for unlicensed / Wi-Fi use, too.
  • FCC will increase its efforts to regulate Internet privacy / cyber security:  The FCC has been looking at regulating Internet privacy / cyber security since at least 2010, as hinted at in the National Broadband Plan.  The DC Circuit’s blessing last month of new authority to “promote broadband deployment” (a.k.a. Net Neutrality light), will only add to this desire.  With the Comcast merger, it makes the company one of the biggest providers of broadband services and telephony in America.  The FCC will likely seize upon all of this, justifying its new reach by declaring that it must more formally protect privacy and cyber security – through new rules – because the Internet’s continued growth and safe development for consumers depend upon it.  Make no mistake, however, this will go well beyond Comcast or the other broadband providers, grabbing at edge services like Google, Facebook and Twitter, which to date remain free from direct FCC regulation.
  • Congress will earnestly begin rewriting the Communications Act: The last time Congress comprehensively addressed U.S. communications policy was back in 1996, just as the Internet was taking off.  With that rewrite, Congress opened up markets and set the stage for the disruption we see now.  But, the law remains technology-provider based – i.e., different regulations for telephones, TV/radio, and cable.  In today’s markets, this frustrates investment, innovation and technological progress.  The merger, combined with the DC Circuit’s slap-down of the FCC’s Net Neutrality rules, puts added pressure on Congress to rewrite the ’96 law to better accommodate technologically-driven communications markets.  The Comcast merger is the poster child for the needed change – it’s a cable, content, phone and Internet provider.  FDR-era regulatory assumptions can no longer deal with this.  Process and other reform – with an eye toward towards protecting the public interest in a more fact-based and technologically-agnostic manner – will likely pick up steam in the remainder of this Congress and into the next one (or two…or three).

Policymakers are people, too.  The Comcast merger and its proximity to the recent Net Neutrality ruling have put policymakers on their heels, however.  Their equilibrium disturbed, actions that were once on hold, or merely just dreamed about, will find new vigor and attention in the coming year(s).

More to come…

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