Cable, A Monopoly… If You Ignore Competitors

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In arguing that “American regulators should block Comcast’s proposed deal with Time Warner Cable,” a recent article in The Economist displays a surprising number of misunderstandings about how our broadband and television markets work. The magazine argues that the combined firm, by having 30% of pay TV subscribers, will be just too big, a “fearsome” “Goliath” that will force only its own content upon its subscribers and only at a trickle. Strange words from a publication with a column named after Schumpeter.

The first stunner comes with the assertion that Comcast has 55% of TV and broadband subscribers, so long as you ignore . . . subscribers of competing TV and broadband providers. Confused? You aren’t alone. Satellite TV programming, telco operations like AT&T’s U-verse, broadcast, and over-the-top are all substitutable to cable TV. Sure, cable is well-positioned today, but explicitly ignoring competitors in the analysis is too far. The ability for different platforms to compete, now and in the future, is a key premise of our current competition policy. As we continue the convergence on the IP platform, different underlying technologies can compete in the provision of broadband and video – this is undeniably a good thing. Having the flexibility to allow new platforms to step in as a broadband platform is a key advantage of our current regulatory regime.

Opponents of the deal, and of the cable industry in general, will bend over backwards to tell you why such services don’t compete. For example, many point to data caps as preventing wireless from competing, assuming these caps will never change. It’s often claimed that because Comcast and Verizon have a marketing agreement and Verizon stopped replacing its entire plant with fiber that DSL obviously isn’t interested in going head-to-head with cable. It couldn’t possibly be that Verizon was overly ambitious in its fiber roll-out and disciplined accordingly by investors. AT&T’s growing success with U-verse is conveniently left out of the analysis. A fiber fixation may be to blame – once people hear that telcos aren’t pushing fiber to the home, they stop listening. Getting fiber out only to the node or distribution point is an incredibly efficient way to squeeze all we can out of existing infrastructure, allowing standards innovations to boost speeds.

The article is also concerned with Comcast’s post-merger buying power. Generally speaking, the ability for TV providers to drive down the cost of programming is a good thing – why not have two companies duke it out if it means lower costs in the end run. The potential for consumer harm in actually losing channels is small. The potential for consumer benefits from lower programming prices is large.

The Economist and others point to common carriage regulations as the answer to cable’s success. Why those who think cable a monopoly want to formalize it as such is beyond me. A Title II style unbundling regime would lock cable in as a true monopoly and shift the fight from the marketplace to regulatory arcana. Look at telephone service: we were able to get real competition on phone service, but not through the ’96 Act’s ill-founded attempt to bootstrap duplicative networks through unbundling. Instead it was intermodal competition fueled by IP convergence. Common carriage is a route to be avoided.

Photo Credit: Flicker User Matthew Hurst

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About the author

Doug Brake is a Telecommunications Policy Analyst with the Information Technology and Innovation Foundation. He specializes in broadband policy, wireless enforcement, and spectrum sharing mechanisms. He previously served as a research assistant at the Silicon Flatirons Center at the University of Colorado, where he sought to improve policy surrounding wireless enforcement, interference limits and gigabit network deployment. Doug holds a law degree from the University of Colorado Law School and a Bachelor’s in English Literature and Philosophy from Macalester College.