This morning, executives from Comcast and Time Warner Cable attempted to make a case to the Senate Judiciary Committee for the proposed $45 billion merger of the two companies, and the skeptical panel of lawmakers wanted to know what benefits this combination of the country’s two largest cable/Internet providers would bring to anyone other than the companies’ shareholders and the TWC execs who will be given huge paychecks to leave the merged company.
Numerous senators asked Comcast Exec. VP and merger mouthpiece David Cohen about his previous statement that Comcast could not guarantee to customers that cable rates would go down or that there would be a slow-down in how rapidly those rates have been increasing.
“Cable bills aren’t going to go down, rates could increase,” said committee chair Sen. Patrick Leahy of Vermont. “How specifically does it help the consumer?”
Responded Cohen, “There’s nothing in this transaction that will cause cable bills to go up.”
Throughout the hearing, Cohen and TWC Chief Financial Officer Art Minson repeatedly claimed that the merger would benefit consumers by allowing the merged company to provide faster Internet service, more programming, and a better WiFi network.
“Would these benefits not happen without a merger?” asked Sen. Amy Klobuchar of Minnesota.
Cohen admitted that these changes would go forward, but that “They will happen faster and with more certainty” as a result of the merger. He explained that the reason Comcast is currently ahead of TWC in improving its network is that it’s almost double TWC’s size.
“It’s this scale that leads to the investment and rapid deployment,” he explains.
Countered Gene Kimmelman, CEO of Public Knowledge, “With $45 billion, you could do a lot of things without having to buy the nation’s second-largest cable company.”
Kimmelman also took issue with any claims that the merger would have pro-consumer results, as providing more affordable, quality service is “anathema” to everything Comcast is about.
Cohen repeatedly tried to make the point that, “Consumers are in the driver’s seat” and that there are a “vast number of competitive choices,” citing a 2013 FCC report that concluded that 98.6% of American households have access to at least three options for pay-TV.
Of course, that is just TV and in almost all of those cases, two of the three options are either DirecTV or Dish, which don’t offer broadband services that compete with Comcast or TWC.
Comcast once again tried to pat itself on the back for abiding by the FCC’s net neutrality rules, even though a federal appeals court recently gutted them.
Sen. Leahy pointed out that Comcast is still adhering to these guidelines because that was a condition of its recent acquisition of NBC Universal.
“Will you apply Open Internet rules beyond 2018?” asked Leahy.
To which Cohen provided the vague response of saying that it was likely because the FCC is currently drafting a new version of those neutrality rules.
“I can’t imagine the commission isn’t going to have those rules in place before 2018,” said Cohen.
Leahy questioned Time Warner Cable’s motives for the merger, citing the huge golden parachutes set to be paid out to TWC execs, like the $80 million slated for CEO Rob Marcus, after only a couple months on the job.
“You’ll get $27 million for less than a year as CFO,” Leahy asked Minson, asking who benefits from these big payouts.
“The north star for us is what’s best for the consumer,” explained Minson. “For transactions this size, this complex, I think you’ll find that they’re in line.”
In addition to claiming that the merger partners don’t currently compete, Comcast and TWC tried to position themselves as competitors to the much larger telecom companies.
“The decision of the companies to combine reflects the increasing rivalry and experimentation among national and global companies,” wrote Cohen and Minson in a joint prepared statement for the committee, “including such powerful companies as AT&T, Verizon, DirecTV, Dish, Amazon, Apple, Sony, Google, Netflix, and Facebook in competing for consumer attention and loyalty across the broadband ecosystem.”
At the hearing, Cohen echoed that notion, stating that “bigger is a good thing,” as an increase in Comcast’s size “enhances our ability to compete more effectively.”
But since there is no actual competition in the cable industry proper, he cited broadband and pay-TV services from telecoms like AT&T as competition. These larger, more varied companies, have access to a national audience, contends Comcast.
Regarding concerns that a merged Comcast/TWC would have too much leverage in negotiations with broadcasters and other suppliers, leading these companies to accept lower fees and possibly seek higher fees from other cable companies, Cohen claimed that broadcasters will always negotiate to get the highest price possible from every vendor and that the merger would have no effect on broadcasters’ negotiations with other providers.
“It’s a nice economic theory,” responded Kimmelman, saying the reality is much different. “Comcast will be in the driver’s seat,” in negotiations if a merger is allowed, he contends. “You’re either on their system, or you’re not… The ramifications will cascade through the economy.”
Sen. Al Franken of Minnesota, who has been vocal in his disapproval of this merger, said that he’s received complaints from more than 100,000 consumers who oppose the deal.
Franken also charged Comcast with trying to have its cake and eat it too with regard to the issue of competition.
During the merger process of its acquisition of NBC Universal, Comcast attempted to placate regulators by saying that they shouldn’t worry about the vertical integration of a cable company and a national broadcaster because there were “robust” competitors like TWC around. Comcast also said at the time that the NBC deal should be approved because Comcast wasn’t getting any larger in the cable distribution business.
But now, Comcast is claiming that TWC is not a competitor, and obviously an acquisition of TWC would significantly increase Comcast’s cable distribution business.
“You can’t have it both ways,” said Franken. “Comcast will never again have to negotiate with TWC over NBC content.”
Kimmelman, who previously worked as an antitrust counsel at the DOJ, echoed this sentiment, explaining that geographic overlap (or lack thereof) will not be the sole issue involved in regulators’ competitive analysis of this merger.
“Do they have excess market power… Can they harm quality?” are additional questions that will be asked in the months ahead.
One of Comcast’s big arguments in justifying the merger is the growth of wireless broadband. In its recent filing with the FCC, Comcast made the case that 4G LTE service is available in almost every market where a combined Comcast/TWC would exist, and that LTE service delivers data speeds that are sometimes in excess of what a home user would need for even the most bandwidth-heavy content.
But Kimmelman told the committee that there is not yet an apples-to-apples comparison to be made between wireless and wired broadband.
“The technology is better, but when you look at the price and the data caps, the price for the same amount is about ten times higher,” he explained. “We’re hopeful, and maybe that will be the future… We have to be careful about pollyanna-ish predictions about competition.”
Sen. Richard Blumenthal from Connecticut opened up the discussion of regional sports networks, of which Comcast owns many — around a dozen in the nation’s top markets.
“These are unique products of tremendous value,” explained the senator. “The cost of sports programming continues to rise with no ends in sight… any competitors that won’t pay your increased costs for sports programming won’t get access.”
Which is exactly the case in a number of cities, including here in Philadelphia where Comcast’s local sports network is still not available on either Dish or DirecTV. Blumenthal expressed concerns that these problems would only get worse with the TWC acquisition.
“Will the merger give combined company means and incentive to overcharge for economically crucial element of programming?” asked the senator.
Cohen contends that since these regional networks are not national in scope, “there’s nothing really in this transaction that changes that competitive dynamic in any part of the country.”
Blumenthal counters that the merger “increases the bargaining power for the entity that controls the programming,” implying that a company like Comcast would have even more leverage to demand higher fees from competitors for access to these already-pricey local offerings.