California Utilities Commissioner Calls For Rejection Of Time Warner Cable Deal

With Comcast set to take over Time Warner Cable’s millions of California customers, state regulators there have been scrutinizing the deal to see how it would affect consumers. Earlier this year, the state’s Public Utilities Commission (CPUC) suggested a number of conditions that would make the merger more acceptable, but today a CPUC commissioner publicly called for the state to block the marriage of Comcast and TWC, at least in California.

Mike Florio, one of four commissioners and a president who make up the CPUC leadership, issued an alternate proposal [PDF] that would deny the transfer of TWC operations in California to Comcast. It also proposes denying transfer of control of some Bright House and Charter systems in the state to the merged Comcast/TWC.

“The proposed merger would create the largest broadband service provider in the United States,” reads the proposal, pointing out that the combined companies would control around 40% of the broadband market in the U.S., and that this percentage would be higher if you go by the recently up-revised definition of “broadband” to mean 25Mbps downstream and 3Mbps up. “In addition, the merger would more than double the size of Comcast’s footprint in California, increasing the number of California households served by Comcast from approximately 34 percent to 84 percent,” much higher than the national average of around 60%.

If the merger is allowed, the Herfindahl-Hirschman Index, which measures market concentration within an industry, for fixed broadband service in the U.S. (7,895) would be more than three times the level at which a market is considered “highly concentrated” (2,500). An HHI of 10,000 is considered a full monopoly. Florio contends that, “just based on the significant increase in HHI this merger should be denied.”

And that’s just for any sort of broadband service. When you factor in the higher-speed Internet access (25 Mbps and up), the proposal states that “Comcast will have a monopoly in approximately 78 percent of census blocks.”

Furthermore, contends Florio, “the transfer of Charter customers to Comcast in California… will eliminate another competitor in a market that is already lacking in competition.”

While Comcast and TWC might not compete with each other anywhere in California, the existence of two major providers has allowed the state to compare the two in terms of reliability, customer service, prices, and service offerings “in order to gauge the companies’ relative performances and contribution to the state.”

But, as Florio notes, “eliminating this benchmark will harm consumers’ ability to compare suppliers’ relative performance and prices and enhance Comcast’s already substantial ability to set the bar for consumers’ expectations.”

Speaking of which, the proposal points out that consumers have come to expect very little from either TWC or Comcast.

It calls out recent J.D. Power rankings of ISPs, where Comcast’s Xfinity came in 7th place out of 8 providers in the West region and achieved the lowest possible scores in 4 out of 5 categories.

“Time Warner is slightly above at #6, while Charter was closer to the top at #4,” notes the proposal. “Looking back over a longer period from 2009-2014, in five of the last six years J.D. Power’s studies assigned Comcast and Charter Communications a sub-average score for Overall Customer Satisfaction. In each of the six years from 2009-2014, Time Warner failed to earn one average mark for overall customer satisfaction.”

Not to mention the American Customer Satisfaction Index, where Comcast, Charter and TWC bring up the rear among ISPs and among all consumer-facing companies in the U.S.

These are just a few of the problems brought up in the proposed denial of the service transfer. CPUC will be holding a public hearing regarding the merger on April 14 in Los Angeles. The commission is expected to vote on the deal as early as May.

The release of the proposed denial was applauded by opponents of the Comcast/TWC merger, including our colleagues at Consumers Union, whose objections to the deal are noted in Florio’s proposal.

“This mega merger is a lousy deal for California and the nation,” said Michael McCauley of Consumer Union. “We can’t afford to let one corporation have so much control over our choices and how much we’ll pay to connect and communicate.”

“California creators, innovators and now regulators are coming to realize what consumers have long known: allowing the two largest cable companies to merge would stifle innovation and choke off creativity,” said Todd O’Boyle, Director of Media and Democracy for Common Cause.

The Writers Guild of America, West has been very vocal of its concerns about the merger and today was no different.

“Handing Comcast a near-monopoly in high-speed Internet service in California threatens continued progress towards a more diverse and competitive media landscape,” reads a statement from the WGA. “The decision correctly recognizes that the merger would cause too much harm to Californians, and no conditions can effectively mitigate these harms.”

If CPUC voted to deny the transfer of TWC service to Comcast in California, it wouldn’t kill the deal outright. More than likely, Comcast would go to court to challenge the state’s authority to restrict the acquisition, as control of the L.A. market is one of the main reasons it is purchasing TWC.

In the end, California may ultimately be able to use the threat of a lengthy legal battle as leverage to get Comcast to agree to merger conditions that would benefit the state. In the draft conditions released in February, the CPUC recommended 25 conditions — a number of them involving improvements to Comcast’s Internet Essentials program for low-income consumers. Thus far, Comcast has objected to making Essentials easier to access and remain enrolled in.