Cable and Internet companies: Can’t live with them, can’t live without them. And if Comcast’s acquisition of Time Warner Cable is approved, most Americans will have a single choice for their telecomm services. Professor Maurice Stucke argues the merger will damage market competition and net neutrality—and he has joined the fight against it.
By Roger Hagy, Jr. Originally published in Tennessee Law, fall 2014.
So it’s Friday night, and you’re ready to finally catch up on the latest season of House of Cards on Netflix. You’ve got the popcorn ready, the lights dimmed, feet propped up, and you press play. You wait for the show to load and Kevin Spacey to appear. Instead, you watch the red progress bar slowly creep toward the right, bit by bit. A couple minutes pass, and the show begins with a grainy picture on your 60-inch TV. You wrinkle your nose at the quality, but watch a minute or so of the show, hoping the picture quality will improve. But the progress bar returns. Your popcorn’s cold, and you’re no longer relaxing on a Friday night. You suppose that you should go ahead and pay for that faster, more expensive broadband service through your cable company so that Netflix will run smoothly and hassle-free.
Just like it used to.
It may sound like an extreme hypothetical, but this Friday night may actually be in your future if you’re an avid Netflix fan or one of the growing number of Americans trying to “cut the cord” and quit cable altogether.
If Comcast’s proposed acquisition of Time Warner Cable (TWC) is approved by the Department of Justice (DOJ) and the Federal Communications Commission (FCC), Comcast’s cable, broadband, and telephone services will be available to 70 percent of consumers, says Maurice Stucke, associate professor of law. The choice for alternatives will be slim to nonexistent for most of those consumers. “We’re crossing the Rubicon,” Stucke says. “If Comcast is allowed to acquire Time Warner Cable, how can the DOJ not allow it to acquire smaller, similar companies?”
Comcast argues that the acquisition doesn’t lessen competition because it doesn’t compete with TWC in the same geographic markets. Stucke and his co-author, attorney Allen Grunes, argue this is wrong on several fronts.
For one, through Section 7 of the Clayton Antitrust Act, “Congress sought to prevent situations where ‘several large enterprises [were] extending their power by successive small acquisitions,’” Stucke and Grunes write in their June 2014 Global Competition Review article, “Crossing the Rubicon.” “Here Comcast is extending its power through a significant acquisition—one that expands its reach to most of the US population.”
Also important to consider is the very nature of the Comcast empire. Comcast is already the nation’s largest provider of cable television, Internet, and telephone services. “Comcast controls the pipes,” as Stucke and Grunes write. However, Comcast is also a significant content creator through broadcast television (NBC and Telemundo), cable networks (CNBC, MSNBC, USA), regional sports networks, and Hollywood studio Universal Pictures, which has worldwide reach through its movies. Therefore, the rise of Netflix and other online video programming distributors (OVDs) is at odds with Comcast’s interests in promoting its own content through its own services. Plus, Netflix, Amazon, and Hulu are also producing their own content (often successfully, in Netflix’s case, with hit shows like House of Cards, Orange Is the New Black, and Arrested Development). That original content further competes with Comcast’s cable services and content offerings.
“Netflix and other OVDs rely on Internet service providers [ISPs] like Comcast and TWC to deliver their television shows and movies to subscribers,” write Stucke and Grunes. “In acquiring TWC, Comcast will have even more power to thwart Netflix or other emerging OVD rivals by impairing or delaying the delivery of their content.”
Netflix in Slow Motion
In fact, Comcast may already be doing just that. In February 2014, Netflix agreed to pay Comcast for faster access to Comcast customers (or, as Comcast implied, to ensure smooth delivery of Netflix programming, which was taxing the Internet pipeline). Netflix has been outspoken in relaying its reluctance to agree to the deal, which they see as a slap in the face of net neutrality (the ideal in which ISPs like Comcast allow equal access to all web content and services without favoritism).
But it may have been a necessary evil, as illustrated in the graph below. For better or worse, the ISPs show gradual change in Netflix streaming/download speed. For some, like Cox, the speed has improved steadily over time, while for others, like Verizon DSL, it has steadily worsened. However, take a close look at Comcast’s speed. In late 2013, the speed for Comcast customers plummeted. Then, in February 2014—the month in which Netflix agreed to pay Comcast for faster access—Comcast’s speed skyrocketed.
Stucke says if the “toll” paid by Netflix truly reflected capacity constraints on Comcast’s network, we wouldn’t see such a dramatic increase in speed; the speed would gradually improve over time, as Comcast was able to add capacity. Not to mention that if Netflix were truly overloading the Internet, then there wouldn’t be such a strong disparity between the different ISPs’ download speeds—and the other ISPs would be joining Comcast in criticizing Netflix.
“Few Americans have a meaningful choice in broadband service providers: Comcast subscribers are largely stuck with Comcast,” Netflix wrote in an April 2014 letter to US Senator Al Franken (a major proponent of net neutrality). “By degrading consumers’ experience, Comcast can demand that content providers pay them a toll to avoid congestion and reach their captive subscribers. If content providers cannot effectively reach Comcast subscribers, they cannot compete. So they have little alternative for an uncongested connection unless they agree to Comcast’s terms.”
If a major player like Netflix—which has more subscribers than Comcast has for its cable services—can be coerced into paying for faster service, Stucke says, then what chance can any OVD stand against the merged Comcast and Time Warner Cable?
Pressing Pause on the Merger
The rights and interests of American consumers are at stake, as well. That’s why two groups approached Stucke and Grunes—both former attorneys for the DOJ’s Antitrust Division—to request their help in opposing the merger before the FCC and DOJ. As that case moves forward and the DOJ and FCC otherwise continue to look at the proposed merger, Stucke says Comcast will most likely argue that it will continue to be within the parameters of the DOJ’s previous judgment when Comcast acquired NBCUniversal—including extending net neutrality to TWC subscribers, an increase in broadband speed, expansion in rural and low-income areas, and divesting some subscribers to competing companies to remain below 30 percent of cable subscribers.
However, that isn’t good enough, says Stucke. “At what point does the DOJ become concerned and wonder whether its NBCU final judgment will protect suppliers and consumers?” write Stucke and Grunes. “The judgment, for example, requires Comcast to maintain its Internet access speed above a certain level. But the DOJ cannot know what a competitive market could bring…That is a fatal flaw of behavioral remedies. Comcast continues to deliver expensive and (according to some critics) inferior broadband. In the U.S., it lags [behind] Google [Fiber] and other Internet service providers. And there is less incentive for Comcast, after acquiring TWC, to innovate and compete.”
In another article, “The Beneficent Monopolist,” (published April 2014 in Competition Policy International), Stucke and Grunes write that combining two dominant companies like Comcast and TWC doesn’t improve service, lower prices, lead to more innovation, or give better choices to consumers.
“Comcast and TWC have not overcome the presumption of illegality for this merger and are unlikely to do so,” they write. “[The] DOJ should just say no.”