What Net Neutrality Means for the Comcast Deal
The FCC's new aggressive Internet regulations could be good—or bad—news for the merger with Time Warner Cable.
The Federal Communications Commission took a hard line on net neutrality, enacting tough regulations that dramatically expand its powers over Internet providers. Now, everyone is trying to read the tea leaves for what that means for the agency's next big decision: Comcast's $45 billion bid to buy Time Warner Cable.
Like net neutrality, the government's decision on the Comcast merger could shape the future of Internet access in the United States. The deal would combine the nation's two largest cable providers, giving a single company control over nearly 60 percent of the high-speed broadband market, according to the FCC's market analysis.
The commission has fewer than 20 days left on its 180-day "shot clock" for issuing a decision. That clock isn't binding—nothing happens if the FCC needs more time. And the Justice Department's Antitrust Division will issue its own decision on the deal. In the meantime, there's time to speculate.
WHY NET NEUTRALITY IS GOOD FOR THE DEAL
The FCC's strong net neutrality rules address many of the fears about how a supersized Comcast could abuse its market power and act as an Internet "gatekeeper." Under the rules, no Internet provider can block online content, selectively slow down traffic, or offer "fast lanes" for sites that pay more.
(RELATED: The Rise and Rise of Tech and Telecom Lobbying)
The FCC also will have the authority for the first time to police disputes about congestion on the back end of the Internet. That power could allow the agency to address Netflix's complaint that Comcast and other large Internet providers have been charging exorbitant fees to load traffic onto their networks. While small Internet providers are eager to accommodate the massive volumes of Netflix traffic, larger providers like Comcast have the market power to demand that Netflix pay for interconnection arrangements.
While the rules don't explicitly ban Internet providers from charging for those special connection deals, they do require the providers to charge "just and reasonable" rates. The net neutrality rules also give the FCC the authority to go after companies that use monthly data limits to hurt consumers or competition.
So no matter how big Comcast gets, its power to manipulate Internet traffic will be strictly limited by the regulations. Paul de Sa, an analyst at Sanford C. Bernstein & Co, thinks the deal will probably win approval.
"On the margin, it might be slightly harder to argue the antitrust case as the net neutrality rules notionally prevent many of the competitive harms that post-merger Comcast is alleged to be able to cause," he explained.
On a purely political level, the FCC's hard line on net neutrality could give it cover to go easier on the Comcast deal. Enacting weak net neutrality rules would have prompted a massive public backlash and pressured the FCC to crack down on the cable companies. The tough rules likely give the FCC some political breathing room to go either way on the merger. Even if he backs the deal, FCC Chairman Tom Wheeler will likely be remembered more for his strong stand on an open Internet.
WHY NET NEUTRALITY IS BAD FOR THE DEAL
It might be wishful thinking on Comcast's part to believe that the same agency that just enacted sweeping Internet regulations will approve a major consolidation of the industry. Wheeler, in fact, has made "competition, competition, competition" a sort of mantra. And competition in the broadband industry is sorely lacking, he has said.
The lack of broadband competition was an important rationale behind the FCC's decision to reclassify broadband as a "telecommunications service" in order to enact strong net neutrality regulations. "The deal is a bit harder to envision now in light of reclassification," said Craig Moffett, an analyst for MoffettNathanson.
The opponents of the Comcast merger aren't letting up in the wake of tough new regulations. "The net neutrality rules do not come close to solving the many harms of Comcast-Time Warner, which no conditions can alleviate," Jeffrey Blum, the deputy general of Dish Network, said on a recent call with reporters.
(RELATED: Can Net Neutrality Survive the Impending Onslaught of Lawsuits?)
The biggest fear, Blum said, is that Comcast still could strangle competition from new online video services by demanding exclusive online rights from media companies like Viacom or Disney. Because the combined company would be so massive, media companies would feel they had to comply with its demands for their cable channels to reach Comcast-TWC's 30 million homes, Blum warned.
John Bergmayer, a senior staff attorney for the consumer group Public Knowledge, agreed that Comcast-TWC would have the market power to determine the future of online TV, even with net neutrality restrictions. "Sure they'll welcome online video—as long as its online video that they control," Bergmayer said on the call with reporters.
Public Knowledge and Dish are both members of Stop Mega Comcast, the not-so subtly named coalition lobbying against the deal. Dish is planning to launch its own online TV service.
But Comcast argues the fears are overblown. The company notes that in addition to the net neutrality regulations, conditions on its 2011 purchase of NBCUniversal limit its ability to restrict online video. Those conditions expire in 2018.
"Dish not wanting stronger competitors isn't surprising and it isn't new," a Comcast spokeswoman said. "Any issues regarding NBCUniversal programming and other video services, whether they be traditional or over the top [online] are already amply covered by pre-existing FCC rules and deal conditions."
The strongest argument in defense of the merger is that Comcast and Time Warner Cable don't overlap in any areas. So allowing the companies to merge wouldn't mean fewer choices for consumers. But opponents fear that following that logic to its conclusion would essentially put no limits on Comcast's growth, allowing it to eventually cover the entire country.
WHY NET NEUTRALITY IS GOOD FOR THE DEAL
The FCC's strong net neutrality rules address many of the fears about how a supersized Comcast could abuse its market power and act as an Internet "gatekeeper." Under the rules, no Internet provider can block online content, selectively slow down traffic, or offer "fast lanes" for sites that pay more.
(RELATED: The Rise and Rise of Tech and Telecom Lobbying)
The FCC also will have the authority for the first time to police disputes about congestion on the back end of the Internet. That power could allow the agency to address Netflix's complaint that Comcast and other large Internet providers have been charging exorbitant fees to load traffic onto their networks. While small Internet providers are eager to accommodate the massive volumes of Netflix traffic, larger providers like Comcast have the market power to demand that Netflix pay for interconnection arrangements.
While the rules don't explicitly ban Internet providers from charging for those special connection deals, they do require the providers to charge "just and reasonable" rates. The net neutrality rules also give the FCC the authority to go after companies that use monthly data limits to hurt consumers or competition.
So no matter how big Comcast gets, its power to manipulate Internet traffic will be strictly limited by the regulations. Paul de Sa, an analyst at Sanford C. Bernstein & Co, thinks the deal will probably win approval.
"On the margin, it might be slightly harder to argue the antitrust case as the net neutrality rules notionally prevent many of the competitive harms that post-merger Comcast is alleged to be able to cause," he explained.
On a purely political level, the FCC's hard line on net neutrality could give it cover to go easier on the Comcast deal. Enacting weak net neutrality rules would have prompted a massive public backlash and pressured the FCC to crack down on the cable companies. The tough rules likely give the FCC some political breathing room to go either way on the merger. Even if he backs the deal, FCC Chairman Tom Wheeler will likely be remembered more for his strong stand on an open Internet.
WHY NET NEUTRALITY IS BAD FOR THE DEAL
It might be wishful thinking on Comcast's part to believe that the same agency that just enacted sweeping Internet regulations will approve a major consolidation of the industry. Wheeler, in fact, has made "competition, competition, competition" a sort of mantra. And competition in the broadband industry is sorely lacking, he has said.
The lack of broadband competition was an important rationale behind the FCC's decision to reclassify broadband as a "telecommunications service" in order to enact strong net neutrality regulations. "The deal is a bit harder to envision now in light of reclassification," said Craig Moffett, an analyst for MoffettNathanson.
The opponents of the Comcast merger aren't letting up in the wake of tough new regulations. "The net neutrality rules do not come close to solving the many harms of Comcast-Time Warner, which no conditions can alleviate," Jeffrey Blum, the deputy general of Dish Network, said on a recent call with reporters.
(RELATED: Can Net Neutrality Survive the Impending Onslaught of Lawsuits?)
The biggest fear, Blum said, is that Comcast still could strangle competition from new online video services by demanding exclusive online rights from media companies like Viacom or Disney. Because the combined company would be so massive, media companies would feel they had to comply with its demands for their cable channels to reach Comcast-TWC's 30 million homes, Blum warned.
John Bergmayer, a senior staff attorney for the consumer group Public Knowledge, agreed that Comcast-TWC would have the market power to determine the future of online TV, even with net neutrality restrictions. "Sure they'll welcome online video—as long as its online video that they control," Bergmayer said on the call with reporters.
Public Knowledge and Dish are both members of Stop Mega Comcast, the not-so subtly named coalition lobbying against the deal. Dish is planning to launch its own online TV service.
But Comcast argues the fears are overblown. The company notes that in addition to the net neutrality regulations, conditions on its 2011 purchase of NBCUniversal limit its ability to restrict online video. Those conditions expire in 2018.
"Dish not wanting stronger competitors isn't surprising and it isn't new," a Comcast spokeswoman said. "Any issues regarding NBCUniversal programming and other video services, whether they be traditional or over the top [online] are already amply covered by pre-existing FCC rules and deal conditions."
The strongest argument in defense of the merger is that Comcast and Time Warner Cable don't overlap in any areas. So allowing the companies to merge wouldn't mean fewer choices for consumers. But opponents fear that following that logic to its conclusion would essentially put no limits on Comcast's growth, allowing it to eventually cover the entire country.