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Five Reasons Why Critics of Comcast’s Time Warner Cable Deal Are Feeling Hopeful

It’s still early days in the government’s review of the deal, but some signs appear ominous.

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It could be months before regulators decide if they’ll allow Comcast to buy Time Warner Cable, but critics of the deal are already sounding cautiously optimistic it’ll either be killed or heavily conditioned.

Comcast* officials say it’s way too early to start reading the tea leaves, with a spokeswoman noting that it’s “standard for the DOJ and FCC to do a thorough review of significant transactions, and we’ve always expected that.”

At the very least, federal regulators have taken out the magnifying glass. For the moment, government officials aren’t even talking yet about what conditions could be imposed on Comcast to allay concerns about the merger, according to several people close to the investigation.

“It’s a very serious review,” Gene Kimmelman, president of public interest group Public Knowledge, said in an interview. Kimmelman worked at the Justice Department’s antitrust division in 2011 when it killed AT&T’s $39 billion dream of owning T-Mobile.

1. Many, Many Complaints

Consumers rarely like cable or phone company mergers, mostly because they worry their bills will go up and the customer service will go down. The FCC has already gotten 81,000 comments, mostly from consumers.

Comcast, in particular, has a long history of customer service woes, which is why it won, for a second time this year, Consumerist’s dreaded “Golden Poo” award. Both Comcast and Time Warner Cable rank at the bottom of customer satisfaction surveys, according to the American Customer Satisfaction Index.

Comcast notes that hundreds of supportive lawmakers, local officials and nonprofits have asked regulators to approve the deal.

But corporate opponents are also weighing in. At least 19 parties have asked regulators to kill the acquisition, including Dish Networks, Netflix, Frontier Communications and Internet backbone provider Cogent Communications. Even a Miami-Dade refrigeration supply business owner who has spent nine years trying unsuccessfully to get Comcast to pay for roof damage he says was caused by one of their contractors, has asked regulators to deny it.

By contrast, the other big merger currently under review — AT&T’s $48 billion deal to buy DirecTV — attracted just five petitions to squash the merger, mostly from consumer groups.

2. Conditions? What Conditions?

Regulators usually impose conditions, or restrictions, on the company making a large acquisition — partly to make sure it plays fairly with competitors.

Comcast has already made some voluntary commitments to get the deal approved, but regulators are taking a closer look at industry complaints the cable giant hasn’t abided by conditions imposed on its acquisition of NBCUniversal three years ago.

For example, Bloomberg LP, which owns a cable network, filed a complaint against Comcast for failing to place its channel near other news channels, particularly Comcast-owned competitor CNBC. Comcast lost the suit after the FCC sided with Bloomberg.

Two years ago, the FCC fined Comcast $800,000 for not making it easy enough for customers to discover the $49.95 stand-alone Internet service the company had agreed to offer as a condition of its deal to acquire NBCUniversal in 2011.

In both cases, Comcast denied violating any merger conditions.

3. National or Local?

Comcast has repeatedly said that buying Time Warner Cable won’t decrease competition since the two companies don’t overlap in any markets, meaning a consumer will have no less choice if the merger goes through.

That’s true when you think about competition from a local perspective, but when it comes to broadband, antitrust officials may be looking at things more nationally, according to several people close to the deal.

The combined company would control at least 40 percent of the consumer market for broadband speeds of 25 Mbps or above, according to some estimates.

“We’re raising the question — they’ll have 40 percent of residential Internet — what does it mean when one company has that kind of control?” Netflix CEO Reed Hastings, about Comcast at the Code Conference.
“We’re raising the question — they’ll have 40 percent of residential Internet — what does it mean when one company has that kind of control?” Netflix CEO Reed Hastings, about Comcast at the Code Conference.

Comcast supporters argue the government has previously defined the broadband market on a local level. But the Feds famously reversed course in market definitions three years ago, when they declared the wireless market national (not local) and torpedoed AT&T’s bid to buy T-Mobile.

Some senior FCC officials always viewed the Comcast-TWC deal as more of a deal about Internet access. That’s why FCC Chairman Tom Wheeler’s recent speech about how the residential broadband market isn’t very competitive was seen as a bad thing for Comcast.

4. Some Call It Extortion

Companies and interest groups almost always use a big merger review as an opportunity to seek something from the company on the hot seat, whether it’s the promise of short-term rate freezes, discounted PCs for low-income kids or more favorable terms on a contract.

If they can’t get the company to cough up something voluntarily, they’ll ask the FCC to make their requests a condition on the deal. Sometimes it works, sometimes it doesn’t.

Consequently, Comcast’s extraordinary attack on some competitors — saying they have tried to extort the cable giant — raised eyebrows. Comcast’s critics point to the letter as evidence that complaints about the deal are gaining traction and that Comcast is sweating.

(Comcast officials have repeatedly taken issue with that characterization.)

5. Ties to Net Neutrality

Comcast is the only Internet provider still subject to the FCC’s now-defunct net neutrality rules, thanks to a condition of the NBCUniversal deal. The company would extend that protection for Time Warner Cable subscribers if the deal is approved.

The FCC is currently rewriting the net neutrality rules, and while it doesn’t have anything directly to do with the Comcast deal, political considerations are likely to tie the two together. As industry analyst Craig Moffett recently wrote, the deal is “for better or worse, inextricably tied to this net neutrality battle.”

“I do believe we have competition in the broadband market,” Comcast CEO Brian Roberts said at the Code Conference. “I don’t think phone regulation ever resulted in a great phone system.”
“I do believe we have competition in the broadband market,” Comcast CEO Brian Roberts said at the Code Conference. “I don’t think phone regulation ever resulted in a great phone system.”

FCC Chairman Tom Wheeler’s first attempt to craft net neutrality rules was a bit of a disaster. He is now trying to write rules that will protect both consumers and Web publishers, while avoiding an all-out fight with Internet providers like Comcast that don’t want the FCC regulating them their lines like old phone networks.

Politically, it would look pretty shady for Wheeler, a former cable lobbyist, to propose weak net neutrality rules and approve Comcast’s deal without strong conditions.

Are these developments proof that Comcast’s Time Warner Cable deal is going south? Maybe not. But they help explain why Comcast’s opponents are a bit cheerier today than they were eight months ago when the deal was announced.

* Comcast owns NBCUniversal, which is a minority investor in Revere Digital, Re/code’s parent company.

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