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Good news for consumers: Comcast is reportedly dropping its purchase of Time Warner Cable

Comcast exec David Cohen is a key advocate for the merger.
Comcast exec David Cohen is a key advocate for the merger.
Larry Busacca/Getty Images

Comcast intends to abandon its plan to acquire Time Warner Cable after it was met with skepticism from regulators, according to Bloomberg. The firms are the largest and second-largest cable companies in the United States, respectively; the merged firm would have been vastly larger than its rivals, with about 30 million subscribers.

The failure of the merger would be good news for consumers, as the combined company would have an outsize and likely detrimental impact on competition in both the internet and video markets.

At first blush, it might seem like the transaction shouldn't have much effect on consumers. The service areas of traditional cable companies don't overlap, so combining Comcast and Time Warner Cable won't reduce the number of options customers have for cable or internet service.

But cable companies don't only operate in the consumer market. They also negotiate with network owners and content providers on the "back end" of their networks. And here, size has a huge — and problematic — impact on the competitiveness of the market.

A good example of this is Comcast's dispute last year with Netflix. Netflix says Comcast strong-armed it into paying unfair tolls to deliver content to Comcast's own customers. Comcast says it was just an ordinary commercial dispute.

The dispute put the FCC in an awkward position, because it's hard to draw a clear line between legitimate business practices and monopolistic ones. The FCC probably doesn't want to get bogged down with policing the terms of each of the hundreds of peering agreements made between cable companies and ISPs. Yet Netflix, as well as ISPs such as Level 3 and Cogent, have raised some legitimate concerns about Comcast's business practices; ignoring them entirely isn't a good option, either.

This is a problem created by Comcast's vast size. Small ISPs don't have the leverage to make the kinds of demands Comcast (and Verizon, another massive ISP) have made of companies such as Netflix. In a more decentralized broadband market, the FCC could leave these kinds of peering negotiations to the free market. But as the broadband market gets more concentrated, the danger of broadband companies abusing their power becomes correspondingly larger. The Federal Communications Commission recognized this dynamic earlier this year when it made interconnection part of its new network neutrality regulations.

The merger would have made Comcast even bigger, giving it even more leverage in negotiations with Netflix and others. That would increase the need for regulatory oversight to ensure Comcast doesn't abuse its market power.

And the same point applies to the cable television market. Comcast negotiates with big content companies like Fox and Disney for access to their content. Right now, some of these media conglomerates have a pretty strong bargaining position. That allows market forces to keep cable companies in check.

Adding Time Warner Cable's heft to Comcast's would have produced a cable behemoth whose business practices would require closer watch from regulators. It's hard to predict exactly what kinds of problems might crop up from such a combination. But allowing one of America's least competitive industries to become even more concentrated would likely have made things worse, not better.