Comcast-Time Warner Merger Would Hurt Municipal Broadband
If the feds allow two of the biggest cable companies to combine, municipalities would lose even more power to create high-quality, low-cost publicly owned broadband services for their citizens.
Remember Adelphia Cable? How about Susquehanna Communications? Or Renaissance Media? Maybe TCI rings a bell? These largely forgotten cable company names are part of what was once a broad and diversified cable TV industry, with more than 40 players. Today, there are four big players dominating the market: Comcast, Time Warner, Charter and Cox. And soon we may be down to just three.
In March, Comcast announced it would buy Time Warner Cable Inc. The U.S. Department of Justice and the Federal Communications Commission (FCC) will review the proposed merger, which many object to because they say it will create something close to a monopoly in cable service. But the biggest losers if the merger goes through may be cities and towns, who will lose the ability to create high-quality, low-cost, publicly owned broadband services for their citizens.
Comcast claims the deal is good for a number of reasons, starting with lower operating costs from combined efficiencies and economies of scale that could lower prices or raise the quality of service. The companies say competition wouldn't be hurt because they don't have overlapping service areas, and the combined company would only control 30 percent of the pay TV market and approximately 33 percent of the broadband market.
But when you remove satellite Internet services from the equation, Comcast actually has as much as 55 percent of all TV and broadband subscribers, according to the Economist, which also pointed out that three-quarters of households have no choice other than their local cable provider when it comes to Internet access. A combined Comcast-Time Warner, according to the publication, would control 20 of the top 25 cable markets.
As for lower operating costs from a merger turning into lower cable prices, don't count on it. "Between 1995 and 2012 the average price of a cable subscription increased at a compound annual rate of more than 6 percent," the Economist reported, despite the fact that nearly 40 cable companies merged during this time period, supposedly to generate greater efficiencies and lower costs for consumers.
If previous cable mergers didn't really lower consumer prices, what about better quality, such as faster speeds? Again, evidence seems to indicate that despite the wave of mergers, quality -- in terms of faster Internet speed -- has been mediocre when compared with what's happening elsewhere. Today, the average broadband speed in the United States is 7.4 megabits per second (Mbps), which ranks eighth in the world. Americans also pay an average $6.14 per Mbps, making our broadband the most expensive in the world, according to Akamai, an Internet technology company.
Christopher Mitchell, director of the Telecommunications as Commons Initiative at the Institute for Local Self-Reliance, believes cities and towns will lose big if the deal goes through. Partially thanks to Comcast and other cable giant's lobbying, 19 states have already passed laws that ban or restrict local communities from setting up publicly owned alternatives to the dominant provider in the area. Municipalities that pursue publicly owned broadband often cite several reasons for their efforts, ranging from lack of competition and choices in the area to a desire for faster speeds at lower costs. But Mitchell fears the lobbying power of a combined Comcast-Time Warner would choke off what little leverage remains for local governments when it comes to gaining state approval to build publicly owned broadband networks.
Lobbyists have told state legislatures that the market is working fine and that any publicly owned broadband and cable services would be the end of American capitalism. A new entity would give Comcast so much more clout in terms of business and with the state and federal governments in terms of lobbying power. According to Mitchell, Comcast has lobbyists in every state capital working to keep local governments from offering alternatives, and last year, the company spent $18.8 million on just federal lobbying, according to the Center for Responsive Politics.
Cable lobbyists argue that local governments don't know how to run broadband or cable networks and will make bad choices with taxpayer money, leading to higher taxes -- though there's scant evidence this has happened, according to Mitchell. Advocates for local control combat that argument by pointing out that many cities and towns have been in the electrical and water utility business for decades without harming capitalism and that most cities that want to run their own broadband services usually seek out a trusted private partner to operate the service.
Local governments now realize that high-speed broadband is no longer just a consumer issue, but has become an increasingly important driver of economic development, and that cable and DSL (Internet service over phone lines) just aren't fast or reliable enough in a global economy where high-speed fiber is becoming the new norm. Writing for Bloomberg View, Susan Crawford, a professor at Harvard Law School and outspoken opponent to the merger, wrote, "let's allow mayors to build alternative fiber-optic networks such as the one in Chattanooga, Tennessee, that has lured businesses and spurred economic growth." Crawford says the country needs a new industrial policy brought about by the kind of leadership that gave the country the federal highway system and national electrification.
Chattanooga has some of the fastest Internet services of any city in the country, thanks to its municipal electric power board, which beginning in 2008 installed a fiber-optic network that provides users with connections that start at 50 Mbps and rise to 100 Mbps. Businesses can subscribe to speeds up to 1 gigabit per second, which is 200 times faster than the average speed in the rest of the country. The municipally-owned fiber network generates profits for the EBP, which also uses the network to increase the reliability of its electrical grid, thanks to the installation of thousands of intelligent switches and meters. Since EBP lit up the fiber service four years ago, 56,000 businesses and individuals have become subscribers, and costs have dropped for its fastest 1 gigabit service from $300 per month two years ago to just $70 per month today.
Perhaps as a sign that the time has arrived for fiber-optic broadband, AT&T announced in April that it's considering providing very high-speed services in 21 metro areas. Meanwhile, Google has fiber-optic Internet projects underway in Austin, Texas; Kansas City, Missouri; and Provo, Utah. But it's unclear just how robust these investments and initiatives are as an alternative to the long dominant cable services that serve most markets, according to Mitchell.
"Judging by the amount of opposition to the merger, I think people are seeing that we're at a tipping point and that there are ways they can make investments at the local level and control their own destiny," said Mitchell. "A lot of people and local businesses understand that the Internet is really important and that we can't trust it to a few corporations. But I don't see that level of understanding from most elected officials yet."
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