Concerns Over Comcast Merger

January 7, 2011

Late last month FCC Chairman Julius Genachowski began circulating an order approving the proposed merger of Comcast with NBC Universal. Throughout the regulatory approval process lawmakers, industry groups, and consumer advocates have called on the FCC and the Department of Justice Antitrust Division to block the proposed combination because it provides no public interest benefits, further consolidates control of media content and distribution capabilities, and will likely result in higher prices and harm to consumers and emerging markets. CCIA agrees with these concerns.

If allowed to move forward the Comcast-NBC entity would have unparalleled control over key content and delivery systems in the cable, broadcast television, and online marketplaces. A recent study by Professor William Rogerson of Northwestern University and a former chief economist for the FCC concluded that the proposed combination would cost American cable customers approximately $2.4 billion over the next nine years, in addition to the usual yearly price increases.

While increasing costs to consumers, the merged companies might actually offer downgraded services for those higher prices. For instance, Comcast would have an incentive to slow down the distribution of content from NBC’s competitors. It’s easy to imagine content from ABC, CBS, and Fox streaming slowly with “random” service outages for Comcast broadband customers, while NBC content, conveniently offered on the Comcast homepage, streams unhindered.

Comcast claims that it won’t undertake any of these nefarious activities to gouge customers, harm competitors, and improve its bottom line. Of course, Comcast also claims to quickly address customer complaints. Comcast’s customer service shortcomings are well known, so I wouldn’t hold my breath hoping promises to the FCC and DOJ are actually upheld without government enforcement of legal obligations.

One of the key claims Comcast makes is that if it were to restrict access to or slow down the delivery of competitor content, whether via cable television or broadband Internet, customers would simply migrate to another service provider. If you’re like broad swaths of the country, that migration simply isn’t an option. Tens of millions of consumers live in markets where there is only one choice for cable and Internet, and in many places that one choice is Comcast; market solutions are not available when the only choice is the monopolist.

Additionally, even if you aren’t a Comcast customer, you’re likely to bear the brunt of some of the $2.4 billion this deal will cost consumers. Once it acquires NBC, Comcast will control a myriad of cable channels, the NBC broadcast network and some local affiliates, and all the content produced and aired by those channels and NBC’s motion picture arm, Universal Studios. Control over such a large amount of content that consumers demand will allow the new company to charge other cable and satellite service providers more for this must-have content and bundle premium content and channels with undesirable content. All this will result in higher prices, regardless of which cable provider you use.

The new Comcast-NBC will not only harm consumers, but it will also have negative consequences for the developing online video marketplace. The new entity will be incented to withhold NBC Universal content from competitors of its own online video service to gain a stronger position in the market against Netflix. Withholding this content could also serve to quash the development of this nascent developing market, and as the only Internet Access Provider available to millions of Americans, Comcast could easily slow or block traffic to sites of competitor online video services to promote its own offerings.

For all those reasons the FCC and DOJ should either reject or strictly condition the Comcast-NBCU combination. The merger will not benefit the public – in fact it will result in additional costs to consumers, and it will result in competitive harm to the online video marketplace. The costs of this combination far outweigh any benefits, and Comcast, not the public, will surely capture those benefits.

Unfortunately, it appears that the FCC Chairman has decided to allow the merger to proceed. If DOJ makes a similar determination and the merger does occur, CCIA urges the agencies to adopt strict, enforceable, and long-lasting conditions.

According to reports, the FCC has identified five areas of concern with the merger: sharing content with other cable providers, blocking competing content to its own customers, sharing content with online video services, broadcast obligations, and media diversity.

We agree that these are the correct issues to focus on. Any approval of this merger must effectively limit Comcast’s exercise of dominant market power so this new, vertically integrated content and distribution company cannot use its newfound market power to harm consumers and destroy evolving markets.

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