By Gizem Orbey – Edited by David Curtis
“Internet access feels like clean water and energy, but it is treated like a luxury, and the whole country is forced towards a giant buffet,” explained Susan Crawford, the John A. Reilly Visiting Professor in Intellectual Property at Harvard Law School, at a JOLT talk on March 4, 2014.
Professor Crawford, who is also a Co-Director of the Berkman Center and a former White House Special Assistant, spoke about the significance of Comcast’s recent bid to buy Time Warner Cable (“Time Warner”) for $45 billion. The proposed merger would consolidate a third of the nation’s cable marketplace into Comcast’s hands. Lawmakers, consumer advocates, and academics worry that the merger would create monopoly conditions, giving Comcast enormous bargaining power with edge providers and electronic, mobile and broadcast device companies. Comcast and Time Warner currently do not complete directly. Through the proposed merger, Comcast seeks access to New York City, Texas, and other markets currently dominated by Time Warner.
The deal is likely to survive antitrust review from the Department of Justice (“DOJ”). The lack of regional overlap between the existing companies means that the consolidation would not reduce the number of cable options for any single consumer.
However, says Crawford, there is still cause for concern. For roughly 80% of Americans, the only available option for high-speed Internet access is their local cable monopoly. Comcast, which uses traditional wire cables, only faces head to head competition from Verizon FiOS, which uses fiber optics. In 2010, Verizon announced that it was not planning to lay any new fiber to expand its market. If the Comcast-Time Warner merger is approved, Comcast alone will control about half of the nation’s TV, phone, and Internet bundle services.
Currently, almost 90% of people who buy high-speed Internet access also buy pay-TV. Crawford analogizes these bundle services to a buffet, and it is almost impossible to buy Internet access a-la-carte. Comcast controls Cambridge, MA, for example, and acts as both a provider of cable infrastructure, a cable TV distributor, and an Internet service provider (“ISP”). Comcast charges more for Internet access only than for the Internet plus Digital Cable TV package. These bundles are the result of deals with content providers, who give distributors like Comcast discounts on cable programming, often as much as half-off. In return, the content providers are guaranteed to reach customers. Each bundle customer becomes two revenue-generating units (“RGUs”): one for the content companies, and one for the distributors.
The close relationship between distributors and content providers causes concern on multiple levels. First, it creates a high barrier to entry for new distributors seeking to break into the market: not only would a new cable competitor have to lay a cable infrastructure, it would have to pay twice as much as Comcast to get content onto its network. Second, the close relationship poses risks to net neutrality, risks already heightened by Verizon v. Fed. Commc’n Comm’n, No. 11-1355 (D.C. Cir. Jan. 14, 2014), in which a federal court denied the FCC’s right to regulate cable companies as common carriers. The combination of deregulation plus close relationships with content providers could allow distributors like Comcast to favor certain content over others. Comcast already merged with a major content provider, NBC Universal, in 2011.
Even an indirect reduction in competition means bad news for Americans, Crawford explained. As compared to other industrialized countries, we pay more for Internet that we get at much slower speeds — sometimes orders of magnitude slower, as compared to Korea, for example. We also have much slower upload speeds as compared to download speeds, which means our Internet is more “passive” than much of the Internet around the world. The fewer cable companies that exist, the more those companies get to call the shots — including how much to charge for cable, how many ISPs to let into the market using their infrastructure, and more.
Together, the FCC and DOJ will take about nine to twelve months to review the merger and make a final announcement of approval, said Crawford. The FCC shares jurisdiction over the merger with the DOJ because of the “jurisdictional hook” of license exchange: any time a communications license changes hands, the FCC has authority to review the action under a broad “public interest” standard. Crawford explained that the merger likely will be approved, as no cable merger has ever been disapproved by the regulatory duo. The FCC will likely use approval to do “back-door” regulation, incentivizing Comcast to agree to certain provisions in order to promote the public interest. Comcast already agreed to abide by net neutrality until 2018 in an earlier deal with the FCC.
Crawford ended her talk with an explanation of how Google Fiber stands to alter this landscape. She analogized Google Fiber to a World’s Fair exhibit — an opportunity to broaden the public’s imagination about how the future of communications could change. But Google Fiber will not solve the monopoly problems, she explained. Just as Comcast’s power is made problematic by virtue of its vertical integration with ISPs and with content providers like NBC, Google is also a vertically integrated company. Having another behemoth enter the scene would be a step in the right direction, said Crawford, but not nearly enough to promote the type of competitive market needed to benefit consumers. Currently, Google Fiber is engaged in talks to build fiber optics in 34 cities, covering roughly three million households, which would comprise only 3% of the country’s cable market.
What can individuals do? The solution is local, Crawford said. Cities like Stockholm have laid public fiber infrastructures using public funds or through private partnerships, and they have invited multiple ISPs to compete for licenses to use the fibers. Not only do such arrangements create competition among ISPs and drive the price of Internet access down for consumers, they also allow cities to reap an attractive profit from the licensing. Crawford believes this sort of arrangement could be viable in the U.S. She encouraged individuals to pressure their mayors to participate in developing ideas for local cable or fiber infrastructures.