How to tackle the great American cable monopoly

February 19, 2014 6:47 pm

How to tackle the great American cable monopoly

By Susan Crawford

The Federal Communications Commission has too often proved supine, writes Susan Crawford

What harm is there in merging Comcast, America’s biggest cable company, withTime Warner Cable, the second biggest? The trouble is not that it would create a slothful monopoly where once there was energetic competition. The industry has always been a patchwork of local monopolies. In 1997 the large operators reordered the map into a convenient tartan, with each controlling large contiguous territories. Leo Hindery, then chief executive of a cable company that was later absorbed by Comcast, called it the industry’s “summer of love”. These giants have never encroached on each other’s turf.

When the industry’s main product was pay television, this did not seem quite so insidious. Satellite operators and terrestrial broadcasters offered rival forms of entertainment, and consumers could get calls and dial-up internet from their telephone company instead. But now the ribbons of cable knotted across America’s cities and suburbs have become pieces of essential infrastructure, akin to an electrical grid or clean water system. Internet access over copper telephone lines or mobile networks cannot keep pace with services such as high-definition streaming video. Verizon’s ambitious plans to roll out a high-speed fibre optic network have ground to a halt. For households that want high-capacity internet access at the highest speeds, there is no alternative but to sign up with the local cable monopoly.

These companies are therefore under little pressure to cut prices or improve service. Americans are paying far too much for second-class service. For high-capacity connections, they pay more per megabyte than consumers in any developed country except Chile, Mexico and Turkey.

That the country that was the birthplace of the internet should have fallen so far behind testifies to a monumental failure of regulation. Too often the Federal Communications Commission has proved supine. This will not change without action from political leaders in Washington. That would take real courage, given the political power wielded by Comcast. The company and its executives have donated extensively to both main parties.

Yet all of this was true even before last Thursday when Comcast announced its proposed merger with Time Warner Cable. The trouble with the deal is not so much that it creates a monopoly seller of cable connections but that, by uniting two such monopolies, it creates a media empire that will wield immense power over many markets: internet access, applications such as telemedicine that use a lot of data, and television programming.

Most Americans who have high-speed internet access also take a pay-TV package. Comcast’s vast subscriber base – which stands at 22m homes and would expand to 33m as a result of the deal – gives it serious clout with the networks that supply this programming. If an upstart began laying its own cables, it would be unlikely to gain access to programming on anything like the same terms. Comcast tries to preserve this advantage by driving subscribers into bundled services. People who take a TV package receive a large discount on internet access. This limits the appeal of internet streaming services such as Netflix as a substitute for cable TV. In effect, customers who shun their cable company’s TV offering end up paying twice because they have to buy expensive internet access in order to get access to their chosen service.

Comcast’s advantage in content acquisition is not just a matter of price. As gatekeeper to such a large audience, it would be in a better position to demand onerous terms. We know from last year’s bust-up between Time Warner Cable and CBS, the television network, how these discussions go. The cable company was demanding constraints on CBS’s ability to distribute its content online, which would have made it harder for the cable companies’ rivals to obtain access to popular programmes. In the end TWC capitulated, signing an agreement that was more or less on CBS’s terms. Now that the cable companies have joined forces, they may not be defeated so easily.

Tom Wheeler, chairman of the FCC, has a problem. If he approves this deal he will be remembered as the former chief cable lobbyist who allowed the two largest operators to merge. If he blocks it, he will incur the wrath of two powerful entities while doing little to fix a market that is already broken.

Instead, he should concentrate on encouraging new entrants to the market for internet access, as he did this week when he suggested that municipal fibre networks should be allowed. He is rightly seeking to replicate the efforts of many small communities across America to create their own wholesale fibre infrastructure. A similar approach has proved successful in Stockholm and Seoul. This would loosen the grip of the cable monopolies on America’s future.

The writer, formerly the president’s special assistant for science, technology and innovation policy, is a visiting professor at Harvard Law School