Comcast-NBC Merger is All About Money, Politics

[Source: The Sacramento Bee, by Susan Crawford, September 15, 2010]

Comcast is the biggest high-speed Internet access company, the biggest cable company and the third largest phone company in the United States. It has about 50 million high-speed Internet, voice and TV customers. It would like to merge with NBC Universal, one of the five media conglomerates that control almost every TV viewing hour in America.

The merger is under review by the U.S. Department of Justice and the Federal Communications Commission; so far, from Comcast's perspective at least, things are going well. But a staffer on Capitol Hill said to me the other day that the way the Comcast-NBCU merger is going should disturbing anyone who cares about the relationship between money and politics.

The merger could be a case study in well-run lobbying. Right out of the gate, Comcast identified what its weaknesses were and started fighting off – or buying off – anyone who might validate those weaknesses. Comcast spent nearly $90 million in the first two quarters of 2010 on efforts to support the deal; promised $20 million in venture funding for minority entrepreneurs; pledged $6 million to support independent productions; agreed to place a Latino member on its corporate board of directors; made deals with NBC's affiliates; and hired (with NBCU) more than 100 former government employees to shepherd the deal through – including several former chiefs of staff to key legislators and policy-makers.

As a result, opposition to the merger has been successfully isolated by Comcast. Programmers, by and large, aren't talking – they know they'll need to deal with Comcast in the future, and they fear retaliation. The other big cable systems – Time Warner, Cox and Cablevision – don't compete with Comcast, because the industry has divided up the country among its members, and they are staying quiet. With two exceptions – Sens. Al Franken, D-Minn., and Herb Kohl, D-Wis. – legislators also see that there's little to be gained through opposing the merger, because the cable companies will be the key distributors for their political ads.

An open-mic session at a Chicago field hearing on the merger, held by the FCC's Media Bureau, was almost completely dominated by nonprofit organizations for everything from companion animals to the elderly testifying as to Comcast's goodwill and constant support.

There's been very little press coverage of the merger. It should be getting more attention. Seventy-five percent to 85 percent of Americans will soon have only one choice for video-quality high-speed communications, and it will be their local cable monopoly.

Verizon's FiOS service could be competitive, but it's stalling out at about 18 million homes and in early March 2010, John Killian, Verizon Communications' chief financial officer, told analysts: "We are coming more to the end of the (fiber-optic) build-out."

Comcast dominates Chicago, Philadelphia, Boston, San Francisco, Washington, Atlanta, Detroit, Houston, Seattle, Minneapolis, Miami, Denver, Sacramento, Pittsburgh, Baltimore, Portland and Indianapolis. Although Comcast is by far the largest player among the major cable system operators, Time Warner controls Los Angeles, Dallas, Cleveland and a host of smaller metropolitan areas. St. Louis is a Charter city; Phoenix is a Cox city.

Competition won't be constraining Comcast; indeed, it has almost nothing to fear. Satellite companies have a small chunk of the pay-TV market, but they can't provide bundles themselves that include high-speed Internet communications. Wireless connections don't have the capacity that cable does. And Comcast following the merger will have content holdings (like USA, CNBC and NBC-improved regional sports networks) that it will be able to price at will, raising its competitors' costs.

Guess who ends up paying for all of this? Consumers.

But the most important reason to pay attention to this merger is that we're reaching the point where all previously separate communications methods – telephone, TV, Internet – will be carried by a single big, fast pipe into peoples' homes. That big pipe is a natural monopoly.

As defined by Wikipedia, a natural monopoly is "an industry in which a business will have such enormous economies of scale that a single firm can effectively and efficiently supply the market at lower cost than two or more firms. A natural monopoly will dominate these industries if government does not impose restrictions."

As things stand now, Comcast will be able to speed/slow/charge extra for everything going over its pipe. But we have absolutely no clarity as to what Comcast's obligations to the public, new innovators or anyone else will be. This isn't just a privately provided service, like a tuna sandwich from a corner deli.

The cable industry's big pipes are becoming a basic communication service – a basic input just like those we've always regulated in the past to ensure that they are subject to public interest obligations and provided on a nondiscriminatory and fair basis to all Americans.

John Malone of Liberty Media told Reuters in late 2009, "If (Comcast) can't rape and pillage, it's probably not a great investment."

And Franken said a couple of weeks ago, "When the same company owns the programming and runs the pipes that bring us the programming, we have a problem."
We have a problem. And it's moving through the halls of Washington with silent professionalism.