Comcast Time Warner Cable Merger: New Arguments Emerge Against Proposed Buyout
This summer is a landmark period for the evolving Internet in the U.S. with new Open Internet rules being considered by the FCC and a couple of big media mergers being debated. Recently, a few new arguments against the biggest merger on the table -- that of Comcast, the nation's largest cable provider, to the second largest, Time Warner Cable -- have emerged from Dish Network, Netflix, and the response to an Internet outage.
Netflix: Same Argument, Formally Submitted
It's no secret that Netflix has no love for Comcast, or for the proposed buyout of Time Warner Cable by the cable/broadband giant. This week, Netflix put its disapproval in writing, filing a 256-page document with the Federal Communications Commission arguing that Comcast's proposed $45 billion purchase of Time Warner Cable shouldn't be allowed.
In the long, detailed argument (wonderfully parsed out by Quartz), Netflix laid out its history with ISPs and Comcast in particular, showing why, in the streaming giant's opinion, an expanded footprint would only allow Comcast to charge more, harm customers and put the healthy development of the Internet as a whole at risk.
The argument resembled Netflix's earlier protests in favor of a stronger definition of Net Neutrality than even the one that had been enforced until a Federal court strike-down earlier this year. "The proposed merger puts at risk the end-to-end principle that has characterized the Internet," Netflix wrote in its filing, "and been a key driver in the creation of the most important communication platform in history."
Netflix also hit upon the possibility of broadband "throttling" -- either directly, or indirectly, by letting connections degrade or refusing to upgrade them -- which Netflix has accused Comcast and others of doing, and which the FCC has already begun looking into as a regulatory issue.
The streaming giant went into the details of its history dealing with the ISP's broadband congestion, Comcast's insistence on charging Netflix direct connections to their networks, "unusable" streaming bitrates that resulted in angry Netflix customers calling customer support, and other shady Comcast practices starting in 2013 in Netflix's semi-redacted FCC filing. Netflix then showed how after it agreed to pay Comcast's traffic "meter," much of the problem went away.
(Screenshot : Netflix FCC Filing via Quartz)
The underlying thrust of Netflix's detailed argument was that allowing Comcast to increase its size to cover over 40 percent of the nation's home broadband market would only encourage more behavior. "In Netflix's experience," the company wrote, "there are four ISPs that have the market power to engage in degradation strategies to harm" companies like Netflix that distribute video online. Netflix is likely indirectly referring to Verizon, AT&T, Comcast and TWC, all of which the streaming company has had to pay recently for better streaming access.
"Two of those four propose to merge in this transaction," said the company.
Dish Network:
Comcast/TWC Would Control the Majority of Real U.S. Broadband
Netflix isn't the only one arguing that streaming services would be hurt by a powerful, throttling Comcast/TWC behemoth. In its petition to the FCC to deny the megamerger, Dish Network similarly argued:
The combined Comcast/TWC would be able to foreclose or degrade the online video offerings of competing" Internet content providers "at any of three 'choke points': (1) the points of interconnection to the combined company's broadband network, in effect the 'on ramp' to the Comcast/TWC network; (2) the last mile 'public Internet' portion of the pipe to the consumer's home; and (3) managed or specialized service channels, which can act as super HOV [carpool]-lanes and squeeze the capacity of the 'public Internet' portion of the Comcast/TWC broadband pipe.
"Choking" other Internet services could either give Comcast, which owns NBCUniversal (think Hulu, NBC News, Telemundo, etc.) an unfair advantage over content companies. Dish also said data caps could be used in anti-competitive ways, "setting caps so low that consumers are incentivized to choose Comcast/TWC services over competing" Internet content services. This is similar to the logic against AT&T's Wireless "Sponsored Data" plan.
Dish also went further than others in arguing that, in practical terms, Comcast/TWC would effectively control up to 50 percent of U.S. residential broadband connections. Dish argued that, since consistent speeds of at least 25 Mbps are required for quality video streaming and since only fiber and cable are capable of providing such speeds, the real size of the broadband market is actually already smaller and less competitive than what Comcast estimates. After the merger, Comcast's shadow would be cast over half of the country.
"Even at a more conservative threshold of 10Mbps or faster as the relevant product market for broadband, Comcast/TWC would command more than 42 percent of the market," Dish added. "Even at the abysmally low 3Mbps cut-off," which is Comcast's figure, "the merger would still result in the combined company controlling 35.5 percent of the market, which by itself would be sufficient to raise serious competitive concerns."
TWC Outage Raises Redundancy, Economic Security Worries
It's not just competitors of Comcast that are worried about the potential merger, which Comcast confidently predicted this week would be completed by 2015 -- it's the technology wonks.
That's because on early Wednesday, the morning after Comcast's prediction, the Internet went dark for all 11 million U.S. Time Warner Cable customers, as we previously reported. Apparently, a mistake made during the company's regular maintenance practices "was propagated throughout our national backbone, resulting in a network outage," as a TWC spokesperson said to The Wall Street Journal.
(Screenshot: DownDetector.com)
The Internet was restored after about an hour, the nation's second-largest ISP paid a fine to the FCC, and everyone moved on. Except that the outage brought up a technical worry related to the Comcast/TWC merger. If TWC's "national backbone" of the Internet can cascade into failure from a mistake during routine maintenance, resulting in 11 million people without the Internet, what if that backbone affected at least a third of American broadband connections?
That's the concern raised in Time by Alex Fitzpatrick, who brought up the point that physical infrastructure redundancy could be negatively impacted by a Comcast/TWC merger. Redundancy is important in engineering systems, so that if one critical system goes down, there are redundant systems in place that can soften the negative consequences on the whole.
Fitzpatrick's concerns -- which apparently New York Gov. Andrew Cuomo shares because he has ordered an investigation of the TWC outage as part of the state's merger review -- basically boil down to a national economic security argument against merging the two largest cable providers in the country. As the Internet is increasingly necessary for economic activity, the merger could be like putting a third of the country's connections to the global economy in one basket.
What happens if another maintenance guy's "oops" moment goes catastrophic? Or cyber terrorists intentionally attack the backbone of a giant Comcast/TWC? These are some of the questions that Comcast undoubtedly will have to answer after TWC went dark.
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