Batten down the hatches and get out of the wind's way. Windy hyperbole, that is!
Here comes another Katrina.
No, thankfully, I don't mean another Hurricane Katrina. I'm only raising a warning about Katrina vanden Heuvel's op-ed regarding the proposed Comcast – Time Warner Cable merger published last Friday in the Washington Post.
Ms. vanden Heuvel is already certain that, in her elegant language, the proposed merger doesn't pass the "smell test." When the merger was announced, I said in a statement that it would get close government scrutiny, and that it should. But I also said the assessment should be based on facts and not overheated rhetoric. By this standard, I'd say Ms. vanden Heuvel's op-ed fails the smell test.
In what is a pretty short piece, here are some key examples of claims that are misleading or off-base:
Ms. van Heuvel asserts the merged company would have "virtual monopoly cable control" over news and public service programming in various locales like Chicago, New York, Philadelphia, Los Angeles, and other large cities. In an era of media abundance, this statement is preposterous on its face. By referring to monopoly "cable" control, I guess Ms. vanden Heuvel supposes she is clever. But I'd say too clever by half.
As I explained in my recent Washington Examiner piece – "Cable Merger Shows How Legacy Language Leads to Outdated Policy" – it is easy to distort proper regulatory analysis and merger reviews by resorting to legacy language that has little to do with current marketplace realities. A current reality is that Comcast and Time Warner Cable don't compete with each other in any material way, so if the two are allowed to combine, there will be no reduction in the number of marketplace competitors or consumer choice.
Another current reality is that there is no such thing as a "cable monopoly," except possibly in a very limited number of locales, and certainly not in the cities Ms. vanden Heuvel names. This is because no matter how much Ms. vanden Heuvel and self-styled consumer advocates may proclaim otherwise, the proper market for assessing the merger's competitive impact is the broader broadband marketplace. And in this market, the "cable" companies compete with the "telephone" companies like AT&T, Verizon, CenturyLink, and Frontier; "satellite" companies like DIRECTV and DISH TV; "fiber" companies like Google Fiber, which, by the way, just announced it is proposing to serve as many as 34 more cities in addition to the three already served; and the various wireless broadband operators. These broadband competitors generally offer Internet data, video, and voice services, either bundled together in various packages or singly.
In other words, the real competition that Comcast and Time Warner Cable confront is not from each other, but rather from other broadband providers all seeking to serve, with their differing technological platforms and service offerings, ever-changing, heterogeneous consumer demand for high-speed broadband.
Perhaps not surprisingly, but nevertheless significantly, Ms. vanden Heuvel's op-ed never mentions AT&T, Verizon, DISH, DIRECTV, Sprint, T-Mobile, Google, or any other marketplace broadband competitor of Comcast and Time Warner Cable.
Next, Ms. vanden Heuvel is concerned that the combined company will be able to "exact price concessions from content providers, forcing some out of business, limiting innovation and variety." She is especially worried in this regard about "discrimination" against Netflix, perhaps because she fears her Netflix subscription price will rise as quickly as a house of cards can crumble.
Ms. vanden Heuvel shouldn't worry too much. I wonder whether she knows that little 'ol Netflix now has as many subscribers, around 30 million, as Comcast and Time Warner Cable combined, and that on any given night, one-third of the usage on the Internet in the U.S. is attributable to Netflix streaming videos. Together with Google's YouTube, these two major video providers are responsible, on average, for about 50% of Internet usage on any given night.
Now, if Ms. vanden Heuvel were an economist, rather than a polemicist, she likely would be less inclined to worry about Netflix, which has seen the price of its stock more than double over the past year. Indeed, she might even begin to ask questions about what economists call "two-sided" pricing plans. Under two-sided pricing, Netflix, Google, and other so-called "edge" providers with large amounts of video traffic might pay more for carriage of their traffic to defray the costs incurred by the various broadband providers in building out, maintaining, and constantly upgrading their high-speed networks. After all, don't forget that the need for such constant expansion and upgrading is driven to a significant extent by the exponential increase in the amount of video traffic carried on the Internet providers' facilities – back to Netflix again.
Anyway, Ms. vanden Heuvel need not worry too much about Netflix for another reason. Although she suggests that "net neutrality" is under assault – I confess to being an accessory to the assault! – she doesn't acknowledge that Comcast has pledged that it, along with Time Warner Cable, will continue to adhere to the net neutrality condition to which Comcast agreed when the FCC approved its merger with NBC Universal in 2011. These net neutrality prohibitions remain in effect until 2018.
Finally, Ms. vanden Heuvel claims that consumers will suffer if the merger goes through and the U.S. "already suffers from worse Internet service, speed and affordability than other developed countries." Perhaps it may be literally true that the U.S. trails one or another "developed" country in one of the dimensions she cites. But I suspect this is another case of Ms. vanden Heuvel trying to be clever by half with her language. The reality is that the U.S. is in the very top tier of developed countries – especially given the geography and land mass size of America, say, as opposed to a South Korea or a Belgium – in deployment and adoption of broadband. Indeed, the U.S. ranks in the top tier of developed countries with respect to the delivery of high broadband speeds at affordable prices.
As far back as 2007 I wrote a piece about what I called the "talking broadband down" crowd, which was led, vociferously, by then-FCC Commissioner Michael Copps, who despite mounting evidence to the contrary, is still pushing the same tired line. As I explained in 2007, the real aim of the "talking broadband down" crowd was to use distorted assertions that the U.S. was lagging to justify an activist pro-regulatory agenda. That agenda has not changed.
Without reciting here all the statistics that show U.S. leadership, I will simply refer you to Roslyn Layton's fine new report examining the broadband performance of European Union countries. Ms. Layton, a visiting fellow at the American Enterprise Institute and an Internet economist at Aalborg University in Copenhagen, Denmark, shows, by various key measures, that the EU countries now lag behind the U.S. with regard to broadband. And Ms. Layton shows that E.U. leaders recognize they are lagging behind.
In sum, the government's review of the proposed Comcast – Time Warner Cable merger has not yet even begun, and I've said the merger deserves close scrutiny. My purpose here is not to endorse the merger, but rather to argue that such scrutiny ought to be based on facts, and not on overwrought hyperbole that bears little resemblance to current marketplace reality.
With that purpose in mind, you are duly warned that here comes another Katrina, this one bringing windy hyperbole.