Trust Not-Busting
Back during some behind-the-scenes banter on net neutrality, I wrote the following of Comcast:
My take on net neutrality is both (probably) a wrong interpretation of what is actually at stake and too short for a post, but here it is:
Comcast is the shittiest company I have ever experienced in my life, with the worst customer service and pricing scheme I have ever experienced. Comcast uses its effective monopoly power to overcharge and lie to consumers and then tries to manipulate them into service upgrades when they call to complain about their lack of service. It has done it’s market research, so it knows just how much it can abuse consumers before they’re willing to give up Internet altogether. I strongly oppose anything that will give Comcast more control over what I see and how much I pay for it on the Internet. While I am extremely, extremely skeptical about claims that giving service providers more control over the Internet will stimulate competition and usher in an even-more-golden-than-the-present-golden-Internet age, I am more opposed to the most recent ruling because I think the government giving special privileges to any company – let alone the shittiest company I have ever experienced in my life – is a road that both recent experience and a plethora of past history demonstrate is almost never a good idea to travel down. In conclusion, Hitler.
That last part was a joke on what I perceived to be a relatively frivolous, yet righteous aggrievement. Nevertheless, now Comcast has further consolidated its stranglehold on information access by buying Time Warner. At least in my neck of the woods, this gives the new mo-mega-corporation 100% coverage of the market for cable and non-3/4G Internet service.
Thus, questions for my lawyer friends (or anyone really):
(1) How is this deal allowed to proceed under current antitrust law?
(2) Why does Comcast enjoy monopoly access to the markets for cable television and Internet to begin with?
(3) The Commonwealth of Massachusetts has repeatedly shut down plans for Partners in Health (affiliated with Harvard) to purchase South Shore Hospital, citing antitrust law despite several other major players in the market, such as Tufts, Boston University, the UMass system, Albany Medical Center, Rhode Island Hospital, and the Dartmouth-Hitchcock system. If such a low trigger for trust-busting exists in other industries, what is it about Comcast and telecommunications that lets the company be more like Major League Baseball and less like other things that actually matter?
(4) Does the fact that Comcast now has control over what content I see on the Internet and how much I pay for it due to the unholy firebombing of net neutrality at all factor into it being considered a trust not worthy of busting?
(5) Will the fact that the NSA now needs Comcast to track billions of potential tersts factor into the decision to bust or not?
(6) While writing this post, I experienced several slowdowns and other miscellaneous computer problems. Should I be paranoid? Will my online banking portal be hacked if I attempt to access change.org?
(7) Isn’t citizen/consumer access to information dangerously in the hands of far too few players at this point? And isn’t the fact that this all came about in just a few months something that we should all be very, very, very concerned about?
3. With Comcast you probably run into the natural monopoly problem. A natural monopoly is when the physical infrastructure for a particular business is so intensive that markets can’t bear that many participants in that business. The classic example are utility companies because of all the wires, pipes, and other infrastructure needed to provide water, gas, and electricity. The usual solution to a natural monopoly is either for the government to run the monopoly or heavily regulate it.
I know next to nothing about the physical infrastructure necessary to provide cable, internet, and phone services to households and businesses but if its intensive enough it can run into the natural monopoly problems that utilities do.Report
The distant origins of cable TV service were mountain-top antennas and coax to redistribute over-the-air signals to the small town down in the valley (over-the-air repeaters presented some legal issues). Eventually municipalities figured out that a private company doing this for several towns could do it cheaper than the individual cities. Coax, and now fiber-and-coax, outside plant has always been expensive enough that splitting the customer base across two or more companies made it unprofitable. There have been exceptions where there were competing cable companies, but they’re rare, and frequently the result is a price war that eventually drives the smaller provider out. Recognizing the situation, local franchising authorities (city and county governments, mostly) allowed only one provider.
For residential telephone service, fiber-and-twisted-pair is a similar situation. When the federal government broke up the Bell System, the expectation was that within a few years competing companies would build their own distribution networks. Outside of city cores for business customers, that didn’t happen. Fiber-and-wireless has been able to support multiple network providers, but that’s because the last-mile of the distribution plant is free (aside from spectrum licenses). Satellite video service is a special case with its own economics.
The regulatory arena is a mess. It started when the FCC ruled that Internet access was an information service, not a communications service* and has gone downhill from there.
* I was perhaps the only person at the giant telecom company I worked for at the time that argued that as a company, our position ought to be that it was a communications service so that it fell under the regulations that we knew and more-or-less loved. If the FCC had gone my way, network neutrality wouldn’t be an issue, because it’s required of providers of communications services.Report
This is critical: breaking up Comcast only helps if the Baby Comcasts you create actually overlap geographically. You can have all the cable companies in the world, but as long as there’s only one serving my address, short of selling my house, I can’t really threaten to move to another provider.
My wife and I dropped Comcast for TV when we moved to our new house, but we kept the Internet service. We went with DirecTV for television. Pricing works out about the same, but we get a better TV package and we got the satisfaction of telling Comcast that we were canceling our TV service. I’m hoping to find a fast and reliable Internet provider, but it’s hard to beat the data carrying capacity of the cable TV network.Report
For this reason I’m wondering if this merger actually changes much. If Time Warner has a monopoly in most areas it serves, and so does Comcast, who’s actually made worse off?
If there are areas where CC and TW are actually competing with each other (and not engaging in ologopolistic competition), then it matters.
I don’t know how much of that there is, though.Report
I know that in most cities, the cable monopolies are a thing of the past (this may not be true outside of the city — I know my parents, who live fairly far out of the city, only have one option, Comcast). Here in Austin, we have Time Warner, AT&T Uverse, Grande, and soon Google Fiber for internet, and while most of these have areas of the city they don’t cover, there aren’t many places in the city where you’re limited to one option. Unfortunately, this has not made cable companies behave much better, because they understand that it is still a huge pain in the ass to switch companies, meaning they can continually raise your rates without telling you (often by not raising the rate itself, but tacking on more fees or raising existing ones), they can give you slower service than you’re paying for, and they can have god awful customer service, and get away with it.
I recently considered switching my internet provider from Time Warner, to Uverse (I don’t have cable), and when I realized that it was going to cost me a couple hundred bucks and I would probably have to be home all day with a stranger in my home messing around with in all my rooms, I decided to just grin and bear TW, despite the fact that they just almost doubled my rate and were downright insulting when I asked why (the answer was pretty much, “Because fish you, that’s why!”). Google Fiber, save me!Report
@jm3z-aitch, I suppose you could argue that even with the natural monopoly problems, one company shouldn’t be allowed to control too many areas because they could slack on quality after awhile. If people have no choice from who to get cable and internet from and starting a competition requires a lot of capital than a monopoly provided doesn’t have much incentive to maintain quality service. Most people seem to hate the level of customer service provided by their cable and internet company.Report
@jm3z-aitch
The potential losers here would probably be the people who negotiate with ComCast who used to have the option of also negotiating with TWC.
So: towns looking to install and extend the service, and I’d be looking at the impact on home-grown production here, too; also, the content providers I’d think; though they can try to bargain their way to sweeter deals by negotiating with netflix and amazon for on-demand programming, I suppose.Report
Lee brings up the natural monopoly problem Like Lee, I don’t know enough about cable to comment on whether it is a natural monopoly like electricity or water.
There is possibly just enough competition through places like Direct TV to say that ComCast is not a monopoly though I don’t quite believe this.
I want the DOJ to prevent this merger and I want them to break up Comcast like they broke up Standard Oil. Why they don’t, I have no idea.Report
I want them to break up Comcast like they broke up Standard Oil.
No comment on Comcast, but Standard Oil was broken up when its market share had declined from about 89% to the low 60s% and was still on a downward trend. Maybe Comcast needs to be broken up, but I’d expect the government to get around to it about the time it no longer matters.Report
Well, nobody’s perfect 😉
My hope is that the DOJ steps in and prevents the merger with Time Warner before it happens.Report
And then we’ll have Comcast of Ohio, Comcast of New Jersey, Comcast of Missouri…..Report
As a separate issue from the one I’ve been harping on, it’s not clear that breaking Comcast up into several smaller companies would be a good deal for the consumer. The standard price sheet for a cable network like ESPN or A&E is a sliding scale, and the payment the cable company has to make per subscriber is lower if they have more subs. When I was in the business, there were concrete steps, with price breaks at half-a-million subs, a million subs, two million subs, etc. When Comcast bought AT&T Broadband, it pushed them over the 16 million sub mark and got them a price break. At 34 million, I’m sure there will be another break.
This is related to the bundling vs a la carte subscription argument. Lots of people complain that they don’t want ESPN and don’t want to pay for it. But there are certainly cases (even if it’s not a universal truth) that after all revenue streams are considered and prices adjusted, the price the cable company charges you for the bundle today is lower than the price you would pay in an a la carte world for just the subset you want.Report
I think this is true (as I mention in my post… I even mention the a la carte connection)… if it increases Comcast’s leverage against the providers, this merger could prove to be beneficial.
Having said that, where it might be beneficial to break Comcast up is the vertical consolidation. Not splitting up Comcast’s cable business, but splitting it (back up) from NBC, or possibly splitting up the operations within Comcast’s footprint (one company negotiates the television packages and sends them through another company’s cables).Report
Even if Comcast has better leverage against the providers, it still might not benefit consumers. Comcast would have no reason to pass off the savings they make by having leverage against the providers by lowering consumer rates. As a monopoly or close to one, they would have no reason to.Report
They have competition on the TV side from satellite.Report
Not really. You’re forgetting internet and phone.
Comcast can bundle high speed internet and phone service, and give you a “deal” that’s better than what satellite + Comcast internet is, while still gouging customers are hard as possible.
That’s kind of the rub here. Comcast isn’t “just cable”. It’s cable lines are high-speed, high bandwidth internet into your house.
I honestly don’t think Congress — or even the FCC — has really sat down and worked out the full implications of something being both content and carrier.
I mean you CAN get satellite TV and (maybe) another highspeed ISP and go with cell phones, but there’s a lot of “synergy” that comcast and ATT and Time Warner have now that’s ripe for abuse, with basically just net neutrality holding it even slightly in check.
Really, we need an actual thought-out telecommunications and data regulatory framework. The FCC is working under laws and guidelines written when everything couldn’t be digitized and sent over a wire. Where phone and tv were utterly separate and where internet was something some people did with an extra phone line.Report
Comcast can bundle high speed internet and phone service, and give you a “deal” that’s better than what satellite + Comcast internet is, while still gouging customers are hard as possible.
So? Locally, my landline phone company bundles combinations of voice, DSL, and satellite television into the same kinds of deals, for the same kinds of prices. The satellite video service may be DirecTV underneath, but customer care and billing all goes through the phone company. A friend there tells me they are deep in talks with a couple of cell phone companies to create bundles that are cell for voice (and data for your smart phone when you’re away from home), DSL for data at home, and satellite video, all marketed under the landline phone company’s name.
Comcast, and any cable company that made the investments, has an inherent advantage in that their technology supports all three premises services (voice, data, video) at the lowest combined cost over a wide range of customer densities. Certainly that was true when we looked at the systems costs back in the 1990s, and was a reason that USWest invested heavily in cable companies outside of its home territory. Despite improvements in fiber costs, it appears to still be true. Why do you want to punish the company that made the smarter technology decision?Report
Well, first of all, the deal doesn’t have official Fed approval yet. However, apparently this is not expected to be an issue. The reason is that Comcast and Time Warner don’t actually serve many (any?) of the same markets, so while the total number of distinct players in the nation goes down, each individual consumer is unlikely to see their choices restricted as a result. It may well be a horrible thing for TWC customers, but that’s because Comcast is a crappy company with crappy service, not because the structure of the deal is inherently bad for consumers.Report
Ugh, this will mean that I have Comcast. And my choice is to stick with them or switch to the equally evil AT&T. Double ugh.Report
Time Warner around here got their act together when Verizon came in (when they were the only game in town, they sucked). Not sure how this will affect me yet if it goes through (Verizon’s starting to tick me off too).Report
At least AT&T is an option for you.Report
It’s a horrible world when you must choose between Comcast and AT&T. Rather like having to pick between Coors Light and the pasteurized amniotic fluid of a gravid wombat.Report
Remind me of AT&T’s origin again? Oh yeah…Report
@burt-likko Hmmmm….pastuerized, you say?
Barkeep, line ’em up!Report
Did anyone ever see The President’s Analyst?Report
@mike-schilling
A long time ago….Report
It’s a horrible world when you must choose between Comcast and AT&T. Rather like having to pick between Coors Light and the pasteurized amniotic fluid of a gravid wombat.
Slow clap.Report
Awesome post Christopher.
On [7], I think you may mean “in the hands of far too few players”.
Monopolies and monopoly-busting is always an interesting subject to me, because it’s a place where I become less-libertarianish and more liberalish than usual. I am familiar with some of the usual libertarian arguments against letting the govt. break up these entities – “don’t give the govt. the power to punish success/pick winners and losers in the marketplace”, and last time I asked about it, Professor Hanley opined that true monopolies are rare and essentially self-solving, as they will become sclerotic and vulnerable on their own within a reasonable timeframe (with “reasonable” measured perhaps in years), so leaving them be might be best; but I am not so sanguine about it. I worked in radio when Clear Channel was helping wreck up the joint.
(That said, I am not sure what metric we can use to decide when it is necessary to allow it, and apply that metric fairly and impartially, so as to limit abuse of the power.)
Related, net neutrality is another area that does this to me – while in theory I support the idea that a private service provider should be allowed to charge what they see fit to provide service in the manner they see fit, in practice the idea that only a few providers get to decide whether and how to provide services (in many cases giving cable companies the ability to strangle their upstart internet competition in the crib) gives me the heebie-jeebies.Report
On [7], I think you may mean “in the hands of far too few players”.
That’s what Christopher originally wrote, but on its way to being published the draft went through a Comcast server that helpfully corrected it.Report
Is auto-correct a new feature in the Comcast Bundle?Report
+1 to Still’s joke.Report
Thanks for pointing that out. I have since corrected it.Report
Glyph,
Most cable firms are given a local monopoly by the relevant govts. There may be an element of natural monopoly there, too, but if you ignore their legal protection from competition you’re going to miss a big part of the picture.Report
@james-hanley – fair enough, I didn’t mean to misrepresent that earlier convo.Report
That’s on the front end. On the dark side is stuff like restrictions on public provision of cable and wireless.
They got us coming, going, and sideways.Report
I believe Time Warner and Comcast play regional shell games — that is, there’s an umbrella of TW and Comcast “regional” subsidiaries that mean they can massively downplay the amount of market they hold captive.
*shrug*. Anti-trust aside, I *still* don’t see why cable and internet providers aren’t treated as common carriers, or at least forced to spin off a common carrier that handles the wiring.
Sure, in the future 4G or satellite or magic rainbow ponies may mean the average consumer isn’t chained to one or (if they’re lucky) TWO possible providers of big fat pipes to the house, but that’s not the case now.
And you should regulate on the “now”. If in the future the average consumer can suck down equivalent broadband from 10 sources at rough price/speed parity, then by all means revisit the issue.
As for the anti-trust: Seriously, how is this even a question of going through? I live in Texas. My choices are…Comcast and AT&T for phone, TV, and internet. I suppose I could replace “TV” with “satellite”, which just leaves me at the mercy of two providers for “phone” and “internet”.
And Comcast sucks so hard that AT&T merely has to rise to “only awful” to surpass them.Report
Anti-trust aside, I *still* don’t see why cable and internet providers aren’t treated as common carriers, or at least forced to spin off a common carrier that handles the wiring.
To get really obscure (and extend somewhat a comment I left up above), the FCC has always made a distinction between information services and communication services. Cable provided unidirectional access to information, so wasn’t a communication service and didn’t fall under the common carrier requirements The local authorities didn’t want six sets of coax up on the poles, or to have the streets opened six different times for buried plant. There were also some technology limitations, so it didn’t make any sense to have six “cable companies” share a single coax and deliver six separate copies of the NBC signal.. Local franchising authorities who granted monopoly access usually imposed conditions like “You have to provide service to anyone within the city limits, including any annexations we make in the future,” which many mis-interpreted as cable being a common carrier.
The FCC had to make a choice in the 1990s. Internet access was a new service; was it an information service or a communication service? It involved computers, so the FCC ruled it was an information service, a la AOL. This was supported by the companies who owned the wires because they really, really, really wanted to be in the content business. USWest went so far as to buy a chunk of Time Warner in order to gain access to content. I said it was a dumb decision on everyone’s part at the time. I actually got a bit of a say, because if a USWest executive asked, “Do we have anyone who can explain this Internet thing to me?” they ended up in my lab in Boulder. I was occasionally heard to mutter under my breath, “Yeah, data pipes are important but boring. How am I supposed to compete with hot Hollywood starlets?”
Barring Congress explicitly changing the rules, there’s nothing that stops a the provider of an information service, who happens to allow access to some other folk’s information, from favoring their own content. The SCOTUS has said so now. So if you’re looking for someone to scapegoat, you want the FCC in the mid-90s.Report
Yes, but what prevents the FCC from looking at the current picture and relabeling the wire part of the system communications?
Because, I mean, regulatory wise, I think it’s a no brainer that “internet service” is pure communications. There’s no question now that the ISP is pure communications.
And I think it should be enforced like that — if they (the ISP) wants to get into the content business, all well and good — but it needs to be firewalled from delivery. I wouldn’t go so far as to say “break it into a subsidiary” or “break it off entirely”.
But the ISP business is pure communications. Why hasn’t the FCC simply relabeled it as such?
I mean, besides the millions Comcast and TW spend in lobbyists.Report
@morat20
(Some people must be thinking, “Why didn’t they shut off Cain’s ability to comment before this post went up?” Sorry.)
It was studied to death more than 15 years ago. Short answer: the parties couldn’t agree to an equitable pricing of upstream bandwidth, and the FCC was unwilling to dictate. Longer answer follows.
A typical fiber-coax distribution network has three main types of component: all-digital fiber, usually as a high-reliability ring; mixed analog and digital fiber, usually as a tree; and pure analog coax, effectively a bus. The limiting factor in the network is the upstream analog bandwidth available on the coax [1]. The cable company connects (and reconnects, on an ongoing basis) the various components in order to provide adequate upstream bandwidth at minimum cost.
Other Internet service providers were unwilling (I mean, really unwilling) to let the cable company operate the low-level infrastructure for data service; they insisted on buying dedicated chunks of analog bandwidth on every piece of coax. For the upstream flow, this is inherently inefficient for multiple reasons. So much so that at about two added ISPs the cable company has to give up on other services that use upstream bandwidth, like video on demand. At three or so added ISPs, the cost of the network begins to skyrocket. By about five, you can’t provide anyone with enough bandwidth to do anything useful.
Why did the ISPs demand raw analog bandwidth? Because they had no intention of simply being ISPs; they intended to also provide cut-rate cable television, and under the rules in play at the time, wouldn’t have to contribute to a bunch of the fixed costs of maintaining the hardware. The cable company I worked for built a live system that provided other ISPs with access at the router at the head-end office, instead of giving them raw bandwidth. It worked well, and audited tests showed no difference in performance between us and them. But it confined ISPs to being ISPs.
I was told that what happened on the legal side of things was that the FCC eventually lost interest. They weren’t willing to demand the cable companies operate in a way that killed off emerging services like video on demand; nor to require the cable companies to install the kind of access we had experimented with when the ISPs were saying flat out that they weren’t interested. I suspect that the FCC today is unwilling to reopen that particular can of worms.
[1] For historical reasons involving VHF channel 2, the split point between upstream and downstream is at 50 MHz. Downstream means transmission from the head end to the consumer; upstream is the opposite. Above 50 MHz — up past 1 GHz on some newer cable systems — is for downstream, call it 950 MHz of available spectrum. Below that, down to about 15 MHz where outside interference becomes unmanageable, is for upstream, about 35 MHz. Of the 35, only 25-30 will be usable after allocating guard bands and avoiding local non-cable interference issues.Report
Monopolies are not contrary to law. Monopolies which exploit their monopoly position to the disadvantage of consumers violate the law.
What this means, exactly, varies on what amounts to a case-by-case basis. In the case of cable TV and cable internet, it likely means that Comcast uses its monopoly power to increase rates significantly above and beyond what they would have been in a competitive market. Potentially it means it provides a degraded quality of service, although to my knowledge that would be pretty innovative ground for anti-trust law. Not out of the realm of possibility, though.
Since cable TV is thought to be a “natural monopoly,” as @leeesq notes, it’s a bit hard to say what a competitive market looks like. Most places have local monopolies for cable and one must go well out of one’s way to find a competitive provider for internet service; we have Time Warner here ourselves. If it turns out Comcast is really as Hitleresque as depicted, maybe I’ll go satellite for my internet too.Report
Thing is, there is a huge difference between the business of the “last mile,” which is getting broadband from central offices to your apartment door, and the other services Comcast provies. The last mile is something of a natural monopoly, but in today’s packet switched world, it is hardly the chief thing Comcast does. It really is a utility and I would rather that part of the business be regarded as such.
But Comcast is much more. They are a carrier and content aggregator. Which is too much power to place into single hands, since they end up in practice accountable neither to democratic process nor to market conditions — since we don’t have much choice other than crappy wireless.
Let me reiterate, their last-mile function is a natural monopoly. Their other services are not. These things should be split up for the good of the consumer.Report
Today most consumers regard packet transport over the last mile as a communication service. Twenty or so years ago, when the FCC had to make a decision, there were only a handful of people in the industry who believed that. I know, I was one of them, and it was a very unpopular opinion to hold. The prevailing view was that it was an improved version of AOL’s information service, and the decision was to regulate it accordingly. It’s unlikely to be reversed now because some very big rich companies’ oxen would be gored.Report
Bingo.
They dereged the utility market to separate power generation with power delivery. They can do it with telecom. Ofc, the local gov’ts could also choose to have more than one telecom provider in their area too…Report
Deregulate isn’t a very good description of what happened; “reregulate” would be better. Try to set up shop with an intermittent 50 MW generating source in California or the PJM area and see just how many regulatory hurdles there are.
What I’m hearing people say here, though, really isn’t that they want Internet access deregulated. With few exceptions, there are not bunches of companies waiting to move into each good-sized suburb and drop a noticeable part of a billion dollars building out access to everyone’s house (apartments have their legal issues). What I’m hearing people say they want is an 802.11 interface and the bare bones for IP on top of that — DHCP, a gateway router, maybe DNS and a time server — classified as a basic communications service. And they want the snot regulated out of it — no traffic shaping in any way, shape, or form [1], no bundled e-mail or personal web pages, none of that. I sympathize; that’s what I wanted the model to be 20 years ago, and I lost the argument within the company I worked for, as well as across the industry as a whole.
[1] I shouldn’t say that people don’t want traffic shaping; given the asymmetry of the already-deployed technologies, they want bit-rate limits. To avoid the situation that your next-door neighbor decides to start running a big porn server in their basement and saturates the (scarce) upstream bandwidth 24/7, screwing everyone else on that particular coax run or DSLAM.Report
@Michael Cain
Yah, my comments were not directly specifically at Cali, but a state in the mid atlantic 🙂 Here there does seem to be decent competition between power generation. Delivery all comes through the same pipes.Report
Ms. Dire, that is a succinct, nuanced, intelligent, direct, and persuasive argument congruent with law (so far as I know it), justice, and common sense.
I fear that a court will insist on tangible evidence of actual abuse of the monopoly power before it will consider acting upon this very, very good and sensible argument.Report
Yeah, +100 to what she said.Report
As I mentioned in my post on the subject, Comcast is bound by Net Neutrality until 2018 regardless of the recent ruling. So TWC customers will be similarly protected whereas they otherwise weren’t.Report
Huh. I used Comcast for years and never had a problem. Once I called and asked how much money I could save by cancelling my basic cable service and just keeping the Internet service. They responded by cutting my bill in half for six months.Report
Similiar to me. I called once-I was on the “triple play” and had moved into the second year of pricing (it went up ofc) and called to say I couldn’t affort the amount-literally couldn’t. I eventually got to “account retention” or such and they set me back to year one pricing. I was told to call next year and ask for the same thing, did, and got it. I was told they do it “all the time”.Report
I’m currently having this battle but we are in year three (read full) pricing. What angers me most is that repeatedly throughout my last conversation the rep kept saying, “We value your loyalty.” Clearly a stock line they are fed. When I pointed out that charging me more than new customers is the opposite of valuing loyalty, she just repeated it, as if that would somehow change the reality of the situation. I understand fully why they incentivize new subscribers with reducaed rates. Just don’t feed me bullshit about valuing loyalty with increased prices.Report