Results tagged “broadband future”

April 8, 2014 3:06 PM

The Comcast-Time Warner Cable Merger and TV Quality Broadband Deployment

In Comcast's public positioning of its proposed acquisition of Time Warner Cable, executives of both companies have chosen to characterize the merger more by what it's not than by what it is.  So, we know that the merger is not going to result in any significant efficiencies, because it's not going to reduce consumer prices for cable (even an unconstrained monopoly reduces prices when costs decline).

We also know that the merger is not between two competitors, because--as the companies make it a point to tell us--they don't compete.  TWC's CEO says, "[w]hether you're talking about broadband or video, we don't compete with one another."  Comcast's CFO goes as far to state, "[w]e don't compete in one single zip code."  

Doesn't it kind of seem like they're trying just a little too hard to sell the notion that the combined service territory of Comcast and TWC is not relevant (because, you know, they don't compete)?

Product Market Definition

The last time the DoJ's Antitrust Division ("Government" or "DoJ") looked at a Comcast acquisition, it determined--based on documents from Comcast--that Comcast's "joint venture" (as it was structured at the time) with NBC-Universal would reduce competition in the "video programming distribution" market. See Comp. Impact Stmt. (CES).  The Government seemed especially concerned at the ability of post-merger Comcast to destroy nascent competition from online video distributors. CES at C and D.

Based upon the Government's concerns in the previous Comcast acquisition, and DoJ's focus on cross-elasticity of demand in defining a relevant product market, let's focus on some recent information from the Leichtman Research Group to get some valuable insights into how the Government might define a relevant product market.

Consider that, among multi-channel video providers, cable companies lost 1.7 million customers in 2013.  But, AT&T and Verizon added 1.5 million MPVD subscribers last year.  The Leichtman numbers show that customers are not so much "cutting the cord" (only 105k customers stopped buying from an MPVD in 2013) as they are switching MVPDs--but customers are choosing MVPDs that are also broadband providers.  Very high percentages (according to AT&T, well over 90%) of both cable and telco MPVD subscribers are also broadband customers.  The Leichtman data confirm this for Comcast and TWC, as well.

Purchasing video service from another broadband provider, allows the customer to purchase services they want from the MPVD, but also purchase services directly from an online vendor, like Netflix.   In its earlier analysis of the significant competitive effect of online video distributors, the Government referred to this practice as "cord-shaving." CES, at C.2(b).

Given consumer behavior, it seems likely that the Government will focus on a broadband market--of a sufficient speed to facilitate a competitive MPVD service--as the primary relevant product market.  Because it is this market in which the traditional "hypothetical monopolist" test would yield the greatest supply substitution responses.  For all practical purposes, we should consider broadband providers offering service at 10-15Mbps as participants in the "MVPD-bandwidth" market.

Geographic Market Definition

If one's primary concern was to look at the area over which the post-merger firm might be able to reduce competition, then that territory would be (at least) the total number of MVPD-bandwidth broadband customers in each geographic market served by Comcast or Time Warner Cable.  Within this total subset of homes passed will also include the majority of the customers capable of being served by AT&T and Verizon.

What is difficult to figure out from publicly available data is what percentage of MVPD-bandwidth homes will be served within that area by Comcast, Time Warner Cable, AT&T, and Verizon.  For our purposes, just to get a ballpark idea of the type of numbers we would be looking at, we are going to use a datapoint from the Leichtman 1Q 2014 Research Notes that the number of FiOS and U-Verse addressable homes stands at 41 million, giving the companies a video market penetration rate of 26%.  

Let's further assume--and this is a generous assumption toward Comcast--that AT&T and Verizon compete with Comcast and TWC in 70% of their combined service territory, but that all of AT&T and Verizon's customers were won in this territory.  This would give us a total denominator of about 59 million homes passed (that could receive MVPD quality broadband).

Market Shares

To get useful MPVD-broadband numbers, we are going to work with the Leichtman numbers we used earlier, but, because it is impossible to tell from the telco broadband numbers how many AT&T and Verizon broadband customers are actually U-verse and FiOS customers, we are going to use MPVD customers as a proxy, in order to allow us to get some ballpark market share numbers.

merger table_smaller.pngSo, we can see that the result of this merger, for anyone that has to depend on getting content, carriage, or online video distribution to these 60 million households will be looking at a market that goes from "moderately concentrated" to "highly concentrated" under the DoJ Horizontal Merger Guidelines at Section 5.3.

Competitive Effects

The competitive effects on both MPVD rivals like AT&T, RCN, and Verizon, as well as online video distributors like Netflix, are likely to be significant in terms of their ability to get competitive programming.  Add to this the fact that Comcast will also control 12 major regional sports networks, and it is easy to see how the post-merger firm could restrict output of the most inelastic, and  "linear," of linear programming to broadband and online video competitors.

Comcast RSN Map w caption.pngThis last effect is, potentially, disastrous for the future deployment of more MVPD-bandwidth broadband in the area that would be served by the combined Comcast-TWC, because it eliminates what is potentially the biggest source of pent-up consumer demand for MVPD-quality broadband as a substitute for traditional MVPD bundled service--online access to regional sports programming.  

How do we know the significance of real-time sports programming to the value of the broadband Internet?  Because the first truly linear, all HD, over-the-top channel--the WWE Network--has attracted almost 700,000 customers paying $10/month, in only 6 weeks

If the DoJ and the FCC value the availability of MVPD-bandwidth broadband throughout the Comcast-TWC territory, then Comcast might have a reason to worry.  But, commenters on the political left and right have conceded Comcast's powerful influence over the government; so, Comcast probably does have a decent chance of moving forward with this acquisition.  Unfortunately, it just postpones the day when consumers can choose to buy only the video content they want from the vendors they want.



February 20, 2013 5:13 PM

Is Improving the Resilience of Electric Distribution Networks Crucial to the IP Transition?

Last Thursday, I was an online participant in the US Telecom policy briefing entitled "[w]hat's the point of voice regulation?"  The format was a panel discussion where the U.S. Telecom General Counsel, Jonathan Banks, provided topics for the panelists to discuss.  The panelists were Jonathan Nuechterlein, Professor John Mayo from Georgetown, and Harold Feld from Public Knowledge.  All of the panel participants did an excellent job of presenting the point of view from each of their areas of expertise.

One area on which the panelists had differing, but not mutually exclusive, views was regarding the reliability value of the TDM copper voice network.  One the one hand, as Professor Mayo noted, the consumer "market" seems to have spoken with the result being that consumers are willing to trade the higher functionality of the IP/broadband network for the reliability of the TDM network.  After all, everyone can name some of products that we would still like to purchase but that the "market" does not want to produce any more.

Yet, Harold Feld also made a very good point--explaining that the "reliability vs. functionality" is a false dichotomy because consumers do not willingly make this trade.  For example, since consumers lose electric power on relatively few days, the value of reliable connectivity in emergency situations is not accurately taken into account by "the market."  

Without saying so, the panelists seemed to agree that regulation intended to achieve social goals--such as the public safety and security interest in more reliable, more resilient networks--is something that should be addressed separately from the issue of whether economic regulations should apply to some or all providers of voice service.  This is an intriguing starting point for a discussion about next generation network reliability, and a starting point that has taken too long to arrive.  

Two Sides of the False Dichotomy

As Harold noted, at Thursday's panel discussion, it is a "false dichotomy" to think that a useful regulatory goal (i.e., network resilience in times of extreme weather, or other natural disasters) must be abandoned simply because the first generation of IP network technology may not be able to support this goal.  It is no less of a "false dichotomy", though, for some to use "public safety" as an excuse to keep some service providers from continuing to transition their networks for the uses demanded by the majority of consumers both today, and in the future.  

So, if public safety and network reliability are the goals, then they must be discussed and considered not in the context of keeping an older, more limited technology, but rather in the context of how network reliability can evolve to support the communications networks of tomorrow.  Given that no one is going to pay for a separate network to support a limited functionality (just voice) in times of emergency, how do we get public safety and security for the networks of tomorrow?

Look Outside the Regulatory Silos of Today

Perhaps, more than any other explanation, the major concern identified by those opposed to immediately undertaking an effort to begin to identify and work through the regulatory issues resulting from the IP transition is that of public safety during weather (and other natural disaster) emergencies.  This is an incredibly important and valuable part of any transition to a broadband world.  But, here's the problem: the FCC can't get there on its own, because the best solution might be a "meta" solution where we look at the reliability of communications networks in the context of other inter-dependent networks, such as electric power.

But, given that new platforms demand much more energy than could ever be provided by a central office battery back-up, we can't look back.  Just because this effort would need to be championed across separate regulatory fiefdoms does not mean it can't happen, it just means that diverse regulators need to call on the Executive Branch to coordinate this planning.

In other words, if we (as a country) agree that the service rich broadband platform is the communications network that we want, then ensuring reliability of that network may only be possible if we look to ensure greater reliability in the increasingly inter-dependent electric and communications networks.  Said differently, looking at a policy question in the context of an "outdated" regulatory/technological framework (i.e., with tools only available to the legacy communications regulator) will necessarily cheat the public out of the best answer.

Advantages of Cross-Network Optimization 

If it turns out that investing in bolstering the reliability of our electric distribution plant will improve communications networks (which are also banking, health, and educational networks), one obvious advantage to such an approach is that electricity distribution is (for all but the heaviest users) still a monopoly.  Perhaps the only significant advantage of a monopoly--for consumers and regulators--is that local energy companies still have rate-payers and a more or less captive rate base.  Thus, the costs of increasing electric network reliability (by either burying power lines, or developing batteries that are small enough for homes yet can store a significant amount of back-up power) can be equitably spread over all customers--a solution that is no longer available to state or federal communications regulators.  

The "all IP", "Internet of everything", future that promises so much benefit to our productivity and welfare as a society cannot deliver on this promise if delivery/reliability are subject to something as capricious as the weather.  Shouldn't questions of public safety and security through increasing network reliability also begin to be asked by someone (perhaps chartered by the Administration) that is capable of addressing these problems on a national, inter-network basis?