5 Ways the Comcast and TWC Merger Will Hurt Consumers

by James Brumley | April 16, 2014 2:11 pm

5 Ways the Comcast and TWC Merger Will Hurt Consumers

There’s still a smidgen of a chance the FCC will decide it’s not in the public’s best interest to allow it, but most likely, the recently-announced plan to unite cable television service providers Comcast (CMCSA[1]) and Time Warner Cable (TWC[2]) is going to happen.

Comcast185 5 Ways the Comcast and TWC Merger Will Hurt ConsumersAnd once it does, oh brother, look out. If you thought Time Warner or Comcast were capable of creating more than enough misery for customers on their own (high prices, terrible service, higher prices…), just wait until you see what they can do when they join forces.

Here are the five biggest possibilities current customers of Time Warner Cable or Comcast will have to worry about once the buyout of Time Warner goes into effect.

There Has To be a Reason America Already Hates ‘Em

Every year, the American Customer Satisfaction Index rates and ranks the customer service experience of the country’s biggest 150 or so companies. Last year, Time Warner ranked next to last, and Comcast was sixth from the bottom[3] … and that was an improvement for Comcast.

While the ACSI ranking doesn’t explain why companies scored what they did in the survey, it’s not tough to conclude in the case of Comcast and Time Warner that is was a combination of lousy customer service and contempt for customer needs.

A 2012 Tweet from TV and film star Patrick Stewart may sum the situation up quite nicely. After apparently failing to have his Time Warner service established and set up as promised, Stewart tweeted “All I wanted to do was set up a new account with @TWCable_NYC but 36hrs later I’ve lost the will to live.”[4] One can only assume his will to live was mostly sapped by a few pointless phone calls to Time Warner during that 36 hour span in an effort to figure out why the cable service never got hooked up.

Time Warner & Comcast Would Control 30% of the Cable TV Market

The two TV giants are already forced to be reckoned with in the cable television world, but together, they would own nearly a third of the United States cable TV market[5]. That’s a huge amount of leverage to impose on networks that need cable service providers like Time Warner Cable and Comcast to distribute their content to television watchers.

With one less competitor on the table, Comcast/Time Warner will be calling more shots — and dictating more of its own terms — rather than negotiating a completely fair deal with television content creators and providers.* Likewise, with one less competitor on the table, some consumers will be forced into relationships with the newly-combined company.

Time Warner and Comcast will jointly argue that, because the two didn’t compete head-to-head in any market, the merger doesn’t change anything — and that’s basically true. However, a union of the two companies would even further the decrease the odds that a competitor could set up shop in any of those markets where an effective monopoly already exists. With a lack of competition, rate hikes can go unchecked.

* The flipside argument is that networks are now exercising too much power at the negation tables[6], and a more potent force on the other side — the outlet side — of the table that Comcast and Time Warner sit on would tame that beast. It’s not a bad point theory. But, that argument ignores the fact that there are dozens of networks and channels that should compete with one another in terms of their prices, while there are only a handful of cable television providers, many of which compete with nobody. 

Comcast Imposes Internet Data Caps…

While Time Warner broadband customers may contend with spotty connectivity and inconsistent speed, at least there’s no limit to how much monthly bandwidth they can use.

Comcast’s XFINITY broadband service, on the other hand, imposes a data cap of 300 gigabytes for month in some markets[7] (more bandwidth can be bought at a reported price of $10 per 50 additional gigabytes). It hasn’t been made clear if current Time Warner internet customers will find the Comcast model imposed on them, but if the provider can, why wouldn’t it?

The merger is particularly painful because the lack of a limit was the reason many consumers chose Time Warner broadband in the first place.

…But Caps Exclude Comcast’s Content

Care for a side of anti-competitive with your deteriorating quality of service?

While the cap on internet bandwidth could be a nuisance at first thought, it may end up being more than just a tad annoying when all is said and done. The cap can crimp access to internet-based video services that consumers are also paying for, like Netflix (NFLX[8]) and Prime, from Amazon (AMZN[9]).

To add insult to injury, however, Comcast doesn’t count the bandwidth used by its own streaming video service[10] toward its bandwidth limit when viewed via an Xbox.

Look for Bills to Rise (Again)

When asked point-blank by Senate Judiciary Committee on the matter, Comcast Vice President David Cohen replied “There is absolutely nothing in this transaction that will result in increase in prices for Comcast customers. Nothing.”[11]

Indeed, the two companies have both suggested that their combined technologies and know-how will actually improve the customer experience. Yet, somehow it seems impossible to believe that a for-profit monopoly is going to let an opportunity to cut costs and increase prices (or both) pass it by.

And make no mistake, a monopoly — whether legal or de facto — is exactly what Time Warner and Comcast would be in most of its markets. As it stands now, 30% of the country only has one broadband choice[12], and 70% of the country only has access to two or fewer broadband service providers. Moreover, the company would own the aforementioned 30% of the U.S. cable TV market, and roughly 40% of the broadband market once combined[13].

There’s little incentive to price a cable and internet service competitively in such an environment. Given time, motive, opportunity, and the usual lack of regulatory oversight, why would the company not put its own interests first?

If you’re a CMCSA shareholder, this might sound like good news. But to everyone else, the Comcast and Time Warner Cable merger looks like a big headache.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

Endnotes:
  1. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  2. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC
  3. Last year, Time Warner ranked next to last, and Comcast was sixth from the bottom: http://www.theacsi.org/index.php?option=com_content&view=article&id=149&catid=&Itemid=214&c=all&sort=Y2013&order=ASC
  4. “All I wanted to do was set up a new account with @TWCable_NYC but 36hrs later I’ve lost the will to live.”: https://twitter.com/SirPatStew/status/246404476657868800
  5. own nearly a third of the United States cable TV market: http://money.cnn.com/2014/02/13/technology/comcast-time-warner-cable-deal/
  6. networks are now exercising too much power at the negation tables: http://www.businessweek.com/articles/2014-02-18/comcast-time-warner-merger-good-for-competition-and-consumers
  7. imposes a data cap of 300 gigabytes for month in some markets: http://arstechnica.com/business/2013/11/do-you-want-to-pay-extra-for-data-then-comcast-has-a-deal-for-you/
  8. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  9. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  10. Comcast doesn’t count the bandwidth used by its own streaming video service: http://www.deadline.com/2014/03/wga-urges-fcc-to-block-comcast-time-warner-cable-merger/
  11. “There is absolutely nothing in this transaction that will result in increase in prices for Comcast customers. Nothing.”: http://www.cbsnews.com/news/will-comcasts-time-warner-deal-mean-higher-bills/
  12. 30% of the country only has one broadband choice: http://www.fiercecable.com/story/franken-rails-against-comcast-twc-merger-says-media-companies-fear-retaliat/2014-04-14
  13. roughly 40% of the broadband market once combined: http://www.businessinsider.com/comcast-market-after-time-warner-deal-2014-2

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