Comcast-Time Warner Merger is an Opportunity for FCC and Consumers

From selling wireless spectrum that is in great demand by wireless companies and consumers (which could net taxpayers billions of dollars) to trying to pursue misguided net neutrality rules, the Federal Communications Commission (FCC) has quite a bit of work to do in the coming years and will be under the spotlight.  Now, a recent announcement by Comcast that it would be buying Time-Warner for an estimated $45 billion is another agenda item for the FCC.  The merger raised many eyebrows within the public and private sector and the fight ahead to push the merger through is one that will be filled with regulatory hoops that underscore just how deeply involved the government is when it comes to all things business.

In today’s economy it is clear that we are still seeing slow growth and the most recent jobs report confirmed the worst fears about an economy stuck in neutral. Much of the problem comes from the massive amount of regulations that have been thrust upon businesses over the last several years and those regulations will no doubt have a major impact as this merger makes it’s way through the approval process. There are many experts who have looked at the deal and have concluded that the Obama Administration should not stand in the way and allow it to proceed.

How can consumers benefit in a major deal between two industry giants? The product may get better when you can expand your customer base. This week, Will Rinehart of the American Action Forum detailed just how cable subscribers may potentially get a big win out of this deal:

Will this deal stifle the production of content? Cable only owns about 14 percent of all programming channels, according to the FCC. It is hard to see how this would substantially change the production of programming given that it is a little more than an 1/8 of the market. Moreover, Comcast will still be subject to its conditions from its acquisition of NBCU. In allowing the deal to move forward, the cable company agreed to a length set of restrictions, which included network neutrality rules, a provision requiring the company to provide online distributors with TV content, and an agreement to not “exercise corporate control over or unreasonably withhold programming from Hulu.”

What will change is the calculus between Comcast and huge content players like ESPN, CBS, and NBC. Merging the two operators would give them bargaining power. Consumers have the potential to win in this deal because the combined company would be able to slow down these programming costs. Moreover, there is the real possibility that Comcast could force networks and video providers onto one online package.

The issue of competition and how regulators address it is also something to take note of when analyzing the Comcast-Time Warner deal. The FCC shouldn’t operate based on an outdated model for what the market is and what options are available to the public in terms of how they choose to get their content legally. Jeff Erber, Director of Grey Owl Capital Management, took to the Real Clear Markets website Wednesday, February 19^th, and outlined several thoughts on the merger and touched upon the issue of choice and availability with the ever-changing technology of today:

More importantly, the competitive issues are changing on almost a daily basis. No one at the FCC has a clue what any of these industries will look like in five years. Innovators and entrepreneurs are driving change and providing consumers with more options at a rapid pace. The examples would take up pages, but I will offer a few. Google’s YouTube competes with Comcast’s content offerings. Netflix, Amazon, and Apple compete with Comcast’s content aggregation business. T-Mobile’s aggressive pricing is threatening everyone who provides content distribution and Internet access. Even Verizon and the satellite TV companies are a threat to Comcast’s “traditional” bundling and distribution business. Competition – in the form of new business models, new technologies, new offerings – protects the consumer far better than any attempt by the federal government to limit consolidation of the old way of doing business.

While these are the nations two largest cable providers, they are looking for ways to improve and for good reason. On Tuesday, February 18^th, in Businessweek, Larry Popelka gave some sobering numbers about the two industry giants that underscores exactly the type of increased competition cable providers have been dealing with and what impact it has had on overall business over the last several years:

More important, both companies are limping along, victims of big changes in the television industry that may make them irrelevant within a decade. Only about 40 percent of homes in the combined Comcast-Time Warner geography still subscribe to cable TV service, according to investment research firm Morningstar, due to inroads from satellite TV, IPTV (Internet offerings such as those of AT&T (T) U-verse, and Verizon (VZ) FiOS) and subscription video-on-demand services like those of Netflix (NFLX), Hulu Plus, and Amazon (AMZN) Prime.

Morningstar also reports that total cable TV subscribers across all cable operators declined 10 percent in past four years; Time Warner was down 6 percent last year alone. Many analysts expect cloud-based on-demand services to take over a large portion of the industry in the next several years, enabling virtually unlimited content to be viewed anytime, anywhere. Many younger households known as “cord cutters” are walking away from cable and satellite TV for these online services, which offer more content, fewer ads, and lower prices.

The threat of monopolies is something that always will be on the radar screen for industry competitors, consumers, and government. However, the deal between Comcast and Time Warner may very well be an opportunity to expand competition and provide consumers with improved service; and not necessarily by Comcast but one of the many other companies that are offering choices in television entertainment today and the devices and platforms that are available to individuals continues to grow. The pending deal and the impact it will have can not be known for sure but what is certain is that the regulators shouldn’t stand in the way for the sake of enforcing a regulatory policy that is a hallmark of why the economy continues to be sluggish years after the recession officially came to end.

With any significant merger like this, due diligence should be expected from the FCC.  But, instead of using this merger as an excuse to promulgate more regulations, the FCC should use this opportunity to show that the Commission understands the ever-changing technological landscape and proceed with an approval of the deal that will benefit consumers in the long run.