Net Neutrality Friday

This week there were a number of folks who comment on the pending merger between Comcast and Time Warner Cable, particularly Netflix. Netflix was quite negative and I thought I might say a few things here on the merger.

The first thing is that there is more difficulty in stopping this than most realize. The two companies don't actually compete for customers. Both are Multi-System Operators or MSO's in the cable business. Each System within the MSO operate independently and as incumbent operators in a locality. Consumers don't have a choice between the two companies. Either Time Warner operates in a location or Comcast does. So, the merger of these two companies doesn't actually eliminate competition. Under the strict rules of the Department of Justice part of the equation, there is no reason to stop the combination.

The FCC might have some other views. One thing that we all need to be clear about is that it has been a very long time since the FCC stopped a large scale merger like this formally. The FCC generally imposes merger conditions on the new entity. It did so in the case of SBC buying Ameritech and also when it bought BellSouth. In the former case, SBC had to create "Project Pronto". In the latter case, there were some concessions around many topics. One of the most forgotten was a promise for 100% Broadband deployment.

AFC was one of two DLC vendors "selected" for Project Pronto. As the CTO of AFC at the time, I can tell you that we knew that this was true when we read it in the Press Release. AFC had been an approved vendor at one time in both Ameritech and PacBell. But we were doing very little business with SBC at the time of Pronto. It took us several years to get full approval and Tellabs finally got 22 State approval for the AFC product (to include the former BellSouth States) in the last 2 years. By the time any real Pronto activity might have happened, the CLECs had collapsed and Pronto was not at the top of mind. SBC had to maintain the concept and this pretty much halted a lot of rural broadband in their properties. The cost to implement Pronto in a small office was just too high.

The 100% Broadband Deployment may have slipped your mind, but I believe that SBC counted people that could get Satellite Broadband as having Broadband available. I think it is quite clear that not 100% of folks in SBC territories can get DSL even today.

Given this, I would say that merger conditions are more bark than bite. If the FCC is unhappy with the proposed merger, then it needs to say no to it outright. The only reason to do so is that the combined company will have a large footprint of Broadband Users. This gives the company some amount of market power, but I am not sure that this will cause the FCC to stop the merger. As for myself, I am more concerned that Comcast owns Content. If I were making a merger condition, I would force a spin-off of NBC-Universal.

Have a nice weekend and a great Labor Day!

Jim Sackman
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