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Call it bad timing for Comcast. But the heated public debate over Net neutrality likely played a major role in sinking the cable giant’s hopes to buy Time Warner Cable.
“It was subtle, but Net neutrality framed the debate,” said Christopher Sprigman, a law professor at New York University. “Through that process, it became clear that the state of broadband for the average consumer is pretty bad. And regulators didn’t want to make an already bad situation worse by giving one of the largest broadband providers more power.”
More than a year after it announced plans to buy Time Warner Cable for $45.2 billion, Comcast on Friday pulled the plug on its mega-merger, citing opposition from regulators. A merger between the two companies would have created a pay-television giant with about 30 million subscribers. But more importantly to regulators, it would have created a company that controlled between 40 percent and 57 percent of the public’s access to broadband Internet, depending on how broadband is defined.
When the deal was first announced in February 2014, it was seen by many as a sure thing. Comcast had faced little opposition in 2011 to buy a controlling stake in NBC Universal. The company’s head lobbyist, David Cohen, who was marshalling the Time Warner Cable deal through the regulatory approval process, had achieved rock star status inside the Beltway.
But soon after the merger plans were revealed, debate erupted over how to reinstate the Federal Communications Commission’s Net neutrality rules. Within a matter of months, the esoteric topic of Net neutrality, which had been debated in wonky telecommunications policy circles for more than a decade, morphed into a populist firestorm that forced even President Barack Obama to take a strong stand — he came out in support of open Internet rules and denounced monopolistic control of Internet access.
Net neutrality is the idea that all traffic on the Internet should be treated equally. That means your broadband provider, which controls your online access, can’t block or slow down the services or applications you use over the Web. It also means your Internet service provider — whether it’s a cable company or telephone service — can’t create so-called fast lanes that force content companies like Netflix to pay an additional fee to deliver their content to customers faster.
In November, the White House released a video of Obama calling on the FCC to adopt strong Net neutrality rules to keep the information superhighway “free of toll roads” or “gatekeepers.” And he took the bold step of urging the FCC to regulate broadband access as a utility to ensure its rules would stick.
Even though Obama never mentioned the Comcast-Time Warner Cable merger, and even though the merger was considered as a separate proceeding at the FCC, it wasn’t hard to see that allowing a single company to accrue that much control over Americans’ broadband access didn’t jibe with the administration’s open Internet stance. Further sealing Comcast’s fate was the growing shift in consumer viewing habits away from paid television services, like cable TV, toward streaming online services like Netflix and Hulu.com.
“The Net neutrality debate struck a powerful chord with consumers,” said Delara Derakhshani, policy counsel for Consumers Union. “And policymakers took notice. People were seriously concerned about Internet service providers interfering with the content they received online.”
The Netflix effect
At around the same time that Comcast announced its plan to buy Time Warner Cable, it became embroiled in a very public fight with Netflix over fees it was charging the streaming-video service to deliver its content to Comcast cable subscribers. Netflix, unhappy that Comcast was trying to force it to pay for these so-called interconnection fees, took the dispute public. It accused Comcast of purposely degrading Netflix’s service in order to strong-arm it into paying the fees.
Even though the dispute between the companies had nothing to do with Net neutrality in the classic sense, Netflix’s complaints against Comcast and Verizon, which also charged for interconnection, demonstrated to the public the power that large broadband companies wielded over smaller Internet content companies that used their networks to reach customers.
In June, comedian John Oliver clarified the debate for the general public in a 13-minute rant on his weekly HBO show, bashing the FCC’s Net neutrality proposal. He also took aim at Comcast and showed a graphic of how network speeds differed before and after the cable provider had negotiated its deal with Netflix. He called Comcast’s deal to settle the Netflix dispute nothing more than a “mob shakedown.”
Regulators took note of the Netflix kerfuffle. And in the FCC’s final Net neutrality order, passed in February of this year, the commission said for the first time that if a complaint was lodged against a broadband provider alleging unfair business practices, the agency would intervene in private business negotiations between Internet network operators.
“People began to get the idea of what cable companies could do if they weren’t restrained,” NYU’s Sprigman said. “And there was a lot of support for some kind of restraint, as well as anger that broadband access and service was so poor.”
The new broadband standard
Throughout the summer, FCC Chairman Tom Wheeler also began looking more closely at competition in the broadband market. By September he determined that — as he put it in a speech at a tech incubator in Washington, DC — “meaningful competition for high-speed wired broadband is lacking, and Americans need more-competitive choices for faster and better Internet connections.”
He set the new bar for true broadband at 25 megabits per second. In January, he made that benchmark official when a divided FCC voted 3-2 to raise the standard for broadband downloads to 25 Mbps from 4 Mbps.
By redefining the broadband market, Wheeler gave the FCC and the Department of Justice more reason to reject the Comcast deal. Under the new threshold for broadband, Comcast and Time Warner Cable together would control 57 percent of the broadband market. In retrospect, the decision to raise the definition of broadband to 25 Mbps was a pretty clear sign that the FCC would oppose the merger.
In February, the FCC adopted strong Net neutrality regulations, imposing on broadband the new utility classification Obama had suggested. The move further distanced the FCC from Comcast, which has joined other broadband providers in voicing opposition to the change in status.
Gatekeepers
As the debate for Net neutrality raged this past year, new competition to traditional cable services was being introduced. Dish announced its $20 a month sling TV service. Sony announced a streaming service for the PlayStation, and CBS (the parent of CNET) began offering an $8 a month streaming service. HBO also announced it would make its shows available via an app, HBONow, that doesn’t require a cable subscription. And there were rumblings about an upcoming streaming-video service from Apple. Meanwhile, streaming services from Netflix, Hulu and Amazon Prime continued to grow and offer consumers an alternative to the cable bundle.
But some critics say there have already been signs that Comcast is restricting access to its NBC content on some streaming services. In March, Stop Mega Comcast, a coalition opposed to the Time Warner Cable deal, filed a letter with the FCC accusing Comcast of possibly withholding “affiliated NBCUniversal content in an effort to thwart the entry of potential new video competitors.” The letter to the FCC cited a Wall Street Journal story that reported Apple wasn’t talking to NBCUniversal because of a “falling-out between Apple and NBCUniversal parent company Comcast.”
Comcast denied the allegations and responded in its own letter to the FCC, claiming that Apple had not asked to engage in talks for its content.
Still, the seed had been planted that Comcast could use its influence to prevent consumers from accessing content.
Critics, including Sen. Al Franken (D-Minn.), said Comcast can’t be trusted to keep its promises. In an interview, Franken pointed to Comcast’s poor record in complying with conditions it agreed to as part of its 2011 deal to buy a majority stake in NBC Universal.
For instance, in 2012 the FCC fined Comcast for not honoring its agreement to provide standalone broadband after the merger. The FCC issued another fine in 2013, when it determined that Comcast had violated “neighborhooding” agreements when it refused to group Bloomberg with other competing news channels, including its own MSNBC channel.
“Comcast doesn’t have a good record when it comes to complying with conditions from its merger with NBCUniversal,” Franken said in an interview. “So considering what they’ve done in the past, I don’t think there is a whole lot of trust there.”
Though neither the FCC nor the Justice Department has called into question Comcast’s trustworthiness, Wheeler has talked more generally about the temptation large broadband companies have to act as gatekeepers. In defending the FCC’s Net neutrality rules in a recent speech at Ohio State University, he noted that strong rules are needed to protect the Net because “ISPs have the power to decide what travels between consumers and the Internet; they have all of the tools necessary to block, degrade or favor some content over others.”
Even though the Net neutrality rules protect consumers from such activity, the regulations alone won’t prevent broadband companies from finding other ways to thwart competition from online video-streaming services, said John Bergmayer. Bergmayer is a senior staff attorney for Public Knowledge, an advocacy group that supported the FCC’s strong Net neutrality rules and opposed the merger of Comcast and Time Warner Cable.
“The FCC passed its Net neutrality rules to protect consumers’ access to the Internet,” Bergmayer said. “And this merger threatened to undermine all that those rules had achieved by leading to the same anticompetitive effect.”
