Comcast power play could come with a cost to customers

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Posted: Friday, February 14, 2014 12:00 am

LOS ANGELES — With a single behemoth purchase, Comcast is creating a dominant force in American entertainment and presenting federal regulators with an equally outsized quandary: How should they handle a conglomerate that promises to improve cable TV and Internet service to millions of homes but also consolidates unprecedented control of what viewers watch and download?

Comcast, which was already the nation's No. 1 pay TV and Internet provider, says its $45.2billion purchase of Time Warner Cable will provide faster, more reliable service to more customers and save money on TV programming costs.

If the acquisition is approved, Comcast will serve some 30 million pay TV customers and 32 million Internet subscribers.

But industry watchdogs say the deal will give the company too much power and ultimately raise the price of high-speed connections.

“How much power over content do we want a single company to have?” said Bert Foer, president of the American Antitrust Institute, a Washington, D.C.-based consumer interest group.

The all-stock deal approved by the boards of both companies trumps a proposal from Charter Communications to buy Time Warner Cable for about $38billion. It also represents another giant expansion following Comcast's $30 billion purchase of NBCUniversal, operator of NBC, Bravo and USA, which was completed last March.

Comcast says it will continue to operate under conditions the government imposed when it approved that transaction, including a requirement that it provide stand-alone Internet service without tying it to a pay TV package and that it will make programming available without discrimination to other providers, including online.

However, “In most places outside of a few big metro areas, you've got cable as the only game in town,” said Craig Aaron, president of Free Press, a public-interest group that focuses on the media industry. “I don't see there on their list of proposed consumer benefits prices going down.”

The deal is expected to close by year's end, pending shareholder and regulatory approval.

The Comcast-Time Warner Cable combination's total of roughly 30 million pay TV customers is believed to be a level that won't trigger the concern of antitrust authorities. Divesting subscribers could help the deal get approved more quickly.

Comcast is also taking the position that because Comcast and Time Warner Cable don't serve overlapping markets, their combination won't reduce competition for consumers. Comcast operates in Chicago and mainly in Northeast markets that also include Boston, Washington and its home base of Philadelphia. Time Warner Cable has strongholds around its headquarters in New York, as well in Los Angeles, Dallas and Milwaukee.

Comcast noted that it would have less than 30 percent of the market share for pay television subscribers in the United States after the deal.

In Nebraska, Time Warner Cable serves Lincoln, Fremont and Columbus and smaller communities including Seward, York, Fairbury and southeast areas of the state. It does not serve Iowa.

Comcast does not have a presence in Nebraska or Iowa.

“We do not operate in any of the same ZIP codes,” Comcast's chief executive, Brian Roberts, said of the two companies. “We believe this transaction is approvable. It is pro-consumer, pro-competitive, and strongly in the public interest.”

Time Warner Cable executives also said the move would benefit its customers.

“On a personal level, it's never easy to cede control of a company,” said Robert Marcus, Time Warner Cable's chief executive. “However in this case, it just makes too much sense.”

Some consumers, however, aren't buying it.

Eric Raynal, a first-year medical student who gets his TV and Internet from Comcast, expects prices to go up and customer service to languish if the deal is approved.

“I anticipate this going badly for the customer,” said Raynal, who studies at Oakland University's William Beaumont School of Medicine in Michigan. “Companies are in the business of making money, and they go through mergers to make more money. It's ugly for the customer no matter how you spin it.”

Comcast and Time Warner Cable are the two worst-ranked companies for customer satisfaction in the cable business, according to the American Customer Satisfaction Index. Among all industries — including airlines, banking and other businesses that frequently rankle customers — they placed second and third from the bottom. Out of more than 230 companies in 43 industries, only the Long Island Power Authority was lower.

Comcast and Time Warner Cable said the merger would improve customer service and let the combined company roll out new products more quickly. Comcast also expects to generate savings of about $1.5 billion and increase its cash flow.

“Scale matters,” Time Warner Cable's Marcus said.

But Alexander Chernev, a marketing professor at Northwestern University, said, “Right now, each of the companies is large enough to be able to provide enough efficiencies of scale in service. There's no reason to expect an improvement.”

This report includes material from the New York Times and Bloomberg News.

Copyright 2014 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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