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March 24, 2014

Bigger Can Be Better; or Why the Comcast Merger is Probably Good for Time Warner Cable Customers

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One or two guys oops, people can write a great app, or a great algorithm, and that's a great thing. Our economy is benefitting and consumers are reaping the benefits of such innovation and creativity that comes as the fruit of the minds and labor of a few.

But some things are really, really expensive and capital intensive to do, like building out and maintaining a 21st Century broadband and rich content network that is constantly innovating new products and services for its customers.

That's one of the reasons why I've never been big on municipal broadband networks, and it's a big reason why, as Marguerite Reardon wrote in CNET, the Comcast merger could be good for TimeWarner Cable customers. In fact, it almost certainly will be.

Pay TV is the best value in entertainment out there for most consumers, which matters in an economy that is still underperforming. In recent years, lots of new services in addition to faster speeds have been added to cable networks in general and Comcast's in particular, which is why it's not really relevant to complain about cable prices rising. If you're comparing cable prices today with cable prices 5 years ago, you're not comparing apples to apples.

So it's clearly in consumers' best interest to have cable companies continuing to deliver more value. But if that's what we want, we have to get away from knee-jerk negative reactions to things like the prospects of a cable company getting bigger.

Because, as I said, it's very expensive to build out and continue to upgrade and innovate such networks. It takes a ton of capital and a lot of people to reach the kind of critical mass necessary to do the big things we expect our major broadband providers like Comcast, Verizon and AT&T to continue to do. Frankly, it takes very big companies to do such things.

Here's a great example of such a knee-jerk reaction from a knee-jerk someone not exactly known for astute analysis:

What many consumer advocates and lawmakers such as Senator Al Franken (D-Minn) surmise is that this must mean bad news for consumers.

"I think consumers will end up paying more," Franken said Monday on the "CBS This Morning" show, according to Variety. "There will be less competition; there will be less innovation and, worse, even worse service."

No, Senator Franken, there will not be less competition. Cable companies don't compete with each other, but that doesn't mean there isn't competition. Cable competes aggressively with satellite TV and with telecoms such as AT&T, Verizon, and Suddenlink. None of that will change after a Comcast merger with TWC, since Comcast and TWC don't compete with each other now.

Comcast's services are markedly better than TimeWarner Cable's, according to Reardon, and she's right. And again, because Comcast doesn't compete with TWC, you can't argue that Comcast's innovation was driven by competition with TWC. No, Comcast's innovation is driven by competition with satellite and with telecom, but it's also driven by its own concerns about retaining existing customers in the face of new dynamics such as cord-cutting and new broadband competitors such as Google Fiber. And there's always the threat of newer, more widespread wireless services.

The real competitive pressure faced by companies like Comcast is from content companies that can deliver content through the Internet, such as Netflix, Hulu, etc.  It's commonly known now that you can find a decent amount of quality entertainment on-line these days if you're willing to just go with a good broadband connection and a couple of paid subscriptions. That's the competitive pressure for companies like Comcast, and the TWC merger will not eliminate such competition--it will help ensure that pay TV has a chance to remain competitive.

There are no competive grounds to oppose the Comcast/TWC merger; again, they don't compete with each other now. And it seems most likely that consumers will benefit rather than being harmed by greater availability of superior products and services.

But that didn't keep the author of the CNET piece from being battered in the comments section by the knee-jerkers, and it won't stop them from battering the FCC, the Dept. of Justice, and the Obama administration with their fear of big.

One can only hope that federal policymakers have a little more sense than commenters, and hopefully more sense than Senator Franken.

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