Reasons The FCC Should Block The Comcast/TW Merger

| About: Comcast Corporation (CMCSA)

©Elliott R. Morss


The Charter of the FCC sets forth the following objectives:

  • Promoting competition, innovation and investment in broadband services;
  • Supporting the nation's economy by ensuring an appropriate competitive framework for the unfolding of the communications revolution;
  • Revising media regulations so that new technologies flourish alongside diversity and localism.

So far, it has failed miserably at these tasks. Table 1 indicates that the US, ostensibly the global leader in technology, has broadband speeds of only one-third those of Hong Kong (Table 1).

Table 1. - Broadband Speeds of Leading Nations

Source: Ookla Net Index

Why such miserable performance? In a key 2002 decision, the FCC ruled that instead of what was patently obvious: that internet service is a utility just like landline phone service, it decided that Internet providers were "information service providers" and not "telecommunications carriers." That was critical: it meant that unlike common carriers, these service providers did not have to open their lines to all. The result is an oligopoly (a limited number of companies colluding together) to keep competitors out. Why would the FCC make such a decision? A decision that is clearly in violation of its "competition mandate."

Understanding FCC Decisions

It could not be simpler: According to Open Secrets, the Communication/Electronics industry ranks third behind only the finance and health industry in lobbying outlays - $391 million in 2013.

The Comcast/Time Warner Merger

Table 2 provides customer data on the leading Internet providers. It also compares market shares if the Comcast/TW merger goes through with shares if the rumored Charter/TW merger took place. One would think the FCC decision should be straightforward:

  • Block the Comcast/TW deal because it would reduce competition;
  • Find a TW (TWC) partner that would offer a competitive challenge to Comcast's (NASDAQ:CMCSA) already dominant position.

That is what should happen, but will it? Rest assured, Comcast's lobbyists are working overtime.

Table 2. - Internet Market Shares

Source: Yahoo

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.