This is a big week for Comcast (CMCSA) as it seeks the government’s approval for its agreement to buy Time Warner Cable (TWC), the second-largest cable provider in the U.S. The Senate Judiciary Committee is set to hold merger hearings on Wednesday, and Comcast has just filed its application with the Federal Communications Commission.
The voluminous FCC document—whose main arguments the company also laid out in a blog post—boils down to this: Comcast competes with many, many companies, with just one notable exception. Let’s take a closer look at Comcast’s self-declared rivals (and nonrivals):
1. The Giants of Silicon Valley. It’s no secret that tech companies want to get into television. Amazon (AMZN) released a set-top box last week, joining Apple (AAPL), Google (GOOG), and Microsoft (MSFT) in the war for the living room. There’s evidence that the Silicon Valley set is making progress in the chase for cable subscribers. Last year was the first time the number of people who pay for TV subscriptions through cable, satellite, or fiber services fell. While it wasn’t a huge drop—only about 250,000 out of 100 million TV subscribers—it still seemed to mark a shift.
Cable companies have pooh-poohed so-called cord-cutting for years. Not anymore. Comcast’s FCC filing describes each of these efforts, as well as popular video streaming services such as Netflix (NFLX), as legitimate competitors to cable. The major tech companies “are competing with each other and with us in unprecedented ways,” David Cohen, Comcast’s executive vice president, said in a conference call with reporters on Tuesday. Given the immense market value of companies like Apple and Google, Cohen casts Comcast as the little guy in this fight.
Comcast does hold some big advantages, though. No Internet-TV provider has managed to sign content deals that would allow them to line up a service that really competes with the cable-TV bundle. Given Comcast’s control of NBCUniversal, a major content company, this might raise regulatory eyebrows.
At the same time, Internet-TV companies can’t reach their customers without the cooperation of Internet service providers, and Comcast’s merger with Time Warner would significantly increase its presence there. “Comcast has market power as a distributor of content and provider of high-speed Internet access,” Gene Kimmelman, president of the advocacy group Public Knowledge, said in testimony prepared for Wednesday’s hearing. “Comcast already owns NBCU and thus has an incentive to leverage its cable and Internet access operations to protect its content business.”
This is the crux of the debate over net neutrality. Comcast says its deal with Time Warner would actually expand the FCC’s net neutrality rules, which were shot down by a judge earlier this year. Comcast agreed to abide by these rules as a condition of its acquisition of NBCUniversal and notes that in buying Time Warner, it would bring those customers into its neutral net as well.
But not everyone is happy with Comcast’s approach. Even Netflix, which drew fire for signing a contract with Comcast to pay for a more direct connection to its network, says these deals should come under more regulatory scrutiny. Tom Wheeler, the head of the FCC, has said he’ll leave them alone.
2. DSL and Wireless Companies. Comcast sees its hold on the Internet market as much more tenuous than some of its critics do. The basis of this disagreement comes in what it classifies as a competing Internet service. Comcast argues that slower, more expensive forms of Internet access are good enough to pose a threat.
DSL services have generally not been considered direct competitors to broadband cable services because they’re not fast enough. Comcast says that’s changed, citing the relatively high speeds of services such as AT&T’s (T) U-verse. Quibble over exact speeds all you want, says Comcast, but the proof is in the adoption: The annual rate of growth for DSL-based Internet subscriptions from December 2008 to December 2012 was 26 percent, while cable broadband grew only 18 percent annually over the same period.
Comcast also claims that high-speed wireless networks offer a real alternative for some people. Masayoshi Son, president of SoftBank (9984:JP), makes the same argument as he tries to persuade regulators to warm to a merger he’s floating between Sprint (S) and T-Mobile US (TMUS).
This idea draws a lot of skepticism from people who aren’t trying to buy large telecom companies. As a matter of physics, wired Internet will always have an advantage over wireless Internet. Regulators rejected Verizon Communications’ (VZ) plan to replace some customers’ wired Internet service with a wireless alternative in communities impacted by Hurricane Sandy. And for now, wireless customers using LTE connections would spend heartily in usage fees to do anything approaching what they could do with cable broadband.
Comcast says the economics of wireless broadband are undergoing a fundamental change. It also sees a major new competitor coming in the wired-Internet world: Google. High-speed Internet service from Google gets a lot of attention and seems to be a hit in the few places where it exists. But the company has no imminent plans to extend Google Fiber to any significant percentage of the country.
Comcast’s Cohen wants everyone to know, however, that his company hears the footsteps. “I think Google will force us to up our game, and we’ll be a better competitor because of Google’s presence,” he says, noting that Google has, you know, lots of money. “Being in two small Comcast communities, they’re hardly a major competitor to Comcast today. But the point is: Google’s coming.”
3. Time Warner Cable Isn’t an Actual Rival. There’s one company that Comcast isn’t competing with in any way, according to Cohen, and that’s Time Warner. Because the cable industry is a series of local monopolies, the two providers have no overlap when it comes to television service. And since Comcast and Time Warner use the same pipes to deliver broadband, they aren’t going against each other there, either. “After this transaction, a consumer in Cleveland is going to have the exact same choices he did before the transaction,” Cohen says.