Tuesday, February 18, 2014

How to Give Comcast What It Wants, Save the Consumer Some Money and Turbocharge Our Communications Infrastructure.

“Dare to be great.” A phrase which connoted both vision and hubris gained currency in the eighties and nineties but seemed to fade in the early 21st century. Well, not really as it turns out. Comcast’s recent agreement to acquire time Warner-- one that took most industry observers by surprise-- suggests that size is still a goal. Yet, the speech, however quietly whispered in corridors and cubicles of Comcasts new gleaming headquarters, still inspires fear among consumer advocates and regulators. They rightly demand to know what benefit there will be to society in concentrating thirty percent of the cable industry in one pair of corporate hands. With the concentration of wealth in even fewer hands, common sense suggests that the benefits of greater media industry concentration must be all the clearer and all the more compelling. Owners of property may, indeed, should dispose of their property as they see fit. In typical anti-trust policy, the argument against bigness comes down to: how high will prices rise and how much will supplies contract and investment be stifled. The argument for bigness is that innovation is spurred by concentration and that creative destruction of the old and replacement by the new occurs fastest in large enterprises. In media industries, however, the choice is all the more complex. These companies control what we hear and see through ownership of the news and information networks,the airwaves and the wires. In balancing the aspirations of owners, consumers and society as a whole and, it is not clear that bigness will produce a result that will benefit all. Time Warner Cable will have new owners soon. Nobody disputes the notion that Time Warner Cable needs change. Badly. Subscribers pay too much for services they don’t want. Customer service is weak. Outages plague the system. Internet speeds slow to a crawl late in the day. System infrastructure needs upgrading urgently. The stock has lagged. The same can be said for the entire industry. Average cable monthly bills before broadband have breached the $100 mark. Bundling of sports packages into consumers bills diverts too much of the consumer’s payment to the sports rights holders. There are too many cable networks, often with minute audiences, charging exorbitant fees. Subscribers continue to cut the cord. Internet broadband capacity has improved but at a snails pace. In an editorial in the NY Times, Paul Krugman points out that Comcast’s takeover of Time Warner Cable will give it even more power to increase susbscription rates to consumers, squeeze suppliers of programming and system equipment. Brian Roberts, Comcast’s CEO, on the other hand argues that Comcast market power will not further increase because Time Warner and Comcast do not overlap in any zip code. (Of course that is not the point, as Klugman argues, because municipalities license local monopolies-but never mind that.) Behind Krugman’s argument is that bigness-no matter who controls-should not be trusted. In our view Mr. Roberts can be trusted not to behave as an old time robber baron. In fact, his track record for over 30 years indicates that he and his company have always demonstrated the greatest allegiance to good corporate citizenship. But we recognize that the temptation towards monopolistic behavior is high with control of 30 percent of the national cable market. Frankly, the same can be said for Charter Communications, as guided by John Malone, who also has offered to merge with Time Warner Cable. So how about a new idea for whoever acquires Time Warner? How about transforming the media and communications industry completely with this deal? Here’s what we suggest: 1. Let Comcast or Charter or whomever acquire Time Warner Cable with the following two conditions. a) that buyer agree to eliminate the practice bundling of programming packages at the basic and enhanced basic level on his whole system. Instead, allow consumers to create their own packages and pay for the programming they actually want. This will shift subscriber demand for future communications services to be delivered through cable’s system. Even without a voluntary move by the industry to unbundle its services, unbundling will proceed in any event through expanded Netflix, YouTube or Amazon services. Cable could in our view possibly retain customers who would otherwise move to competitve services. b) that the new company agree to rebuild system architecture to 2 gigabits in download load capacity in 50% of their systems within 3 years and 100% in five years. Two gigabits is 133 times standard 15 megabits that Time Warner currently offers. With that much capacity converted to ultra high speed service, the acquisition potentially would engender a conversion to ultra high bandwidth service throughout the industry. The explosion in new capacity would benefit all: subscribers, shareholders and society in general. You say that’s crazy: that it will cost billions! We say maybe not. We believe that the capital cost-while high-is manageable, and could be driven far lower with a expansion on this scale than many would expect. Another major benefit is that new businesses would emerge in a tsunami of innovation that would follow and boosting growth right here in the USA. So we say to regulators, Brian Roberts, John Malone and the industry as a whole, let the industry “Dare to be great”, again. Light up your glass fiber with more speed, more services and new and innovative offerings consumers want. Take back your position in the communications industry and your destiny into your own hands.

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