Comcast & TWC: Playing multidimensional digital chess

[Commentary] Humility is not a Washington strong suit, and so the Senate Commerce Committee questioned Comcast and Time Warner Cable, often skeptically, over the former’s proposed $45 billion acquisition of the latter.

Lawmakers want US broadband to be successful -- but not too successful. They want ever expanding networks of ever greater capability but don’t want the firms that build these expensive networks to prosper. They want lower prices for consumers but don’t like the economies of scale that can help deliver such value. Because Comcast and Time Warner Cable do not operate in the same geographic markets today, there will be no reduction in broadband provider competition.

But even that question misses the larger point, which is that this is a market where competitive products and technological innovations spring up unexpectedly, often overlap, and show no signs of stopping. Cable firms compete against satellite firms (DirectTV and Dish), telecommunications firms (Verizon FiOS and AT&T U-verse), and broadcast TV, with possible new challengers like Aereo. In broadband Internet services, the cable firms compete with the telecom, satellite, and wireless companies. For services like voice, they compete with the telecom and mobile firms, and also with applications like Skype and WhatsApp. Web content from Netflix, YouTube, Amazon, and many others, meanwhile, challenges the traditional cable TV model. Even traditional cable channels like HBO and ESPN are moving toward the Web.

We could also add the dimension of “interconnection” to the equation. Although cable gets only a tiny amount of revenue from interconnection deals, such as the recent Comcast-Netflix hook up, the DOJ and FCC are likely to scrutinize this arena.

Each of these dimensions overlaps with the others and is itself constantly shifting. The cable firms are adapting to all these changes, but no one knows what any part, or the whole, will look like just months from now. So it’s difficult to make the case that our general hands-off attitude toward regulation of the Net isn’t bearing fruit. And it’s unlikely that a merger of two entities who don’t compete will change the upward trajectory of the digital economy.

[Swanson is president of Entropy Economics]