Opinion

Comcast’s costly package

The proposed takeover of Time Warner Cable is misguided, monopolistic and bad for the U.S. economy

February 19, 2014 8:00AM ET
A Comcast truck at in Pompano Beach, Fla. Comcast recently announced a $45 billion offer for Time Warner Cable.
Joe Raedle/Getty Images

If you’re wondering why ordinary Americans aren’t even close to achieving economic prosperity nearly five years after the official end of the Great Recession, you should pay close attention to the proposed $45 billion takeover of Time Warner Cable by Comcast.

The deal, which was announced last week, would create a monopolistic behemoth, reducing competition in the telecommunications sector and granting the consolidated companies more power to simultaneously raise prices and depress wages. It would reduce the number of jobs on the market, weaken smaller businesses and restrain the deployment of technology — especially the high-speed Internet access that’s necessary to support economic growth in this digital age.

If the deal goes through, it will serve as the latest example of the bad economic policies that have prevented the U.S. from thriving in recent years. In the words of the Writers Guild of America West, the labor union that represents workers in the movie, Internet and TV industries, it would be “bad for everyone: content creators, programmers, suppliers and consumers” because “media consolidation leads to already too powerful companies limiting competition.”

The guild’s concern lies in what’s commonly referred to as antitrust laws, which govern competition in the marketplace. Under the proposed takeover, the combined cable company would dominate in 19 of the top 20 television markets, enhancing Comcast’s power over program suppliers that want not only to be on Comcast but also to have a place in the channel lineup that helps attract viewers — say, Channel 9 instead of 949.

With regard to its Internet services, Comcast would emerge from the takeover in a similarly dominant position and thus have no economic incentive to upgrade its own and Time Warner’s outdated cable systems — veritable two-lane toll roads with potholes, compared with the Internet superhighways in Europe, Japan and urban East Asia. In Chattanooga, Tenn., for example, Comcast’s triple-play package — cable, Internet and telephone — costs 10 times what South Korean firms charge in Seoul, albeit with a slower Internet connection for the cheapest Korean deal.

And when there’s only one game in town, its players set standards for wages and working conditions — meaning these are unlikely to improve.  

Corrupting influence

The reason companies even fathom proposing deals like these is also part of the reason the United States is lagging behind its economic competitors: U.S. campaign finance and lobbying rules favor big companies that seek to thwart rules requiring robust competition in the marketplace. This may be good for the companies in the short term. But what Washington and the state capitals overlook is that in the long run, competition benefits businesses, and reducing the amount of it ultimately hurts workers, consumers, innovation and the economy.

Last year Comcast was the seventh-biggest lobbyist in the United States, investing $18.8 million in influencing Congress and relevant regulatory agencies, according to disclosure reports collected by the Center for Responsive Politics. That was in addition to more than $100 million spent lobbying in the previous 15 years. This sum does not include Time Warner Cable’s lobbying. Comcast has given politicians $25.7 million in campaign contributions since 1990, of which $2 million was spent last year — again, not counting what Time Warner Cable spent to spread its own influence. If the takeover is approved by federal regulators, it will certainly show, once again, that investing in government policy can be exceptionally profitable.

Consumer lobbies, on the other hand, are few in numbers, lightly funded and often snubbed by lawmakers — a sharp contrast to the easy access to senators and representatives that Comcast’s donations afford the company in the capital. Many consumer groups, including Good Jobs First, the Consumer Federation of America, the National Consumer Law Center and the Utility Reform Network, struggle to keep their lights on while trying to restore rules that encourage competition or balanced regulation of utilities.

Today just 2,772 companies own more than 80 percent of the assets of all 6 million U.S. corporations.

But forget the consumers. Forget the shareholders, even! The benefits of the Comcast–Time Warner merger would be stunningly profitable for one man. Comcast shares are worth $140 billion, and its billionaire CEO, Brian L. Roberts, votes one-third of them, more than enough to control the company.

When asked about the potential deal, Roberts told stock analysts the deal is “pro-consumer, pro-competition.”  Why that is, Roberts has not said. Perhaps that’s because the answer would violate basic economic theory.

Conflicts of interest

Comcast is currently mired in commercial conflicts of interest. In addition to its wires that distribute information, it owns NBCUniversal, which produces television news and entertainment shows, makes movies and owns amusement parks. Comcast also owns the Golf Channel, the E! network and interests in various sports programming as well as the Philadelphia Flyers hockey team. This means the company can effectively force competitors through its cable contracts to subsidize its own programming, weakening each competitor a little while building Comcast’s financial muscle.

Comcast favors rules under which businesses that want their data to move on the fastest Internet lanes would pay premium prices. This would squeeze profits at Amazon Prime, Netflix and other streaming services, ultimately reducing investments in diverse programming. Today Comcast must move all Internet traffic equally, but that regulatory requirement expires in 2018. Even if the merger were conditioned on a further extension, corporations, unlike people, can live forever, so any extension is almost beside the point.

The company’s power to raise prices at will is what economists call market power. It is part and parcel of monopolies. This power — and the weakening of competition — is why corporate monopolies are bad for economic growth and job creation but wonderful for the dominant company’s owners: It gives them power to extract more from customers while exerting power over workers and suppliers to push down their compensation. The smaller companies must comply or risk being crushed.

And inequality for all

The American Revolution arose in part from the Boston Tea Party, a protest against a tax exemption the British Parliament gave to the monopolistic British East India Company. Given this history, why do our political leaders embrace monopolies along with all the harm they cause? Because many Americans believe, wrongly, that the Boston Tea Party was a protest against high taxes and have forgotten history’s many harsh lessons about monopolies.

The rise of monopolies, duopolies and oligopolies in recent decades is a major reason corporate profits have soared while the median wage remains mired at the inflation-adjusted level of 1998. Today just 2,772 companies own more than 80 percent of the assets of all 6 million U.S. corporations, IRS data show.

Monopolies are also aided by the claim, now widely believed, that a larger federal government interferes with economic growth. In this case and many others, the opposite is true.

Congress has slashed staff and budgets for regulators whose duty is to challenge consolidations and devise rules that promote competition in the market. In this, anti-tax lawmakers have handcuffed Adam Smith’s “invisible hand,” which is supposed to promote economic gain for all as each baker, brewer and butcher competes to advance his own prosperity.

Consolidation and the trend toward oligopolies, duopolies and monopolies isn't a problem that's exclusive to cable and Internet providers. From airlines, banking and burglar alarm monitoring to radio, railroads and sporting goods, competition-reducing consolidations are damaging our economy, as I have chronicled in my books and columns. The proposed Comcast merger is bad economics. But it is just part of a larger problem — one of corrupting corporate influence and misguided government policies.

If it’s not dealt with, this state of affairs will condemn us to remain in the economic doldrums for years or even decades, while other nations that enjoy faster Internet connections, better customer service and more innovative products than those of us served by the likes of Comcast sail past into greater prosperity.  

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and editor of the new anthology “Divided: The Perils of Our Growing Inequality.”

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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