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Tuesday, November 9, 2010

Will a Comcast NBC Merger Cause Customer Fees to Rise?

We worry about a number of things when mergers occur. Monopolistic conditions, higher barriers for competitors to enter, less innovation, and of course rising prices for a limited resource. So goes the latest argument assessing the merger of Comcast and NBCU. "William Rogerson, a former chief economist of the Federal Communications Commission, said the deal would lead to $2.4 billion in higher fees to consumers over the next nine years unless the commission and the Justice Department, which are assessing the merger, impose conditions."

The question is, where are those fees being imposed. If at the cable programming level, the biggest concern is cord cutting because of current rising fees. Consumers are moving in two directions with their cable company, all or nothing. The customers getting only cable are dropping their service completely. The others are becoming a two or three platform user, adding phone and/or broadband. Hence the Q3 financials from the cable companies are showing basic cable subscriber losses, and a rise in phone and broadband users. It is the haves and the have nots, all or nothing. Rising fees only exacerbates the cable problem.

As to digital content, assuring that NBCU content is not restricted to the cable platform only is an understandable concern. "Hulu is considered the digital jewel of the transaction. Having a stake in Hulu would help Comcast sidestep a big concern for cable companies, namely that users could start cutting subscriptions if they could see their favorite shows free online." Assuring that content remains available on the web would be a positive move.

So as cable subscription drops, cable companies are looking to raise the fees on broadband. Here is where the FCC has to decide whether they want to call broadband a utility or not. Otherwise, they have no right to impose limitations. I believe current utility companies should be encouraged to enter into this business without government limits. The electric companies for instance have an infrastructure in place and with tax inducements to expand into the broadband business, they could become a notable competitor to the cable and phone company in the market. And more competition is healthy.

Consequently, the concern for price gouging could be dismissed with a more positive approach to the problem, and not more regulation.

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