Charter Communications just offered to buy both Time Warner Cable and Bright House Communications, which would merge the second-, fourth-, and tenth-largest cable providers in the US into ... well, still the second- or third-largest, but closer to the size of Comcast.
Here's how the numbers work: Comcast has around 27 million subscribers. If AT&T and DirecTV are allowed to merge, they would have around 26 million. ChartWarnHouse would have around 24 million.
But the numbers are really kind of immaterial in the weird, uncompetitive realm of cable. The key question is really: how is competition doing? Since Comcast tried to buy Time Warner a year ago, two things have changed to make a cable merger less scary—and one thing has become clear that should stand in its way.
Over the past two years, multichannel video has become strikingly more competitive. First Netflix and Amazon, then Sling, and soon (we're pretty sure) Apple will be delivering over-the-top competitors to the standard cable bundle. One by one, we're watching important channels like HBO peel off and start their own, independent, Internet-based services. That's because ultimately, video is a content business with a low barrier to entry. The issue was always business agreements, not cost of delivery. That dam seems to have finally broken.
The other big positive change is in the FCC's new strict net neutrality order, which (if held up by the courts, which is another issue entirely) could prevent Time Warner Cable and its ilk from pulling shenanigans like making their own cable TV services work better than Sling or Apple TV. Without net neutrality, I think you'd find competitors to the standard cable TV services degraded by the cable ISPs on which they depend.
So between new entrants, and smart regulation preventing incumbents from squashing the new entrants, it looks like we're on the way to having a decent competitive multichannel TV market in this country—something we still can't say about broadband.
It's Still About Fixing Broadband
The ultimate punchline about over-the-top TV service is that you're still going to have to subscribe to your cable provider, because, most likely, you don't have any other option for Internet fast enough to provide the OTT TV service. What became clear in the Comcast-TWC merger is that we shouldn't look at these companies as "cable companies," but rather as "high speed Internet providers."
It's so complicated and expensive to lay the physical pipes needed to supply the dozens of gigs per month that American homes want, any competition is going to be very slow in coming. Wireless carriers can't do it—they don't have enough capacity. Cable overbuilders like RCN have sorta-kinda tried for decades and not gotten very far. DSL is slow. Verizon gave up on expanding FiOS. Google is trying, but it's slow going. And the ISP industry has been pretty successful at barring many cities and towns from setting up their own networks.
FCC Chairman Tom Wheeler is setting a high bar for this merger: he wants TWC and Charter to show not merely how it won't hurt people, but how "American consumers would benefit if the deal were to be approved." That's going to be very difficult. It's just like with Comcast-TWC: the merger of a couple of widely disliked regional monopolies into a larger regional monopoly typically doesn't have any positive outcomes for anyone except the monopoly's shareholders.
We should expect Time Warner Cable to lay down the same line of nonsense that Comcast did last year, claiming that there's a competitive broadband market in America. As study after study has shown and the FCC chairman has emphasized, there simply isn't.
The conditions around any major broadband merger in this country—and yes, that includes cell phone networks—have to address how to make the broadband market more competitive. I've heard a bunch of theories for how to do this, and they all sound worth a try. The right-wing approach involves clear-cutting local regulations to make it much cheaper and easier to build towers and lay cable. The left-wing approach involves encouraging municipal broadband as a competitor. The cellular-inspired approach involves encouraging or mandating virtual operators piggybacking on the existing physical network to increase competition, like TracFone has done very successfully.
In any case, our current broadband monopolies shouldn't hold. If Wheeler wants consumers to benefit, we need to hear some conditions to help encourage competition. When the FCC comment period opens, that's what we should focus on.