Antitrust Lawyers Lean Towards Blocking Comcast Acquisition of Time Warner Cable

Staff attorneys at the Justice Department’s antitrust division are nearing a recommendation to block Comcast Corp.’s bid to buy Time Warner Cable Inc., according to Bloomberg. At least initially, many observers believed the deal would be approved, in large part because the relevant market was deemed to be “linear video.”

Comcast said it would divest enough video customers to keep the company’s share of the national market at or below the 30-percent threshold historically applied by antitrust authorities.

The problem, others pointed out, is that video increasingly is not the relevant market. That would be market share in the high speed access market, where a combined Comcast and Time Warner Cable would have about 40 percent share of the high speed access market, and an incomparably high share of faster speed connections, even before Comcast upgrades all U.S. locations to a gigabit.

If the Comcast acquisition were allowed, Comcast would have more than 57 percent market share of all U.S. high speed access connections operating at 25 Mbps or faster.

Looking only at homes able to buy gigabit high speed access, Comcast would, at more than 21 million locations, vastly outstrip all other gigabit providers put together. If one assumes that networks capable of a gigabit, supplied by all other competitors, could soon pass half a million U.S. homes, Comcast would represent 98 percent of all connections.

That is likely to be too great a degree of concentration for antitrust lawyers.

50th Anniversary of Moore's Law (Which Shockingly Applies to Internet Access Bandwidth)

April 19, 2015 is the 50th anniversary of the publication of an article by Gordon Moore about chip densities that later became what we call “Moore's Law.”

Roughly, the principle has been that chip densities double about every 18 months to 24 months. That has meant the cost of any fixed amount of computing or storage declines by roughly half over that same period of time.

Little noticed, by most aside from Reed Hastings, Netflix CEO, is that Internet access speeds follow a development curve nearly as robust as Moore’s Law does in the computing appliance and processor space.

In other words, access bandwidth nearly doubles about every 24 months.

Logic seemingly would suggest that is unlikely. Communications networks--especially those of the fixed variety--are expensive construction projects.

Such networks also are subject to local, state and national regulations, interest rates, economic conditions, changes in tax laws and changes in demand curves, all of which should slow rates of change, compared to rates of change for semiconductor products that follow Moore’s Law.

Shockingly, then, some studies have shown that even on twisted-pair copper telephone networks, speed doubled about every 1.9 years.

Other studies show similar results: some say an Edholm's Law shows that Internet access bandwidth does increase as Moore’s Law would predict.

That rate of increase of Internet access bandwidth is why some of us have been sure that consumer access bandwidths in the U.S. market, for example, would reach gigabit speeds, widely, by perhaps 2020.

That is a simple extrapolation of trends that have been in place for decades.

To reemphasize the point, between 1984 and 2013, fixed access network speeds have grown nearly as fast as Moore’s Law would suggest, as crazy as that sounds, knowing the physical nature of access networks, which are construction projects, not software apps.

Some might argue that mobile bandwidth will not scale as fast as fixed network bandwidth. Some of us believe that is wrong, and that mobile bandwidth has, an will, increase at the fixed network rates.

Consider that the coming fifth generation mobile network standard calls for 10 Gbps per end user. At that point, mobile networks will for the first time be functionally the equivalent of fixed networks, in terms of peak speed or average speed.

Still, the data is stubborn and clear: Internet access bandwidth has grown about 50 percent annually since 1984.

"No Business Model" Problem Migrates from Rural to Urban Areas

Among the fundamental problem for communications service providers and policymakers looking at services in rural areas is that there essentially “is no market.” That is to say, the number and density of potential customers is insufficient to drive revenue, while the higher cost of building plant means the hurdle rates for standard investment are lacking.

There is, simply, “no business model.” So, historically, communications services in rural areas are subsidized, both in terms of capital and operating costs.

We are seeing new versions of that issue, but relating to gigabit Internet access, even in downtown cores of smaller communities without a huge enterprise or mid-market firm presence.  

In many cases, even potential small fiber networks involving only 20 miles of plant are deemed uneconomic. In a growing number of cases, municipalities are looking for ways to subsidize such municipal networks on their own.

When no commercial suppliers (independent Internet service providers, competitive local exchange carriers and others) either cannot construct a viable business model, or can do so, but cannot secure capital to do so, municipal networks might be the best choice for fast action.

The emerging model seems to involve municipalities contributing assets (conduit, access, permitting) but not running the networks or providing taxpayer funding.

Cost control also appears to be among the potential success factors. If conventional business models do not work, and capital costs can only be reduced so much (by governments contributing conduit, for example), then operating costs must be tightly controlled.  

Verizon Communications Goes "Skinny" with Linear Video Bundle

Eventually, customers in competitive markets get what they want.

Though many would contest the characterization of the linear video business as “competitive,” it appears to be competitive enough to spur moves in the direction of giving people “what they want, when they want it.”

That is why over the top streaming services are proliferating. Another sign of the change is the move to create “skinny” bundles of linear channels that cost less, since consumers are signaling by their behavior that they consider the existing product too expensive, compared to the value they receive.

Verizon Communications, for example, has launched a new "Custom TV" bundle featuring high speed access and 36 basic (ad-supported) channels, with the option to buy genre-based channel packs, such as a sports bundle or kids channels.

Users can add extra packs for $10 each, or swap or unsubscribe any pack after 30 days. Verizon has seven channel packs in total.

Starting April 19, 2015, consumers will be able to sign up for a package of TV channels including broadcasters such as ABC and Fox, CNN, AMC, Food Network. They can then add on “channel packs” covering various genres such as sports, kids, pop culture and lifestyle.

FiOS’s cheapest plan will cost $55 a month and will include two channel packs. Each additional package, which can consist of about 10 to 17 channels, will cost $10 a month.

A package featuring the base package, two channel packs and 50 Mbps Internet access service costs $75 a month.

Though not a full move to a la carte pricing and buying of linear channels, the Verizon move is part of a trend that eventually will lead to new sets of choices that more closely resemble full choice, channel by channel or program by program.

WhatsApp Adding Video Communications, After Voice?

Facebook-owned WhatsApp, after having introduced voice communications, now seems set to add video communications.  That illustrates a pattern we now have become quite familiar with. A would-be disruptor enters a market, at the low end, and is dismissed as “a toy.”

The new app or service does not have anywhere near the features of the incumbent products, but the new product offers high enough value to solve a problem, generally at very low cost (free app, for example), or at least costs noticeably lower than the market level (cable TV voice, high speed access).

Over time, the new product adds more features. One day, the attacking product is feature by feature equivalent to the incumbent products. That pattern of disruptive innovation now clearly can be seen at WhatsApp, transitioning from an instant messaging product to a full communications platform.   

Space X "Falcon" Booster Almost Makes Landing

Once the technique is perfected, the cost of satellite launches will fall, since boosters can be reused. 

Star Wars Episode VII: Yay!