Pro-business Republicans attack Comcast merger at hearing

The battle lines in Comcast's bid to merge with Time Warner blurred further on Thursday when House Republicans fired tough questions at Comcast executive David Cohen during a lively hearing.

Republican lawmakers who characterized themselves as free market advocates grilled Mr. Cohen on whether the merger would drive up prices, lead to less choice for rural customers, and accelerate the media's perceived tilt to the left.

Republican senators raised similar worries at an April hearing, and Democratic critics have argued that the merger could lead to a near-monopoly that reshapes the nature of the Internet in America.

The hearings are merely public forums – the Federal Communications Commission (FCC) will decide whether to approve the merger, not Congress. But given the enormous influence that television and the Internet have on American society, the questions point to deep concerns about whether one company – which would own 30 percent of the cable TV market and 40 percent of the broadband Internet market – can wield too much power.

The $45 billion merger has drawn significant concern from consumer groups, since the new company would create a company that dominates 37 of the county’s top 40 broadband markets and 19 of country’s 20 largest cities. It’s subscription base would include over 30 million households. This would dwarf the next four largest cable and broadband companies combined, each of which has around 4 million to 5 million subscribers.

Rep. Louie Gohmert, a tea party Republican from Texas, asked Cohen about possible discrimination against conservative programs such as Glenn Beck’s cable network, The Blaze. Rep. Tom Marino (R) of Pennsylvania worried the merger would create “more of an unbalance with an already left-of-center media environment.”

Other Republican lawmakers, including Blake Farenthold of Texas, questioned whether the new cable colossus would raise customer bills while limiting programming choices. “I don't want to sound hostile to this merger," he said, but he noted that his constituents were raising concerns about limited choices, especially in rural and Hispanic households.

Cohen denied that the merger would affect the normal process of choosing which programs to include in cable packages. On consumer costs, he added: "I think this transaction has the potential to slow the increase in prices. I think consumers are going to be the big winners in this transaction.”

The nation’s cable households spend an average of about $2,200 a year on TV, telephone, and Internet access – 20 percent more than they did in 2007, according to Department of Labor statistics. At the same time, overall household spending has increased only 3.6 percent. Time Warner and Comcast also consistently get some of the worst consumer satisfaction ratings of any business in any industry, according to various polls.

These concerns also hang over how the merger might affect the Internet.

“This merger is bad news for the cable industry,” testified Dave Schaeffer, chief executive of Cogent Communications, which serves companies such as Netflix. “But this merger is less about cable than it is about the future of the Internet.”

In the background is the ongoing debate over “net neutrality,” the principle that Internet providers such as Comcast and Time Warner should treat all information flowing through their pipes the same, giving no preference or special treatment to certain kinds of content. Internet providers have pushed back against this idea, suing the FCC in a bid to allow them to charge higher fees to create Internet "fast lanes."

After two court rulings against it, the FCC is now proposing new rules that would give Internet providers what they want – a death blow to net neutrality, critics say.

The issue is directly relevant to the merger. Net neutrality has prevented Comcast from possibly giving content produced by NBC (which it owns) a competitive advantage on its networks.

Democratic lawmakers and consumer and free speech advocates have been marshaling their forces this week to fight the FCC’s proposed rule changes. On Wednesday, more than 150 tech companies, including Google, Facebook, and Twitter, sent an open letter to the FCC, saying the demise of net neutrality “represents a grave threat to the Internet.”

On Thursday, Cogent Communications' Mr. Schaeffer cast doubt on the need for "fast lanes" in his testimony. He said Comcast had refused to improve Internet capacity at high-traffic points, even when his company offered to share the costs to add high-capacity switches – a relatively simple process.

The implication was that Comcast was "very clever" to keep capacity tight, since that gives the company leverage to extract more payments from those who use their wires. For example, Netflix was forced to make a separate deal with Comcast and pay an extra fee when its services overloaded Comcast's networks.

Earlier this week, other companies like Cogent complained of similar tactics used by Internet service providers – refusing upgrades so they can turn around and then charge commercial subscribers additional fees.

Cohen called such claims "wholly inaccurate."

"We did not force Netflix to enter into an interconnection deal with us. That was Netflix's idea," he said. "It was their desire, given the size of their traffic, to cut out the middle man, their words – the middle man happened to be Cogent, by the way – and to deal directly with us."

But Netflix had no choice but do this and pony up, said many observers when the deal was made in February.

“That’s not a free market,” Schaeffer said Thursday. “That’s an abuse of market power.”