Comcast-TW Cable Merger Changes the Dynamic for FCC’s Net Neutrality Wrangle

Critics are racing to attach ominous superlatives to Comcast’s proposed purchase of Time Warner Cable, particularly when it comes to the Internet: The nation’s largest broadband provider will become even bigger, commanding about one-third of the marketplace for high-speed Internet service.

But when it comes to the rules of the road for the Internet — the net neutrality guidelines that prohibit providers from blocking or favoring certain types of traffic — the proposal has changed the dynamics of the debate raging in Washington.

For weeks, FCC chairman Tom Wheeler has been weighing his options on how to proceed on net neutrality after the D.C. Circuit gutted the FCC’s existing rules. He’s promised a proposal, but the Comcast-TW Cable transaction may give him new options, even as debate is likely to center on whether Comcast will command too great a share of the market for broadband.

“I think that the merger absolutely requires that the FCC decide its total plan for the open Internet,” said former FCC chairman Reed Hundt, who noted the sheer size of the combined companies’ broadband subscriber base.

“They either have the open Internet rules or they don’t,” Hundt said. “It is really up to the FCC.”

While consumer groups, lawmakers and competitors can be expected to be among the chorus of voices pressuring the FCC to block the deal, Comcast has been quick to note that it is still bound by the net neutrality rules until 2018, under the conditions set for its 2011 purchase of NBCUniversal. The addition of Time Warner Cable customers will only add to the number of customers protected by those rules.

Now, Wheeler and the FCC have leverage to demand further conditions, like extending the length of time that Comcast will abide by net neutrality. Just the sheer size of Comcast could have an impact on the rest of the industry.

“The FCC is able to produce public policy through voluntary merger conditions, rather than having to wait for rule makings and other regulatory avenues that could take a long time and be appealed to the courts,” says Robert McDowell, the former FCC commissioner.

That was the rationale of Wheeler himself back in 2011, when he wrote on his blog that the proposed merger of AT&T and T-Mobile presented the government with a “backdoor” way to impose ”a new regulatory regime” via a consent decree.

Such “pseudo-regulatory behavioral standards,” as Wheeler put it, would eventually spread to other wireless carriers. Wheeler pointed to a 1913 accord between AT&T and the Justice Department that “shaped a century of telecommunications policy.”

Wheeler’s office had no comment on the merger proposal.

But in a speech in December, he said that “competition does not and will not produce adequate outcomes in the circumstance of significant, persisting market power or of significant negative externalities. Where those occur, the Communications Act and the interests of our society – the public interest – compel us to act and we will.”

The question then, is whether Wheeler would move to reject the Comcast-TWC merger, or use it as an opportunity to extract concessions not just on net neutrality but other policy initiatives. McDowell believes that the latter will happen, as do many Wall Street analysts. Among other things, Comcast could be asked to agree to more stringent requirements over placement of news and business channels in certain “neighborhoods,” the source of an ongoing dispute with Bloomberg LP. Or it could be asked to resolve the long dispute with Tennis Channel over its placement in the upper reaches of the cable tier.

“The game in Washington is to stay opposed to something, but to quietly negotiate conditions to ameliorate your concerns,” McDowell said.

McDowell said that Amazon could be asked to provide additional safeguard for over-the-top services like Netflix and Amazon. Some analysts believe that the FCC could move to even extract conditions beyond net neutrality, like those limiting the implementation of usage-based pricing on the Internet, although Wheeler has said that those pricing models still need time to develop in the marketplace. Another issue is over data caps, which Comcast is testing in certain markets, and whether streaming services it owns won’t count against a subscriber’s limit while Netflix and Amazon do count.

In a conference call with reporters on Thursday, Comcast exec VP David L. Cohen was asked whether the company would agree to extend net neutrality beyond 2018. “It is hard enough to negotiate with the government, and I would rather not negotiate with the press,” he said, with some levity.

He said that by then, he had “no doubt” that the FCC would have a new plan in place to protect an open Internet.

Berin Szoka, president of the policy org TechFreedom, said that there was “no reason this deal shouldn’t do through. It doesn’t reduce competition between broadband providers.” He said that conditions of the NBCU deal and existing regulation will address concerns that Comcast will gain too much leverage over Internet service.

Of course, irregardless of what happens to net neutrality is the ultimate consumer question: How much will it cost for broadband service every month? Critics, in sounding the alarm of broadband competition, contend that higher prices are inevitable. For its part, Comcast has said that a benefit of the merger will be improved Internet speeds and reliability for Time Warner Cable customers.

The only certainty is that the fight to win the feds’ blessing of the Comcast-TW Cable union will become inextricably linked to the policy wrangling over net neutrality — which ensures a long and arduous road ahead for all involved.

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