We rarely think of two behemoth companies merging as being to the benefit of low-income people. But that may be the reality facing us with the Comcast-Time Warner merger that is in front of New York State regulators this Thursday.
New York State's Public Service Commission (PSC) has to decide whether Comcast's controversial proposed acquisition of Time Warner Cable serves the public interest. Franchise mergers offer regulators the rare opportunity to extract concessions from companies in the form of merger conditions. A coalition of state and city politicians, along with public-housing residents, are calling for conditions attached to this merger that would increase Internet access for some low-income New Yorkers. The PSC is expected to make its decision on the merger at its meeting tomorrow.
Because of the digital divide in this country, under-served populations have a much harder time accessing the Internet. With the Internet increasingly the way people find and apply for jobs, interact with government agencies, pursue self-education and stay in touch with loved ones, those groups without reliable Internet access are at a systematic disadvantage.
Unsurprisingly, better Internet access in one's home is strongly correlated with being wealthy, white, and living in an urban or suburban environment. According to statistics from the Pew Research Center, 15 percent of Americans do not go online at all and another 15 percent use the Internet but do not have wired access at home. Most of those in the first category are seniors, while most of those in the latter are low-income people and people of color.
When Comcast merged with NBC in 2011, a program called Internet Essentials was created as a condition of that merger. Internet Essentials was meant to address the digital divide by providing a basic Internet package for $9.95 a month as well as discounted computers and free training. At the time, this appeared to be a strong move towards overcoming the digital divide.
But fours year later, little has changed for low-income Americans. Fatal flaws in Internet Essentials have severely limited its impact. Of the 7.2 million low-income residents within Comcast's service areas that should be eligible for the program, only a few hundred thousand have been signed up. In part this is because of limited outreach efforts, an arduous registration process and the fact that no current Comcast subscribers can sign up for the program even if they would otherwise qualify. But the real issue is the standard Comcast uses to determine if a subscriber is low-income: a household having a child who receives government-subsidized lunch.
At first blush that might seem like a reasonable metric. After all, any household receiving assistance for its children must be low income. The problem is that it also excludes a lot of other low-income populations such as seniors, people with disabilities and recently returned veterans.
Politicians such as New York City Council Member Ben Kallos and Public Advocate Letitia James have publicly called on the PSC to attach conditions to this merger that would address these short-comings in Internet Essentials.
"Internet Essentials had a huge opportunity to do something transformational for this country, but it's been a disappointment," says Kallos.
New merger, new effort
Kallos and James propose that Comcast fix the loopholes in Internet Essentials so that all low-income New Yorkers are eligible. But the most striking feature of their request is that Comcast should offer free broadband to all New York City public housing residents. Two weeks ago, California's equivalent of the PSC, the Public Utilities Commission, approved the merger with similar conditions such as expanding Internet Essentials to all low-income Californians and setting an enrollment quota for the program., Notably, California's conditions were lacking the requirement for free Internet in public housing. Even so, Comcast reeled at California's requirements, calling them intrusive and unrealistic.
"New York City is the landlord for nearly half a million New Yorkers living in 178,000 public housing units," says Kallos. "With the digital divide so big and income inequality being one of the primary causes, we need to make sure that every single New Yorker has access to the Internet. And that starts with our very low income living in public housing."
The New York City Housing Authority's City-Wide Council of Presidents (CCOP), the representative body for public-housing residents in the city, joined Kallos and James in calling for these merger conditions.
"We believe that the best way to close the digital divide between those who have quality Internet access and those who do not is to connect all NYCHA buildings to a free broadband connection," says Reginald Bowman, president of the CCOP.
In addition, the NYCHA Council of Presidents added specific requests for computer labs in NYCHA buildings and staff to train residents on how to effectively use the Internet and their home computers.
As one of the largest media markets in the country New York, like California, is in a unique position to influence the outcome of this merger since it holds the lucrative New York City subscriber base that Comcast is after. Last year Governor Cuomo enacted new legislation that empowers the PSC to reject changes in cable franchise agreements if those changes are not in the public interest.
$45 billion ... and a lot of tradeoffs
But how exactly regulators define public interest is largely up to their interpretation and forces them to weigh the interests of different "publics." The fact is, while a Comcast-Time Warner merger might be shaped to benefit NYCHA residents, others might be hurt by the deal.
The proposed merger involves the two biggest cable companies in the country in a deal worth $45.2 billion. Since dollar amounts that big don't mean much to most of us, here are more more important numbers: If the merger goes through, Comcast would control 40 percent of the broadband Internet market and two thirds of the cable television market.
With that much market power, Comcast would have the ability to set basically whatever prices it wants. Comcast officials have explicitly said that the merger will not lead to reduced prices or even a decrease in the rate of price increases. While a true Internet Essentials program would address the issue for low-income New Yorkers, it wouldn't do anything to prevent Comcast from hiking rates for middle class consumers.
But price gouging is not the only way the merger could harm public interest. In its role as a cable-television provider, Comcast is responsible for franchise agreements with public education and government programming centers. The cable giant has overseen the closures of at least 50 community access television centers around the country in the past decade.
Furthermore, low-income city dwellers are not the only ones lacking reliable Internet access. Rural residents of the country are also struggling to overcome a digital divide that has more to do with profit motives for cable companies than their own individual abilities pay. With fewer residents per square mile, there is less potential profit in rural markets. And if the merger goes through, Comcast would become virtually the sole arbiter of whether or not those communities get high-speed Internet.
"There's no financial incentive for a company like Comcast to build out infrastructure in rural communities," says Steven Renderos of the Center for Media Justice, which advocates for media access for disadvantaged populations. "And the merger gives Comcast even less incentive to do so."
Comcast also has a long history of conservative lobbying, such as advocating against a paid sick-days bill in its hometown of Philadelphia and pushing for state laws that inhibit competition in the broadband market.
"Merging the top two cable companies in the United States is not just a consolidation of infrastructure. It’s a consolidation of lobbying power," says Renderos. "We’ve seen examples of how Comcast and Time Warner have been very effective lobbying at the federal, state and local levels for policies that benefit them."
Linked to net neutrality vote
The legal question before the PSC is whether the merger is or can be, with conditions, in the public interest. So it has to weigh all of this potential harm against the potential good.
The PSC has delayed its decision on the merger three times now, a sign that the deal may be in trouble or that regulators are fine-tuning heavy concessions from Comcast in exchange for the merger. Some commentators and consumer advocates speculated that federal and state regulators were postponing their decision until the Federal Communications Commission (FCC) declared its new net neutrality rules.
One strain of thinking goes that if there are strong net neutrality rules, then the merger would go ahead because there would be less potential chance for abuse from Comcast, even if it would be a geographic monopoly in much of the country. With the FCC expected to declare strong net neutrality rules on Thursday, regulators may be more inclined to let the merger go through. California's conditional approval of the merger came just a week after FCC Chair Tom Wheeler made public his plan for securing true net neutrality.
"Net neutrality one of the few policy steps that the FCC could take to lessen the harms of this gigantic merger," says Matt Wood, policy director for Free Press. "But saying we're better off with those rules in place if the merger goes through is not an argument for the merger."
Public interest groups such as Center for Media Justice and Free Press remain opposed to the merger outright. Wood is not convinced that the public interest benefits for low-income New Yorkers actually require a merger.
"One of the secrets of this is that, by every measure we have access to, Comcast does not lose money on Internet Essentials," he says. "In fact, they make a little bit of money off of even that low-end subscription. It's good that they're offering it, but it's not that they would do it only as a result of the merger. It's not a merger-specific benefit."
Wood argues that since Comcast is already making money on Internet Essentials, it could very easily extend the program to the currently excluded low-income population, without the PSC twisting its arm into doing so. He also points out that even if New York and California can extract concessions from Comcast, those would not apply to the rest of the country. And federal regulators at the FCC have to evaluate the merger's benefits on a national level.
Could benefits be time-limited?
That said, free broadband Internet for nearly half a million of the most disadvantaged New Yorkers is certainly a proposition that Comcast would not make any money on. The merger presents the PSC with the rare leverage to secure that merger-specific benefit. Given how intractable a problem the digital divide remains, it could be the best chance New York City's public housing residents have for reliable Internet access.
But even in the best case scenario, any conditions for mergers are temporary. "We're now closer to the end of seven-year conditions from the Comcast-NBC merger than we are to the beginning," says Wood. And if Internet Essentials is any lesson, it's that giant companies always create or exploit loopholes in the conditions they agree to. "It's notoriously hard to enforce them even while they are in effect," Wood adds.
Kallos says that his coalition has been "focused on making sure that whatever commitments are made are done in perpetuity."
Even if it might be legally possible to make merger conditions permanent, there is little precedent of that happening. Although conditions are supposed to mitigate the harmful effects of mergers, in practice they are always time-bound, which limits their impact. And if the PSC did somehow muster the political will to require Comcast to offer free broadband to public housing residents for good, it's hard to imagine Comcast agreeing to those terms. The cable company might walk away from the merger.
But that may be the point. Politicians such as Governor Cuomo who don't want to appear anti-business but also believe the merger would be disastrous for their constituents may be hoping that be attaching enough conditions to the merger, the deal will fall through. But if so, that's a dangerous game of brinksmanship and Comcast could call their bluff. If those politicians are genuinely against the merger, relying on conditions to sink the deal is a risky proposition.
"If you tally up the sheer number of conditions in the Comcast-NBC deal, you might have thought that Comcast would walk away from that," says Wood. "But of course they didn't."
Feds hold the trump cards
All of this debate at the state level may end up being moot, as state proceedings will have little bearing on the federal decision. So even if New York and California approve the merger with conditions, the FCC could still block it. In fact, an increasing number of observers believes that is increasingly likely.
Merger or no, the problem of how to best provide reliable Internet access to disadvantaged New Yorkers will remain. Of course, New York City wouldn't be in this position in the first place if it had created its own public municipal broadband service, which would have the authority to offer services for free to whomever it chose.
Government could also foster competition in the broadband market by requiring regional monopolies like Comcast and Time Warner to lease their infrastructure to startup internet service providers. With new companies in the mix, some of them might take it on themselves to capture the untapped markets in rural areas or among low-income city residents.
But short of those more far-reaching solutions, a merger with conditions may be New York government's best bet to close the digital divide in the city.
"At all levels of government from President Obama, to Governor Cuomo, to Mayor de Blasio, we are all committed to universal broadband," says Kallos. "Whether it is Comcast, Time Warner, Verizon, or any other Internet service provider, they must make a commitment to providing free or low-cost Internet to low-income Americans."