Comcast-Time Warner Cable deal may heighten calls for net neutrality

Comcast Corp.’s $45.2-billion bid to acquire Time Warner Cable would expand the reach of the nation’s largest residential Internet provider into one-third of America’s broadband households.

The digital land-grab is likely to serve as a rallying cry for those who advocate government regulation over broadband providers.

As a result of the deal, Comcast would reach 30-million broadband customers out of 92-million U.S. households with high-speed Internet access.

Its sheer size and market clout present an opportunity for the Federal Communications Commission to revisit its efforts to regulate broadband Internet access.

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“We do not see any basis for regulators to block the merger of Comcast and Time Warner Cable,” wrote BTIG Research media analyst Rich Greenfield. “However, we believe the FCC will be opportunistic to advance its policy initiative.”

The U.S. Court of Appeals in Washington struck down the FCC’s net neutrality rules earlier this year, in a case brought by Verizon Communications Inc. The ruling would allow Internet providers to impose fees on companies like Netflix to give priority treatment to the movies and TV shows it streams across its network.

Comcast agreed to abide by the principle of net neutrality — meaning, it would treat all online traffic equally and not give preferential treatment to its own video — as a condition of its 2011 acquisition of NBCUniversal.

The consent decree, which is designed to protect competition, extends through the end of 2017. Time Warner Cable would also be subject to these same terms, if the merger is consummated.

NScreenMedia founder Colin Dixon said Comcast has found a way to give its online movie and TV streaming service, Xfinity StreamPix, a competitive edge over rivals like Netflix. The service, which costs $5 a month, is not subject to the data-use limits Comcast imposes on its high-speed Internet customers.

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“This is Comcast preferring its video service on broadband over other video services,” Dixon said. “That itself could well make regulators start looking at this much, much more closely.”

Updated at 4:42 p.m.:

Comcast Executive Vice President David Cohen said Comcast is experimenting with data-use thresholds in markets including Chattanooga, Tenn., and in Atlanta. Services that subscribers access via the Internet – including Netflix and Hulu, a streaming TV service that is one-third owned by Comcast’s NBCUniversal group, are counted against this cap. But StreamPix taps into Comcast’s private network, and doesn’t run the meter.

“We’re not discriminating against services we don’t own,” Cohen said. “Because many of the services we do own also count against the data usage thresholds.”

Netflix Chief Executive Reed Hastings talked about the importance of preserving net neutrality during the company’s fourth-quarter earnings call last month with investors.

“A domestic [Internet Service Provider] now can legally impede the video streams that members request from Netflix, degrading the experience,” Hastings wrote in a message to investors. “The motivation could help get Netflix to pay fees to stop this degradation. Were this draconian scenario to unfold ... we would vigorously protest.”

James McQuivey, a digital media analyst with Forrester Research, doubts Comcast would “throttle” or slow the streaming of online video from subscription services like Netflix — especially as it faces heightened regulatory scrutiny.

But the Comcast-Time Warner Cable merger would signal a different competitive threat.

“Comcast has ambitions that reach beyond its footprint, likely beyond the Time Warner Cable footprint as well,” McQuivey said. “Meaning that Comcast will eventually invest in its StreamPix streaming service to be a direct Netflix competitor.”

Comcast said the merger would benefit consumers by providing 30-million cable subscribers access to thousands of on-demand video choices on TV, access to an Xfinity TV mobile application to watch 35 live streaming channels, and Internet speeds that have increased 12 times in the past 12 years.

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