Title II universal service obligation could complicate, delay Comcast-Time Warner merger

New regulations issued this month by the U.S. Federal Communications Commission reclassifying Internet access service as a common carrier telecommunications service subject to universal service requirements under Title II of the Communications Act could complicate and delay Comcast’s planned acquisition of Time Warner Cable.

Comcast is currently the dominant Internet service provider in many markets and its domination would increase if the merger is consummated. In addition, Comcast typically provides Internet bandwidth at or above the FCC’s definition of 25Mbps. While the FCC is opting to forbear several Title II provisions, the universal service requirement is not one of them. 

Utilities regulators in states where the combined companies have major market presence could well require the combined entity to provide service to all customer premises in their service territories under the Title II universal access mandate as a condition of approval of the merger. Under current market practices, cable and telephone companies deploy infrastructure to deliver Internet services in limited footprints that serve only selected neighborhoods and parts of streets and roads. To gain a green light from the California Public Utilities Commission, Comcast is offering to spend $25 million on building out infrastructure to serve unserved communities. That’s mere table crumbs that won’t go far in a state as large as California as Steve Blum of Tellus Venture Associates notes on his blog.

Imposing universal service as a merger condition would likely significantly alter the financials of the deal and potentially doom it since shareholders of both companies are likely to object to any major capital construction expenditures to expand infrastructure.

The new rules take effect June 12, 2015. Meanwhile, legacy telephone and cable companies and their trade groups have gone to court to attempt to block them from becoming law. Presumably they could argue enforcement of the universal service obligation would subject them to immediate financial harm and the rules therefore must be put on ice until the merits of their legal arguments against them can undergo judicial review. By the same token, regulators could in turn opt to put the Comcast-Time Warner consolidation on hold pending the outcome of the litigation challenging the FCC’s Title II rulemaking.

CNY man says Time Warner Cable wants to charge $20,000 for broadband Internet | syracuse.com

CNY man says Time Warner Cable wants to charge $20,000 for broadband Internet | syracuse.com: Think your cable and Internet bill is too high? Jesse Walser might disagree with you.

Walser, who lives about 20 miles outside of Syracuse in the rural town of Pompey, told Ars Technica that Time Warner Cable wants to charge him more than $20,000 to hook him up with broadband Internet. What baffles him is that he can see TWC lines from his house, just 0.32 miles from the road.

"I didn't think it would be that difficult, because the cable was on my road," he told the tech news site. "I have phone. I have electricity. It's not completely 'Green Acres.'"

As this blog has previously pointed out, many Americans lack wireline Internet access because of this kind of arbitrary redlining by legacy incumbent telephone and cable companies. It's difficult to make a credible argument that living less than a half mile from existing infrastructure puts a customer premise out in the middle of nowhere, making it cost prohibitive to serve. As Mr. Walser points out, his circumstance bolsters the argument that last mile Internet service providers be classified as common carriers.

This situation has existed unchanged throughout much of the United States over the past decade (and isn't likely to change anytime soon), leaving some 19 million homes offline according to the U.S. Federal Communications Commission. The FCC is currently considering common carrier regulation of Internet service providers.

U.S. at inflection point on premises Internet infrastructure

The United States is at an inflection point relative to premise Internet infrastructure serving homes and small businesses. The “walled garden” business model of legacy incumbent cable and telephone companies has reached the limits of its reach. Connecting the remaining 20 to 30 percent of premises outside the wall isn’t economically practical as testimony at a U.S. House Small Business Subcommittee hearing this week in upstate New York illustrates.

Mark Meyerhofer, a government relations administrator for Time Warner Cable, said while there has been a change in the national mindset that favors a greater focus on unserved areas, nevertheless “It remains extremely challenging to extend broadband to most rural areas of New York State, where geographic isolation and topographic issues make it economically infeasible for companies to reach these areas,” Meyerhofer explained. “Investments simply cannot be recouped before it is time to reinvest.” Although Meyerhofer was specifically referring to only one part of the country, his testimony applies elsewhere across the nation including many suburban and exurban areas where service gaps exist. That economic reality of the walled garden Internet also applies to Google Fiber, which plans to expand into several metropolitan areas.

The other challenge faced by the legacy incumbent providers (but not Google Fiber) is the ever growing demand for more Internet bandwidth. It’s similar to the problem facing manufacturers of silicon-based microchips that eventually will reach a physical barrier where no additional circuitry can be crammed onto the chip. That will require the incumbent providers to change out their metal wire-based premise service infrastructure with fiber optic connections to accommodate the additional bandwidth demand and stave off technological obsolescence. But barring a revolutionary breakthrough that significantly reduces the cost of constructing fiber to the premise infrastructure, their shareholders aren’t likely to approve of such large capital expenditures that could cut into dividends as shown by Verizon’s 2012 pullback of its FiOS fiber to the premise product offering.

Given the growing consensus that the so-called “last mile” premise Internet infrastructure challenge can’t be met within a commercial framework, it strongly suggests other business models including a nonprofit cooperative or public works approach similar to that used for roads and highways will be necessary in many areas of the U.S.

Netflix performance on Verizon and Comcast has been dropping for months | Ars Technica

It wouldn't be at all surprising if Netflix and Amazon stood in the way of government approval of today's announced deal for Comcast to acquire Time Warner Cable without a pledge from Comcast to treat all network traffic equally along with meaningful regulatory enforcement. This story graphically shows why:
Netflix performance on Verizon and Comcast has been dropping for months | Ars Technica