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What happens when two of some of the most-hated companies in America come together to form one? Some fear the result would be more than just a two-headed mutation of a despised conglomerate.
News of the proposed $45 billion merger between America's two biggest cable TV companies, Comcast and Time Warner, could have damaging effects on competition, net neutrality and lead to worse service than ever before.
"The big get bigger," said Pete Ashdown, president and founder of Salt Lake City-based Internet Service Provider, XMission. "But I wouldn't be surprised if the service levels would get lower. They [both companies] have a terrible reputation as far as customer service goes."
According to the American Customer Satisfaction Index, Comcast and Time Warner were the two lowest-rated Internet and television subscription services in America.
"They become a de facto monopoly on steroids if this goes through," said John Bowcut, director of the Spanish Fork Community Network, a municipally run telecom for Spanish Fork that provides Internet, cable TV and land-line telephone service. "Before, I mentioned them being an 800-pound gorilla. Now they are a 1,200-pound gorilla.
"They are so big, they can demand whatever price they want from the cable channels," he said of Comcast's potential place in the Internet and cable television industries.
The all-stock deal, which was approved by the boards of both companies, trumps a proposal from Charter Communications to buy Time Warner Cable for about $38 billion. It is expected to close by the end of the year, pending shareholder and regulatory approvals.
The combined entity will end up with about 30 million subscribers, as the two companies already have strongholds in major markets like New York, Chicago and Los Angeles. Comcast has 22 million pay TV customers but plans to divest 3 million after the deal closes. Time Warner Cable will contribute 11.2 million customers. While Comcast is by far the largest cable TV and Internet provider in Utah, Time Warner has no presence in the state.
The proposed merger still needs the approval from the Federal Communications Commission, which is not a certainty. For one, newly installed FCC Chairman Thomas Wheeler has emphasized repeatedly his focus on the importance of competition in the marketplace.
"We all know that competition does not always flourish by itself; it must be supported and protected if its benefits are to be enjoyed. This agency is a pro-competition agency," he said in a speech to his staff late last year.
Second, federal regulators were not keen on what some see as a similar merger when AT&T tried to acquire T-Mobile for $39 billion in 2011. Washington was against the proposal, leading to AT&T pulling out of the deal.
Because Time Warner does not have customers in Utah, critics here don't see an immediate impact if the merger goes through, but they think it could affect consumer pricing here in the long term.
Gary Jones, marketing director for municipally run high-speed Internet network, UTOPIA, believes it could greatly affect the pricing of TV content for all small cable providers if Comcast begins to control pricing for itself. As Comcast gets bigger, television networks could raise the price of content for other small cable providers to make up for the lower pricing for Comcast, he said. (Comcast already owns a series of cable channels including NBC and MSNBC when it purchased NBC/Universal in 2011.)
"It really does change the paradigm in terms of the negotiations of content," Jones said. "We should be introducing more competition and not go in the opposite direction."News of the proposed merger also comes just a month after a Washington D.C. appeals court overturned the FCC's rules regarding net neutrality, effectively saying that ISPs like Comcast, Verizon or AT&T could shape even throttle back the bandwidth of content providers. Video service Netflix issued its ISP speed report earlier this week, and it showed that both Comcast and Verizon have been recently slowing their speeds down for Netflix customers. Some believe Comcast could now be throttling back speeds for Netflix customers to protect Comcast's own on-demand video service.
"They do have interest in their video product much like the music industry in the past did," XMission's Ashdown said about the effect the net neutrality ruling could have on an open Internet. "They [Comcast] are going to do everything they can to protect that vested interest."
Comcast's and Time Warner's main argument before federal regulators will be that they don't compete in the U.S. Both networks do not share the same zip code anywhere.
"Through this merger, more American consumers will benefit from technological innovations, including a superior video experience, higher broadband speeds and the fastest in-home Wi-Fi," according to a Comcast statement issued Thursday morning. "The transaction also will generate significant cost savings and other efficiencies. American businesses will benefit from a broader platform, and the Company will be better able to offer advanced services."
In the deal, Comcast will acquire 100 percent of Time Warner Cable's 284.9 million shares for $45.2 billion in Comcast stock. Each Time Warner Cable share will be exchanged for 2.875 shares of Comcast stock. If it goes through, Time Warner Cable shareholders would own about 23 percent of Comcast's common stock.
The Associated Press contributed to this story.