Comcast Today: Did Google Just Save the Merger With Time Warner?

New Google Fiber service could create competition, ease regulatory hurdles before Comcast.

One of the key questions that may decide the future of the Comcast-Time Warner merger involves competition: Since cable companies have virtual monopolies in so many cities that they serve, who will be able to compete with Comcast and provide a balance to its power?

Google may have answered the question on Wednesday.

The search engine company has already created ultra-high speed Google Fiber service in Kansas City. Now Google has announced plans to extend that service to nine more metropolitan areas.

The New York Times:

On Wednesday, even though Google has not yet connected all the households that signed up in Kansas City and none in Austin, it announced that it would consider installing Fiber in the metropolitan areas of San Jose, Calif.; Salt Lake City; Phoenix; San Antonio; Nashville; Atlanta; Charlotte, N.C.; Raleigh-Durham, N.C.; and Portland, Ore.

Google’s plans added a wrinkle to Comcast’s $45 billion takeover of Time Warner Cable. Regulators are expected to closely examine the merger, which would combine the country’s two largest cable companies, which have few major competitors. Now Google is framing itself as a bigger competitor than it was.

“Competition is good in these local markets, and as providers have to compete, they lower their rates on traditional Internet speed and also improve their service offerings,” Julian Castro, mayor of San Antonio, said during the Google call with reporters.

Google previously said that it started Fiber to spur other Internet providers to improve the speed of their services and that it welcomed competition because Google eventually makes more money when more people use the Internet more often.

The Wall Street Journal points out that Comcast responds well to competition, but shareholders don’t:

Cable investors reacted negatively to the news, sending cable stocks falling. Comcast Corp fell 3.7% while Time Warner Cable Inc. TWC dropped 2.8%. The two companies announced a $45 billion merger agreement last week, a combination that if approved by regulators would give Comcast 32 million broadband subscribers, before any divestitures.

Cable operators have already come under competitive pressure in recent years, from private companies working with local municipalities to build fiber networks, as well as phone companies like Verizon Communications Inc., which invested billions of dollars building its fiber optic FiOS network that has signed up millions of customers for both broadband and TV. While Verizon doesn’t offer gigabit speeds, full-fiber networks like FiOS are easier to upgrade to faster speeds than the pipelines built to homes by cable companies which use a mix of coaxial cable and fiber.

Cable operators have responded. Comcast offers its fastest broadband speeds in FiOS markets. Google hasn’t picked any FiOS markets among the 34 cities it announced Wednesday.

The Street says Google’s plans may make it easier for Comcast to get approval of the merger from federal regulators:

On the federal level, Comcast is facing a skeptical to hostile reception as it tries to steer its merger past the Department of Justice and the Federal Communications Commission. Democrats are mostly lining up against it, while Republicans are mostly lining up in support.

Google’s plan to enter nine new markets is not a direct threat to that market dominance. Patrick Lucey of New America Foundation, a nonpartisan think tank, notes that after the merger Comcast cable would pass 80 million homes and Google 3.5 million.

But Google has a market capitalization of over $400 billion, compared with a combined $174 billion for Comcast and Time Warner Cable. In Washington, such comparisons matter. Google is not a market threat, but it is the political counterweight Comcast can use to win its arguments for its merger and its arguments against new net-neutrality rules.

Other Comcastic headlines today:

• Hey, look! Another op-ed that’s actually in favor of the Comcast merger! It’s like a unicorn sighting. Oh, wait! It’s an op-ed from Comcast vice president David L. Cohen in USA Today, who says the merger is pro-Open Internet, pro-consumer, pro-competition and strongly in the public interest.”

Businessweek says the merger signals Comcast’s ambition to move beyond the cable business to become a purveyor of all things digital to all audiences—even those outside the geographic confines of its cable franchises:

In the short term, Comcast’s role as a top provider of broadband services should insulate it from one of the chief problems facing the traditional pay-TV industry: so-called cord cutters. That small but growing segment of consumers eschews traditional cable- or satellite-TV packages in favor of cobbling together home entertainment from various sources delivered over the Internet, such as Netflix, Hulu, and Aereo. To enjoy these new options, cord cutters still need a high-speed Internet connection. So no matter what digital services consumers flock to in the years ahead, Comcast will likely still be there to collect big monthly fees from a large proportion of them.

Fitch is giving Comcast’s debt an A- rating in its guidance to bond buyers. And the merger actually counts in Comcast’s favor: “Comcast’s pending merger with TWC is strategically sound and creates significant opportunity to realize operating and capital spending efficiencies with minimal execution risk and enables the combined entity to effectively compete on a national scale for incremental commercial segment business.”

• Variety profiles Comcast CEO Brian Roberts, the “mild-mannered ruler of all media”:

Roberts grew up in the family business, serving his first internship in 1974 working on supermarket promotions for the company’s Muzak-distribution unit (which has since been sold). He worked as a cable installer and customer marketing exec in such unglamorous locales as Trenton, N.J., and Flint, Mich., and then served in the corporate ranks before being named president in 1990 and CEO in 2002.

Heritage dictated his ascent, but Roberts’ track record allowed him to shed the “boss’ son” stigma long ago. Comcast has grown exponentially on his watch (from $657 million in revenue in 1990 to $64 billion in 2013). He’s known internally as the wonk-in-chief who has pushed the company to stay on the leading edge of VOD, time-shifting and cloud-based technologies to offer new and better services to subscribers.

• Finally, on a local note: NewsWorks notes that Philadelphia’s planning commission has given approval to Comcast’s plans for a giant new Center City tower: “The bills were introduced in Council at the end of January, and will be heard in back-to-back committee hearings next Tuesday, February 25th, starting at noon. The bills make various zoning changes to allow the new tower to be built without further approvals, such as raising the maximum density bonuses that the developer, Liberty Property Trust, can claim. They also upzone the property from CMX-4 to CMX-5, and remove the parcel from the Benjamin Franklin Parkway zoning overlay, which has a height limit of 125 feet.” Construction is expected to begin this summer.