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One cable company to rule them all
Comcast's bid to buy Disney raises a specter even scarier than the witch in Snow White: A Mickey Mouse Internet.
Editor's note: Ninth in a series on the consolidation of power and ownership in the media landscape.
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By Farhad Manjoo
March 17, 2004 | If you're looking for a perfect example of the limitless possibility of the Internet, the true, world-shrinking power of a fast, always-on network, you might find it at George's house. George is a British expat who lives in Philadelphia with his wife and kids and father. (We'll call him George, because, for reasons that will be explained, he doesn't want his real name published.) George loves America, but he also can't shake the feeling that he's not fully at home here; something about the place just doesn't click with him.
"Very few Brits ever get totally assimilated into the American culture," he says. So at George's house, the Internet functions as a portal to a world left behind. George and his family watch the BBC News on the Web three times a day. George, who spent two decades in the British film industry, makes digital movies of his family, and he sends the movies over the Internet to the extended family back home; they, in turn, send films of the mother country. "We use the Net as a lifeline," George says. "For anybody for whom this isn't their native country, you'd understand."
But Comcast, the company that provides George's high-speed Internet service, didn't understand. Last August, the company sent him a letter telling him to quit it -- he was using the Internet too much. The firm said he was violating Comcast's "acceptable use" policy, that he was somehow abusing his service. This surprised George, because as far as he knew he wasn't doing anything illegal or unseemly online -- "We're not using porn sites," he says -- and his contract with the firm didn't spell out any limits on his Internet use. When he called the company, it gave him the "runaround" -- nobody would tell George specifically what he should do to bring his use back in line with Comcast's policies, other than that, as a general matter, he ought to consider using the Internet much, much less.
George is not alone. Since the summer, Comcast has warned hundreds, possibly thousands, of customers of potential service termination due to high Internet use. The customers who receive these letters, people who'd always been told that their Internet service was "unlimited," find themselves in a Kafkaesque comedy of errors: The customers say that Comcast tells them they're using the service too much, but it won't give them any meaningful measure of how much is too much.
Philadelphia is Comcast's hometown, and the company is a powerful local force, so George had no choice but to accede to the company's demands. DSL isn't available in his neighborhood, and he can't do without a high-speed connection. (That's why George wants anonymity; he fears Comcast might cut him off for speaking to the press.) To keep a lifeline to the home country, his family has dramatically cut down its time online -- they now send their home movies by mail. His "quality of life" has consequently diminished, George says.
Comcast is the largest cable television operator in the United States, a firm whose lines reach more than 21 million homes, almost twice as many as its closest rival. With more than 5 million high-speed Internet customers, it is also the nation's largest broadband service. If it succeeds in its attempt to buy Disney, it would be the largest media company in the world. Comcast also spends millions of dollars a year on a sophisticated lobbying operation in Washington. According to news reports, Comcast recently hired, among others, Victoria Clarke, Donald Rumsfeld's former spokeswoman, and Lorine D. Card, the sister-in-law of Andrew Card, George W. Bush's chief of staff. Comcast is already one of the most powerful telecommunications companies in the United States, and its ambitions appear limitless.
To George and several other customers who have been caught up in the company's Byzantine policies, this power makes the company something to be feared. And the customers worry that if Comcast is successful in its hostile bid for Disney, a deal that would make it the largest media firm in the world, Comcast will become even less responsive to customers. Consumer groups are bracing for the possibility; they suggest that if Comcast gets Disney, the media -- especially the Internet -- will never be the same again.
The traditional reasons to worry about a Comcast-Disney merger -- it may raise your cable bill, and it could give Disney's content an advantage in your lineup of channels -- are compelling enough. But tech-savvy media critics these days are talking about a more theoretical, even scarier, proposition: If Comcast buys Disney, they wonder, will we get a Mickey Mouse Internet? Comcast has already demonstrated a willingness to circumscribe what customers do online. It has not only attacked high-use customers but, in the past, has also curbed virtual private networks (a popular way for corporations to integrate telecommuters into the company intranet) and, according to some customers, has limited traffic on Usenet, the oldest (and most unregulated) of all the Net's discussion forums. The company's terms of service also prohibit users from running file-sharing applications (among other things), and it has a less-than-clear policy on whether running a Wi-Fi network in your house is OK.
Such restrictions have prompted people to wonder what the company might do when it owns a vast stash of content. Will Disney's content -- its Web sites, its streaming movies and music and TV shows -- get pushed through at quicker rates to Comcast's broadband customers? Will other content, whether from a rival media giant or from your friends and family, get pushed through at all? And will the underlying architecture of the Internet subtly shift, over time, to accommodate the kinds of applications that media giants like Comcast want us to use, rather than the ones that come from the bubbling innovation of the Internet itself -- like the Web, or e-mail, or peer-to-peer file trading?
At the moment, these concerns are somewhat fuzzy because the merger is not a certainty and because Comcast vehemently denies any intention of messing with the Net. Comcast claims that its critics are simply making much ado about very little. But the critics say they're only looking at the logical outcome of a marriage between Comcast and Disney. "If Comcast thinks the merger is going to pay off because there's a natural synergy between content and distribution, the only way for them to make it pay is by using their distribution platform to give an unfair advantage to the content," says Dave Burstein, the editor of DSL Prime, an influential broadband industry newsletter. "Comcast will have incredible incentive to keep content that's not from Disney away from the consumer."
Currently, there are no federal regulations prohibiting Comcast from doing something like that, which is why Comcast's critics are demanding such restrictions. Unless the Federal Communications Commission imposes rules to prevent distribution companies like Comcast from favoring the content of one media firm over others', says Lawrence Lessig, a professor at Stanford Law School, "if Comcast and Disney are together, the incentive to play the game will be irresistible."
Will the FCC crack down? Considering Comcast's history with regulators, that appears unlikely.
Comcast Corp. is a modern marvel of Washington's deregulatory ways. The company, which has expanded through shrewd acquisitions since its founding -- in Tupelo, Miss., in 1963 -- is a direct beneficiary of the last few decades' loosening telecom rules. Comcast's last purchase, the 2002 buyout of AT&T's massive cable system, might not even have been possible if it hadn't been for the business-friendly ways of the Bush administration's FCC appointees, who had let languish an old rule that prevented one cable firm from owning too many of the nation's cable lines. Now, the company is counting on those commissioners to give it a green light on Disney.
To illustrate Comcast's closeness with regulators, Jeffrey Chester, the director of the Center for Digital Democracy, a Washington group that favors stringent communications regulations, tells the story of the firm's maneuverings in 2002, during its takeover of AT&T's cable lines.
At the time, consumer advocates were agitating against the purchase; they worried that if Comcast bought AT&T, the combined firm would increase cable television rates and perhaps even limit how customers could use their broadband Internet connections. To mollify those critics, Comcast entered into several deals with rival Internet service providers, granting those ISPs the right to sell their services over Comcast's lines; Comcast hoped that its moves would show regulators that it would play fair on its broadband lines.
The problem was, some of those deals were secret, and Comcast's rivals wondered if the contracts contained terms that were extremely favorable to Comcast. Cable-industry trade newspapers reported, for instance, that Comcast allowed America Online to sell high-speed Internet service over Comcast's lines only after AOL agreed not to offer streaming video subscription plans that directly competed with Comcast's cable TV shows. EarthLink and consumer advocates chafed at the thought of such restrictions -- they seemed to prove that Comcast intended to wield enormous influence over what customers could do online. The critics demanded that the FCC command Comcast to fully disclose its secret deals with ISPs.
That's when Brian Roberts, Comcast's CEO, placed a telephone call to Michael Powell, the chairman of the FCC. According to documents Comcast submitted to regulators, Roberts told the chairman that all of his company's deals with other firms should be kept private; the FCC had no right to look at those deals as part of the merger. Roberts must have been persuasive, because two weeks after his telephone chat with Powell, despite the outcry of consumer groups, the FCC chairman granted the CEO's request. Powell and his two fellow Republicans on the commission approved the merger.
Roberts' interaction with the FCC chairman provides a good guide to what might happen when the firm embarks on its attempt to swallow up Disney. Comcast is a firm accustomed to getting what it wants. Disney has rejected Comcast's takeover bid, but many analysts say Disney's current management troubles leave Comcast well positioned to pursue the merger and eventually become the world's largest media conglomerate. And when the merger comes to the FCC for approval, it looks as though Powell -- and probably the other Republicans on the commission -- would side with the cable giant once again.
In a speech given Feb. 8 at the University of Colorado School of Law, in Boulder, Powell characterized the broadband industry as a growing and robust business, one that would do best without "unnecessary regulation that might distort or slow its growth." While he criticized broadband providers for imposing some restrictions on Wi-Fi and other applications -- singling out Comcast in particular for refusing to provide customers with "enough guidance regarding the bandwidth limits of their service plans," the problem that tripped up George -- Powell said that based on what he knows now, there's no need to impose rules preventing firms like Comcast from giving preference to some content on the Internet over others.
Powell seemed to be coming down against a proposed regulatory scheme known as "network neutrality," which Lessig and others have favored as a way to make sure that large broadband companies don't wield unfair influence in the development of new online applications and content. Comcast has been the leading opponent of such an idea. The firm maintains there is no evidence that cable firms wield too much power in deciding what's online, that customers are generally free to do what they want on Comcast's broadband Internet service, its terms of service notwithstanding.
Lessig and other advocates of network neutrality disagree. They point to restrictions like Comcast's as the first step in a possible slew of new restrictions to come, and they warn that if Comcast merges with Disney, things could get much worse. That's because, Lessig notes, Disney has been one of the leading advocates of network neutrality. "Disney has been the best silent ally we've had in this battle for the last five years," Lessig says -- and if Comcast buys Disney, proponents of a "neutral" network will see that silent ally become a vocal foe.
In a speech delivered last October, Michael Copps, one of the two Democratic commissioners on the FCC and a leading opponent of media concentration, worried that the freewheeling Internet that we've come to love "may be dying" because "entrenched interests are positioning themselves to control the Internet's choke-points, and they are lobbying the FCC to aid and abet them."
Comcast is the main example of such an entrenched interest. In an interview, Copps declined to comment specifically on Comcast and Disney, but he seemed cool to the idea of a merger, noting that the "marriage between distribution and content" has troubled him in the past. Copps called for the FCC to study whether a network neutrality regime might be in order "to keep bad things from happening. I think we need to be studying this in a sustained way and committing some resources to this at the commission."
To free marketers, such ideas are silly. Adam Thierer, the director of telecommunications studies at the Cato Institute, explains it this way: "The way to frame this issue is as the battle between dumb pipes and smart pipes," he says. People like Copps and Lessig want broadband Internet consumers to use dumb pipes, "a high-speed, flexible pipe that anybody can use for any purpose, transmit anything they want on it, no restrictions at all."
Companies like Comcast might want a smart pipe, "where you turn on your broadband connection and you get a welcome screen that could provide a launching pad to that company's Web site. It might suggest you use a certain service. It might even say that as a condition of the deal you can only use certain products." Comcast's smart pipe might even be really smart, perhaps cunning -- it could allow Disney's movies to stream to your house at a hugely increased rate, while movies from Time Warner come in at a slower clip.
So what's better -- a smart pipe or a dumb pipe? It's completely up to the customer, Thierer says. Many people will want a restriction-free dumb pipe. But "my poor mother, when she gets online she's utterly helpless. Some people need integrated intelligence. When they sign a contract they're going to expect a little more than a new big fast pipe." So if some people want dumb pipes and some people want smart pipes, why not let the market choose?
Comcast offers a variation on this position. It should be free, it says, to favor some content on its network over other content -- but whether it does so or not will be circumscribed by market forces, and in the end consumers won't be harmed.
Asked about the specific possibility that Comcast might stream Disney movies at a preferred speed, David Cohen, Comcast's executive vice president, said, "There's no doubt we could do that -- whether we would want to do it or not, I don't know." Cohen said he saw nothing wrong with that practice: "What's the difference between that and what Yahoo and Google and MSN do today in terms of the order of the results on search engines?" he asked. If Google is allowed to make money by selling Barnes & Noble a "sponsored link" for the keyword "books," why can't Comcast make money by having a kind of "sponsored," high-speed content on its network? But then, Cohen added, if Comcast gave Disney's content pride of place on its broadband network, "Time Warner would go to Verizon, and they would try and cut a similar deal. And they would market the hell out of their product -- which is why we probably wouldn't want to do that." In Comcast's view, then, everything would work out fine in the end, since the free market would curtail bad behavior on the network.
In practice, there's reason to believe that things won't work out so cleanly. The first problem is that the broadband market isn't currently as competitive as Cohen envisions it. Remember George, the Philly resident who can't get DSL? There are millions of others like him, people stuck with service from Comcast because DSL isn't available in their area. And even if DSL is available, it's still hard to conclude that the broadband market is extremely competitive. Two competitors don't usually make for a price war; they tend to divide up the available business and play nice. And then you have the problem that DSL is slower than cable. So, yes, Verizon could sign a deal with Time Warner and market the hell out of its Time Warner movies service, as Cohen suggests. But Disney movies on Comcast would still have an unfair advantage, since they would enjoy a faster overall speed. And wouldn't Comcast market the hell out of that?
Tim Wu, a professor at the University of Virginia School of Law who has written extensively on broadband policy, compares the market that might come about in a world without regulation to today's software industry. "Have you ever noticed that Microsoft applications just seem to work better [than other companies' software] on Windows?" he asks. Sure there's heated competition -- "but for some reason Microsoft programs like Word or Excel always kind of have a slight advantage." That's what might happen in the broadband world. Disney movies might just somehow always have the edge on Comcast's network.
But that's not what worries Wu the most. If Disney movies received a slight bump in speed, that would be troubling -- but what if Comcast, seeing that it was making a lot of money from streaming films online, decided to rejigger the network to favor movies over all other network traffic? What if it optimized the network for downloads over uploads (which, in fact, most companies do today), or it gave movie content preference over streaming audio content, or it limited file-sharing programs to make sure that its movies weren't being pirated online? What if, in short, Comcast-Disney created, as Wu fears, a "bias toward a certain design" of the network, a bias that fit well with the company's content business but that stifled the growth of whole new uses of the Internet?
"The most important engine of economic growth is applications development," Wu says. "It's when someone invents something like e-mail or the World Wide Web. But economic rationality and business plans aren't always the same thing. They may decide that the way the Internet will make money is by delivering content. But if you optimize the network for that purpose only, you eventually lose the power of the network as a development platform."
Wu's idea of the perfect network, one that's completely neutral as a development platform, is the electricity grid. "It's a wonderful, wonderful platform for innovation on a number of electric devices -- toasters, cellphones, computers." The secret of the network, Wu says, is something he terms "disinterested carriers," by which he means that the companies that run the electricity grid are divorced from the ones that make electric devices. You can imagine the trouble we might have if powerful appliance makers merged with the largest power firms: You'd get hair dryers working in some outlets and radios working in others, and consumers always wondering whether this appliance was compatible with that power company.
Thankfully, the Internet is not like that, yet. But the Comcast-Disney merger wouldn't help; the most troubling thing about Comcast becoming the world's largest media firm is that it would have constant interest in policing the network, an ever-present incentive to subtly, or not so subtly, favor one use of its pipes over another.
The company's bandwidth limits on traffic can be seen as an early sign of this policy. According to Burstein, of DSL Prime, Comcast's monthly download limit -- which he's been able to glean, approximately, from online discussion groups -- is just about what a person might use if he watched a high-quality video stream for an hour every day. In other words, Burstein says, Comcast is "protecting their HBO assets." With pay services like Movielink, or free news and sports channels available all over the Internet these days, it's possible to get a lot of very good video via the Net. Comcast, a firm that makes most of its money from selling cable TV, can't be too happy with this new source of video coming into people's homes -- and limiting bandwidth is an easy way to make sure such a thing can't get out of hand.
The company denies these charges. Cohen said that the company has cut off a very small number of its customers for exceeding bandwidth limits, and they were all people who "were obviously using our residential service for commercial purposes." He added that "if you're streaming video 24 hours a day, you would not get cut off from our service."
But Cohen's assurances are hard to square with what four Comcast customers told Salon. They were all warned about exceeding traffic limits. All, including George, denied using Comcast's lines to run a commercial service; all said they thought it was streaming video and audio that got them in trouble. To these customers, Comcast's actions seemed totally arbitrary. They said they had no idea how the firm determined whom to warn and whom to ignore. And when asked, the company would give them no explanation of its actions.
It's certainly doesn't sound like a good template for the future of the Internet. "But they're used to being a monopoly -- that's how they behave," said Jaime Todaro, a former Comcast customer who lives in Maryland. "They really have a basic 'Take it or leave it' attitude."