FCC’s Faster Broadband Benchmark May Be Hurdle for Comcast

U.S. regulators raised the speed needed for Internet service to be deemed broadband, a change that may fuel opposition to Comcast Corp.’s bid for Time Warner Cable Inc. by making the new company’s market share appear larger.

The Federal Communications Commission on a 3-to-2 vote raised the threshold to 25 megabits per second, up from its standard of 4 Mbps.

“We have a problem” when 20 percent of the U.S. doesn’t have access to the newly designated speed, said FCC Chairman Tom Wheeler, a Democrat. “And we have a responsibility to that 20 percent.”

The change represents a bid “to seize limitless authority” over broadband by declaring the service hasn’t been deployed in a timely fashion, a finding that could be a precursor to new regulation, said Commissioner Ajit Pai, a Republican who voted against the increase.

The change makes largest U.S. cable company Comcast’s broadband market share appear higher because slower connections no longer are included, Craig Moffett, a New York-based analyst with MoffettNathanson LLC, said in a Jan. 8 note.

“This is obvious fodder for those who would argue Comcast’s high end-user market share would afford them market power” to squelch online video providers who compete with Comcast’s cable channels, Moffett said in the note.

Moffett said he expects regulatory approval of the $45.2 billion deal, which is being reviewed by the FCC and Justice Department. “But if it is rejected, combined Comcast’s share of the broadband market would be the reason,” Moffett said.

‘Somewhat Arbitrary’

In an earnings call Thursday, Time Warner Cable Chief Executive Officer Rob Marcus said he didn’t think the FCC’s decision to increase the definition of broadband would affect the deal.

“I think that the notion of defining broadband at 25 Mbps is somewhat arbitrary,” Marcus said. “I’m not really sure what that is intended to mean. And really I don’t anticipate that that has any practical implications for life going forward or for the DoJ’s analysis of the deal.”

The National Cable & Telecommunications Association issued a statement criticizing the FCC for “arbitrarily” choosing a definition of broadband that ignores how some consumers access the Internet.

“The cable industry has consistently delivered faster Internet speeds to American consumers with networks that offer 50 Mbps to 85 percent of U.S. homes, widely available tiers that exceed 100 Mbps and Gigabit speeds in some communities,” the Washington-based trade group said in a statement.

Market Share

The merger would increase Comcast’s market share less than 1 percent because New York-based Time Warner Cable has virtually no broadband customers at speeds above 25 Mbps, Comcast said in a Sept. 24 blog post. No cable customer will have fewer choices after the merger because Comcast and Time Warner Cable serve different areas, the company said.

Comcast in filings told the FCC the proper yardstick for broadband Internet includes slower speeds, under which its share of the online market would be 35.5 percent.

In a Sept. 23 filing, Comcast said the combined company would serve 54.9 percent of broadband connections over wires, and 42.3 percent of broadband connections if mobile service is included.

The FCC’s intent with the change may be to encourage carriers to build faster broadband, rather than to signal new regulation, Paul Gallant, a Washington-based analyst with Guggenheim Securities, said in a note today.

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