Opinion

The Great Debate

from Jack Shafer:

Who’s afraid of Comcast?

Set aside for a moment everything you've read about the $45 billion bid Comcast made for Time Warner Cable last week. Blank from your mind Paul Krugman's prediction that the deal will result in a Comcast monopoly. Pretend you didn't read the New York Times piece about the acquisition presaging further consolidation in the cable market, with Charter Communications picking off Cox Communications. Thump yourself with a neuralyzer, if you can, and remove from your memory the protest against the transaction by Michael Copps, former Federal Communications Commission commissioner.

Finally, purge from your bile ducts the seething hatred you hold for Comcast and Time Warner Cable, those hurtful memories of rising bills, rotten service, and phone-tree purgatory and allow me to persuade you that we're having the wrong telecom argument when we quarrel about mergers and acquisitions. Instead of blocking mergers or beating concessions out of the telecom giants, let's give them the treatment they really fear: Policies that encourage the entry of competitors, which are the bane of every monopolist.

If you hate your cable television company -- to simplify a half-century of history -- blame it on the government. In the founding days of the industry, local municipalities mistakenly insisted that cable TV was a "natural monopoly" that must be regulated like telephone service. In nearly every case, the selection of a cable operator was a political one, with the most flattering supplicant winning the right from city councils to string wire on utility poles and cross right-of-ways to sell cable service. The municipalities collected franchise fees from the cable companies, shook them down for sweeteners like municipal channels and public access studios, regulated their rates, and required the operators to wire all if not most of their jurisdiction.

Of course, cable TV wasn't a natural monopoly but a government-made one. By the time Congress and the courts reduced the power of the municipalities to regulate cable in the 1980s and the 1990s, the die was cast. Sure, new cable operators could apply to compete, but they still had to run the regulatory maze and face well-entrenched government-made monopolists. In many cases, the new entrants have been companies that already provide the area with telephone service and know how to play the regulatory game, such as Verizon (Fios) and AT and T (U-Verse).

By legislating local cable monopolies, the municipalities inadvertently helped create national oligopolies. Comcast, Time Warner Cable, Cablevision and the other large cable firms grew to market dominance by purchasing existing franchises, market by market. Such a quick roll-up would not have been possible if regulators had pursued policies easing the way for new entrants. The unfettered growth created huge valuations. Indeed cable companies currently sell for $4,000 to $5,000 per subscriber (the Time Warner Cable deal is just under that). That's right Comcast customer, your cable TV and Internet subscription is worth at least $4,000 to them! But just as New York City taxi-cab medallions could not sell for $1 million if new cabs could freely enter the market, cable TV companies would not sell for such premiums if they were competing in a freer market. New entrants would progressively batter their power to price. In the cable industry, the regulatory scheme has been captured by the regulated, which is an old story.

The antitrust case against Comcast-Time Warner

For Netflix viewers, the proposed $45.2 billion Comcast-Time Warner Cable deal is simple: Will they get their House of Cards and how much it will cost?

For regulators, the proposed deal is rife with complexities. Now that Netflix’s efforts to secure a spot with Time Warner Cable reportedly are stalled, the video-streaming service is a prism for understanding how the federal government might approach the deal.

Netflix is a content provider and original programmer, and its 30-plus million users will depend on the proposed cable giant for a reliable broadband connection. Like ESPN, CBS, the National Football League, AT&T, Verizon and other stakeholders, Netflix’s entire business model could be undermined. It will be negotiating for a chunk of the country’s audience, but it is also subject to a limited market share if the proposed Comcast-Time Warner Cable offers it a less preferential stream.

Ukraine after the Maidan

Writing the first draft of history is always difficult, especially when the opening act curtain has not officially fallen. Yet developments in Ukraine have now reached a critical turning point, with certain consequences likely to follow.

Historians will long debate the chain of events that provoked the February 18, 2014 confrontation. What we know is that the simmering demands of the opposition — over Ukraine’s thwarted path to Europe, the failure to re-instate the 2004 Constitution and President Victor Yanukovich’s insincere negotiations – all boiled over in a violent clash with the Ukrainian security services. The fight for Ukraine’s future was being resolved in the streets of Kiev – in live pictures transmitting around the globe.

Two symbols undoubtedly will emerge from the events of the last few days: a heroic Maidan and a bloody Yanukovich. Half the population will not accept the results, but it is also unlikely that Ukrainian opposition can impose its will on the country. So even if the Maidan were somehow to hold its ground and gain the upper hand — and it was still resisting at the time of this writing — a political consensus would still have to be found.

The religion-fueled fight in Syria

The second round of peace talks in Geneva between representatives of Bashar Al-Assad’s regime in Syria and rebel forces has ended with both sides blaming each other for the lack of progress. Beyond the finger-pointing, however, lies a growing danger to the goal of a negotiated settlement. The civil war’s religious divides are widening, making compromise unthinkable.

Representatives of the Syrian regime went to Geneva solely with the hope of convincing the opposition to let President Bashar al-Assad stay in power so he can forge an alliance against jihadist forces fighting in Syria, most notably the al Qaeda affiliates Jabhat al-Nusra and the Islamic State in Iraq and the Levant. Their argument — one that many, including former U.S. Ambassador to Iraq Ryan Crocker, have made — was that Assad is better than any likely alternative.

But the Syrian National Coalition, representing opposition forces, rejected the proposal outright. The coalition, which purports to be a post-Assad transitional government in waiting, has decided, along with Secretary of State John Kerry, that al Qaeda will be dealt with after Assad is gone. Its standing, however, is severely constrained by its lack of political credibility on the ground. It has become little more than a vehicle for Qatar and Saudi Arabia to vie for control of Syrian politics.

from Bethany McLean:

How Ralph Nader learned to love Fannie and Freddie

Corrects story issued February 18 in third-to-last paragraph regarding efforts to contact Ralph  Nader.

“It is time for [government-sponsored enterprises] to give up ties to the federal government that have made them poster children for corporate welfare. Most of all, Congress needs to look more to the protection of the taxpayers and less to the hyperbole of the GSE lobbyists. –Ralph Nader, testimony before the House Committee on Banking and Financial Services, June 15, 2000

“Fannie Mae and Freddie Mac should be relisted on the NYSE and their conservatorships should, over time, be terminated. –Ralph Nader, letter to Treasury Secretary Jacob Lew, May 23, 2013

from Nicholas Wapshott:

Comcast: How to win at monopoly

The proposed merger between the cable television interests of Time Warner Cable and its principal rival, Comcast, demonstrates a neat example of how the theory of the free market differs so radically from the marketplace in practice.

In the storybook version of how business works, companies compete for customers by offering rival services and the company with the best products and prices wins. In this fairytale, everyone wins. Customers benefit from competition through a better choice of products and cheaper prices, the good companies take a handsome profit and prosper, and the bad companies go to the wall.

In real life, this heroic version of how the world spins is far less noble. In the mythical version of the free market, companies fiercely compete with each other for market share by trying to outdo each other in pleasing customers. In reality, companies tend to forego the difficult and expensive art of wooing customers from a rival and resort to buying the competition. Buying business is far easier than earning it.

from Stories I’d like to see:

Cigarette companies’ final days, high-speed trading, and how rich is Ringo?

1. Cigarette companies’ final days:

This article last week from the Associated Press, “U.S. health experts predict…a cigarette-free America,” highlighted the release of a 900-page report on smoking from the U.S. surgeon general. “Though the goal of a cigarette-free America has long seemed like a pipe dream,” the AP noted, “public-health leaders have started throwing around phrases like ‘endgame’ and ‘tobacco-free generation.’”

Smoking has declined significantly in the United States in the five decades since the surgeon general’s first report pinpointing the dangers of cigarettes. It is still a multibillion-dollar industry, however, that sells more than 300 billion cigarettes a year here.

Yet smoking rates continue to decline as the evidence of tobacco’s lethal effects becomes accepted wisdom. At the same time, venues forbidding smoking have become nearly universal, even as the sale of smoking products becomes more constricted. CVS’s decision two weeks ago to stop selling tobacco is the latest example. (I wrote about that here.) Several states are now considering raising the legal age for buying cigarettes to 21.

What America’s leftward shift means for elections

With each new poll, it’s becoming clear that the United States is shifting to the left. A majority of Americans now supports same-sex marriage.  And legalization of marijuana.  And normalization of relations with Cuba.

Gallup reports that, in 2013, the percentage of Americans identifying themselves as liberals reached its highest level since 1992. True, it’s only 23 percent. Conservatives, at 38 percent, still outnumber liberals. But the trend has been slowly and steadily upward for liberals since 1996, when it was 16 percent.

This shift is due entirely to Democrats becoming more liberal — 29 percent of Democrats in 2000, 43 percent in 2013. At the same time, Democrats have won the national popular vote in five out of the six presidential elections since 1992 (all but 2004). Barack Obama won a majority of the popular vote twice — something Bill Clinton couldn’t do.

from Lawrence Summers:

On inequality

Inequality has emerged as a major economic issue in the United States and beyond.

Sharp increases in the share of income going to the top 1 percent of earners, a rising share of income going to profits, stagnant real wages, and a rising gap between productivity growth and growth in median family income are all valid causes for concern. A generation ago, it could have been plausibly asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty. This is no longer plausible. The United States may well be on the way to becoming a Downton Abbey economy.

So concern about inequality and its concomitants is warranted. Issues associated with an increasingly unequal distribution of economic rewards will likely be with us long after the cyclical conditions have normalized and budget deficits finally addressed.

Despite stimulus, middle class still struggles

Five years ago Monday, President Barack Obama signed the signature economic proposal of his presidency, saying that the passage of the $787 billion economic stimulus package heralded the “the beginning of the end” of the Great Recession.

The president told a Denver audience that he was “keeping the American Dream alive in our time.” But for millions of Americans, he made things worse.

It is now clear that bold White House predictions about stimulus jobs “saved and created” were just a prelude to later pledges about keeping your doctors and falling premiums.

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