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Time to cool it on the Comcast rhetoric - February 13, 2008

When you cover politics in Washington you get used to hyperbole. But some of the rhetoric being deployed against Comcast in the FCC proceeding to examine its network management practices borders on hysterical. On Wednesday, the consumer advocacy group Free Press, which filed one of the original petitions that triggered the FCC action, issued a press release with the headline, "Comcast Declares War on Consumers."

According to Free Press Comcast's throttling of upstream BitTorrent traffic during periods of peak bandwidth demand reflects a villainous scheme to blunt the development of alternative means of delivering video content to consumers that could someday compete with Comcast's own video service:

What Comcast is really doing is specifically squashing new innovative Internet video services that compete with their own online and video-on-demand offerings — and threaten to topple its tightly controlled cable model. Comcast is looking at a future where consumers can access millions of channels online without the cable company’s permission, and doesn’t like it.

Comcast vowed to never block content or interfere with the open Internet. Now that it has been caught red-handed doing just that, its lawyers argue that the FCC has no authority to stop them. This is nothing short of a declaration of war on the FCC, Congress and consumers.

I doubt Comcast CEO Brian Roberts could really get a war on consumers, Congress and the FCC by his shareholders right now. In its Q4 earnings report this morning, Comcast said it would begin paying a 6.25% quarterly cash dividend and increase the amount of capital set aside for share repurchases in an effort to salve investors increasingly anxious over the company's lagging stock price.

As for its operating results, new sign-ups for its broadband Internet service slowed to 331,000 in the quarter, compared with 490,000 in the same quarter of 2006. Average revenue per user also fell, from $44.89 per month to $42.44, as Comcast was forced to roll out a cheaper, lower-speed broadband service to meet growing competition from telcos and overbuilders. Overall digital cable service sign ups also slowed, to 523,000 in the quarter compared with 614,000 in the prior year.

What that adds up to, realistically, is a company with a pressing need to squeeze as much revenue as possible out of its existing customers and capital plant while minimizing churn. Comcast's throttling of BitTorrent traffic smacks much more of a company desperately trying to wring the best possible consumer experience for the bulk of its customers out of its existing plant because it's not in a position to invest in new plant. Its balance sheet is already debt-heavy and its cash flow from operations is going to pay out dividends and buy back shares. As for why it would go after BitTorrent, upstream P2P traffic is the hardest kind for a network operator to monetize, so if you have to pick and choose, it's really not that hard a decision. That's not a conspiracy, it's business.

Just because you don't need a conspiracy theory to explain Comcast's behavior, however, doesn't mean there isn't an important public policy question to consider. In fact there is, and it's Comcast's supporters who come closest to putting their fingers on it, albeit perhaps unwittingly. More on that in my next post.

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