The last few months have brought us a spate of Comcast horror stories and Comcast-hate. As captured by this totally not safe for work “Comcast — We Don’t Give a F—“ video from Funny or Die, the announcement that Comcast would acquire Time Warner Cable (TWC) has brought to boil a great deal of simmering resentment. Most recently, a recording of a subscriber spending 20 minutes trying to disconnect his Comcast service has prompted some investigating into Comcast’s service and employment practices. In particular, Adrianne Jefferies at The Verge has been running an excellent series called “Comcast Confessions” based on hundreds of interviews with current and former Comcast employees showing that these long-standing customer service problems are not a blip but the result of systemic problems and deliberate business and strategy decisions pursued by the company (first three articles published so far here, here and here). I want to highlight this article in particular that puts together the pieces and shows how the TWC acquisition makes things worse.
From an academic standpoint, the wealth of data coming to light provides a great study on how conflicting economic incentives and difficulties in melding together a giant company by merger create awful customer service despite the persistent efforts of Comcast top management to improve customer service. But this blog isn’t about industrial organization and business practices for the fun of it. For me at the moment, the hot question is: does Comcast’s awful customer actually provide legal grounds for the FCC to block the Comcast/TWC merger?
Actually, yes. And I don’t just mean in the political “so many people hate Comcast the FCC can designate for hearing and survive Comcast’s political pushback.” I mean in the legal “the FCC has jurisdiction over this and should designate, as an issue for hearing, whether Comcast’s proposed acquisition of Time Warner Cable is contrary to the public interest and in violation of various provisions of the Communications Act” sense. And yes, I get that customers are pretty much equally dissatisfied with TWC, which would prompt one to think this should be a wash as “not merger specific” (i.e., service is crappy before merger and crappy after merger, so who cares — other than customers?) However, as I shall elaborate below, the unique nature of Comcast’s pervasive problems — combined with several other factors — makes this a rare (but not unprecedented) case where the nature of the problems is both merger specific and subject to FCC review.
And while I would not normally suggest that such problems alone could block a merger, it becomes one more factor in a deal that already has a lot of problems. At a minimum, it becomes one more set of potentially pervasive behavioral conditions that would prompt Comcast to walk away whether or not the FCC actually designates for hearing, especially if lots of consumers write to the FCC about it (hint, hint).
More below . . .
First, a bit of review. Go back to my blog posts on how the government handles merger review. We have an anti-trust piece (handled in Comcast/TWC by the Department of Justice) and review by the Federal Communications Commission (FCC) under the Communications Act of 1934. There is also a political component, which while unofficial still influences things.
In general, lousy customer service doesn’t figure into antitrust review except to the extent it shows a concentrated market with market power. That is to say, the only way a company like Comcast can get away with having this much dissatisfaction from its customers is if they have market power. On the political side, lots of angry customers figures into the political process and makes it easier to deny a merger (because people haaaaate you so very, very much) and makes it harder for politicians to support a merger. Those are useful, but the whole way in which the political interacts with merger review is already fairly indirect. What I want to focus on here is specifically the FCC review.
What Does Comcast Customer Service Have To Do With FCC Merger Review?
We start with what the FCC merger review does that makes it different from antitrust review. The FCC reviews transactions to make sure they are consistent with the Communications Act of 1934 and associated policies. You can read my ancient explanation and defense of this in this article published all the way back in 2000. I’m also not going to blow this blog post up by about (another) 3000 words to explain to all the FCC haters out there why we don’t just ‘leave it to antitrust’ – especially the pathetically weak version of antitrust the FCC haters have spent the last 40 years spending so much time, effort and money to hamstring.
Suffice it to say that when looking at what the FCC cares about we need to answer two questions: 1. Does it fit within the FCC’s statutory jurisdiction; and 2. Is the issue “merger specific,” as opposed to a general industry-wide problem the FCC should resolve by rulemaking for everyone. In addition, if the applicants brought up the topic in the first place as a public interest benefit, it becomes fair game.
As I will demonstrate below, Comcast hits a rare trifecta here. Comcast’s customer service has hit legendary levels of badness, directly correlated to its exponential growth. Revelations of Comcast’s awfulness and practices raise legitimate questions as to whether Comcast has become too big to provide acceptable levels of service — a problem the merger will only aggravate further and extend to Comcast’s new customers.
The Basis For FCC Jurisdicition.
So what specific provisions of the Communications Act govern here? We start with the provision directly on point. 47 U.S.C. 552(b) requires the FCC to establish “standards by which cable operators may fulfill their customer service requirements.” The law requires these standard to “include, at a minimum,” (among other things) standards governing “installations, outages and service calls” and “communications between the cable operators and subscribers (including standards governing bills and refunds)” (emphasis added).
So the Communications Act rather clearly an unambiguously directs the FCC to care about precisely the sort of “service calls from hell” we’ve been hearing are routine at Comcast. In addition, Comcast’s conduct raises concerns under other provisions of the statute. 47 U.S.C. 521 states that the purpose of the Cable Act is, among other things, to establish standards “which assure that cable systems are responsive to the needs and interests of the local community.” Furthermore, I would argue that – while some modest efforts to mollify angry customers and compete with rival offers is fine – essentially refusing to disconnect a customer trying to switch to another service constitutes a violation of Section 628 (47 U.S.C. 548) as an “unfair” method of competition. There is also the impact on broadband adoption pursuant to the ever popular and flexible Section 706 (47 U.S.C. 1302(a)).
Finally, and most basically, the core of the “public interest standard” that governs FCC review is a basic question of “can you do the job or not in a way that is not substandard or painful so that customers are worse off after the transfer.” While no one will claim that Time Warner Cable customers are a happy and contented bunch or that their customer service is stellar (they usually rank either just ahead or just behind Comcast on the various ‘most dissatisfied customers/most hated business’ rankings), Comcast’s service problems appear to be a whole ‘nother order of magnitude higher.
OK, The FCC Has Authority, But Is This Merger Specific?
It’s not enough for the FCC to have authority to address an issue. For the FCC to address the issue in a merger, rather than through a complaint or rulemaking, the FCC requires that the issue be “merger specific.” That is to say, something about the merger itself either creates or aggravates the problem. Or, put another way, how does the merger make the world a worse place rather than maintaining its current level of suckage?
In Comcast’s case, there appears to be lots of evidence that we are not talking about some bad apples in the bunch. Comcast has a systemic problem that gets worse as it grows, and upper management seem both utterly clueless as to the extent and utterly unable/unwilling to address the fundamental issues driving the increasingly worse service. Comcast has apparently become “too big to manage.” The trend of Comcast dissatisfaction goes back years, and is astoundingly consistent (see here, here and here), and therefore cannot be dismissed as simply an overreaction to the merger.
That makes this absolutely merger specific, since – assuming the evidence on investigation bears this out – it is Comcast’s penchant for absorbing millions of customers at a gulp through complex transactions like this (which involve not merely acquisitions, but system swaps) that have created the current death spiral on customer service.
(I’ll site primarily to The Verge and their excellent “Comcast Confessions series by Adrianne Jefferies, but you can find a bunch of other articles talking about this without too much effort (see here, here and here for a sampling) – which kinda proves the point.)
The Mechanics of Comcast’s Awfulness.
As detailed in the Verge, Comcast has acquired its systems through acquisition, essentially making these huge jumps in subscriber base and then trying to absorb these very different systems into one company. The result is a conglomeration of feudal fiefdoms with little accountability, constantly changing lines of reporting. This policy assures that the more Comcast grows, and the more it swaps systems with other cable operators (such as the proposed TWC/Charter acquisition/system swap), the more chaotic and less manageable the system becomes. The proposed transaction, therefore, seems certain to exacerbate the problem and make the collective Comcast customer experience even more outrageously awful. And, as we have seen, the combination of Comcast’s awesome market power combined with their ruthlessly raising the switching cost to customers means that you can be as crappy as you wanna be without suffering in the market.
Unfortunately, where Comcast has imposed consistent policies, they all contribute to making the customer experience increasingly worse. Comcast has systemically underfunded its workforce and undertrained and under-supported its technical crew. One former Comcast repairman sad that if the 5 weeks of training, 4 and ½ were on order entry and billing. “We didn’t actually learn about the troubleshooting aspect until we had two days left in training. Keep in mind, this is the repair department.” To keep costs down and avoid paying benefits, Comcast has a nationwide policy of relying on contractors. To the extent local systems acquired by Comcast have actual employees with experience in the systems and knowledge of the local community, these are permitted to atrophy away.
Comcast contributes further to the awfulness of customer experience by making actual customer service secondary to employees in their compensation package. While Comcast cannot manage a universal, company-wide training program and standards on its technology, it does provide for all its employees and contractors a handbook on how to increase revenues by upselling customers and making it hard for them to terminate or even reduce the level of service. Comcast customer service employees and technicians do not have a systemic means of being rewarded for good customer service. But about 20% of their performance metrics is based on sales and Comcast “retention specialists” (the people who handle requests to terminate service) are punished with loss of pay if they allow too many customers to quit.
The result of these policies, according to one former employee, is a system of zero accountability for customer satisfaction, where employees routinely try to pass ‘problem’ customers on to someone else, a culture of blame shifting for failures, and a driving concern among all other things to convert every service call into a sales opportunity no matter how furious the customer actually is or how much the customer insists on cancelling service. As one billing technician recently confided in a customer – if the customer had not recorded his previous call in which a technician promised to refund fees, there is no way the billing rep would have honored the promise.
This problem is even further compounded by the fact that the people running Comcast apparently have no idea about any of this. As summarized in this amazingly good interview with Adrienne Jefferies, you have a bunch of smart visionary people at company HQ in Philly running the company and wanting to do all sort of really innovative things. But, like the ancient Chinese Emperors and their court in the Forbidden City, Comcast top management are totally disconnected from the sprawling consumer-abuse engine that is how subscribers actually experience Comcast service.
The Perfect Storm Produces a Sucknado For Comcast Customers.
To add to these internal factors, Comcast’s suckage is further abetted by the very successful war waged by the cable industry against any kind of regulatory oversight. Most states eliminated their local franchising authority in favor of state franchising. In the process, this “modernization” of cable regulation to “reflect the dynamic and competitive market” and “reduce the cost of burdensome regulation” also became a process of eliminating most actual oversight authority either directly or by hamstringing franchising authorities with too little resources and a clear message from state legislators to leave those nice cable operators like Comcast alone.
As for the FCC? Do remember the crap Former FCC Chair Kevin Martin took from his own party when he tried to take on the cable industry? Both externally and internally in the FCC’s Media Bureau, Martin’s efforts to crack down on the cable industry were systemically sabotaged and Martin himself personally vilified. Today, we have folks like Rep. Marcia Blackburn (R-TN) accusing the FCC of having too many employees and looking for excuses to regulate whenever the FCC even thinks too hard about collecting the data necessary to exercise oversight, never mine actually doing anything to crack down on the problem. Needless to say, to the extent the FCC has even wanted to take on these kinds of run-of-the-mill consumer complaints, it has been browbeaten rather successfully into submission.
So we put these things together and we should have no surprise that the combination of consolidation, market power, and deregulation has produced a perfect storm in which a giant Sucknado of badness is now biting Comcast customers in the ass and chewing through to their wallet. And that the larger Comcast grows, the worse the Sucknado and the more painful it gets.
Lessons From History Tell Us This Is No Fluke.
As an aside, I will point out this is not new to Comcast. People (well, telco execs) complain about how incredibly detailed the regulations are covering things like phone service, with scripts for sales reps, mandatory disclosures and mandating that phone companies honor requests to port telephone numbers from 3rd parties so departing customers don’t even have to listen to a retention sales pitch. We have this insane level of detail for a reason. Back in ye ancient days, Ma Bell (later the Baby Bells) likewise tried to thwart competition with similar tactics. Since regulators (and even Republicans in Congress!) in those days believed that regulation actually helped create a competitive market, they imposed all manner of regulation to keep AT&T and the Baby Bells from doing exactly what Comcast is now doing.
The usual rote response to this is that Comcast isn’t a monopoly like Ma Bell and that robust competition solves all these problems. And with the overall effort to not only kill regulatory oversight at the local level, combined with the inability/refusal of the FCC and state regulators to collect data and make it available publicly, it is easy to deny there is a systemic problem. It takes real reporting like Adrienne Jefferies has done, to even begin to bring the systemic problems to the surface. At which point the massive Comcast PR machine kicks in to reassure regulators and friends in Congress that everything is fine and they should just go back to whatever they were doing.
So What Does All That Mean For The FCC’s Merger Review?
As I said up top, usually this would be a null factor. It takes a lot to get the FCC to “question the business judgment” of an acquiring firm. Famously, in 2008, the FCC brushed aside concerns that the rural telco Fairpoint lacked the capacity to absorb several million customers from Verizon. The catastrophe that ensued in several states prompted the FCC in subsequent similar deals involving Frontier and similarly situated LECs jumping up in size to have much more detailed showings of actual capacity to upgrade and maintain their systems.
If customer service issues (and Comcast’s outrageous price gouging on fees, which I didn’t even mention) were the only issues with this merger, I’d say that we were maybe looking at possible conditions. But Comcast already faces a steep uphill battle in light of the significant resistance to the merger on more traditional market power grounds. Nor are Comcast’s customer service problems within the range of normal, even for an industry as generally loathed as the cable industry. Comcast stands in a class by itself.
To conclude, the FCC has the authority to address this issue, either by blocking the merger or with behavioral conditions (although I don’t believe conditions are going to work here – they require the sort of pervasive regulation and commitment to oversight we haven’t seen in DC since we passed the 1992 Cable Act). The Verge stories and other coverage provide more than enough evidence for the FCC to make deep inquiries as part of the merger assessment, and to refer the matter for a hearing to determine whether the merger violates the “provisions or policies of the Communications Act” or is “otherwise contrary to the pubic interest.”
Hopefully, therefore, the FCC will actually do something here. Of course, they are a lot more likely to do something about this if they hear from an outraged public. Happily, my employer Public Knowledge has an Action Page over here you can use.
Stay tuned . . .