Netflix (NASDAQ: NFLX) executives have come out of the shadows and admitted they oppose the idea of Comcast (NASDAQ: CMCSA) acquiring Time Warner Cable (NYSE: TWC) for $45.2 billion because the combined company would control too much of the nation's high-speed broadband capacity.
"If the Comcast and Time Warner Cable merger is approved, the combined company's footprint will pass over 60 percent of U.S. broadband households, after the proposed divestiture, with most of those homes having Comcast as the only option for truly high-speed broadband" that exceeds 10 Mbps, CEO Reed Hastings and CFO David Wells wrote in a letter to shareholders accompanying the streaming service provider's first quarter results.
Comcast, the executives continued, is "already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix. The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger."
U.S. Sen. Al Franken (D-Minn.), an avowed and vocal opponent of the merger, had sought Hastings' comments on the deal in a letter to the Netflix CEO last week. Dave Schaeffer, founder and CEO of Cogent Communications, which counts Netflix as a customer, also fell squarely on the disapproval side, telling The New York Post that the merger would "limit competition" and "allow Comcast to further extend its monopoly power over its customers."
Comcast was quick to respond, issuing a comment via Jennifer Khoury, senior vice president of corporate and digital communications for Comcast Corporation:
"Netflix's opposition to our Time Warner Cable transaction is based on inaccurate claims and arguments. There has been no company that has had a stronger commitment to openness of the Internet than Comcast and we are the only ISP in the country that is currently legally bound by the FCC's vacated net neutrality rules. In fact, one of the many benefits of our proposed transaction with Time Warner Cable will be the extension of Net Neutrality protections to millions of additional Americans."
Among other points, the statement noted, "Transit is a highly competitive marketplace and Netflix and other Internet content providers have many choices. In the last 15 years, this transit market has been so competitive that pricing has declined by over 99%,"Khoury said, pointing out that "according to the latest FCC data, 97 percent of U.S. homes have access to three or more fixed or mobile providers who offer broadband services consistent with the FCC definition of broadband, a speed that Netflix has said is sufficient to deliver Netflix streaming video services to the consumer."
"Netflix," the statement concluded, "is free to express its opinions. But they should be factually based. And Netflix should be transparent that its opinion is not about protecting the consumer or about net neutrality. Rather, it's about improving Netflix's business model by shifting costs that it has always borne to all users of the Internet and not just to Netflix customers."
Besides opposing Comcast, Netflix was telling some of its own subscribers they'll have to dig a little deeper to pay for the service in the future. Netflix, which charges U.S. users $7.99 a month for its streaming services, is raising its rates by $1 to $2 a month, depending on the country.
The U.S. might be exempt from these changes for a "generous time period" but there's no promise that it won't eventually cost more for streaming services.
Netflix also said it added another 2.25 million U.S. customers in the first quarter and now has 35.7 million in the States. Internationally, Netflix says it has 48 million subscribers.
Hastings and Wells in their letter to shareholders said that Netflix is also looking to introduce set-top boxes integrated with Netflix capabilities with U.S. MVPDs this quarter in the United States.
"As we did in Europe, we will start with U.S. MVPDs that use the TiVo set-top box and try to extend to non-TiVo devices after that," the executives wrote.
Finally, the pair continued an ongoing feud with AT&T (NYSE: T) by noting that the carrier's fiber based U-verse service "has lower performance than many DSL ISPs such as Frontier, CenturyLink and Windstream." Rather than fight Netflix, as the streaming provider infers is the case with AT&T, "it is free and easy for AT&T to interconnect directly with Netflix and quickly improve their customers' experience, should AT&T so desire."
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