By Austin Opatrny
On February 27th Comcast, the largest cable company in the world, announced that it had submitted a bid to purchase industry rival Time Warner Cable in an allstock deal valued at $45 billion dollars. The combination of the two behemoths would give them a 30% market share of the American cable and internet provider market. The deal is part of Comcast CEO Brian Roberts’s plan to expand Comcast…
However, it will face unprecedented regulatory scrutiny to determine whether the merger would give Comcast unacceptable monopolist powers. The eventual ruling will certainly be a landmark decision studied for years afterwards. Comcast has presented several justifications for its proposed merger with Time Warner. It has calculated that a combination of the two companies will provide synergies that will lead to $1.5 billion in cost savings per year. It also points out that the increased size will enable the combined company to invest more in updating the hardware underpinning the cable and internet networks. Comcast has been moving to create their own network of content distribution, giving customers access to media like payperview streaming video. Comcast recently purchased NBC Universal, the company behind popular television programs like 30 Rock, in an effort to begin capitalizing on the viewing habits of their subscribers. An expansion of Comcast’s subscriber base would make strategic sense for the company. Their most significant argument to counter worries about potential monopolistic activities is that Time Warner and Comcast do not currently directly compete in any market. As a result, a merger of the two will not alter the competitive landscape in any regional market–Time Warner Cable customers in the New York area will simply send their checks to Comcast, rather than Time Warner. This nullifies the arguments put forward by regulators to prevent the acquisition of cellular provider T-Mobile by AT&T in 2011.
However, several concerns remain regarding the ramifications of any possible deal. While Comcast may talk about how a merger will enable them to invest in the fiber optic connections needed to bring American internet access to the next level, it is unlikely that investors will be inclined to stomach the high costs associated with installing this new technology. Politicians are beginning to classify highspeed internet access as an infrastructure cornerstone for any modern nation, and may call for more government intervention to prompt the creation of a nationwide network.
Critics also worry about the outsize bargaining power Comcast will have when working with television networks. Because of the dominant position the merged company would hold, they would be able to bargain to pay lower fees to provide Comcast customers with certain channels. This is strategic behavior on the part of Comcast, and should not be interfered with by regulators. What is perhaps more worrying is the influence Comcast will hold over online media distributors. Netflix, the subscriptionbased video streaming company that is responsible for onethird of all American broadband usage, recently negotiated a deal with Comcast to ensure customers receive Netflix videos faster. Netflix achieved this by negotiating access to Comcast’s broadband network. In the future, Comcast may require internet companies that transmit large amounts of data (such as YouTube or Hulu) to pay similar fees in order to ensure high speed delivery to consumers. This could ultimately lead to anticompetitive constrictions on the internet that would diminish its aweinspiring capabilities to deliver information quickly around the country.
Regardless of these concerns, it is likely that the Department of Justice (which is responsible for antitrust decisions) will approve the merger. The merger will not form a monopoly, under the terms defined by the Department as monopolistic. Comcast has promised to shed 3 million customers to make sure they only have 30% of subscribers, and thus falling outside of the definition of monopoly. It is up to legislators and other regulatory bodies, particularly the Federal Communications Commission, to proactively react to the merger and guide the nation’s telecommunications network towards a future of universal high speed access. No one wants to return to the time when one telecommunications giant (quasi-affectionately referred to as Ma Bell) controlled the majority of American telephone lines. This federallyapproved monopoly set nationwide prices and controlled the pace of innovation in telecommunications, going so far as to tell consumers what types of telephones they could or couldn’t purchase. Hopefully, the merger of Time Warner and Comcast (if approved) will not have a similar outcome.