Five Reasons the Comcast/Time Warner Cable Anti Trust Concerns are Overbown

There has been a lot of market speculation that the Comcast’s proposed acquisition of Time Warner Cable might be blocked on anti-trust concerns. We believe these concerns are overblown.

1) The Cable Operations Don’t Compete in the Same Markets, so Industry Concentration Doesn’t Change.

The combined company would serve over 30 million homes, which initially seems to significantly consolidate the industry. But the DoJ must analyze the market from the perspective of where they are sold – the customer. There are only a few areas where customer currently has a choice between Comcast and Time Warner – and in those few areas they may have to divest operations or negotiate an arrangement that provides a similar result. The company has already indicated it intends to sell territories accounting for approximately 3 million homes and these are undoubtedly on the list of territories to be sold. So, generally speaking, cable industry concentration will be the same since almost no one will have fewer choices for video as a result of a merger. This is completely the opposite situation that would occur if DIRECTV and DISH Network were to merge. In this case, most consumers would be reduced from three choices (cable and two satellite companies) to two (Cable and one satellite company). Of course, the growth of Verizon’s FiOS and ATT’s U-verse and other networks is slowly eroding even that argument.

2) Vertical Integrations Issues Manageable

The other anti-trust issue relates to vertical integration. Comcast owns NBC and some of its broadcasting stations. This puts the combine company in a stronger position to hurt DIRECTV or DISH Network by withholding NBC content from them. Of course, Comcast could have done this before – and this was a concern about the NCB/Comcast transaction. But it seems to have been resolved and there have not been serious complains that Comcast/NBC was using their content leverage unfairly against DIRECTV and DISH Network. Also, regulators generally are less worried about abuse of market power due to vertical integration than they are about horizontal integration as the negative impact on end-users is less clear. It’s hard to see why the DoJ would suddenly assume the vertical integration issues would now be larger simply because Comcast is larger. Any vertical integration concerns could be solved by clearer requirements that the combined company sell any of their proprietary content to DIRECTV and DISH Network (and other competitors) on terms similar to those they supply the other cable companies they don’t compete against.

3) Leverage Over Content Providers Helps Consumers

Another issue raised is that the combined company will pressure content providers to supply better terms. But this would be considered a consumer positive and a reason for regulators to support the deal. It would give the combined company the ability to lower prices or offer additional services for the same price to compete more aggressively against satellite and Over the Top (OTT) Internet video service such as Netflix and Hulu. Of course there is no guarantee they will do this, but there is no reason to believe that a having a cost advantage would allow them to raise prices or reduce services. Far from being a reason to deny the merger, this is a strong supporting argument.

4) Access to New Content and Programming Diversity Concerns not a Major Barrior

There is a potential public policy concern that such a large company handing media distribution would have inordinate influence in determining which media content can survive. It’s possible that some content would be unviable without carriage by a distributor that controls 30% of the nation’s eyeballs. This type of market power due to vertical integration is experienced in other industries. And it’s precisely why the company would seek to sell about 3 million viewers – to keep under the 30% threshold regulators often us when looking at abuse market power with respect to suppliers in vertical integration situations. Unless the DoJ or the FCC decides that the media industry is, for some reason, dramatically different than other industries, this should not be a problem. Meeting the 30% guideline should serve to handle the regulator’s concerns. Finally, Comcast and Time Warner don’t control all of their content. They are required to carry the content of local television stations via “must carry” rules.  So content providers seeking carriage on Comcast or Time Warner cable systems can also bypass Comcast and Time Warner and get that carriage via carriage on television broadcast stations.

5) Net Neutrality and Other Irrelevant Issues

The FCC is clearly disappointed in the recent DC Court of Appeals decisions striking down Net Neutrality (Verizon v. FCC). Among other issues, is the fear the cable companies will be able to reduce video competition by restricting OTT video provides including Hulu and Netflix. This merger does not change the impact of that decision. However, the proposed Comcast/TWC merger gives the FCC the ability to condition the merger on them agreeing to net neutrality rules. The FCC can thus guarantee 30% of the country will have the net neutrality that they are not allowed to impose via a rulemaking. This opportunity may be the strongest reason the FCC has for supporting the merger.

Other opposition to the merger, about having so many people in the country dependent on one provider, security concerns and the unpopularity of the industry among consumers are political issues and not rooted in traditional anti-trust law. Of course the FCC uses a more subjective “public interest” test than the DoJ, so these political issues could still come into play. But based on an basic traditional anti trust analysis, the deal looks in good shape.