Comcast and Time Warner: A Proposed Marriage of Goliaths

By now many of you have probably heard of the agreement between the cable giants, Comcast and Time Warner, to merge into a single entity.  Comcast has agreed to buy Time Warner Cable for $45.2 billion in stock in an agreement that would combine the two largest cable service providers in the country.  In a gesture of good faith to appease regulators who understandably are suspicious of this deal, Comcast has agreed to sell off 3 million subscribers to ensure their market share does not exceed 30 percent.  It is shocking to think that anyone would find this merger to be a good idea for consumers, but scores of journalists, analysts, and pundits alike have come out, if not in favor, then in support of how this combination might not be all that bad.  Regardless of what anyone says, however, the merger of Comcast and Time Warner Cable would result in a communications and media behemoth with far greater influence and bargaining power than any of its competitors.

Antitrust laws were created to protect consumers from monopolistic pricing schemes and to combat economic concentration that could threaten democracy in America.  The Sherman Antitrust Act of 1890 was intended to prevent unreasonable contracts, combinations, and conspiracies that have strong anticompetitive effects on consumer prices.  A more contentious interpretation of its legislative intent is that it was also designed to ensure the survival of an economy of small, independent, and enterprising producers – the individual businessman, the skilled artisan, and the small business.  Combinations of two industry Goliaths like Comcast and Time Warner will only serve to ensure that small businesses never even make it to the bargaining table, let alone remain solvent in the marketplace.  If deals like this one are permitted to be made, then America will be demoted to a nation of hirelings and clerks as opposed to one of entrepreneurs and independent producers.  The latter will not be able to compete with artificial combinations between the Comcasts and Time Warners of the world.  As Justice William Douglas once said, “A nation of clerks is anathema to the American antitrust dream.”

Not only would the resulting combination of Comcast and Time Warner control vast amounts of “last mile” connections that provide cable and Internet services to homes and businesses, but it would also control a large amount of the content that travels through those connections because Comcast already owns the entertainment empire, NBC Universal.  Thus, federal regulators will have to assess (1) whether the merged company will have too much market share, and (2) whether it could stifle content creators and online video companies like Hulu and Netflix.  Additionally, the Federal Communications Commission (“FCC”) will have a say in determining if the deal is in the public’s best interest.  If this deal does not violate antitrust laws or run contrary to the public’s interest, then I don’t know what does.

If this deal is approved by federal regulators without any divestiture of customers by Comcast, then the new company would have 33 million cable subscribers in most of the major metropolitan areas of the United States, including New York City (Time Warner’s home), Los Angeles, Texas, the Carolinas, Ohio, and Wisconsin.  This already adds to Comcast’s current East Coast dominance over markets in Philadelphia, New England, and DC.  If this deal goes through, then the company will control broadband for most of the eastern seaboard.  Even though Comcast has seen a gradual decline of their cable service customer base as content rivals like Netflix have experienced success, this deal would broaden Comcast’s network and expand its broadband reach, allowing it to control the connections that companies like Netflix require to sell its services.  This broader reach would also provide Comcast with bargaining power over cable networks that also rely on cable and internet connections to distribute their content to consumers.  While many supporters of the merger are quick to point out that Time Warner and Comcast do not currently compete in many areas, they neglect this increased bargaining power that Comcast will inevitably receive from this deal.  It will only serve to stifle competition and hurt consumers in the long run.

Consumers already have far too few options when it comes to broadband service providers.  After Comcast’s merger with NBC Universal, consumers have only experienced increases on their monthly cable bills.  And in most places, consumers are only left with the choice of tolerating these price increases or discontinuing the service, as broadband providers often have monopolies over certain markets.  This merger will only serve to bolster Comcast’s position as an essential facility in most major metropolitan markets.  Channels and other businesses that require the usage of Comcast’s broadband lines will have to pay whatever Comcast demands and there are often no alternative means for delivering their content to customers.  Comcast would have the power to raise costs on its content rivals in areas where it is an essential facility, thereby raising costs on the consumers who ultimately pay the bills.  This is exactly what antitrust laws were designed to protect against – monopolistic pricing schemes that have anticompetitive effects.

Unfortunately, at the end of the day, Comcast will likely make voluntary concessions to appease government regulators, much like they did with the NBC Universal deal where they agreed to “net neutrality.”  This agreement prevented Comcast from prioritizing its own content over that of other content providers like Netflix.  With its lobbying might and its influence in Washington, DC, Comcast will likely get this deal approved with extra grease for all those eager palms.  Bigness may not always equate to badness, but when it happens artificially as it does here, and not by means of superior production, customer service, or innovation, then consumers will suffer the consequences.