Comcast/Time Warner Cable merger bad for consumers

Last month, 37 antitrust and economics professors did the impossible. Although we hold divergent views on law, economics and politics, we joined together to oppose Comcast’s proposed acquisition of Time Warner Cable because it would harm competition.  

The Telecommunications Act of 1996 was supposed to spur competition and thus consumer choice by encouraging cable and telephone operators to build new networks on rivals’ turf.  Instead these companies opted for a strategy of increasing their reach through acquisition, not direct competition for consumers. Thus Comcast argues there is no reason to block its acquisition of Time Warner Cable since they operate in different regional territories and don’t directly compete.

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Combining the nation’s two largest cable and Internet providers would result in higher prices, less innovation and reduced quality for consumers.  If this merger is approved, there is no limiting principle upon which the government could stop any cable company acquisition by Comcast outside its service area. Yet, that is exactly what Comcast is proposing:  “no overlap, no problem.”

We have three big concerns with this merger – increased market power, judicial precedent and scale.  

First, this combination would create a single firm that would reach more than 40 percent of residential broadband customers and that share would grow over time as consumers continue to shift from slow DSL to faster broadband. This steadily expanding giant would have the incentive and ability to protect its cable franchise from competition by innovative upstarts like Netflix, Hulu and Amazon Prime that offer consumers the ability to watch content online. The Department of Justice recognized this risk in its review of the Comcast/NBC Universal merger, noting “Comcast has an incentive to encumber . . . the development of nascent distribution models and the business models that underlie them.”

Most consumers have few, if any, options to switch from Comcast to an equal or better alternative broadband provider. Online video providers, for their part, can only reach Comcast’s customers through Comcast. Given this lack of options, a larger Comcast would have greater power to crush the emerging competitive threat presented by online video.

We’ve already seen how Comcast can harm innovation and customers. Earlier this year, they allowed their network to purposely congest in an effort to extract access fees from Netflix, the biggest online video provider. They also could favor their own content on set-top boxes and deny access by online video providers. Similarly, Comcast announced recently that it will roll out data caps – setting limits on data and charging extra when customers exceed them – across its entire footprint. Following the merger, Comcast could exempt its own content offerings from such caps, and disadvantage its online rivals.

Second, the Department of Justice has already blocked a similar effort to build a broadband monopoly. In fact, the very same assets under consideration today were involved in the proposed merger of AT&T and MediaOne in 2000. To resolve their concerns, federal antitrust authorities forced the divestiture of one of the companies' cable broadband providers.

The Department noted at the time that, “through its control [of both cable broadband services, the merging party] would substantially increase its leverage in dealing with broadband content providers, enabling it to extract more favorable terms for such services . . . and [its] ability to affect the success of individual content providers also could be used to confer market power on individual content providers [it] favored.”  The very same potential threats exist with the proposed combination of Comcast and Time Warner Cable. 

Third, while the parties have implied that the proposed transaction would result in cost savings that might be passed on to consumers, they have said otherwise to shareholders.  In a recent conference call with investors, a Comcast Executive Vice President explained, “we’re certainly not promising that customer bills are going to go down, or even that they’re going to increase less rapidly.” All the while, the quality of service is so dreadful that it is lampooned on late night television and denigrated by the American Customer Satisfaction Index, which ranked Comcast and Time Warner dead last in a list of 43 industries.

The only appropriate response is to block the merger in its entirety. A conduct remedy would be inadequate because there is no way to predict and prevent all the ways in which a post-merger Comcast could thwart existing or future competition. Further, conduct remedies, by their nature, expire. Imposing a short-term remedy would be insufficient to protect consumers, innovation, and competition over the long term. The right decision to preserve competition is to prevent the merger. On this, we all agree.

Sokol is a professor of Law at the University of Florida and senior of counsel at Wilson Sonsini Goodrich and Rosati, which represents parties concerned about the Comcast-Time Warner Cable merger.

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