In February, the number one and number two cable providers in the US (Comcast and Time Warner Cable respectively) announced a proposed merger whereby Comcast would acquire TWC. The cable giants have already filed the Hart-Scott-Rodino notification with the DOJ, and on Tuesday, 8 April, they took another step towards completion of the merger by filing Applications and Public Interest Statement with the FCC. The merger must receive approval from both the DOJ and the FCC to proceed. The DOJ’s primary inquiry will be related to anti-trust concerns, whereas the FCC will seek to find that the merger achieves benefits that can only be reached by the combination of the two companies.
David L. Cohen, Comcast’s Executive Vice President, laid out the aspects of the FCC filing in a blog post on 8 April. In his statement, Mr. Cohen emphasized two key points: 1) the merger will have significant benefits for consumers, as well as businesses and advertisers, and 2) there are no significant competition concerns related to this merger. As to the first issue, Mr. Cohen noted that this merger would result in economies of scale for customers, creating (inter alia) faster broadband speeds, an updated network, and access to “[t]he most robust and advanced video-on-demand (VOD) and TV Everywhere experience.”
Mr. Cohen dedicated the bulk of his post to the second issue, allaying fears of anti-competitive practices. Mr. Cohen highlighted that Comcast and TWC do not currently compete in any major markets, and thus, there will be no change in competition after this merger. Additionally, he noted that after this merger, Comcast would have less than a 30% share of the nationwide market of video subscribers. Moreover, he laid out the relatively small size of Comcast and TWC compared to their competition in the Telecommunications, Consumer Electronics, and Social Media markets. For example in comparing Comcast/TWC to Apple, Google, Microsoft, Verizon, Amazon, and Facebook, Mr. Cohen noted that Comcast/TWC have much smaller market caps and annual revenue than nearly all of these competitors. Thus, in his view, this merger offers no significant issues related to competition because the broadband/cable market is a very competitive space and Comcast/TWC are relatively small in that market.
Though Mr. Cohen laid out the potential benefits of the merger and attempted to downplay competition concerns, many industry groups and activists are opposed to the merger. The first contention is that Comcast has mischaracterized their competition. In the FCC filing and the blog post, Comcast compares itself to Apple, Google, Verizon, etc.; however, in terms of broadband Internet subscribers and video subscribers, Comcast is already twice the size of its closest competitor, and its closest competitor is TWC (As of 2013, Comcast: about 20.7 million broadband subscribers and 21.7 million video; Time Warner Cable: about 11 million for both.) Additionally, the next closest competitor is AT&T with 10.4 million U-Verse Internet subscribers and 5.5 million TV subscribers. Thus, this merger would only increase Comcast’s already dominant position in broadband Internet and video subscribers.
Second, and perhaps more importantly given that competition for video service is growing away from traditional means of consumption (i.e., Cable/Satellite) and more towards other means (e.g. Netflix, Amazon Prime, Applet, Hulu), Comcast’s hold on broadband service will become increasingly important. Comcast rightly notes that it has increasing competition for its video service from the likes of Netflix and Amazon; however, Comcast fails to discuss that delivery of these competitive services has to ride on a broadband network. Thus, this merger will allow Comcast/TWC to control the delivery method for its chief competitors. Clearly, this raises some significant questions related to competition.
It is worth noting that on Wednesday, 9 April, Mr. Cohen and other Comcast executives testified in front of the Senate Judiciary Committee on the merger (the Committee has no formal role in the approval process of the merger, but can exert some influence on the DOJ/FCC). Again, Mr. Cohen emphasized that this merger would bring about significant benefits for consumers. He also noted when pressed by the committee, however, that many of these benefits would come about eventually regardless of whether the merger is approved or not. Mr. Cohen agreed that competition in the marketplace is already would forcing Comcast to offer benefits such as faster speeds and more investment in infrastructure, but that this merger would bring about these changes faster and to a broader range of consumers. The Senators spent most of the hearing questioning Mr. Cohen on the potential competition issues. He responded with much of the same data provided in the FCC filing for why he believes there is no significant concern for competition in this merger.
It is not clear how the DOJ, or the FCC will rule on these issues. With the relatively recent approval of the NBCUniversal/Comcast merger, the regulatory agencies may be willing to allow Comcast to continue growing. Conversely, this may be a bridge too far and the agencies may be unwilling to allow greater growth. Comcast executives have proven that they are capable of satisfying all regulatory hurdles and preliminary indications are that this merger will be no different.