Consumers v. Big Business Part II: Comcast and Time Warner Cable

In the telecommunication consolidation arena, Comcast’s offer to buy Time Warner Cable (“TWC”), leads the charge for mega-mergers. As with the recently announced AT&T and DirecTV merger, consumers fear the effects of such a merger on the quality and cost of TV and Internet services, while pro-business groups view the merger as a win for business. As Comcast-TWC awaits regulatory approval, consumer advocacy groups are trying to stop the merger while many speculate about the effects the merger will have on the telecommunications market.

Background on the Deal

The Network has been closely following the Comcast-TWC merger from speculations about the merger, to the announcement of the offer and the regulatory approval process. The deal was announced almost four months ago, when Comcast agreed to buy Time Warner Cable for $45 billion. The merger, if approved, would make Comcast the dominant TV and Internet provider in the United States. With Time Warner Cable under its wing, Comcast is expected to reach roughly one in three American homes. This agreement is part of a larger trend of telecommunication consolidations, leading to bigger national carriers. Following Comcast’s lead, AT&T just reached a formal agreement to buy DirectTV for $48.5 billion. Together, Comcast and AT&T would control more than half of the market for television packages.

Due to its grandeur, the deal has been highly scrutinized by the public and regulators alike.

Consumer Reaction

Public reaction to the merger, especially over social media, was highly negative. Customers expressed concerns that the merger will lead to “high prices, slow data speeds and miserable customer service.” Consumer advocacy groups, such as Public Knowledge, are also opposed to the merger. On its homepage, Public Knowledge displays the title: “Stop the Comcast Octopus. Don’t Let Comcast Squeeze Consumers.” The accompanying graphic displays an octopus taking over services that consumers currently use to access Internet and TV services (i.e., Netflix, Amazon, and Roku). The fear of a near-monopoly is clear and, under the circumstances, warranted. Becoming the leading Internet and Cable provider will give Comcast more power than ever before and could lead to even less accountability to customers.

Approval Process

 After the merger was announced, Comcast was reported to believe the merger will receive regulatory approval because the merger brought many benefits to customers, including new technology and faster Internet connections. Such confidence, however, may be misplaced and premature. A merger of this size has a long way until receiving official approval, due to the antitrust concerns that it raises.

Whether the deal will be approved depends on regulators. Comcast and TWC have already presented their case to the Senate, arguing for the deal to go forward. But, the deal could be quashed by regulators at the Federal Communications Commission (“FCC”) and the Department of Justice (“DOJ”). Once it is decided which of these agencies will have clearance over approving the deal, the agency begins investigating the companies, including accessing non-public information. In addition, the agency reviews information about similar companies in the industry, the relevant market conditions, and the likely competitive effects that would flow from the merger. The agency can then do one of three things: (1) allow the merger to go forward; (2) enter into a negotiated consent agreement, where the companies work out details to ensure that the market will remain competitive; or (3) file a preliminary injunction in federal court to quash the deal.

Approval Process: Reason for Concern or Mere Formality?

 As mentioned, Comcast has expressed its confidence in the approval of the merger. Similarly, AT&T, when presenting its merger, predicted that regulators would approve the deal. Commentators have opined that such a prediction is to be expected; after all, one CNN Money commentator notes, “companies wouldn’t move forward unless they thought it would be approved.” While it would certainly defy common sense for a company to pursue a merger that they were certain would not be approved, is it necessarily to be expected that regulators will approve such a merger? And if so, does that take away from the credibility of the regulatory process? These concerns, though valid, do not seem to have much support from the history of the regulatory process. Regulators have blocked telecommunication mergers such as the Dish Network bid to buy DirecTV in 2001. Furthermore, through a negotiated consent agreement, a merger receives regulatory approval, but only after the companies agree to certain conditions that eliminate competitive threats.

Comcast and AT&T Compared

 Though both mergers involve a deal that exceeds $45 billion, the two mergers raise different concerns. Comcast’s power over the market will greatly increase as a result of the merger, which could carry with it higher prices, lower quality of service and less accountability to customers. However, the Comcast deal would not directly eliminate a competitor in their markets. AT&T, in contrast, will remove competition from areas where AT&T’s U-verse service currently competes with DirecTV for television services, raising more direct antitrust concerns.

Impact of the Comcast-TWC Merger

 The Comcast-TWC merger will have a defining influence on the telecommunications market, especially  on the AT&T-DirecTV merger that is next in the queue for approval. If Comcast-TWC is approved, regulators may be more inclined to also approve the AT&T-DirecTV merger expecting, or at the very least hoping, that it will counterbalance Comcast’s new power in the market. As with the AT&T merger, however, the possibility that the merger will hurt consumers through higher prices and less accountability is not to be overlooked.