Just last week, Comcast announced its plan to purchase Time Warner Cable. Upon completion of the $45 billion takeover, Comcast would control roughly 30% of American cable subscribers, making it the dominant television and Internet services provider in the U.S.
The merger’s supporters and opponents are already arguing over whether the deal will be good for consumers. A look to the past, however, may shed light on the transaction’s prospects. Will Comcast/TWC be tossed out, chopped up or waved through?
Antitrust Law 101
Generally speaking, a monopoly involves one person or group having exclusive possession or control of a given commodity or service. Monopolies are not in the consumers’ interest because a monopolistic entity can avoid competition and charge unreasonable prices. Without an incentive to offer lower or consistent prices, businesses would be free to wreak havoc on consumers’ pocketbooks.
In the late 1800s, Congress responded to giant businesses in the oil, steel, railroad and sugar industries (known as trusts) by passing the Sherman Antitrust Act. This was followed by the Clayton Act and formation of the Federal Trade Commission (FTC). To protect consumers, large companies were no longer allowed to engage in certain practices, such as price fixing, creating monopolies and stifling competition.
Massive mergers like Comcast/Time Warner must be approved either by the Department of Justice (DOJ) or FTC. The FTC and DOJ can allow the deal to proceed with no intervention. Or they can require certain changes in the structure of the combined company (such as selling off parts of the business). This happened in the American/US Airways deal and Universal Music Group’s 2011 purchase of major music company EMI.
In the most extreme cases, regulators might block the merger altogether, which happened to T-Mobile and AT&T. The plug was decisively pulled on that deal when the DOJ raised a variety of concerns, including reduced competition, a loss of jobs and a detrimental effect on service.
On top of the FTC and DOJ, the FCC regulates “interstate and international communications by radio, television, wire, satellite and cable.” The FCC can impose additional requirements of its own upon merging media companies like Time Warner Cable and Comcast. Like in T-Mobile/AT&T, the FCC can join forces with the FTC and DOJ to voice strong opposition to would-be mergers that appear to harm communications consumers.
Comcast/TWC: Where will the chips fall?
Comcast and Time Warner are expected to present their deal to regulators in March for antitrust scrutiny. Undoubtedly, the regulatory organizations will closely analyze the proposed merger to assess what it might mean for competition and consumers.
On one hand, the two mass media giants don’t offer services in any of the same cities, and proponents of the merger say that the deal won’t hinder competition or adversely affect customers. Opponents, however, vow to oppose the merger. For example, online consumer activist group Public Knowledge, which says that “an enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks that must interconnect with it, and distributors who must access its content.” Former FCC Commissioner, Michael Copps (2001 to 2011), has also joined the call to arms, arguing that the merger will “wreak further havoc on our news and information infrastructure.”
If the Comcast/TWC merger goes the way of US/United or Universal/EMI, the media companies may have to sell off certain assets or agree to certain restrictions on future business. However, considering the serious consequences that a consolidation may have for consumers, the FCC and antitrust agencies will be taking an extremely close look.
T-Mobile and AT&T are still operating independently. The success of the proposed cable/Internet merger is not a done deal.
Contributing Author: Stephanie Westerman