Another ‘Too Big to Fail’ Merger From Comcast’s Playbook | Commentary

Posted April 17, 2014 at 4:30am

Last week, the Senate Judiciary Committee held the first hearing to examine the merger of the nation’s top two cable operators, Comcast and Time Warner Cable. But the merger no longer has the air of inevitability it once did. What happened?

People who are studying this merger do not like what they see for many reasons. Here are three: less innovation, greater market power over high-speed broadband and higher prices and poorer service for consumers. Companies confronted with Comcast’s bargaining power, like Netflix, are speaking out. And, unusually for an antitrust case, the public is taking notice: 52 percent of Americans in a recent Reuters poll believed that this deal would reduce competition and be bad for consumers.

You can predict what Comcast and its highly paid lobbyists will say: “We don’t compete with TWC, so the merger does not lessen competition. We have our geographic markets, they have their markets.” Under this logic, Comcast can acquire not only TWC, but extend its footprint across America by acquiring the remaining cable companies. There is no limiting principle.

Comcast and TWC already have significant power over video and broadband services in numerous local geographic markets. In acquiring TWC, the second-largest cable provider of video, high-speed data and voice services in the United States, Comcast would extend its long reach to five geographic areas: New York State, the Carolinas, the Midwest, Southern California and Texas. A combined Comcast-TWC would control as much as half of the country’s high-speed broadband access — and in many areas would be the only Internet service provider — at a time when a record number of Americans are using broadband to access information, news and entertainment.

Comcast’s David Cohen says that the sky will not fall because of this merger. But the legal standard isn’t whether doomsday is imminent or whether monopoly is good or bad. Rather the antitrust laws employ an “incipiency test.” That is, certainty of anticompetitive effects is seldom possible and not required for a merger to be illegal. Congress sought to prevent situations where “several large enterprises [were] extending their power by successive small acquisitions.” Here, Comcast is extending its power through a major acquisition — one that expands its reach to most of the U.S. population.

There is broad consensus that our antitrust policy should protect economic freedom and opportunity by promoting free and fair competition in the marketplace. This is especially important for the Internet, whose defining feature is its openness. By taking over its top competitor, Comcast becomes the undisputed gatekeeper for all things broadband in America: content, interconnections, speed and access.

Big is not necessarily bad. At times, mergers yield significant efficiencies that benefit consumers and society. But will consumers and society benefit here? What about Comcast’s promise that competition will reign in costs? Ask anyone who pays for a cable package. Comcast has admitted that consumers should not expect lower cable/Internet bills. From 2009 to 2013, Comcast increased prices for basic and premium cable packages far more than competitors AT&T, Cablevision and DISH. Verizon’s FiOS is available in only 15 percent of Comcast’s markets. That service, as Comcast’s CEO admitted a few years ago, is its only broadband competitor. Google Fiber has no plans to expand beyond specific markets. We cannot expect upstarts post-merger to rescue consumers from Comcast’s dominance.

Competition spurs innovation, but post-merger, the next generation of Netflix, Twitter and Spotify would have to rely on a throttled Internet to reach users. Rather than a la carte cable programming or greater access to streaming video technology, we will instead have a more powerful Comcast dictating terms to everyone else. Comcast already has the power to disadvantage rivals, by, among other things, withholding programming.

This merger would raise the cost of entry for innovative newcomers developing apps and programs. And by expanding Comcast’s dominance in 19 of the country’s 20 designated market areas, it would tax those who seek to take our nation’s broadband infrastructure to the next level.

Comcast knows how to play the “monopoly game.” It executed this playbook almost flawlessly for the NBCUniversal transaction. But the game has consequences. A monopolist, as conservative Chicago School antitrust scholar Judge Richard Posner recognized, imposes not only a deadweight loss to society, but wastes resources (including millions in lobbying fees) to defend its monopoly.

Combining two powerful monopolies won’t promote Internet freedom, affordable prices or innovative content delivery. No amount of behavioral regulation can substitute for economic liberty and free and fair competition. Congress and the antitrust enforcers should just say no.

Allen Grunes and Maurice Stucke are authors of a forthcoming article, “The Beneficent Monopolist,” in Competition Policy International, examining the Comcast-Time Warner Cable acquisition. They previously investigated and prosecuted anticompetitive mergers while at the Department of Justice.