Comcast, Time Warner, And Antitrust Law

Last week, America’s largest cable television provider Comcast announced that it is acquiring its biggest rival Time Warner Cable. The resulting merger of the nation’s two greatest cable television customer networks will establish Comcast as a dominant firm in nineteen of America’s twenty largest markets. It will also bequeath Comcast with 30 million customers, 50% more than the 20 million customers served by its closest competitor DirecTV.

You would think that a merger of the top two organizations in an industry, a transaction that leaves the surviving firm with a dominant market position over its remaining rivals, would be scrutinized carefully by antitrust regulators … wouldn’t you?

Well … think again! The transaction is expected to receive relatively little government scrutiny because cable television firms negotiate exclusive franchise arrangements for their customer markets. According to Comcast’s acquisition announcement, “Importantly, the proposed transaction will not reduce competition in any relevant market. Comcast and Time Warner Cable do not currently compete to serve customers in any zip code in America.”

So although Comcast competes against telephone companies that offer television services (like Verizon’s Fios and AT&T’s U-verse), as well as satellite communication companies that do the same (like DirecTV and Dish Network), Comcast does not directly compete against Time Warner Cable (or Cox Cable, or Cablevision) in its established service areas.

Because of its non-competitive franchise agreements, Comcast can benefit from the manner in which American antitrust laws have been written and enforced during the past century. Indeed, it has been that long since President Theodore Roosevelt first signed and then wielded antitrust legislation to “bust up” the great trusts of the late 1800s and early 1900s.

The laws tend to prohibit corporate acquisitions that would eliminate direct competition between firms in the short run. However, they tend to permit acquisitions that would help organizations build dominant market positions in the long run.

That’s why Comcast isn’t even bothering to suggest that the economies of scale to be achieved through industry consolidation may result in lower customer prices. Comcast’s Executive V.P. told reporters “We’re certainly not promising that customer bills are going to go down or even that they’re going to increase less rapidly.”

It is undoubtedly reasonable to argue that, under certain circumstances, the two largest organizations in an industry sector should be permitted to merge with each other. But if antitrust law in the United States is written and applied in a manner that precludes significant scrutiny of such mergers, how will American society be able to maintain the competitiveness of its markets?

If you were Edith Ramirez, the Commissioner of the Federal Trade Commission, would you petition the United States Congress to pass antitrust legislation that revises the criteria for regulatory reviews of proposed acquisitions?