The Comcast/Time Warner Cable Deal:

Keep the Focus on the Consumer Welfare Benefits

by

Seth L. Cooper *

[Below is the Introduction and Summary to this latest FSF Perspectives. A PDF version of the complete Perspectives is here.]

Introduction and Summary

The May 18 announcement of AT&T's proposed deal to acquire DirecTV is the latest episode in a series of transactions that evidences the fast-changing dynamics of the video and advanced telecommunications landscape. Just three months ago, Comcast announced its proposed merger with Time Warner Cable. And a deal to include Charter Communications in a sale and swap of assets in conjunction with the Comcast/TWC transaction also appears in the works. Meanwhile, news reports continue to speculate about a possible merger of Sprint and T-Mobile.

In free markets, mergers and acquisitions are a critical component of the entrepreneurial, competitive process. And where conditions are right, mergers can significantly benefit consumers. As then-U.S. Department of Justice's Antitrust Division Chief Christine Varney explained in 2009, "the vast majority of mergers are either procompetitive and enhance consumer welfare or are competitively benign."

On its face, Comcast/TWC poses a number of likely consumer welfare-enhancing benefits. If approved, the merger has the potential to:  

• Accelerate transition from analog to digital for cable video transmission to more broadband Internet consumers;
• Enable faster deployment of DOCSIS 3.1 to more retail video subscription consumers;
• Improve the competitiveness of the market for broadband services to business enterprise customers, including nationwide and inter-regional business customers; and
• Increase efficiency as well as expand the supply and geographic scope for wireless backhaul infrastructure services needed to transmit wireless data.

The purpose of this paper is not to endorse or oppose the Comcast/TWC transaction. Rather, its purpose is to set out basic principles and an analytical framework by which the FCC should analyze Comcast/TWC as well as other proposed mergers.

Aside from the straightforward matter of ensuring compliance with FCC licensing provisions and existing rules, the FCC's primary consideration in reviewing mergers should be consideration of the overall potential benefits to consumer welfare. Principled economic analysis should be employed in determining whether Comcast/TWC would either potentially benefit consumers or likely result in consumer harm.

It is possible that an economic examination of the proposed merger could uncover potential anticompetitive conduct concerns. But unmistakable evidence will be needed to demonstrate that to be the case.

Importantly, Comcast/TWC is not a "horizontal" integration. The two providers do not compete head-to-head for broadband Internet or multichannel video ("MVPD") subscribers. Should the deal be approved, no consumers of those services would lose a choice among providers. Moreover, although "vertical" integration effects often enhance consumer welfare, here even vertical aspects of the merger are minimal. Time Warner Cable lacks majority ownership of any nationwide cable video programming network or nationwide TV broadcasting network. Comcast's 2012 sale of 17 video networks means that post-merger with Time Warner Cable, Comcast will have fewer affiliated programming networks than it did upon the FCC's approval of its merger with NBC-U in 2011.

Pursuing a merger review policy based on principled economic analysis has further implications. It means the FCC must:

• Disregard pleas for it to reject Comcast/TWC out of hand, based on appeals to emotional incredulity or "big is bad" sloganeering;
• Stand firm against calls that, under the guise of protecting consumers, the agency impose conditions in order to protect market rivals from the competitive process;
• Reject dragging out its review process and thereby making itself even more susceptible to political pressures having little or nothing to with the potential consumer welfare benefits of the proposed transaction; and
• Avoid the imposition of any conditions on the merger unrelated to demonstrable concerns over market power and anticompetitive conduct.

Whatever the FCC ultimately decides regarding Comcast/TWC, the proposed merger deserves a swift process for review that is informed by rigorous economic analysis. The FCC should not depart from its precedents recognizing the potential competition-enhancing effects of non-horizontal mergers. Rather, it should stay focused on the potential consumer welfare-enhancing benefits that Comcast/TWC would bring.

A PDF of the complete Perspectives may be accessed here.