Charter-Time Warner Cable Merger Promises Consumer Benefits:
Should Boost Broadband and Competition
by
Seth L. Cooper *
[Below is the Introduction and Conclusion to this latest FSF Perspectives. A PDF version of the complete Perspectives is here.]
Introduction
Any day now the FCC should formally begin its examination of the proposed merger between Charter Communications and Time Warner Cable. From a consumer welfare standpoint, the Charter-TWC transaction appears almost certain to benefit consumers. The potential upsides include accelerated digital video service upgrades, more rapid deployment of high-speed broadband Internet services, and more competitive inter-regional and nationwide enterprise broadband service offerings.
Combinations of personnel, institutions, and knowledge are everyday occurrences in the world of business enterprise. Hires of employees, formations of new business corporations or partnerships, and ventures into new lines of business all routinely involve the combining or merging of material, financial, and informational resources.
Mergers and acquisitions should be properly viewed in this broader context of entrepreneurial business decision-making. They are an important means of improving efficiencies by cutting costs and attracting business opportunities enabled by increases in scope and scale. Those improved efficiencies can enhance innovation and competitiveness to the benefit of consumers. Moreover, mergers made in the context of dynamic markets have heightened potential to accelerate innovation and enhance competitive choices for consumers.
The purpose here is not to endorse or oppose the Charter-TWC transaction. Instead, the purpose is to set out key competitive and public interest considerations surrounding Charter-TWC, especially the transaction's implications for consumers.
Here the potential downsides for consumers appear minimal, if not non-existent. Charter, TWC, and Bright House Networks - the merger actually involves all three - operate in different geographic territories. If the merger is approved, no consumer will lose a choice of video service or broadband providers. Neither Charter nor TWC or Bright House has significant ownership of national video programming networks. So the merger poses no likely concern that affiliated programing would be withheld from competing video service providers or online video service providers.
Charter-TWC therefore differs in important respects from the Comcast-TWC merger proposal. In that matter, the U.S. Department of Justice expressed concerns about Comcast gaining too much control over nationwide broadband Internet delivery. Also, DOJ expressed concerns about Comcast using its financial stakes in video networks to limit availability of programming to competing video subscription services, including Internet-based streaming video services.
One can certainly question whether the facts actually supported DOJ's concerns about Comcast, especially in light of the video market's dynamism. Even so, Charter-TWC involves a decidedly different set of facts. Anticompetitive concerns about Comcast-TWC simply don't apply to Charter-TWC. As an initial matter, national broadband market share is not a likely matter of concern in Charter-TWC. Whereas Comcast-TWC would have resulted in a nationwide broadband consumer subscription market share of about 30%, Charter-TWC would result in a nationwide broadband market share of about 21%. And those are numbers for wireline broadband only. The broadband market is much bigger. 43% of all broadband connections are now mobile, with next-generation wireless networks increasingly offering consumers three or more competitive mobile video viewing options.
Further, the lack of significant vertical integration between the cable services and video programming owned by Charter and TWC effectively eliminates any foreclosure fears. Charter-TWC would neither enable nor incentivize the combined entity to withhold video programming from competing MVPDs or OVDs.
It is indisputable that today's video market is dynamic. Successive advances in digital technology and convergence on IP-based networks enable innovative new services which are expanding sources of competitive pressures on competing video service providers. In reviewing the Charter-TWC proposal, this backdrop should prompt the Commission to emphasize prevailing forces of disruptive change over static market indicators about market share or concentration. At all times, with an eye on the potential competition-enhancing effects of non- horizontal mergers, the Commission's analysis should focus on the consumer welfare-enhancing benefits that Charter-TWC would likely bring.
Whatever the FCC ultimately decides regarding Charter-TWC, the proposed merger deserves a swift review. Mergers and acquisitions are a critical component of the entrepreneurial, competitive process. And in free markets characterized by dynamism - like today's advanced telecommunications marketplace - mergers can significantly benefit consumers. Viewed in this light, Charter-TWC has strong potential to enhance the welfare of consumers.
***
Conclusion
Whatever the FCC ultimately decides regarding Charter-TWC, the proposed merger deserves a swift review process. The review should be informed by rigorous economic analysis specific to the merger. The Commission should not depart from its precedents recognizing the potential competition-enhancing effects of non-horizontal mergers. It should stay focused on the pro-consumer benefits Charter-TWC would likely bring through accelerated all-digital video and broadband network upgrades, as well as more competitive business enterprise offerings.
Further, the Commission must not let its process or analysis be distracted by "big is bad" slogans. Nor should its review be swayed by political pressures having nothing to do with the merger's consumer welfare implications. The Commission should not impose any conditions on the merger unrelated to demonstrable concerns over market power and anticompetitive conduct. And if rigorous economic analysis were to reveal any actual concerns, any such conditions should be narrowly targeted to address them.
Mergers are a critical component of the entrepreneurial, competitive process. And in free markets characterized by dynamism - like today's advanced telecommunications and video marketplace - mergers can significantly benefit consumers. Today's video market is unmistakably innovative and competitive. And in this dynamic market context, the Charter-TWC merger proposal has strong potential to enhance the welfare of broadband and video consumers. The FCC should take that seriously.
* Seth L. Cooper is a Senior Fellow of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Maryland.
A PDF of the complete
Perspectives is
here.
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