Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Consumers Union urges Justice Department to block Comcast-TWC merger, (Oct 3, 2014)

By Lynn Stanton,TR Daily

Consumers Union has urged the Department of Justice to block Comcast Corp.’s proposed acquisition of Time Warner Cable, Inc. (TWC), arguing that no conditions can cure the anticompetitive harms posed by the transaction.

“We believe this merger violates Section 7 of the Clayton Act, as it would substantially lessen competition, impede innovation by online video distributors, threaten innovation in equipment and platforms, and reduce the quality and diversity of information sources and services to the public, all to the detriment of consumers. Moreover, it would encourage a cascade of new mergers, opening the floodgates to even further concentration; new deals are already being proposed or reportedly under consideration in the wake of the Comcast/TWC announcement,” Consumers Union said in an opposition filed with the Justice Department yesterday.

Consumers Union said that Comcast and TWC’s argument that the merger does not present antitrust concerns because they do not currently compete in the same geographic markets logically implies that “Comcast should be free to acquire every cable and Internet company throughout the country in every market it does not already serve—amassing a nationwide monopoly.”

Consumers Union argued that the merger would give Comcast “an unacceptably high percentage of the nation’s broadband households. The Justice Department has previously determined that there is a national antitrust market for content delivered over high-speed residential broadband.”

It added that the merger would also give Comcast “unprecedented control over key video programming, together with unprecedented control over the means by which video programming is distributed to American consumers, and would create a national ‘gatekeeper’ of the Internet.”

“These harms cannot be prevented or fixed by isolated divestitures, or by imposing conditions that ask Comcast to refrain from taking advantage of its power to enrich itself by blocking competition from others. The only effective response to the merger, the only response that will serve the public interest, is to bring action to enjoin it,” Consumers Union said.

Consumers Union argued that the immediate speed increases that followed Netflix, Inc.’s interconnection agreement with Comcast earlier this year suggest that “Comcast’s demand was an anticompetitive flexing of market power muscle, rather than any legitimate reflection of technological limitations.”

“If the toll reflected genuine, inherent capacity constraints on Comcast’s network, then we would not see such an abrupt and dramatic increase in the average speeds; they would increase gradually over time, as Comcast added capacity. And if this were an industry-wide capacity problem at the Internet’s interconnection points, one would not see the stark disparity in Comcast’s and Google’s average Internet speeds. Both would be affected similarly. And if Netflix were truly causing the problem by overloading the Internet, Google would also be degrading its Internet service to Netflix, or would be complaining—but it is doing neither,” it continued.

“If a company like Netflix, which has more subscribers than Comcast does, can be forced to pay Comcast a toll, no one would stand a chance against a combined Comcast/TWC, with control over an even larger subscriber base covering 16 of the top 20 key markets in MVPD [multichannel video programming distributors], and 17 of the top 20 key markets in broadband. Least of all smaller, more innovative OVDs [online vide distributors], who could be forced out of business,” it said.

Consumers would be harmed by the combined company’s “hampering innovation in equipment and platforms” and by its “impairing program quality and diversity,” Consumers Union said.

It also argued that the claimed consumer benefits of the deal do not add up, saying that Comcast is so large it will not actually gain any economies of scale, and that some TWC subscribers will actually suffer under the deal from losing “the ability to use Roku as an independent platform to access video programming” and from being subject to data caps that “Comcast has begun to impose … in its standard plan.”

Comcast’s proposals to divest some of the combined company’s operating system would “further solidify Comcast’s market power” by concentrating its share of “key local markets, including the crown jewels of New York and Los Angeles” through the acquisition of subscribers in a swap with Charter Communications.

“Comcast would not be shedding subscribers in any top-ten DMAs [designated market areas]. And Comcast’s share of the residential broadband market would remain well over 30 percent nationwide, and close to 50 percent for high-speed residential broadband, with even higher shares in key local markets,” it said.

Companies: Comcast Corp.; Netflix, Inc.; Time Warner Cable, Inc.

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