The proposed $45.2 billion merger of Comcast (CMCSA) with Time Warner Cable (TWC) seems certain to set off heavy regulatory scrutiny. A completed mega-merger between the two biggest cable operators would result in a combined customer base of 30 million—just under 30 percent of the U.S. pay-television market.
David Balto, a public interest antitrust lawyer and a former policy director at the Federal Trade Commission, would be surprised if the Justice Department doesn’t end up challenging the deal. The deal would also come under review, at least, by the Federal Communications Commission and state attorneys general. But Balto predicts that it won’t be the potential consumer impact that draws the greatest consideration. He has been down this road before, having represented the Writer’s Guild in opposing the 2011 Comcast-NBCUniversal merger.
Both Comcast and Time Warner Cable buy content from the same partners, and the deal will give them increased market power and greater leverage to drive the cost of that content down. That could ultimately lead to less choice if market factors squeeze out some of the content developers. “There are relationships between cable entities in which they need to rely on each other, and size matters,” Balto says. “Comcast, once it becomes larger, will no longer be in a position to have to enter into these reciprocal relationships.”
The three factors below are key to assessing whether the deal might be challenged:
1. DOJ’s willingness to litigate and its ability to win. Don’t underestimate the Justice Department when it comes to challenging the deal in court. “Nothing breeds confidence like success, and you’ve got a much more aggressive antitrust enforcer,” Balto says. “There’s a clear determination there to fight things out in the courtroom.” The department has had a string of merger enforcement successes in recent years, including its block of AT&T’s acquisition of T-Mobile in 2011 and, that same year, of the combination of tax preparer H&R Block and TaxAct. Its record comes close to that of Joel Klein’s antitrust division under Attorney General Janet Reno, during President Clinton’s second term. Among the deals Klein and his unit scuttled were the mergers of Worldcom and Sprint as well as Lockheed Martin and Northrop Grumman.
2. Better coordination between DOJ and the Federal Communications Commission. Many believe the divestment remedy in the Comcast-NBCUniversal deal was not as good as it could have been, according to Balto. Today, a higher level of coordination between the Justice Department and the FCC when it comes to working out divestitures and other conditions might raise that bar—people shouldn’t expect the same remedies seen in the past. That could mean seeking concessions that the dealmakers prove unwilling or unable to accept.
3. DOJ’s stronger concerns about “buyer power.” Some of the most difficult issues in the proposed merger stem from the power Comcast has over content providers—in antitrust parlance, they’re called “buyer power” concerns. New content developers could be harmed in this deal if the price of content is driven down, resulting in less innovation and fewer choices.