A day later and much has already been said about the Comcast/Time Warner Cable merger. Bloomberg’s Matt Klein thinks it will be a good thing. Matt Ylgesias is skeptical (and I’m jealous he beat me to the Lord of the Rings reference in his post title). Maybe they are both right?
The deal raises an age old antitrust conundrum: it doesn’t feel good when two monopolies combine, but if they are already both monopolies, how can there be any loss of competition?
But I think we need to pause for a moment on the assumption built into that question. Are they really already monopolies that do not compete with each other?
Don’t expect DOJ’s Antitrust Division to just assume that’s the case. In general, cable providers are local monopolies whose freedom from competition is protected by local ordinance. Cable providers generally do not have to worry about customers trying to make them compete with other cable providers (perhaps with satellite or mobile data, but that’s a different question), because the customer’s town only has one. Nonetheless, if there is any geographic area where some small number of customers do have a choice, DOJ will find it. Mergers have been challenged over as much.
I would also expect DOJ to look seriously at any vertical issues. The new cable behemoth will be a major buyer of content. Could it have to the power to foreclose access to distribution for content creators? And, of course, the Universal deal left Comcast as a significant content creator as well. Could the new deal change its incentives with respect to access to its content? I don’t know enough about these markets to have any meaningful view, but the agency will ask.
Finally, DOJ may look at an area that’s a bit of a personal pet peeve: innovation. Stop for a second and think about the technological capabilities of your cable and broadband service. Then think about how much more could be done with the high-bandwidth data pipe that comes into your house (or, for that matter, think of all the cool things you do with it that your cable operator doesn’t provide). It’s hard not to see the cable monopolists as significantly lagging behind their technological potential (as theory would predict). Klein says Comcast has superior set top boxes. That’s a frightening thought. My Comcast set top box features all the best technologies of the 1990s. Apparently there is a “new” one out (has it reached the tech of the aughts yet?), but I don’t have it or know if subscribers who don’t buy a bundle of at least three services from Comcast ever will. Perhaps a reduction in the number of cable service providers will further stifle innovation because there will be one fewer party trying to come up with new ideas and technology (please ignore my skepticism of a similar theory with respect to airlines). DOJ should ask.
I’m going to avoid linking to too many of the myriad commentaries on the deal, but this one from Kevin Roose at New York Magazine’s Daily Intelligencer was just too embarrassingly bad to pass up. As regular readers know, I’m not a big fan of HHI calculations, but Mr. Roose is writing for a general audience, so it’s probably not fair criticize his post on the basis that HHI calculations are silly formalism that don’t tell you much that you can’t tell by looking at the number of competitors remaining and their shares. He’s (presumably) also not an antitrust practitioner, so it’s probably unfair to criticize him for implying that HHI calcuations will be central to antitrust review of the transaction when they really are not a big part of what the agencies do.
But I don’t care who your audience is or what experience you have, you need to define your product and geographic markets before you can start calculating market shares and levels of concentration. Especially here, where the single most primary factor in the defense of this merger will be that there is no geographic overlap, so there is no competition between the parties, so there is no increase in concentration.
In fairness to Mr. Roose, he does go on to say that a national market may be relevant too, comparing it to a prior deal in mobile phones. The problem is that the key factor in the mobile phone case that suggested a national market – the existence of corporate purchasers that need service nationwide – is not present here. Even if there are corporate purchasers that need nationwide broadband coverage at multiple locations, those purchasers cannot today chose between Comcast and Time Warner. They have to contract with each where each is the sole cable provider. Heck, not having to deal with two companies might even be a pro-consumer efficiency.
At the risk of being too negative, I’ve never experienced cable or cable broadband service that isn’t terrible, overpriced, and, in a true anomaly of tech, resistant to price declines. It’s hard to see how this deal is going to help on any of those fronts. But because it’s also hard to see how it hurts, my guess is that it will ultimately go through.
Great Minds Think Alike Update: Paul Krugman says we should be concerned about vertical issues and potential stifling of innovation. He probably read it here first (yeah, right).
