Given the widely held perception that the industry already lacks competition, the proposed merger of the two largest U.S. cable companies announced Thursday is certain to draw intense scrutiny from regulators, lawmakers and consumer groups.
If the deal is completed and approved by regulators, the combined company would provide service to about one-third of all U.S. cable subscribers and would dominate large metropolitan areas such as New York and Philadelphia, where Comcast is headquartered.
Consumer groups that oppose the deal say the merger will push prices higher and let the much-larger single company allow customer service to further deteriorate.
“Americans already hate dealing with the cable guy – and both these companies regularly rank among the worst in consumer surveys. But this deal would be the cable guy on steroids – pumped up, unstoppable and grasping for your wallet,” said Craig Aaron, president of Free Press, a Washington, D.C., advocacy group.
Comcast and Time Warner – and some analysts – counter that organic competition from satellite content providers, telecom companies and the Internet will keep prices low and force cable companies to improve customer service.
The growth of satellite providers DirecTV (DTV) and DISH Network (DISH), the move by telecom companies such as Verizon (VZ) and AT&T (T) into content delivery, and the emergence of the Internet all make it “a little tougher to make the argument that the industry is anti-competitive,” said Dave Heger, senior equity analyst at Edward Jones.
The proposal has to pass muster with regulators, specifically the Department of Justice, which handled Comcast’s 2009 acquisition of NBCUniversal for anti-trust issues, as well as the Federal Communications Commission, which will review the deal to determine if it lies within “the public interest.”
Heger said the FCC has sought to limit any cable provider from controlling more than 30% of the 100 million U.S. cable subscribers. Comcast currently has about 22 million subscribers and Time Warner about 11 million, which combined would put the single company above the FCC’s limit at 33 million.
However, if Comcast agrees to sell some subscribers – more than 3 million – and agrees to further concessions yet to be determined, it would likely appease regulators, Heger said.
“I think the deal can get passed,” the analyst said.
Still, because the proposal impacts the wallets and entertainment viewing habits of so many millions of people, it will surely attract the attention of Congress, which will in turn put pressure on regulators to closely scrutinize the impact of the pairing.
Boston College law professor Brian Quinn said if the two cable companies and other supporters of the deal are able to make the case that the competitive market place has grown much broader in recent years, than the deal should be quickly approved by regulators.
“The first argument is going to be what is the proper market the government should be analyzing. And clearly Comcast is going to argue for a much broader definition and the government is going to be looking at a much narrower definition,” said Quinn.
It could be a drawn out battle, and much of it fought under the intense media glare within Washington, D.C.
“The anti-trust spirit is much more aggressive than it has been in the past and this is the kind of transaction that will receive lots of scrutiny because it involves the No. 1 and the No. 2 in the industry,” Quinn said.
Moreover, Quinn said, “This is the kind of thing that will attract a lot of attention from Congress. We all think about where we get our cable from and how much we pay for it so Congress is going to demand that the FCC give this a good look. Everyone is going to want to be at that hearing.”
Comcast’s CEO Brian Roberts is no stranger to D.C. politics and already has the ear of the Obama administration. He was present at a meeting between Obama and a group of tech CEOs held at the White House in December, and in August he played golf with the president on Martha’s Vineyard and hosted a cocktail party for the Obamas at his vacation home.