In the face of opposition by regulators and antitrust enforcers, Comcast and Time Warner Cable today walked away from their proposed deal. When the dust settles on the abandoned merger of the two cable television and broadband behemoths, we will have a clearer perspective on two important issues. One is why consolidation in many important U.S. sectors and markets has "hit the wall." Comcast-Time Warner Cable was the poster child for this troubling problem, which may help explain why the deal was scrapped.
A second issue is why merger enforcement is vital for the health and success of a market-based economic system. Without vigorous merger enforcement, the complex interplay between economic players and consumers (otherwise known as competition) that ideally produces lower prices, innovation, and choice would lack the all-important "referee."
Concern over the Comcast-Time Warner Cable merger boils down to a few stark realities. The merger would have given the combined company control over more than 50 percent of U.S. broadband subscribers. With this increased, massive footprint, the merged company would have had stronger incentives to block smaller, innovative rivals from accessing its subscriber base. Those rivals include online video distributors, other edge providers, and over-the-top innovators that would have had to compete with the merged company’s own content- delivery platform.
These threats were enough to mobilize massive and organized opposition to the merger, particularly from consumers who were exceptionally vocal about the already poor quality of service offered by Comcast and Time Warner Cable. Aside from the risks of higher prices, lower quality, loss of choice, and stifled innovation, the merger may well have jeopardized delivery of diverse opinion and news programming to millions of Americans. These distinctly merger-related harms could not, and should not, be resolved through a more generic regulatory policy on network neutrality.
The Comcast-Time Warner Cable story could describe competition enforcers’ concerns about any current, large merger proposal in a number of U.S. sectors, including healthcare, telecom, energy, and food. Successive mergers, which are largely the result of lax enforcement during the past 25 years, have produced markets with only a few competitors and a creeping rise in market concentration.
The practical implication of these developments is to hamstring merger enforcement. As fewer competitors and potential entrants remain, the competition lost by successive mergers necessarily becomes harder to fully restore, and fewer deals are fixable with structured remedies. Effectively enforcing the merger law may therefore mean blocking more and more deals.
We have seen multiple examples of the narrowing of merger enforcement options in 2015 – the Federal Trade Commission's challenge to Sysco-USFoods and the Massachusetts Attorney General’s opposition to the Partners hospital merger. The abandoned Comcast-Time Warner Cable deal joins this growing list.
Moreover, studies buttress rising concerns over merger-induced harms to competition and consumers. New economic evidence shows that mergers have, on average, raised prices to consumers. And management consulting surveys reveal that that managers do not produce the predicted cost savings from the mergers they are tasked with implementing. So before the war cries begin over merger enforcement and Comcast-Time Warner Cable, let us take a moment to let this sink in, and remind ourselves what competition laws are designed for: to protect competition and consumers – but more important – to protect our market-based economic system.