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Summary:

U.S. senators are asking whether the biggest cable TV company in the country should be able to buy the second biggest. The antitrust issues are more subtle than they seem.

U.S. Sen. Al Franken questions Judge Sonia Sotomayor
photo: AP Photo/J. Scott Applewhite

The Senate Judiciary Committee began grilling Comcast at 10 AM ET on Wednesday morning over its $45.2 billion proposal to swallow Time Warner Cable. The hearing, which comes a day after the company justified the merger in an FCC filing, features Comcast executives, consumer advocates and academics explaining why the deal is good — and bad — for consumers.

The hearing will showcase some of the potential antitrust issues related to the deal, which could in turn lead the Justice Department to threaten a lawsuit to stop it. Here’s an overview of those issues, and what people are saying about them.

Vertical, not horizontal, concerns

Comcast has been quick to point out that its acquisition of Time Warner Cable would not affect horizontal competition since the two companies don’t operate in the same markets. It has even volunteered to divest 3 million subscribers so that the combined entity would have less than 30 percent of the pay TV market. This puts the deal on solid ground when it comes to concerns about eliminating competitors.

“There’s not much in terms of horizontal competition problems,” said Andre Barlow, an antitrust lawyer who formerly worked at the Justice Department. “The government really needs to make out a great vertical case to support an anti-competitive theory.”

Such a vertical case, based on antitrust issues up and down the cable TV supply chain, is a harder case to make, especially as the government has rarely succeeded on vertical antitrust theories in the past.

Monopoly and monopsony

Among the wonks, the debate over Comcast acquiring Time Warner Cable has led to renewed discussion of “monopsony” — the notion of an all-powerful buyer –rather than monopoly, which relates to an all-powerful seller.

In this case, the combined cable company’s monopsony would stem from its unprecedented power over content creators like TV studios and broadcasters: Comcast could be in a position to demand that the studios lower prices or abide by other terms in order to reach Comcast subscribers.

As Reuters and the New York Times reported, the monopsony theory has been getting traction in the Justice Department and among academics. Successful legal challenges, however, have been few, and a case based on a monopsony theory would be even harder if the arrangement resulted in lower prices being passed on to consumers. (Indeed, Comcast would point out that broadcasters have typically come out on top in retransmission fee disputes with cable companies, leading to higher consumer cable bills.)

While a monopsony case is unlikely, the Justice Department could still decide to act based on more familiar grounds related to Section 2 of the Sherman Act, which addresses abuse of market power. And any such case would not look just at cable TV, but larger internet issues.

Look at broadband, not cable

As my colleague Stacey Higginbotham explained yesterday, this deal isn’t really about cable, but about broadband services. It is not about a choice of cable company, but instead about deciding who will control the the pipe of information that comes into our home alongside our gas and electricity.

And it is on this front that the antitrust issues are most profound. If Comcast and Time Warner Cable merge, the combined company could control at least 40 percent of the country’s broadband market.

Despite Comcast’s claims that there are plenty of broadband options, the reality is that most households only have one or two choices for high-speed internet. One problem, as Jon Brodkin of Ars Technica explained this week, is that it is extremely difficult for new internet service providers to get off the ground — in part because of legal threats they face from incumbents.

At the same time, Comcast’s existing control over content giants like NBC, and recent disputes with the likes of Netflix over content delivery, have already raised the question of whether further consolidation of broadband services will harm consumers. The fate of the proposed merger, then, will turn on what degree the senators focus on the pay TV issues — and what degree they focus instead on the real issue of broadband delivery.

  1. “Both Comcast and Time Warner Cable rank very poorly with consumers when it comes to value for the money and have earned low ratings for customer support,” said Delara Derakhshani of Consumer Reports. “A merger combining these two huge companies would give Comcast even greater control over the cable and broadband Internet markets, leading to higher prices, fewer choices, and worse customer service for consumers.”

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