A letter signed by more than three dozen law and economics professors and submitted to the FCC on Monday makes a withering case against the proposed merger of cable giants Comcast and Time Warner Cable, claiming the deal would harm consumers and violate the antimonopoly provisions of the federal Clayton Act.
According to the 16-page submission, the merger will reduce competition by providing Comcast with over 40 percent of the market for broadband internet services, and make it easier for the incumbents to hobble “over-the-top” challengers like Netflix by congesting their internet traffic.
The document, signed by antitrust experts from across the country including Columbia’s Tim Wu and Stanford’s Mark Lemley, comes as the FCC decides whether or not to approve the $45 billion merger, which was announced in February. A decision is expected in 2015.
Comcast has played down antitrust concerns by noting that the merger will not result in it removing broadband competitors from the market, and by pointing to internet alternatives like satellite and DSL technology. The antitrust experts, however, pick apart this argument by stating that the proposed high-speed alternatives are not yet viable, and that Comcast’s proposed 40 percent footprint is an illegal monopoly:
“And we point out that the parties ‘no overlap, no problem’ argument, if accepted, would lead to the conclusion that the antitrust laws would permit one party to own the dominant cable provider in every local market in the United States.”
The letter also explains in detail how the increased power of the merged companies would allow Comcast to hurt competitors, in part by dominating the “first screen” that consumers will see when they use the company’s Xfinity streaming and DVR service. It adds that Comcast could also, in a similar anticompetitive move, demand higher fees from the likes of Netflix, which spend heavily on content but don’t have “last mile” distribution capacity — meaning Netflix and others would be forced to pay tolls, as they are doing now, to ensure that Comcast doesn’t interfere with their streams to consumers.
Here’s how the antitrust authorities put it, referring specifically to Netflix, Hulu and Amazon Prime (“OVD’s” in telecom parlance):
Due to their high, fixed content acquisition costs, OVDs require nation-wide access to consumers via broadband providers such as Comcast and Time Warner. The incentive to act anti-competitively against unaffiliated OVDs, which existed pre-merger, will be greater based on the increased market power that the combined firm would have against incipient threats.
Meanwhile, the letter also flags Comcast’s dismal customer service record as another impediment to approving the merger, and adds that absorbing its biggest competitor is unlikely to help that.
“The American Customer Satisfaction Index ranked Comcast and Time Warner last in a list of forty-three industries – which makes them the worst of the worst companies in terms of customer satisfaction.”
Finally, the antitrust experts claim that the federal government’s own precedents provide the legal justification for the FCC not to approve the merger. In particular, they point to the Justice Department’s objection in 2000 to AT&T’s proposed acquisition of MediaOne, which likewise would have resulted in a single company consolidating 40 percent of the U.S. broadband market. That deal, ironically, also related to many of the same assets controlled by Time Warner Cable and Comcast today.
The letter, which you can read below, is addressed to the FCC but also calls on the Justice Department to stop the merger. It cites the FCC’s ability to stop mergers that are not “in the public interest,” and also points to Section 7 of the Clayton Act, which forbids mergers that “may be substantially to lessen competition, or to tend to create a monopoly.”
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