Legal Geek No. 4 - Does Comcast/Time Warner Merger Have a Chance?

Welcome back to Legal Geek! The topic this week is whether the Comcast and Time Warner proposed merger stands a chance of surviving legal challenges.

https://archive.org/details/LegalGeekEp04


Time Warner has been seeking a merger for quite some time. This is notable because Time Warner is one of only four television providers with more than 11 million subscribers, ranking only behind Comcast's 22 million, DirectTV's 20 million, and Dish Network's 14 million. Every other major competitor is more regional, covering only 3 million to 5 million subscribers.

After weeks of negotiating with owners of a smaller regional provider Charter, Time Warner shocked the business world by agreeing to merge with the biggest cable company Comcast. The proposed merger includes about $45 billion of stock transfer, if it survives. But can it hold up to antitrust scrutiny and legal challenges?

Even after voluntarily dumping about 3 million customers, Comcast would be left with 30 million subscribers, a 30% market share, and potential coverage of 70% of households in America. Those numbers are important because the Federal Trade Commission and Department of Justice tend to heavily scrutinize any merger that ends up with a single entity owning 30% or more of a market share. For example, the AT&T and T-Mobile merger of 2011 that was blocked by the DOJ would have given AT&T 43% of the mobile phone market.

Under Federal law, The Sherman Act discourages monopolies, and The Clayton Act prohibits mergers that "may substantially lessen competition, or tend to create a monopoly." Comcast dropping some subscribers to try and fall back under the magic 30% number will not save the deal, as that is a just rough guideline. Much like the doomed T-Mobile AT&T merger, this deal makes Comcast nearly as large as the entire satellite TV market, and larger than the next 10 biggest cable companies combined. That's a textbook example of what is considered a monopoly.

If the deal were just about television, it might survive thanks to the nationwide satellite providers, but the cable companies also provide internet to most of their subscribers. Which means Comcast would hold the keys to pressuring "cable-cutting" alternatives like Netflix and Amazon, which are for the most part completely reliant on the internet. Net neutrality will only protect these competitors until 2018, and that does not mean Comcast wouldn't call some shots behind the scenes before that goes away.

Thus, the FTC and the DOJ will likely have no choice but to oppose this merger in court. Even some of Time Warner's shareholders have filed a class action lawsuit to try and block the deal. Given that most consumers are already annoyed with the generally poor customer service and always-raising prices of both companies, this deal looks to be dead on arrival.

Bottom line: Although Time Warner's shareholders' class action against the merger is likely doomed to fail, the DOJ will almost certainly invoke the Clayton Act and block this deal to protect healthy market competition. But the bad service from both cable providers will likely continue, despite the irony.

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