Feeds

Time Warner merger great for Comcast, but not for anybody else

Regulators face crucial decision over mega-merger – cue the lobbyists!

Internet Security Threat Report 2014

The merger of the two biggest cable companies in the US has set the markets aflutter, but the government has the final say on whether to allow the deal, and regulators will now be taking a long, stern look at how the deal with change the US TV and broadband market.

Under the terms of the merger, Comcast will pay out $45.2bn in stock, giving shareholders in Time Warner 23 per cent of the combined company. The new corporation would be the nation's largest cable company and broadband provider, not to mention owning a significant portion of content-creation companies thanks to Comcast's takeover of NBC Universal.

During Thursday morning's conference call, Comcast executives repeatedly called the merger "pro-consumer, pro-competitive, strongly in the public interest, and approvable." The two companies don't operate in the same zipcodes, executives stressed, so competition wouldn't be hurt. Also, there would be operational savings, and Time Warner customers would get a shed-load of new content.

Well, some of them. If the merger is approved, Comcast has said it will offload three million customers so that it doesn't control more than 30 per cent of the 100 million–user US cable market. The 30 per cent figure was mooted by regulators back in 2009 when Comcast took over NBC, and executives stressed this level of market position had been allowed in the past.

If the deal is consummated, it would certainly be a great deal for Comcast. The merger would give it a dominant position in markets such as New York City, Los Angeles, and Texas, and its size would mean it would get much more leverage in negotiations with rivals for content and access.

But for its competitors in the cable TV industry, the deal would be a crushing blow to competitiveness, leaving one very big fish swimming amongst a host of minnows. Comcast argues that cable TV is already under competitive pressure from satellite services, not to mention internet service providers that can deliver content such as Netflix. It even touted Google Fiber as serious competition, despite its tiny footprint.

For rivals that want to reach Comcast's customers, the merger will lead to higher bills. Such a large market share will give Comcast a lot of weight in content purchasing, and it will be able to cut off channels or companies if its pricing terms aren't met. Apple TV was reportedly in discussions with Time Warner for a content licensing deal, and should the combined entity wish to do a deal, it's a racing certainty that the price would go up.

But content is only the beginning of the equation – Comcast's expanded internet backbone is potentially the most worrying part of the deal for businesses and consumers. By becoming the largest broadband provider in the US, Comcast could having a chilling effect on consumers and businesses who want a fast internet connection at a reasonable price.

Comcast's speeds are, on average, pretty good in regard to the domestic competition. But the company has been slow to upgrade its network in the past, and is only beginning a fiber rollout – and a very expensive one at that. Comcast argues that people don't want faster connections, pointing to the lack of uptake in its 100Mbps service - although the $200-per-month charge might have something to do with that.

Furthermore, Comcast is lobbying hard in state legislatures to make sure there are no competing municipal options for consumers to choose from. More than a dozen states now have laws on the books banning cities or towns from building their own super-fast networks, and more are coming down the pipeline.

The company has also come out against net neutrality so that it can squeeze more money out of its network better manage its network traffic. As a side benefit, the pricing of bandwidth could also give it a competitive advantage against companies that want to stream content which rivals its own over the network, providing it's done subtly.

Government regulators will have to take all this in mind when considering whether or not to allow the merger, a process that is expected to take about a year. The watchdogs have been decidedly more adverse to mega-mergers of late – notably in the case of AT&T and T-Mobile – and the results have been interesting. It's unlikely that US mobile users would be seeing the kind of price cuts they are currently enjoying if that merger had gone ahead.

One factor regulators could consider is that - unusually in a takeover like this - there is no kill fee should the transaction not go ahead. Aside from a few small costs, there would be no serious loss to either party should the merger be disallowed.

It's an unusual facet of American life that while everyone talks about how wonderful the free market is in theory, when it comes to practice US companies are more adept than most at ensuring the number and strength of competitors is minimal. It's difficult to see a reason why this current merger would make that situation any better. ®

Providing a secure and efficient Helpdesk

More from The Register

next story
Scrapping the Human Rights Act: What about privacy and freedom of expression?
Justice minister's attack to destroy ability to challenge state
WHY did Sunday Mirror stoop to slurping selfies for smut sting?
Tabloid splashes, MP resigns - but there's a BIG copyright issue here
Hey Brit taxpayers. You just spent £4m on Central London ‘innovation playground’
Catapult me a Mojito, I feel an Digital Innovation coming on
Google hits back at 'Dear Rupert' over search dominance claims
Choc Factory sniffs: 'We're not pirate-lovers - also, you publish The Sun'
EU to accuse Ireland of giving Apple an overly peachy tax deal – report
Probe expected to say single-digit rate was unlawful
Inequality increasing? BOLLOCKS! You heard me: 'Screw the 1%'
There's morality and then there's economics ...
While you queued for an iPhone 6, Apple's Cook sold shares worth $35m
Right before the stock took a 3.8% dive amid bent and broken mobe drama
EU probes Google’s Android omerta again: Talk now, or else
Spill those Android secrets, or we’ll fine you
prev story

Whitepapers

Forging a new future with identity relationship management
Learn about ForgeRock's next generation IRM platform and how it is designed to empower CEOS's and enterprises to engage with consumers.
Storage capacity and performance optimization at Mizuno USA
Mizuno USA turn to Tegile storage technology to solve both their SAN and backup issues.
The next step in data security
With recent increased privacy concerns and computers becoming more powerful, the chance of hackers being able to crack smaller-sized RSA keys increases.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.