Should Comcast And Time Warner Merge?


I just stumbled over the following wire story via Reuters:

Citigroup on Thursday said that Comcast and Time Warner Cable should merge, saying there would be a number of benefits to such a deal, including 'robust cost synergies.'

The firm added that a merger between the two would limit bidding wars for future cable assets and counter escalating content costs.

Citi also argued that the regulatory hurdles might be low for such a deal.

And while we're at it, let's merge Target and Wal-mart, Verizon and AT&T, and Microsoft and Apple. Really Citigroup? Really?

If I didn't know better, I'd think the Citi story was a joke. Unfortunately, Reuters generally doesn't have that good a sense of humor. Saying that two companies that completely dominate a market should merge because of "robust cost synergies" and fewer bidding wars should be utterly obvious to anyone with even a vague knowledge of business.

What I find bizarre is their claim that "regulatory hurdles might be low for such a deal." I certainly hope they're wrong. Essentially one cable company completely dominating the market sounds like a terrible idea from an antitrust standpoint. After all, there's a reason why bidding wars happen -- to ensure competition. The market should want bidding wars. So should regulators.

An article in the Wall Street Journal today also highlights the question of cable consolidation. It provides this chart:

cable consolidation WSj.gif

As you can see, if Comcast and Time Warner merged, the new firm would have 37 million subscribers -- more than twice that of its nearest competitor. Unfortunately, the Wall Street Journal appears to support Citi's claim about the possibility of such a merger:

A federal appeals court ruled on Aug. 28 in favor of Comcast's and the cable industry's request for the elimination of ownership limits. No longer is any one company restricted to reaching 30% of TV subscribers.

And here's what it says about regulators' view of a potential Comcast-Time Warner merger:

Would such a deal pass antitrust scrutiny, even absent the ownership cap? There is a good chance, say several antitrust lawyers. A major focus of antitrust law is whether a merger reduces competition in a way that could raise prices or otherwise hurt consumers. As cable operators generally don't compete with one another, merging wouldn't cut competition.

The article goes on to suggest the possibility of more consolidation in telecommunications, such as mergers between phone and satellite providers.

So let me get this straight: if there was only one major cable company, and several mergers between phone and satellite providers, that wouldn't create a strong oligopoly of maybe three or four major telecommunications providers which would reduce competition, potentially raising prices and hurting consumers? I must have taken different economics classes than these antitrust lawyers.

In my opinion, the telecommunications industry is already too consolidated. Just when we're beginning to see some genuine competition between cable, satellite and phone companies all offering some of the same services, mergers could take that all away. The justice department should prevent that, but if Citi and the WSJ sources are right, then we may be in for some merger madness in telecom. Such a prospect should not excite consumers.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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