Just How Dangerous Is A Giant Comcast?
It's been more than 100 years since the U.S. Supreme Court determined
that one of the biggest companies in the world, Standard Oil, was an
illegal monopoly and would have to be broken apart.
The size of
the company didn't automatically violate antitrust law, the court ruled.
Rather, it was the way it wielded that size that was a problem. The oil
behemoth forced railroads to slash prices and agree to preferential
deals to ship its products, driving smaller competitors out of business.
Standard Oil came to control 90 percent of U.S. oil production through
these methods, and the court determined that this led to higher prices
and less oil, harming the overall market.
The antitrust laws the
court used to decide the century-old case will be tested again in coming
months, as regulators take a close look at Comcast's $45 billion offer
to acquire its smaller rival Time Warner Cable. The deal would make
Comcast, the largest cable company in the country, even bigger. The new
communications giant would also control broadcast and cable television
networks, movie studios and theme parks that Comcast has swept up in
past acquisitions.
"It just creates this massive player -- this
one entity that sits at the crossroads of everything," Michael Weinberg,
a vice president at Public Knowledge, said in an interview last week.
"They don't just dabble in it. They dominate it."
Comcast is not
Standard Oil -- it isn't accused of sending thugs to intimidate rivals,
for example, as Standard Oil's founder John D. Rockefeller is alleged to
have done -- but there are enough similarities between the companies to
give consumer activists, and potentially regulators, cause for concern.
Like Standard Oil, which began as a small Ohio concern, Comcast
emerged from obscurity to dominate its industry. In 1990, Comcast was a
Pennsylvania company with $657 million in annual revenue. In the years
since, under the leadership of CEO Brian Roberts, the company has
swallowed cable providers and TV networks, among other businesses, around the country, and revenue has swelled to more than $64 billion.
In
some of the markets in which it operates, Comcast is the only entity
that offers cable and broadband service, to the great frustration of
many customers who say this veritable monopoly starves them of choice,
and leads to higher prices. The Time Warner Cable acquisition would
further expand the company's reach -- Comcast would have
about a third of broadband subscribers and 30 million pay TV subscribers in the U.S.
A Comcast-Time Warner Cable behemoth could use its muscle -- not
unlike Standard Oil -- to wield power over related industries,
potentially starving competitors of resources, antitrust experts said.
A
stronger Comcast could charge higher rates to deliver streaming video
from companies like Apple, Netflix, YouTube or Amazon, though it pledged
to hold off on doing so until at least 2018 under its agreement to
acquire NBCUniversal. TV networks
may also be afraid to strike deals
to sell their shows to online streaming services out of fear Comcast
would retaliate by giving them unfavorable positions in Comcast's TV
channel lineup.
Content creators just couldn't afford not to do
business with a company as powerful and far-reaching as a Comcast-Time
Warner Cable giant, Weinberg said.
Antitrust lawyers say the
Comcast buyout poses a deep challenge for the Justice Department and the
Federal Communications Commission, the two federal agencies that
enforce antitrust law and will decide if the deal can proceed.
The
Standard Oil case, by today's standards, was cut and dry. In the early
years of the 20th century, a muckraking journalist wrote an exposé on
how the company used its massive clout to bully railroads and pipeline
companies into lowering prices, then undercut competitors to such a
degree they were forced to sell out, or go under. In one instance,
Rockefeller used the threat of a secret alliance with railroads to
intimidate more than 20 Cleveland refiners to sell out to Standard Oil
at bargain prices, an event known as the "Cleveland massacre."
The Justice Department then launched an investigation under newfound
authority granted by the Sherman Act, an antitrust law passed in 1890 to
broad acclaim.
Antitrust reviews have expanded over the years to
include deals that would combine two or more existing companies, with
the goal stopping monopolies before they happen. The measuring stick
authorities use is whether the formation of the new company would
"substantially lessen competition."
This is something of a soothsaying exercise, said antitrust experts.
"They
are trying to predict the likely effect of something that hasn't
happened yet," said Spencer Waller, the head of the Institute for
Consumer Antitrust Studies at Loyola University in Chicago.
This
task is made more difficult by the special circumstances posed by the
Comcast deal. Unlike most mergers and buyouts, such as the proposed
takeover of T-Mobile by Sprint that the Justice Department has signaled
it will oppose, Comcast and Time Warner Cable don't compete head-to-head
in any market.
Comcast has also said that the combined company's
cable TV customers will represent 30 percent or less of the market.
That is the maximum market share allowed under an older Federal
Communications Commission rule, which is no longer in place. In 2009, it
was struck down by an appeals court, which declared it "arbitrary and
capricious."
Sena Fitzmaurice, a vice president of government
affairs at Comcast, said that existing Time Warner Cable customers would
benefit from Comcast's innovations. As examples of past efforts, she
cited the company's robust video-on-demand service and said Comcast has
increased broadband internet speed 12 times in as many years.
"Additional
consumers would get to benefit from these innovations as a result of
the transaction," she said in an email to The Huffington Post.
A
new megacompany would have powerful control over the cable grid and over
content providers, Waller said. "This is very troubling," he said --
but also very difficult for federal authorities to evaluate.
Comcast
is certain to argue that its competitors encompass far more entities
than traditional cable providers. As evidence of that, the company can
point to the national trend of declining cable subscriber rates, which
many attribute to increased competition from satellite providers like
DirectTV, from streaming video companies and even
from Internet portals like Google.
This
is boilerplate merger and acquisitions strategy, Waller said. Companies
that seek to expand their holdings typically argue that they face
competition from as wide array of entities as possible.
But that
argument is not airtight. The companies Comcast mentions as potential
competitors do not yet offer near the breadth of services sold by the
company, even in its present form. Sports coverage is a prime example.
Comcast owns NBC, which paid $4.4 billion to broadcast the 2014 Olympic
Games in Sochi and three subsequent Olympics. By way of comparison, that
is a significantly greater sum than Netflix plans to allocate for its
entire
2014 programming budget.
It
will be up to the Justice Department and Federal Communications
Commission to determine whether given these market realities, existing
competitors offer services that are reasonable substitutes, said Herbert
Hovenkamp, an antitrust law professor at the University of Iowa.
"Substitutes have to be sufficiently robust to keep services down near
cost," he said.
In Comcast's favor, as it makes its case, is an
unbroken track record of success before regulators, most notably its
2009 acquisition of NBC Universal. "I think their experience with
getting previous deals through, particularly the NBCU takeover, has to
be helpful," Stifel Nicolaus analyst David Kaut
told the Wall Street Journal last week.
"They know the ropes. And they seem to do a good job of getting out in
front of some of the antitrust/regulatory objections by offering
commitments that soften up the resistance."
Comcast, for its part,
has cast the combination of the two companies as favoring consumers.
"It will provide exciting consumer benefits" and "deliver better
services and technology to Time Warner Cable’s subscribers,"
the company said.
Comcast CEO Brian Roberts
even deemed the acquisition "pro-consumer," "pro-competitive," and "in the public's interest."
But to many current subscribers, these claims are hard to swallow. The company charged roughly
$156 per month per customer last year, and cable companies consistently rank at the bottom of
customer satisfaction surveys.
The average cable TV bill -- not including taxes, fees or promotions --
has increased 97 percent over the past 14 years, according to SNL
Kagan, a media research firm.
High prices, ultimately, are what
led to Standard Oil's demise. The movement that led to the investigation
was sparked by farmers, who were outraged by the huge cost they had to
pay to get their crops to market.
Antitrust experts said
regulators will try to gauge whether a combined Comcast and Time Warner
Cable would face enough competition to keep prices in check.
Last
week, in a conference call with reporters, Comcast Vice President David
Cohen fielded a question about what the Time Warner Cable buyout might
mean for cable and Internet bills. "The impact on customer bills is
always hard to quantify,"
he responded. "We're certainly not promising that customer bills are going to go down or even increase less rapidly."
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