Comcast announced today that it is ending its quest to acquire Time Warner. Brian Roberts, Comcast CEO, said, “We structured this deal so that if the government didn’t agree, we could walk away.” It turns out that the government didn’t agree.
Exactly how and why the government didn’t agree remain shrouded in mystery. Was the proposed merger inherently flawed, doomed to failure from its February 2014 announcement? Or was the merger undermined only by recent market changes unforeseen 14 months ago? Let’s have an autopsy of the merger to find out.
Today Attorney General Eric Holder trumpeted the abandonment of the merger at the Department of Justice website saying that the merger fell apart only “after the Department of Justice informed the companies that it had significant concerns that the merger would make Comcast an unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers.”
The concept that the proposed merger would make Comcast an “Internet gatekeeper” is easily articulated, but is it an accurate statement? And is the statement of the potential market power of Comcast more accurate today or in February 2014? It seems, in the eyes of the Federal Communications Commission, the possibility of Comcast becoming a gatekeeper was more likely in February 2014 than today, yet the FCC did not openly oppose the merger at the time.
Just last month, the Federal Communications Commission issued new rules, commonly referred as network neutrality regulations, that, according to Chairman Tom Wheeler, would prevent broadband service providers such as Comcast from blocking Internet-based services. According to Wheeler, before the network neutrality rules and when the Comcast-Time Warner merger was announced, “Before the Commission adopted this Order, there were no rules preventing broadband providers from conduct that would threaten the Open Internet.” Wheeler said that the network neutrality regulations “will preserve and protect the Internet as a platform for innovation, expression and economic growth. An Open Internet means consumers can go where they want, when they want. It means innovators can develop products and services without asking for permission.”
Wheeler made these remarks without qualifying conditions on market structure or the prevention of companies such as Comcast engaging in mergers and acquisitions, such as the Comcast-Time Warner merger pending before the FCC. Reasonable individuals may disagree with Wheeler’s views of the salutary effects of the new FCC rules, but the Department of Justice does not appear to have been among those reasonable individuals. There are no public records of DoJ filing comments in the FCC’s network neutrality proceeding, much less a record of DoJ claiming the network neutrality rules were insufficient to protect “Internet-based services that rely on a broadband connection to reach consumers.”
Holder emphasizes that blocking the merger would benefit content industries, as if antitrust law is to benefit one industry over another rather than directly consumers. “This is a victory not only for the Department of Justice, but also for providers of content and streaming services who work to bring innovative products to consumers across America and around the world.” Whether the proposed merger would have harmed a separate industry is a debatable and empirical and highly doubtful matter. Holder’s press statement does not once refer to antitrust laws or to provisions of those laws, or to the new FCC network neutrality rules designed in part to protect the same industry that Holder sees as the victors in blocking the Comcast-Time Warner merger.
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Acting Assistant Attorney General for Antitrust Renata Hesse, in the same DoJ press release, delivers a message different from Holder’s. Hesse thanks the FCC for “for their close and productive cooperation throughout this investigation.” This is an odd statement because antitrust law does not specifically authorize the Department of Justice to rely on support from independent agencies such as the FCC. Nor does the FCC’s statutory authority under the Communications Act give it authority to advise the Department of Justice on antitrust matters.
Hesse said, “The collective expertise of the career staff at both agencies [DoJ and FCC] enabled us to analyze the complex issues presented by this transaction and to deliver a consistent message regarding the impact of the transaction on competition and the broader public interest.” Whether authorized or not, it seems the staffs of the two agencies worked together under unspecified direction. Holder’s simple concept that the proposed merger “would make Comcast an unavoidable gatekeeper for Internet-based services” is, in Hesse’s view, subject to analysis of “complex issues.” We may never know whether the issues were more complex in February 2014 than today because the product of the analysis of “complex issues” is undisclosed.
Wheeler issued his own parallel press statement this morning celebrating the announcement of the end of the Comcast-Time Warner merger. According to Wheeler, that end came only “after the Federal Communications Commission staff informed the companies of their [the FCC staff’s] serious concerns that the merger risks outweigh the benefits to the public interest.” Wheeler does not mention the Communications Act, or any provision of it, in his statement. That is just as well as no provision of the Communications Act gives the FCC specific authority to review or approve mergers, much less to block them, including if “merger risks outweigh the benefits to the public interest.” Antitrust agencies such as the Department of Justice have authority to block mergers.
Wheeler mentions concerns with “an online video market is emerging that offers new business models and greater consumer choice. The proposed merger would have posed an unacceptable risk to competition and innovation,” presumably in this emerging online video market. If anything, the accelerated emergence of over-the-top video distribution in recent months would seem to have reduced rather than enhanced Comcast’s market position both with respect to the distribution of programming and the supply of programming. The over-the-top business model competes directly with Comcast’s traditional cable distribution model.
DoJ is concerned about “Internet-based services” a broadly defined market. The FCC states a concern for an “online video market,” a much narrower market that would exclude much of the broader DoJ market. Both DoJ and the FCC worry about the effect of the proposed merger on their market of concern, and each agency claims the proposed merger would have harmed competition in that market. The analyses to support these conclusions are not currently part to the public record.
Like Hesse, Wheeler hails the “close working relationship” between the FCC and the Antitrust Division of the Department of Justice. It apparently was such a close relationship that the DoJ did not file public comments with the FCC in the FCC’s merger review docket.
Based on what we know today, even with the proposed merger blocked by the DoJ and the FCC, it is difficult to conclude that the merger was doomed to failure in February 2014. There was at that time a reasonable chance that the merger would have been approved. Bankers, lawyers, and other advisors involved in the deal were not irrational in supporting the transaction. If anything, regulatory changes since February 2014 such as the Network Neutrality order--no matter how misguided—would appear to have facilitated approval of the proposed transaction. Nor is it clear that market and regulatory changes since February 2014 led to the demise of the Comcast-Time Warner transaction. Internet services and online video services have evolved, but it is difficult to say that market and technological evolutions were wildly different today from what would been expected just 14 months ago. If anything, market and regulatory developments in the recent months would appear to have lessened rather than heightened concerns about Comcast’s market position.
We need impartial and well-reasoned decisions from government agencies that review mergers and acquisitions to ensure that economically harmful activity is blocked and that economically beneficial activity is not blocked. Although it is possible that Comcast-Time Warner merger was blocked in an economically rational way, it is difficult to reach that conclusion from the public record in this review. The celebrations by high-ranking government officials over the graves of failed mergers do not convey a sense of impartiality or detachment.
Merger reviews and antitrust laws affect American businesses not just in America but in American businesses around the world. While the United States developed modern antitrust laws, other countries have mimicked us and are using antitrust laws seemingly to target American companies. China attacked Qualcomm and other American companies. The European Union has focused on Google. Other American companies could be next. To American eyes, antitrust actions abroad all too often seem to be motivated by more than just the impartial enforcement of law. It is difficult to criticize other governments for selective antitrust enforcement when our own government sometimes falls short.
