A simple observation on the proposed the Comcast-Time Warner merger

Though combining the nation’s No. 1 and No. 2 largest cable providers sounds like the kind of transaction that would raise the eyebrows of regulators, the cable market is still so fragmented that even after the merger, Comcast will control less than 30 percent of total subscriptions. That number is significant. On two earlier occasions, most recently in 2009, federal courts rejected efforts by the FCC to cap cable ownership at 30 percent. Even if the rule had been upheld, the combined Comcast-Time Warner Cable wouldn’t violate it.

That is from Larry Downes.  Geoffrey Manne  has produced a lengthy study of the proposed merger.  His conclusion?:

As Manne summarizes his paper, there is no “plausible theory” of anticompetitive harm under current antitrust standards. “Instead,” Manne writes, “arguments against the merger amount to little more than the usual ‘big-is-bad’ naysaying.”

Here is an earlier post on this proposed merger.  When you get past all the mood affiliation here (corporate, “big,” “merger,” “cable company screws me over,” “inequality,” etc.) this merger just isn’t that big a deal and the case against it isn’t that strong.


But but but Netflix....

If cable competition was really important, they'd ban municipal cable monopolies.

Which, of course, have not been banned, and are as far as I know almost universal.

Put another way, public utility regulation assumes that monopoly is inevitable and manages the harm that a monopoly could create. So, the fact that some public utilities want to come closer to being monopolies shouldn't matter much.

This said, the notion that "30 percent of total subscriptions" is the right number to be looking at makes little sense on the consumer side of the operation. What matters is concentration in any particular consumer's market at a their particular address, not national market share. Cable TV does not operate in a national market at the consumer level. It competes with digital broadcast TV, with two major satellite TV companies, DVD rental stores, possibly with Internet based services via DSL service through the land line phone company, and perhaps with Internet based services via the available 4G cell phone network. There is virtually zero competition at any given address over who your Cable TV provider will be. Moreover digital broadcast TV and DVD rentals have slipped to vanishing small market shares.

In terms of market power then, the pertinent question is not what direct impact it has on the consumer, but what impact the merger has on competition in the market to buy content to rebroadcast, and on the incentive to innovate in terms of business model. Antitrust precedents be damned, removing one of the handful of dominant bidders competing to purchase content from the market absolute reduces competition in the content market and makes anti-competitive practices like net non-neutrality and like the failure of any major market player to offer a la carte channel purchasing or to allow content providers to do so on their own, more likely to persist.

The fact that Cable companies provide a very large share of broadband Internet access to consumers is even more of a concern. Satellite TV companies compete with Cable companies in the business of providing cable, but they don't compete with Cable companies in the business of providing Internet access to households where a local monopoly Cable provider and a local monopoly land line telephone provider combined often have a 90%+ market share, and the Cable provider has the built in advantage of an installed network technology that can more easily provide greater bandwidth at little added cost.

In each case, the local ISP is in a moral hazard situation. A telephone company that provides DSL makes it possible for customers with that service to stop paying an additional amount to buy their core phone service from them since customers can opt for VOIP instead. A Cable company that provides broadband service is making Netflix ($8 a month), Hulu ($8 a month), Amazon Prime (less than one month of premium cable TV service per year in cost), pirated videos (free) and porn (mostly free) available to its customers, giving them a strong economic incentive to stop paying large monthly bills for their core Cable TV business. Netflix alone accounts for about a third of the volume of traffic on the Internet, and throw in the rest of those providers and your customers are devoting more than half their bandwidth to buying content that competes with the content that you're selling at a lower price.

The less competition their is in the market to purchase content, the harder it is for content providers to effectively respond to steps taken by cable companies to thwart their internet based competitors through a myriad of back office/operations department steps that are invisible to the consumer. These problems may be screws that aren't best attacked with a tool like the hammer of antitrust law. But, the potential that the current situation creates for anti-competitive conduct which is enhanced further by this consolidation is not trivial.

Yes, yes, a thousand times yes.

Good analysis by Sigivald except this part: "This said, the notion that “30 percent of total subscriptions” is the right number to be looking at makes little sense on the consumer side of the operation" - it makes a lot of sense actually, in the theory of second best, since before this "Rule of Reason" antitrust test it used to be many combinations were "Per Se" illegal. That is, the merger was forbidden regardless of market share. With the Rule of Reason test at least companies can try and prove to the US Justice Dept why their merger is not noncompetitive rather than having it barred initially. Per Se illegal bars typically were for "horizontal" mergers between competitors, rather than a "vertical" merger between supplier and producer. So a "30%" rule is actually, for a lawyer, a big step towards a more rational antitrust policy. You can blame Ira Tarbell and Muckrakers and their "irrational" fear of concentration for the T. Roosevelt era illogical Sherman antitrust acts, with these acts left to courts to interpret. But were Tarbell's fears irrational? (witness today's mania over inequality). I think so but it's hard to convince many people of that (see: T. Piketty)

Very interesting comment. Thanks.

Can you elaborate on what you refer to as "steps taken by cable companies to thwart their internet based competitors through a myriad of back office/operations department steps" You mean QoS? Or other stuff?

The anticompetitiveness is a factor at the local market level, regardless of the regional market geography. In most towns you only have 1 choice: the cable company that owns that town's cable market. It's not like many people currently live in competitive markets where they have to choose between Comcast and TWC. It's like a town being occupied by one country and then another; either way they are being occupied by a monopolistic entity.

The rise of competitive wired providers like FiOS may bring some competitive relief, but from what I can tell it looks like Verizon is just cutting out its own piece of the pie as well. I was talking to a friend about his cable provider, and we both had the opposite situation where Verizon is the anticipated liberator in my Comcast controlled domain, and Comcast is playing the role of expected liberator in his Verizon controlled market.

The question is why are broadband/cable providers in such monopolistic positions. Is it tied to the barrier of entry of laying cable and working through all the related municipal bureaucracy? Maybe that has something to do with Comcast's 'hiring' of family members of key municipal and state officials? Ultimately it seems tied to the power that local governments hold over land use. I imagine it will require some sort of wireless or satellite technologies to circumvent those barriers and produce market diversity.

Laying cables is very expensive.

Some sort of corruption might have some influence, but the key economic component is this:

If you lay expensive cables or fiber in a city to offer a new choice, Comcast will drop their rates and increase their service. Neither you nor Comcast will make much money out of it. So who has the incentive to build those networks?

Cities might as a benefit to voters, but such projects that I've seen are usually highly political and poorly managed.

I think that's where my basic thought process is leading with the municipal control over land use, right? Laying cable is expensive, and it's also not like anyone can just go out and start doing that without first going through the local government to get permits, clear zoning issues, and whatever else that involves. The municipality is the barrier to entry for that market, as much out of practicality (redundant cable laying probably has drawbacks) and incentive. So you're stuck with what is essentially a land-induced monopoly.

It's for this reason that broadband companies should be regulated as common carriers like any other telecom utility, rather than as "information services" as they are now. If a company is going to take advantage of the privilege to be a land-limit-induced monopoly, then it needs to be operated as an open platform for any competing service providers.

No incentive? Micro 101 is price=marginal cost. Oh wait, Micro 101 doesn't model the real world?

Yes, this is a good example of a natural monopoly. Monopoly rents are the reward for undertaking the massive investment.

Local governments could auction a monopoly franchise and recover all but the information rents, but in practice local governments use the franchise for its own benefit. It is government and the monopolist versus the people. The city makes basic cable so affordable that the masses of poor voters love them for it. The franchise price discriminates against higher income subscribers who cross subsidize the low income subscribers. The politicians get free advertising and special interest support.

"Maybe that has something to do with Comcast’s ‘hiring’ of family members of key municipal and state officials?"

If the key to success in a market is corrupting local government officials, doing so through a huge national publicly held corporation that operates in tens of thousands of different local governmental jurisdictions is not the optimal way to go about achieving that end. Public corporations are by design, lousy at managing juicy secrets, lousy at tailoring their product to the ideosyncratic whims of local petty elected officials, less well informed at the senior management level of local gossip useful in the process of corrupting local officials, and not very attractive for local public officials to be publicly associated with (e.g. in campaign contribution records). Also, rank and file local cable company worker need more skill than many nepotisticly hired employees have at their disposal so the disadvantage of having a distant corporate headquarters seriously impairs the ability of the Cable company to hire good for nothing family members of elected officials in jobs that they are capable of trying to perform at any minimum level of competence.

If corruption were the key to success in the cable TV market, the industry would be organized very differently.


Don't just take my word for it:

"Also, rank and file local cable company worker need more skill than many nepotisticly hired employees have at their disposal"

I don't think Comcast is hiring the family members of government officials to work the call centers :)

"If corruption were the key to success in the cable TV market, the industry would be organized very differently."

It's key to cutting through the red tape necessary to build out a cable network, and to keeping competition out.

How exactly are these local monopolies granted? I'm curious. Are there auctions, bids etc? How often? How much money can the municipalities make out of it?

Big is only bad when it's the government.

They're the only ones I know who come after you with guns.

What about the Mafia?

Historically, no.


Beg to differ. I'm from Detroit.

Serious question - why do you think this merger 'raise the eyebrows of regulators'? Isn't it more likely that this merger will be approved with very little opposition? Comcast spent $18.8 million dollars on Federal lobbying in 2013. (http://www.opensecrets.org/lobby/clientsum.php?id=D000000461) I'm sure they will get their money's worth.

As a Comcast customer, I'm very excited. I can't wait for my service to improve and my bill to be lowered due to the operational efficiencies created by the joining of these two, wonderful companies.

saw what you did there
"lowered" LOL

AT&T spent $20M in 2011. How'd that work out for them?

Did they back the right horse?

Great point. Lobbying has no effect. Companies are silly and will just throw their money away for no observable results in DC. Suckers! I mean, what did that money actually buy, anyway?

Besides the appointment of an industry laptog as chairman of the agency that regulates their business.


I'm confused. Why do I care about cable company market shares? None of this changes the fact that in any particular municipality you only have one choice. The national concentratedness changes nothing. Maybe there could be second-order effects in terms of regulatory capture or greater bargaining power with content providers, but for the most part why should there be anti-trust concerns? They're already a regulated monopoly.

Are cable companies really regulated in the same way we regulate water or power monopolies? I don't think so. My water and electricity bills are reasonable, given the services I receive. My cable and internet bill is ridiculous.

If they aren't reasonable for the services you receive, you could always cancel your subscription. It's much harder to do without the water bill.

It is easier to cancel the water than cable in most of the US, where they aren't in severe drought, anyway. Not convenient, but my well water is horrid and the water main didn't reach my house until the 90s, so I've been drinking water distilled from the air, and wash with rainwater off the roof. Much like my grandmother did.

You can get plenty of TV off the air.

But if you want broadband, odds are your only option is cable.

I was under the impression that they were, but I could be wrong. I've never heard of a place that had choice of cable providers. I could be wrong.

The Telecommunications Act of 1996 opened the door to competition in cable and telecommunication services. Not long after a number of "overbuilders" got started to compete with incumbent telephone and cable companies. Most of them have subsequently went under, got bought, or left those businesses, there are a handful still left like RCN and WOW. Fiber to the home services of phone companies are also pretty much direct competitors to cable, e.g. Verizon FIOS and AT&T U-verse, and Google Fiber is pretty similar.

It's called dish for cable. And most places have both a phone service and cable company that offer internet access. You also have your cell phone, DVD's, Netflix, Redbox, newspapers, magazines, plays, the symphony, local bands, .... The list goes on.

Also, those "reasonable" water prices might explain why in drought stricken places the cities go around begging consumers to stop watering their lawns. Maybe they should just price water appropriately so that people have the incentive to conserve.

None of this changes the fact that in any particular municipality you only have one choice

In some munis you only have one choice. Many have choices.

I don't life in a big-5 city, but I have two Internet providers to my house at the moment, and multiple companies trying to get me to buy their television cable package based on the junk mail I throw away.

In my town we also have a little choice. But it seems that the very limited (local) competition in the cable and internet markets does little to keep costs low. All these companies compete mainly by offering teaser rates. Once they've got you, as far as I can tell, they charge consumers whatever they want. (I don't think their prices are regulated in any important way, though I'd love to hear about it if they are).

Why don't we actually regulate local cable and internet monopolies in the same way we regulate local power and water monopolies? To me this is the real question. Maybe preventing the merger between Comcast and Time Warner won't do us much good. But isn't there a strong case for regulating companies in industries that are barely subject to market competition?

Yes. Cable and internet providers should be regulated as common carriers, just like any other telecom. Tom Wheeler doesn't seem to agree, since doing so would likely jeopardize his future employment by Comcast.

People don't watch enough television, especially kids. With more cable companies in the marketplace there's more options for programming. In sports programming time could be filled with sports that are now ignored, draft horse pulls, women's cycling, table tennis, cock fighting from Asia and Latin America, etc. With even more cable providers eventually everyone could have their own channel, universal reality TV. Hope it happens soon, maybe I'll buy a TV.

If only Yet another MR Commentor were this good.

I must admit, this is a very well-written spam comment.

I get a lot of these spam comments. I imagine some Eurasian sitting in a dank post-Soviet office space with flickering fluorescent lights, exposed wiring and dripping pipes. In such misery he types away about my "high quality weblogs post" and how he has great deals on fake Nike Air Max sneakers.


After careful reasoning...
1. Taxes on rich people are never low enough.
2. There are worsening national security threats, continuously and globally.
3. Industry mergers are always okay.
4. Throwing federal money at a problem never works, except internationally. So $6 trillion for Iraqistan is okay, or never worth mentioning.
5. Socialized medicine is bad. The communistic health care of the huge VA system is not worth mentioning.
7. The fact that Rural America is a pinko wonderland---everything subsidized from roads to power to water to airports to postal service to phones---is not worth mentioning.

The straw man ate your #6.

And pooped out the extra "the" in this blog post's headline ("...the proposed the...")

#6 The Fed should tighten monetary policy.
Wake me when Tyler breaks one of these straw men....

that about sums it up.
you can close the blog now, its all been said.
thanks for coming.

How many municipalities are there with only one option?

Not every mega-merger comes to pass, big sibling is looking out for our interests: http://nailheadtom.blogspot.com/2014/04/keeping-competition-in-high-school.html

Who cares about cable? If that were it, the merger would be fine and more people would cut the cord. (Or more likely young people would not sign up for the cable cord.) It is the internet that is the most important item as the growth of the internet is probably best example of libertarian growth markets.

The one item I would like to know is will Comcast improve US internet services for their customers? Overall the US is behind most developed nations here and I don't get the feeling Comcast is really investing substantially with improvements of the service levels on the internet. Remember, the greatest deregulation in the Carter/Reagan years was the breakup of Ma Bell.

Is there really that much demand for faster internet? I do most of my work and receive most of my screen entertainment via the internet using just a 3mb plan. I'm not sure what the 20 or 50mb plans that Comcast currently offers would do for me. Sure, one day fiber optics will be the standard, but I don't see the demand for it now.

When I was an undergrad economics major, they taught me about the implausibility of anybody getting any sort of monopoly power. When I was at MBA school, they taught me that the whole point of business strategy is to get some sort of monopoly power.

I suspect Comcast wants to do this to get more monopoly power.

You mean "market power" which comes at a threshold far below oligopoly.

Whether or not market power is feasible to obtain depends crucially on market characteristics. Cable is a natural monopoly and, hence, quite prone to such opporunities by definition.

So your economics classes didn't teach you about the possibility of government-granted monopolies? Or did you sleep through those lessons?

Agreed. When you are looking at the two largest cable companies in the nation, all economies of scale below the national headquarters operation that can be realized, have been realized already. And, in the national headquarters, there is every reason to suspect that the money saved by laying off senior executives will be converted into increased pay for the senior executives who survive the merger on the grounds that they are senior executives of a larger company and should be compared to better paid counterparts. Neither company really has anything to gain from the merger except market power on the content side.

I wonder if the technology would permit a-la-carte selection and if the option could be compelled by law. I think there be a three-digit quantum of channels available hereabouts (though it seems more like ten avenues to fifty channels of which one third require you purchase a premium option and one third are junk and half the remaining third are showing re-runs of moderately engaging programs cancelled in 2007).

Wish that were true, but current bundling of channels is a calculated technique of price discrimination.

I don't understand why more commenters and bloggers have not paid attention to the parallels between the cable market and the electricity market. Local cable service providers are like the distributors of electricity. Some of these local cable companies also participate in the broader backbone of the internet, like electricity transmission companies. Finally, Netflix, Youtube, etc are like the generators of electricity. We seem quite cognizant of the natural monopoly aspects of some parts of the electricity market (particularly distribution), so why not have some form of price regulation of local cable?

Ideally, cities should own the infrastructure, which they then competitively lease to cable companies.

Right. I remember when cable television came to Los Angeles about 35 years ago. The politicians delayed and delayed picking the company that would get the monopoly because they were having such a wonderful time being wined and dined by the rivals for their blessing.

Obviously there are ways to design auctions for this. As with everything, it's a matter of setting up the right institutions.

How do we implement the auctions given that the only conduit to law are the very officials the auction is designed to circumvent?

Or, if the auction system were possible to implement, it shouldn't be necessary.

1. A lot of the electricity market is vertically integrated. The biggest producers are state regulated utilities that own most of their own transmission lines, and a fair number of the small municipal producers are municipally regulated utilities that own their own power lines. Many rural electric cooperatives, moreover, don't produce their own power and instead broker it between rural customers and third party providers but see their business of marketing electricity not being in the electricity transmission business.

2. Electricity is fungible product that comes in only one variety, cable TV content isn't. Anybody with a few million dollars can build a power plant. There is only one Daily Show and anyone who wants to deliver it to a customer has to do business with the show's producer or the network that owns the show. This is why electricity is provided over a grid without much concern over precisely whose electron actually gets to whose customer's house - as long as the overall volume delivered to customers is allocated between companies in a way that does rough justice to the economic realities its all good. Because electricity is fungible we aren't nearly so worried about the exercise of market power on the supply side in the electricity market as we are in the cable TV content market.

3. Electricity is a pretty mature technology with a pretty well settled set of normative standards about how it should be priced that work. We care more about reliability in the electricity market than we do about rapid innovations in business models. The main issue in the electricity market is what sort of contracts there should be with households that both give and take from the grid via solar panels or windmills, and how small scale renewable power generators should be integrated into the grid in a departure from vertical integration via a process already regulated by a state utilities commission.

4. Local cable frequently is subject to municipal price regulation. Normally, a cable company enters into a contract with a municipality that gives it a local monopoly for ten or twenty years or so, and then has to renegotiate the deal every time the existing deal lapses. Municipalities often bid the service to competing cable companies at that time and secure rate limitations if the bids for the next long term contract from the competitors make it possible to do so. But, if all the bids that they get involve pretty high prices with decent profit margins, and none of the competitors offers a cheaper option that meets the needs of their municipal residents, then municipalities aren't in a position to exert the same kind of price fixing power than state power utility regulators, for example, can. If there are only a couple of cable companies actively trying to do business in your region, it is mutually beneficial for them in the long run in the overall region to compete on anything other than price and they don't need secret meeting to figure out each other's bids when there are scores or hundreds of negotiations with individual municipalities over a year and the winner's bid gets publicly disclosed every time (rather than engaging in a price war).

But, if a municipality doesn't want to play ball, all two or three competitors in the region can refuse to do business with the municipality. In a society where the average person watches twenty to thirty hours a week of TV and many people want high speed broadband, a municipality that refuses to deal with anyone and thus deprives all of its residents of cable TV will face a citizen uprising if they boycott all of the bidders for too long in an effort to get a better deal. If an electricity company tried that, however, the municipality could take the transmission system by eminent domain, and could either build its own power plant to charge those wires, or could compel others to sell to it at close to cost via the state utility regulator. With governmental immunity, the old provider couldn't even sue the municipality for poaching its power plant and transmission company employees.

Interesting. Was the municipality taking over a electric company by eminent domain a hypothetical example or are there cases this has happened?

There are two errors in the title. One is the duplicated the. The other is your misspelling of "simplistic".

A very "simple" observation indeed.

Who cares about monopoly in the cable market? It's not like consumers have the ability to choose between Comcast or TW right now. Monopsony w.r.t. content sellers is the really worry.

I don't understand why the 30% nationwide figure is important when the issue is little competition for internet at the local level. If we all only had option for 1 garbage collector, it wouldn't matter if they each had 10% share in markets spread across the country. To the local customer, the market is still monopolistic. I don't understand how nationwide share changes this local market reality for the consumer.

I agree that the Comcast merger isn't making individual subscribers much worse off. Whether their one cable choice is Comcast or TWC doesn't make much difference.

It seems to me that the issue is that as Comcast gets larger it has more leverage against other content providers. (Don't forget that Comcast owns NBC/Universal.) Since net neutrality looks to be on the way out, think about the deal Comcast+TWC will be able to get from Netflix and Amazon. Or maybe they'll choose to make no deal at all so that Netflix subscribers decide to switch to Comcast's own, faster streaming offering.

I believe Tyler's summation is wrong here. Susan Crawford of HLS is more knowledgeable on this topic than Tyler or any of the authors in the citation here, and she's against it: http://www.technologyreview.com/view/526461/heres-why-the-comcast-time-warner-merger-is-bad/

F*** Comcast. That's the real reason people oppose the merger. And they're not wrong.

MOOD AFFILIATION. Standard Economic Analysis shows that monopolies are at worst benign and usually it leads to efficiency gains - besides there are many proven technologies coming down the pipline that will soon lead to creative destruction. The problem with the US economy now is there is an excess of competition and hence corporate profits are at record lows. It is an empirical fact that opposing monopolies is pure economic idiocy.

You had me going until saying profits are at record lows. To clarify,I'm saying that the mood is a completely legitimate one to affiliate with. People would rather punish comcast than have efficiency, even If the economic models are right. After my experience with them, I personally root for bad Comcast news.

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These vibrations annoy the mice and genuinely aid in driving them
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"Big is bad" may be ignorant, simplistic, etc. But it's also essentially correct. Comcast wants to get big to increase its bargaining power, which is already substantial. There is no efficiency reason for the merger, hence no downside to blocking it.

This is much more general, speculative, and perhaps simplistic, but antitrust actions can and do thwart entirely different business models that evolve down the line unbeknown to the regulators, consumers or even the monopolists at the time of an antitrust decision. Amazon dominates online retail but now provides the cheapest, most efficient, most innovative cloud computing service in the world that enables thousands of disruptive and emerging start-ups to get computing instances spun up in a matter of hours. It is hard to overestimate the value-add of Amazon Web Services in general. They are now experimenting with drones, and their own logistics and delivery roll-out, as well as groceries to your door. Google absolutely owns U.S. search and now is laying high-performance fiber in select cities, working on revolutionary technology in automated driving, robotics, drones, etc.... not to mention their venture capital arm, and their investments in payment networks, e-commerce, and by the way, a free mobile operating system that has allowed a swatch of low-cost smartphone providers to connect 100s of millions around the globe.

Comcast is assembling quite a footprint of hotspots around the country....there are possibilities down the line of bringing more competition to the mobile space, and who knows what else.

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30% of nationwide subacribers seems aignificant as an economic matter, regardless of the legal precedents. Greater market concentration also makes oligopolistic coordination on pricing more likely to occur and survive.

It will also be easier for the combined entity to successfully lobby for even more barriers to entry and the like.

But yeah I guess there is nothing to worry about. Free and competitive markets are a terrible idea.

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