Massive Cable Deal Means Your Bill May Jump

But not for a year, as regulators examine the proposed deal

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Robert Galbraith / REUTERS

A Comcast sign is shown in San Francisco, California February 13, 2014. Comcast Corp's proposed $45.2 billion takeover of Time Warner Cable Inc could face close scrutiny from U.S. antitrust regulators because of the deal's potential to reshape the country's pay TV and broadband markets.

What impact will the proposed blockbuster merger between Comcast, the nation’s largest cable company, and Time Warner Cable, the No. 2 cable provider, have on consumers? For now, not much, because the deal could take more than a year to be approved. But in the long run, public interest advocates warn that if Comcast is able to swallow up Time Warner Cable, consumers could face higher prices and fewer choices due to decreased competition. For its part, Comcast calls such fears “hysteria.”

The cable-TV market is already highly concentrated thanks to years of industry consolidation. Many major cable-TV markets in the U.S. are duopolies, and in some cases effective monopolies. Small businesses could face reduced choice as well. If the deal is approved, the only choice for a high-capacity wired connection for the vast majority of businesses in 19 of the 20 largest metropolitan areas in the country will be Comcast, according to Susan Crawford, the John A. Reilly visiting professor in intellectual property at Harvard Law School.

“An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks that must interconnect with it, and distributors who must access its content,” says John Bergmayer, Senior Staff Attorney at Public Knowledge, a digital advocacy group in Washington, D.C. “By raising the costs of its rivals and business partners, an enlarged Comcast would raise costs for consumers, who ultimately pay the bill.”

Comcast argues that because it does not compete with Time Warner Cable in most major markets, the takeover isn’t anti-competitive. But a merger between the two companies would create a powerful gatekeeper with unprecedented buying power in the cable market. Comcast already owns NBCUniversal, one of the giants of American media and entertainment landscape, after buying the company from industrial conglomerate General Electric in a highly controversial deal made complete last year.

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“At a time when cable companies already serve as gatekeepers in the delivery of a number of communications services, this merger represents an unprecedented move to consolidate market power even further,” says Sarah Morris, Senior Policy Counsel for the Open Technology Institute at New America Foundation. “A Comcast-Time Warner Cable merger will mean fewer competitive incentives to invest in network infrastructure, and will likely lead to higher prices and less innovation.”

Both the Justice Department and the Federal Communications Commission will scrutinize the merger, and already Comcast has said that it’s willing to make concessions in order to help the deal go through. Last month, a federal court struck down the FCC’s open-Internet rules, but Comcast had previously agreed to abide by the rules until 2018 as part of its acquisition of NBCUniversal. On Thursday, Comcast said it’s willing to extend that agreement to the Time Warner Cable acquisition.

Comcast does not expect that the proposed merger would result in the combined entity having more than 30% of the market. (The D.C. Circuit Court of Appeals has twice thrown out a FCC cap limiting cable ownership to 30% of the pay-TV market — the most recent decision was in 2009.) But in order to help assuage regulators, Comcast said it’s willing to divest as many as 3 million subscribers in order to make sure the new company falls below the 30% threshold. That means that Comcast could sell off a chunk of Time Warner Cable’s business to another cable company.

“We believe Comcast’s willingness from the get-go to divest at least 3 million TWC subscribers to keep its market share below 30%, acknowledge that the Comcast-NBCU merger conditions will extend to TWC (either automatically or through new arrangements), and offer a few new concessions will likely soften up some of the potential resistance,” Stifel analysts Christopher C. King and Josh James wrote in a note to clients. (Time Warner Cable was spun off from TIME parent Time Warner in 2009.)

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Relevant Congressional committees will also examine the deal. “This proposed merger could have a significant impact on the cable industry and affect consumers across the country,” said Sen. Amy Klobuchar, the Minnesota Democrat who chairs the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights. “As chair of the Senate Antitrust Subcommittee, I plan to hold a hearing to carefully scrutinize the details of this merger and its potential consequences for both consumers and competition.”

It’s possible that the deal could have some positive benefits for consumers, because the combined company would have increased leverage in contentious negotiations with the TV broadcasters over “retransmission consent fees,” which the cable and satellite companies must pay for the right to carry popular programming like prime-time shows and sports. That could mean downward pressure on prices for consumers — if the combined company chose to pass those saving on to them, which is by no means certain.

For its part, Comcast believes that fears of consumer harm are drastically overblown. “Once you get through the hysteria, the deal is pro-consumer, pro-competitive and strongly in the public interest,” Comcast executive vice president David Cohen told reporters on conference call Thursday. He said that Time Warner Cable customers will benefit because Comcast offers faster broadband service and a wider array of video products, including on-demand movies and shows.