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Comcast's mega-merger is no regulatory slam dunk

Time Warner and Comcast, two of America's biggest cable companies, announced a $45 billion merger and consumer groups are concerned it would have unprecedented "gatekeeper" power to control content.
Time Warner and Comcast, two of America's big... 01:10

Comcast's (CMCSA) $45.2 billion acquisition of smaller rival Time Warner Cable (TWC) would further cement the world's largest cable company's lead over its rivals -- and that's just what bothers many critics.

Consumer activists such as Consumers Union, the nonprofit publisher of Consumer Reports, have argued that the deal is anticompetitive and will result in higher prices and worsening service, an argument that Comcast Chief Executive Brian Roberts rejects.

The all-stock deal will need to pass muster with both the U.S. Department of Justice and the Federal Communications Commission, which conduct their reviews simultaneously. Comcast expects the review processes to last for about a year. The DOJ review will focus on whether the merger would lead to higher prices, while the FCC will focus on whether the combination is in the public's interest.

"I do think it will definitely get a thorough review," said Herbert Hovencamp, an antitrust expert at the University of Iowa's College of Law, adding that regulators "might ask for more concessions than the parties have offered."

Of course, if the government demands concessions that merging companies find too onerous, the deal will be called off. Comcast argues that after the merger, it will control less than 30 percent of the multichannel video programming distributor market. The 30 percent ownership cap, however, has been vacated twice by the courts, so this shouldn't be a deal-breaker in itself. Moreover, the transaction is in line with Comcast's 2002 AT&T Broadband acquisition and its 2006 Adelphia deal. 

Comcast and Time Warner Cable are already planning to unload some Time Warner systems to appease regulators. The Wall Street Journal reported today that Philadelphia-based Comcast will also make its programming available to online rivals, expand its broadband services and provide more programming for minorities and children.

"Comcast and Time Warner Cable do not currently compete to serve customers in any zip code in America," Comcast says. "This absence of horizontal overlap of the companies' cable systems means the transaction will not harm competition or reduce consumers' choice in any way."

Critics, though, are not impressed.

"It's hard to understand how this kind of concentrated market power, which would account for almost three-quarters of the cable industry, is going to benefit consumers," said Delara Derakhshani, policy counsel for Consumers Union, in a press release. "It raises several red flags about the power and influence that one company would have on the marketplace, and the impact it would have on your wallet and the choices you get."

The American Cable Association (ACA), which represents about 850 small and midsize cable system also is skeptical, noting that the merger would enable the companies to demand "unfair terms and conditions" from other pay-TV companies.

Sarah Morris of the New America Foundation notes that Comcast already serves about 25 percent of the total broadband market, and even with the proposed divestitures its combination with Time Warner Cable would give it control of at least a third of that market, more than six times the size of the next largest cable company.

"The only way to ensure that the best interests of the general public are protected is to stop this merger in its tracks," she writes.

The battle lines over this deal have only just begun to form.

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