Comcast makes the case for $45.2 billion merger with Time Warner Cable
In its first official filing with the FCC, Comcast details why its merger with Time Warner Cable is a good idea, and it tries to lay to rest competitive concerns.
Comcast officially kicked off the regulatory review process Tuesday for its $45.2 billion merger with Time Warner Cable with a filing detailing the benefits and defending itself against claims that the deal would harm competition.
On Tuesday, the company filed what's known as a joint application and public interest statement with the Federal Communications Commission. Last week, it filed a Hart-Scott-Rodino notification with the US Department of Justice, which will begin the antitrust review of the merger. And on Wednesday, David Cohen, executive vice president for Comcast, will testify about the merger before the US Senate Judiciary Committee where he'll answer questions about the merger.
Now that the official filing has been made in the merger, which was announced in February, the FCC will have a self-imposed deadline of 180 days to review the merger and make its decision. Comcast stock was trading down less than 1 percent, or 43 cents, at $48.65.
The merger has sparked strong opposition from some consumer groups and other critics, who say that a combined Comcast and Time Warner Cable would be too powerful. Comcast is the largest cable operator in the nation and Time Warner Cable is the second largest.
But Comcast maintains that the two companies do not overlap in terms of the broadband or video services they offer in any single market and therefore pose no antitrust concerns.
Most experts believe that regulators will see the world through Comcast's eyes and approve the deal. But opposition to the deal could spark the FCC and the Justice Department to impose conditions.
The argument for merging
In its filings, Comcast goes into detail regarding this point. It also outlines the consumer benefits of the deal and explains the various competitors it faces in both is broadband and video businesses.
Comcast's David Cohen summarized these points in a blog post Tuesday. In Cohen's view, a combined Comcast and Time Warner are better together than they are separately. He said that Time Warner Cable consumer and business customers will both benefit from the transaction in a number of ways. And he said the company is able to offer these benefits without "diminishing competition in video, broadband, phone, programming, advertising and other markets."
For consumers, he said these benefits include faster broadband services.
"While TWC has upgraded its entire network to DOCSIS 3.0 and has plans to improve speeds and further digitize its network, Comcast has already transitioned to a fully digital network, stands ready to implement DOCSIS 3.1 (the next-generation broadband standard), and has rolled out some of the fastest Internet speeds and the largest Wi-Fi network in the nation," he said.
Cohen emphasized that Comcast data speeds are already faster than what is commonly offered by Time Warner. For example, Comcast's most popular broadband tier is 25 Mbps, while TWC's is 15 Mbps. He also pointed out that Comcast has been aggressive in its Wi-Fi hot spot deploying. The company has deployed nearly 1 million Wi-Fi hot spots in its territory, compared to only 29,000 deployed by Time Warner Cable.
When it comes to video, Cohen also pointed to Comcast's new X1 platform and its video on demand and online video offerings that Time Warner customers will also have access to. Comcast now offers 50,000 programming choices on TVs, while Time Warner cable offers between 15,000 to 20,000.
Cohen also mentioned that Comcast will extend its Net neutrality protections to Time Warner Cable customers. Comcast agreed to adhere to the FCC's Open Internet rules no matter what as a condition of its merger with NBC Universal. Since a federal appeals court struck down the FCC's official regulation, Comcast is the only Internet service provider bound to follow these rules. The FCC is currently drafting new rules it hopes will stand up to scrutiny in the courts.
Cohen also mentioned other benefits for consumers as well, such as the extension of the company's low-income broadband adoption program, Internet Essentials. This program will also be expanded to Time Warner Cable territory, which will include cities such as LA, Dallas, New York, and Charlotte, N.C.
The competition question
Cohen said he understands why critics are skeptical of allowing two major broadband and video providers to merge. But he said the concerns are overblown. And he pointed to a map that outlines the coverage areas for the two companies.
"Comcast and TWC do not compete against each other in any area, so there is no reduction in consumer choice in any market," he said. "Customers will still have the same number of video, broadband, or phone options before the deal as after it."
He added that even when the two companies are combined, Comcast will still serve less than 30 percent of the video market. He also emphasized the company will divest about 3 million customers. He pointed out that 98.4 percent of the service area that Comcast and Time Warner serve, consumers have a choice of one of these cable operators plus at least one of the top 10 major broadband providers, such as AT&T or Verizon.
He also pointed to a long list of competitors, who are both traditional broadband and TV competitors, such as the satellite TV providers and AT&T and Verizon, as as well as over-the-top Internet companies who compete with Comcast in new ways to deliver video, such as Netflix, Amazon, Apple, and Google.
What's missing from the arguments
While Cohen and Comcast have done a thorough job of outlining the various competitors in the broadband and video market and also explaining how Time Warner Cable customers will benefit from the deal, the company did little to address concern over Comcast's video content business that it owns through NBC Universal. Many critics are fearful that combining with Time Warner Cable would make the cable giant too powerful. And they fear that the company will use this power in ways that adversely affect competition and consumer choice.
And even though Comcast points to Internet companies such as Netflix, Amazon, Google, and others as content competitors, the reality is that these providers still have to ride over Comcast's infrastructure to reach customers. And as a content company itself through its control of NBC Universal, Comcast also controls some of the content that these companies also want to provide to their customers.
Another major fear among consumer advocates is that this merger will lead to even higher prices for services for consumers and businesses. Cohen said that the purpose of the merger is to create efficiencies in the business through scale, but previously he said that the he couldn't promise prices would go down post-merger. He didn't address this idea of pricing in the blog post at all.
It will be these issues and others that Comcast's political critics are likely to raise at Wednesday's hearing.