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VOL. 129 | NO. 99 | Wednesday, May 21, 2014

Antitrust Experts: 2 Big Deals Better Than 1

RYAN NAKASHIMA | AP Business Writer

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LOS ANGELES (AP) – Antitrust experts say AT&T's bid for DirecTV could reap immediate regulatory rewards. Coming so quickly on the heels of a rival cable company merger – the pairing of Comcast and Time Warner Cable – makes it easier for regulators to approve both transactions because they create two counterbalanced giants in pay TV.

Experts say the potential benefits of bigger scale, cost savings and promised reinvestment in networks to create speedier connections could be seen to outweigh the damage done to consumers by a reduction in the number of competitors.

"The antitrust regulators might be thinking about Comcast-Time Warner Cable becoming a Goliath with lots of small Davids," said Amanda Wait, a former antitrust attorney with the Federal Trade Commission and partner at Hunton & WiIliams LLP in New York.

"What the AT&T deal does – if it gets approved – is it creates another strong competitor that looks more like a Goliath than a David. It levels the playing field a little bit," she said.

Even so, each deal brings a unique set of potential harms. For a quarter of the nation's households, AT&T Inc.'s combination with DirecTV will reduce the number of pay TV competitors from four to three, which raises the possibility that consumers will face higher prices in those markets.

Meanwhile, Comcast Corp. and Time Warner Cable Inc. will serve 30 million Internet subscribers, a figure that is growing. That's roughly double the size of its nearest competitor – AT&T with 16.5 million – and could give it an unprecedented ability to charge content providers for priority access to its subscribers under new Internet rules being considered by regulators.

Both entities' TV services would be roughly the same size – AT&T-DirecTV will have 26 million pay TV subscribers, Comcast-Time Warner Cable, about 30 million.

Although each deal will be examined on its own by the Federal Communications Commission and the Department of Justice, regulators look at the current and future marketplace, according to DOJ spokeswoman Gina Talamona.

"We consider the market as it exists today and where the market may be heading with any pending or proposed deals," she said.

Comcast and Time Warner Cable don't compete in each other's service areas, so the merger of those companies won't reduce consumer choice.

But AT&T and DirecTV compete head-to-head in 22 states for TV customers. Merging will reduce consumer options in many of those markets to three – the local cable operator, AT&T-DirecTV and satellite provider Dish Network Corp., which has 14.1 million customers.

Harry Davis, a regulatory issues lawyer with Schulte Roth & Zabel in New York, said the reduction in competition won't matter to regulators as long as there are three strong competitors.

"Most of the studies that have been done suggest that as long as you have three strong competitors, you have less likelihood of any one competitor being able to raise prices," he said.

Davis believes approving both deals is better than approving just one. "A combined Comcast-Time Warner Cable is a strong balance and vice versa," he said. Davis said it's likely that both deals will be approved.

The positive regulatory predictions raise a question: Is a third merger around the corner? Comcast's deal for Time Warner Cable spurred DirecTV and AT&T to start talking. Analysts say the next natural conversation could be between Verizon Communications Inc., which offers FiOS Internet and TV service, and Dish.

Spokesmen for Verizon and Dish declined to comment.

"I think that's more plausible now," said Samina Karim, associate professor of strategy and innovation and the Boston University School of Management. "The competition can't sleep."

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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