This type of merger is a considered a horizontal merger
between the two largest companies in the Internet and cable industry. Comcast will need to show the FCC that the proposed merger will benefit consumers, reducing the price that they currently pay for Internet and cable services while not limiting their choice in providers.
This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
2/28/2015
Comcast Horizontal Merger
On February 13, 2014 Comcast announced their
intention to merge with Time Warner Cable.
The proposed merger would be a “friendly, stock-for-stock transaction”,
where Comcast will procure 100% of Time Werner Cable’s 284.9 million shares,
“amounting to approximately $45.2 billion in equity value”. According to Freepress.net the proposed merger
would create, “an Internet and cable juggernaut with unmatched power to crush
the competition and hike prices for consumers”, giving Comcast a one-third control in the Internet and cable
industry. The Federal Communications
Commission (FCC) has yet to approve the merger.
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5 comments:
Susie: 100/100.
Agreed. This is all good.
But Susie ... why do you care about this?
I'm hard-pressed, from what you wrote, to see any motivation for this other than I set a deadline for you and you had to do something.
Due to the information in one of our recent chapters, I believe that the merger will be approved. I'm not sure what the HHI Index for this industry currently is or will become as a result of this horizontal merger, but there must be a large benefit to be had in the form of economies of scale and probably economies of scope as well. As a side note, I'm amazed at all of the acquisitions that Disney has made over the past decade or two. Dr. Tufte, do you know if there have been problems with any of these, particularly with Lucas Studios?
Sebastian: 50/50
There's really two things to comment on here.
1) I don't know that HHI or any measure of economies of scale or scope is really going to be relevant for the potential merger of Comcast with Time-Warner. I think the current tone in D.C., what with net neutrality, is to reduce the market power of firms like Comcast. So I'd bet that this one will turn on the politics just not being right for this at this time.
2) I'm not too familiar with what Disney has done over the long haul. But, I just spent many seconds ;-) researching this on the Google. My sense is that Disney does a lot of joint ventures. From this, they may be able to develop a lot of information to defend their actual mergers and acquisitions. This would be along the lines of, well, we tried it out this way, and it worked OK, but we now know that it will work better if we do it this way ... and here's the evidence. I think regulators can be swayed to approve mergers when there's decent evidence to back up that it will work.
I also think, in the case of Disney, that they can argue that most of the value in their acquisitions is with brands and properties, not with economies of scale. So they can sell their plans as economies of scope rather than economies of scale, and rather broad economies of scope where competition won't be stifled.
I think that it is important to watch a merger of large internet service providers. Falling information costs associated with the spread of the internet has pushed out the supply curve for a wide range of companies.
The FCC just announced that they are putting a pause on the merger. This may be due to the current tendency to reduce the power of ISPs as evidenced by net neutrality.
While I am concerned about the prices of internet service, as a general rule I do not think that intervening is a good idea. There appears to be plenty of healthy competition in internet service. The reason many people use cable companies may be due to the price reduction from bundling internet, cable and phone service. I also do not think that there is a compelling reason for net neutrality.
Net neutrality advocates claim that websites may suffer reduced speeds if they do not pay additional fees. However, allowing providers to charge for premium speeds might be beneficial for consumers. If I use internet phones or want to stream from companies like YouTube or Netflix I may prefer for those services to have a higher speed. On the other hand net neutral internet service may be a differentiator that allows other internet providers to compete.
Ty: 50/50
Very cool to spot this bit of news that came out after my comment.
This could be nothing. Or it could be something. I know that sounds dumb; I guess it means I want to file this bit of news away to see later if it really is motivated by net neutrality, or because they really want more time.
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