ATT-Time Warner Merger Bad for Consumers

New Issue Paper Released: Digital Communications Industry Sector is a Tight Oligopoly on Steroids and Needs Immediate Repair

Washington, D.C. — “The ATT-Time Warner merger must be stopped, but that’s only part of the problem.  Today’s concentrated digital communication network is putting a stranglehold on distribution, preventing free market delivery of content, and costing consumers billions of dollars,” said Dr. Mark Cooper, CFA’s Director of Research.

In an issue paper released today, Cooper explains that for the third time in less than a decade, a merger proposed by ATT has triggered the usual “just say no/just say yes reactions.  The debate has been amplified by the fact that, after more than a decade in which dozens of mergers were approved with weak conditions, the Obama Administration has moved merger policy in the opposite direction.  The DOJ and the FCC blocked two mergers (ATT/T-Mobile, Comcast/Time Warner) and jawboned another out of existence (Sprint/T-Mobile).  They imposed extensive conditions on others (Comcast-NBC, ATT-DirecTV, Charter-Time Warner-Bright House, and the Verizon-cable joint venture (Cellco)).

“While there is no question that the ATT-TW merger should be blocked, there is a far bigger market failure that needs to be addressed in the digital communications industry.  A tight oligopoly on steroids has emerged with consumer harm that far exceeds the problems that would be created by the ATT-TW merger,” said Cooper in his just released issue paper on the subject.

“Right now, four massive firms (AT&T, Verizon, Comcast and Charter) totally dominate the digital communications landscape. These four firms constitute what is known as a tight oligopoly, presenting a deeply troubling policy problem for U.S. regulators.  The market is highly concentrated with these four firms controlling over 60% of the industry.  The fact that the same four firms that constitute the tight oligopoly across all four communications markets (video, broadband, wireless and business data services) makes the oligopoly even tighter,” said Cooper.

The Issue Brief describes the current digital communications market as a “tight oligopoly on steroids” because the same four firms (ATT, Verizon, Comcast, and Charter) dominate all of the major product markets (wireless, broadband, business data services, and broadband).

Moreover, because of their history as local franchise monopolies and their decision since the 1996 Act not to compete head-to-head by overbuilding their neighbors, choosing to buy out their sister companies, they have achieved geographic separation.   By emphasizing their franchise products and dragging their feet in entering new product markets, they have achieved a significant amount of technological specialization and product segmentation. These market structural characteristics make it easier to cooperate, collaborate and engage in parallel and reinforcing behavior.

Because ATT has a strong position in three of the four product markets, adding video content increases its incentive and ability to undermine competition from online video distributors, but even if the merger is rejected, the underlying tight oligopoly on steroids will exist, imposing excess cost and restricted choice on consumers.

“Preventing any further consolidation of distribution is a no brainer,” said Cooper, “but that will not address the underlying problem.” Public policy cannot force firms to compete and the prospects of a new distribution network entering the market are slim to none. Breaking up the dominant firms requires decades of litigation and may not succeed. Our only option is to ensure these mammoth network operators cannot use their power over the pipes to frustrate competition for the content and applications that ride over them. Luckily, the FCC has four active and nearly complete proceedings that will further that goal:

Set Top Boxes: Opening up the control of set top boxes to both consumers and the free market.        

Zero rating: Preventing network operators from giving their affiliates a pricing advantage.

Privacy: Giving consumers more control over the network operators who can see everywhere the consumer goes on the network.

Business data services: Providing businesses, which need high volume, high speed transmission pipes to move large quantities of data to consumers, with greater options, will prevent those companies from passing network overcharges on to beleaguered customers.

“Stopping dangerous mergers is often not enough to open markets to effective competition. Regulatory action to open markets must go hand in hand with tough antitrust enforcement to deliver the innovation and lower prices that consumers deserve,” said Cooper.

Contact: Mark Cooper 301-807-1623

The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.