In Part I, I gave a general overview of the regulatory review process for the Comcast/TWC Deal. In Part II, I describe how the antitrust review works (which, in this case, will be conducted by the Department of Justice Antitrust Division). Keep in mind I am not discussing any of the arguments on the merits. I’m just trying to give people a sense of how the process will work and where they can weigh in if they feel so inclined.
Antitrust process described below . . .
Which Antitrust Agency Gets To Decide The Merger?
Under the antitrust laws, the DoJ and FTC share jurisdiction for merger review and antitrust enforcement. As a practical matter, the agencies have long standing divisions of expertise that cover most standard merger categories, so usually it is pretty straightforward which agency handles which deals.
In this case, however, things are a bit less clear. Traditionally, the FTC has handled pure cable mergers. For example, the FTC handled the last major cable deal, the Comcast/TWC/Adelphia transaction, back in 2006. So one would normally expect the FTC to handle review of the merger. But the DoJ handled the Comcast/NBCU deal back in 2010. Since any consideration of merger conditions begins with expanding the Comcast/NBCU conditions to the TWC systems, that would mean amending the existing consent decree between the DoJ and Comcast NBCU. Usually, if review involves a previous consent order, the same agency will take jurisdiction.
In this case, the DOJ did indeed win the toss and will review the transaction.
Does It Make A Difference Which Antitrust Agency Handles the Review?
In theory, both antitrust agencies work under the same standards and procedures, so it shouldn’t matter all that much. In practice, some differences between the agencies matter quite a bit in terms of influencing the outcome. Institutionally, DoJ has spent the last several years focused on online video and the evolution of the cable industry. In addition to the Comcast/NBCU deal, the DoJ also handled the Verizon/SpectrumCo deal and has a long-standing investigation into online video and Comcast’s “TV Everywhere” strategy. So there is something to be said for familiarity with the issues.
Structurally, the DoJ is part of the executive branch. The Attorney General answers to the President, and the head of the Antitrust Division answers to the Attorney General. This means that the head of the Antitrust Division decides whether or not to challenge the merger, subject to review by the Attorney General. By contrast, the Federal Trade Commission is an independent agency with 5 Commissioners. For the FTC Chair to authorize the agency to challenge to merger, or to agree to a consent decree with conditions, the FTC Chair needs a majority vote.
At the moment, the FTC is divided deadlocked at 2 Democrats and 2 Republicans. The third Democrat is waiting for confirmation by the Senate. Meanwhile, Bill Baer, the chief of the Antitrust division, is recused from considering the merger because he represented NBC in the Comcast/NBCU merger. That puts Baer’s Deputy, Renata Hesse, in charge of the review. So, from an institutional standpoint, there are pluses and minuses for each agency in this transaction.
Bottom line, however, whichever agency reviews the merger, it will operate under the same procedures and same legal standards.
So Setting Aside Which Agency Gets This, How Does Antitrust Review Work?
The reviewing agency reviews the proposed deal to determine “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” (15 U.S.C. 18) The scope of the review in theory covers “any line of commerce, or any activity affecting commerce.” Also, because the statute uses the word “may,” rather than “will,” it does not require absolute certainty.
Nevertheless, the agency has the burden of showing in court, by preponderance of the evidence, that it is more likely than not that the deal somehow substantially lessens competition” or would “tend to create monopoly.” The reviewing agency will treat this as a civil investigation and make no public statements about its theories or even the evidence it gathers. The agency has subpoena power, so it can compel parties to provide evidence or give statements.
The agency will chew on all the evidence it collects and then decide what are the relevant markets for consideration. Although the statute says “any line of commerce, or any activity affecting commerce,” the reality is that the agency must determine what lines of commerce or other activities are the relevant ones to consider. In addition to determining the lines of business, the agency will also determine whether the relevant market is national, regional or local in scope.
This “market definition” question frames the entire merger analysis, and becomes one of the key points of debate. For example, Comcast/TWC argues that post merger they will control only a bit more than 30% of the national subscription television market, and will divest (sell off) 3 million subscribers to drop below the 30% threshold (never mind why that’s important for now). By contrast, Free Press points out that Comcast/TWC would control “more than half the U.S. triple-play market for video, voice and Internet service.” Obviously, it is easier for Comcast to make its case for the merger going forward if the relevant market is the national subscription television market rather than the triple-play market.
Once the antitrust agency figures out the relevant markets and whether it sees potential problems resulting from the merger, the agency will decide whether to challenge the merger in court or try to impose conditions on the merger. Challenging the merger means filing a complaint in federal court that outlines the markets in which the merger would cause competitive harm, and explaining the underlying theory of why the merger would cause this kind of harm in these markets. Comcast and Time Warner Cable would then have the chance to respond. Ultimately, the antitrust agency would have the burden of proof, and if the court remained unconvinced then the antitrust review would be over.
Alternatively, the agency may negotiate with the parties for conditions. These can be either divestitures (such as the 3 million customers Comcast promises to spin off after the merger) or “behavioral conditions.” Behavioral conditions are things designed to promote competition in a way that will offset the harm to competition the agency sees happening as a result of the merger. For example, Comcast agreeing to abide by the Net Neutrality rules as a merger condition for seven years (starting in 2011) no matter what happened to the rules in court is a “behavioral condition” designed to address the increased incentive Comcast would have to discriminate against non-NBCU content or online video distributors (OVD) other than Hulu (which it partially owns).
If the antitrust agency and Comcast agree on conditions, the agency will still file a complaint in federal court alleging that the deal violates the antitrust law. At the same time, Comcast and the antitrust agency will file a settlement of the complaint which sets out the conditions. (The curious can look at the complaint, proposed consent decree and other documents filed by DoJ in Comcast/NBCU to see examples.) After taking public comment on the proposed settlement, the district court will determine whether or not the settlement is in the public interest. If the court finds the settlement serves the public interest (and it generally does), than it enters the proposed consent decree as a final judgment and the merger is done.