Wednesday, January 18, 2017

Verizon Buying Comcast or Charter--Absent Huge Divestitures--Would Not Pass Horizontal Antitrust Review

Rumors about big mega-mergers get floated from time to time for all sorts of reasons, sometimes to test the waters or encourage deal making. That seems to be the case for rumors about Verizon buying Comcast, or Verizon buying Charter Communications. Either combination would clearly run into major antitrust issues using the standard screens used by the Justice Department.

So such rumors might be intended to gauge just how far antitrust rules can be bent. But barring major divestiture of assets, it seems virtually impossible that antitrust officials would have an easy time with such huge horizontal mergers.

Some might try to argue that Verizon fixed network triple play services and Comcast or Charter triple play services do not represent horizontal concentration. Or Verizon might contemplate divesting its whole fixed network operation, though it is hard to see who the logical buyers might be.

Some might like to point out that AT&T bought Tele-Communications Inc., the biggest US. cable TV company, but that was totally different. AT&T (not SBC) had zero consumer fixed network assets. So buying TCI did not bring AT&T more than about 30 percent access to U.S. homes.

SBC, now that it has acquired the former AT&T, did so only after AT&T sold off those former TCI assets to Comcast, allowing Comcast to become the biggest U.S. cable TV company.

As Comcast and Charter now are the largest U.S. ISPs, and the largest U.S. cable TV companies, adding Verizon’s fixed network customer base and either cable company’s households passed would easily surpass the 30 percent maximum reach that historically has been the size limit for any local access provider.

Verizon could try and divest enough Comcast or Charter assets to stay under, or at, the 30-percent reach of U.S. households, keeping all its own fixed network assets.

Still, all those would be complex divestitures, with other complications. It isn’t so clear how much Verizon would want to operate hybrid fiber coax, all copper and all-fiber access networks, with all the differences in outside plant operations that would represent.

Nor is it so clear that Verizon would want to get bigger in fixed networks, since it has built its business on mobile services. Likewise, it is not so clear Verizon wants to be as big in media as owning Comcast would entail.

Charter’s footprint, meanwhile, is more rural than Comcast’s footprint, something Verizon definitely would not prefer.

To be sure, assets could be divested. They would almost certainly have to be, on the fixed network side of the business. Then there are all the cultural issues, union and non-union workforces to blend.

It seems unlikely Verizon would be looking strictly for a vertical merger, as AT&T proposed with Time Warner. Talk of Verizon using the HFC network for small cell and other backhaul makes sense, but the issue is the 30-percent homes passed test.

It all seems too complex, too likely to draw antitrust rejection, to be a likely outcome.

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