Yesterday the International Center for Law & Economics and eleven independent professors and scholars of law and economics filed Reply Comments to address concerns raised in the Comments and Petitions to Deny in the Comcast Time Warner merger proceeding at the FCC. We make the following key points:
The merger does not reduce competition in the relevant markets.
- The FCC has found that the relevant market for analysis in similar mergers is local. In these cases, the FCC found that the broadband market is competitive, and when there is little or no geographic overlap among ISPs that seek to merge, then there is no reduction in competition.The FCC should continue this reasoned analysis and reject “national broadband share” as a meaningful metric: the relevant market is a local one.
The FCC must properly attribute and consider merger-specific benefits.
- The transaction will bring significant scale efficiencies in a marketplace that requires large, fixed-cost investments in network infrastructure and technology. Before anyone even considered using the Internet to distribute Netflix videos, Comcast invested in the technology and infrastructure that ultimately enabled the Netflix of today. It did so at enormous cost (tens of billions of dollars over the last 20 years) and risk. Absent Comcast’s broadband infrastructure investments, we would still be waiting for our Netflix DVDs to be delivered by snail mail, and Netflix would still be spending three-quarters of a billion dollars a year on shipping.
Vertical issues (like limiting access to independent programming content) will be unaffected by the merger.
- Vertical integration in the cable industry does not harm consumers, and, often, has substantial benefits. And the merger changes little overall in terms of incentives for vertical foreclosure: Comcast currently has no ownership interest in the vast majority of programming it distributes — and it eagerly distributes it and it makes its own content widely available for distribution by competitors. Nothing about the proposed merger will change any of that.
Concerns about Comcast’s interconnection agreement with Netflix are completely misplaced.
- The availability of multiple alternative avenues to deliver traffic to Comcast, and the ready availability of access to a transit market where prices have been falling precipitously, firmly constrain Comcast’s ability to set prices for direct connections. It is also important to appreciate that the bargaining power of Internet edge providers is not nearly as insignificant as some critics would claim.
- Post-merger, the bargaining power of smaller edge providers will not be affected at all. Small edge providers (who happen also to be the vast majority of participants in the Internet edge ecosystem) will be able to choose from a multitude of interconnection paths in a highly competitive market to deliver their Internet content to Comcast.
- Meanwhile, post-merger, the bargaining power of the few edge providers that generate vast amounts of traffic will not be affected either. In addition to the existence of the multitude of alternative highly competitive paths to deliver traffic to Comcast, these large edge providers will also be able to leverage the high demand for their Internet content among Comcast’s broadband subscribers.
An Appendix to the filing included the summary results of a recent MIT study, Measuring Internet Congestion. The clear implication of the study is that, despite Netflix’s claims that Comcast acts as an insurmountable bottleneck, Netflix has — and uses — considerable power in its transactions with Comcast. In particular, as our Reply Comments discuss:
- Large Internet edge providers are able to route their enormous traffic in ways to exert commercial pressure on ISPs, and large edge content providers are able to both determine, as well as avoid (or exploit) congestion at a moment’s notice.
The scholars signing on to the Reply Comment were:
- David Balto, Former Policy Director of the Bureau of Competition of the Federal Trade Commission
- Babette E. Boliek, Associate Professor of Law, Pepperdine University
- Donald J. Boudreaux, Professor of Economics, George Mason University
- Henry N. Butler, Foundation Professor of Law, George Mason University
- Richard A. Epstein, Laurence A. Tisch Professor of Law, New York University
- Thomas A. Lambert, Wall Chair in Corporate Law and Governance, University of Missouri
- Roslyn Layton, Fellow, Center for Communication, Media and Information Technologies, Aalborg University
- Geoffrey A. Manne, Executive Director, International Center for Law & Economics
- Scott E. Masten, Professor of Business Economics and Public Policy, University of Michigan
- Paul H. Rubin, Dobbs Professor of Economics, Emory University
- Michael E. Sykuta, Associate Professor of Economics, University of Missouri
Read the full comments here, and see our other work on the Comcast-Time Warner Cable merger, especially: