Merger Review Isn't Over Yet

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AT&T Broadband and Comcast Corp. said last week that the Justice Department can't stop them from closing the largest cable merger ever.

But the announcement didn't sit well with Justice's chief antitrust enforcer, Charles James.

"As I sit here, I am not quite sure what prompted the company to issue the press release that it issued [last Tuesday]," James said in testimony last Thursday before the Senate Subcommittee on Antitrust, Competition, Business and Consumer Rights. "Our investigation of the transaction is continuing."

James is head of Justice's Antitrust Division, which is reviewing both the AT&T Broadband-Comcast merger and the merger of direct-broadcast satellite providers EchoStar Communications Corp. and DirecTV Inc. parent Hughes Electronics Corp. Both deals also need clearance from the Federal Communications Commission.

AT&T and Comcast issued a joint release noting the deadline for action by Justice under the Hart Scott Rodino Act had expired. They also pledged to cooperate with Justice to the extent James and his staff had any additional questions.

Officially, Comcast declined to elaborate on the one-paragraph statement. But a cable-industry source said Justice officials expressed no concern when told that the companies planned to issue a release about expiration of the HSR deadline.

Moreover, the companies felt they needed to issue the release to notify investors that a material event in the merger review process had occurred.

Asked by subcommittee chairman Sen. Herb Kohl (D-Wisc.) for a date when Justice would finish its review of the cable merger, James was noncommittal.

"The investigation is ongoing and we will conclude that as promptly as possible," he said.

The DOJ can file suit to block a merger or to break up a company accused of violating antitrust laws. The Bell System was dismantled in that fashion in the 1980s. In recent years, Microsoft Corp. has come close to a similar fate.

American Antitrust Institute president Albert A. Foer said the fact that Justice allowed the HSR deadline to elapse was significant because Justice seldom fights a merger if the deadline has passed. The "normal reading," Foer said, is that Justice won't attempt to block the cable merger.

AT&T Broadband and Comcast announced their $72 billion merger last December. The new company would serve at least 22 million cable subscribers in 17 of the top 20 cities.

At the time of the announcement, the companies said the resultant AT&T Comcast Corp. would control about 5 million digital video subscribers, 2.2 million high-speed-data customers and 1 million local phone subscribers.

Justice and the FCC began reviewing the merger in late February and early March.

No problems foreseen

Few media analysts or antitrust experts have indicated that the cable deal would encounter serious opposition from Justice, since antitrust law is primarily concerned with reductions in competition that injure consumers. In the past, Justice has not considered mergers involving cable operators in adjacent markets to be a reduction in competition.

Percursor Group media and telecommunications analyst Scott Cleland said AT&T and Comcast issued the statement "to goose along the process" at Justice and the FCC. The FCC's self-imposed 180-day merger review period expires Oct. 21, barring an unexpected interruption.

"Justice doesn't have any big problems with this merger, but they do things on their timetable, not the companies'," Cleland said. "The companies may be jumping the gun a little on timing, but not on outcome."

Far more controversial is the EchoStar-DirecTV merger, which would largely create a direct-broadcast satellite monopoly in areas of the country not served by cable. Both Cleland and Legg Mason Equity Research analyst Blair Levin have been skeptical that Justice would approve the DBS merger.

EchoStar maintains that the merger's benefits far outweigh competitive concerns. EchoStar chairman and CEO Charlie Ergen has promised to offer local broadcast-TV stations in all 210 TV markets within two years, provide 12 channels of high-definition TV and offer two-way high speed Internet access to millions of rural households that are too costly for cable and phone companies to service.

EchoStar-DirecTV would become the No 2. pay TV provider in the country, with 16.4 million subscribers, according to UBS Warburg.

More focus on DBS deal

At the Senate hearing, Kohl again expressed his concern that the merger would eliminate DBS competition in rural America — a point that James did not dispute.

"This is a very important transaction. At best it is a three-to-two merger and, as you pointed out, in some instances a two-to-one merger," James said.

James also indicated that he has allocated more resources to the EchoStar-DirecTV merger than to the AT&T-Comcast deal.

"I can tell you that as I sit here that there is not a single matter in the antitrust division at present that is consuming more resources and getting more attention than the DirecTV-EchoStar transaction," said James, adding that his staff was conducting discovery as recently as last week.

Kohl pressed him for some indication of when Justice would announce its decision.

"I don't think that it would be appropriate for me to say it's going to be a month, 20 days, 35 days. But I can tell you that a decision, when the transaction is ripe for decision, will be made. And we are very serious about this transaction," James said.

EchoStar released a pair of statements last week, the first expressing hope that its merger with DirecTV would be approved, given signs that Justice is not planning to block the larger AT&T-Comcast deal.

"We are pleased to hear that Assistant Attorney General … James and the … Justice Department are going through a rigorous review of our proposed merger. We believe in the integrity of the process and are confident that after they analyze all the facts, they will make the right decision for the American consumer," EchoStar spokesman Marc Lumpkin said. n

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