We've got a frenzy of mergers in corporate America. And the U.S. government has backed itself into an odd corner trying to respond to it.
In America, questions about the government's relationship to the private sector have often circled around a certain skepticism about big government and regulatory heavy-handedness. But in this case, the regulators have wound up just trading one kind of heavy-handedness for another.
On Monday, federal regulators gave the green light for Charter Communications to buy Time Warner Cable, creating the second-biggest broadband provider and the third-largest cable TV provider in the country. The same day, Gannet Co. — which owns USA Today and loads of other newspapers across the country — offered to buy Tribune Publishing Co. — which owns the Los Angeles Times and Chicago Tribune, among other papers. Uncle Sam hasn't approved the newspaper acquisition yet, but it seems likely to get the go-ahead.
These deals are hardly aberrations. In market-value terms, mergers and acquisitions are hitting all-time highs.
And government regulators are handling merger mania exactly the wrong way.
In general, the federal government has been standing by as insanely large companies gobble up only slightly less insanely large companies, fixating on the details of these deals rather than nixing the deals themselves.
Now, I'll concede, both of these new mega-deals are the result of regulators squashing even bigger proposed deals. Charter got Time Warner only after Comcast tried in 2014, and Tribune recently made a bid for Freedom Communications. Both attempts were shut down by the feds. But this belated turn towards more aggressiveness in antitrust enforcement only serves to highlight the problem.
A bit of background: Antitrust law is the collection of federal and state statutes that aims to promote competition, and it's generally enforced by the Federal Communication Commission (FCC), the Federal Trade Commission (FTC), and the Justice Department. Mid-century, regulators understood promotion of competition in expansive terms: It wasn't just about securing lower prices for consumers, it was about decentralizing and spreading out economic power. Then, with the Reagan administration, a narrower vision took over: Regulators would focus simply on making sure there was enough competition to keep prices from rising, and that was it.
The result is that since the 1980s, regulators have been a lot more tolerant of moves towards bigger and fewer companies. The merger between Charter and Time Warner may be smaller than what we'd have gotten under Comcast plus Time Warner, but the new company will still dominate roughly a third of the broadband market. With Comcast controlling another third, and AT&T controlling much of the remaining third, we're headed towards what one analyst described as a "tri-opoly."
Similarly, regulators may find the combination of Gannet and Tribune more appealing than Tribune and Freedom Communications. But the former would still result in a new national media company with a daily circulation of over 7 million.
For decades, regulators have been perfectly willing to let a certain kind of mega-deal go through. But now, they're becoming more persnickety about the conditions of those deals.
For instance, the FCC and the Justice Department insisted Charter could not impose usage-based pricing or caps on data for seven years. Charter isn't permitted to charge companies like Netflix extra to connect to Charter customers, nor will it be allowed to push the kind of negotiating tactics with programmers that would keep media off its streaming competitors like Netflix and Amazon.
But here's the thing: Massively unfair charges for data usage and strong-arm tactics to force programmers to freeze out other companies are all things that market competition is supposed to prevent. If one broadband provider tries to extort you, you dump them and pick another. It's only when you only have one vendor to choose from that you have a problem. But antitrust enforcers effectively abandoned competition as a goal in itself, and allowed a few key players to gobble up the market. Now that regulators are belatedly trying to put some teeth back in antitrust enforcement, they're having to use the terms of merger deals to enforce those behaviors by regulatory fiat instead.
This is ironic. A narrower focus for anti-trust enforcement was ostensibly about avoiding heavy-handed big government. But that simply bred another form of heavy-handedness.
You can see this in another aspect of the Charter deal as well. The government is concerned about poor Americans' lack of access to the internet, so another price Charter has to pay to get the deal approved is laying down new infrastructure to bring broadband service to about 2 million low-income households. Regulators demanded a similar move from AT&T and DirecTV when they merged last year.
This is even weirder. If the government wants to bring the internet to millions of poor Americans, it's perfectly capable of hiring workers to do that itself. There's a genuine debate to be had over whether internet infrastructure should really be viewed as a natural monopoly in the same way as water utilities — and thus whether it's a public service the government could just take over. If the government thinks it's in the public interest to bring the internet to everyone regardless of their income status, and private corporations aren't getting the job done, it's perfectly capable of undertaking the project on its own. It doesn't have to farm it out to Charter or AT&T as some sort of regulatory tit-for-tat.
The government going around and regularly telling companies, "No, you can't merge" may seem heavy-handed, but it's probably less irksome for everyone involved than saying, "Yes, you can merge, but only if you jump through this series of hoops." Similarly, just having the government build its own internet infrastructure where it feels it's needed is arguably a whole lot cleaner and more straightforward than having regulators get all up in Charter's business to force the company to do it for them.
The problem is that there are different kinds of "big government." Sometimes, to avoid one form of "bigness," you have to embrace others. The government wouldn't have to make these kinds of rules if it had done a better job of policing giant mergers and acquisitions to begin with.