Time Warner and Comcast Merger - Essay Example

Time Warner and Comcast Merger Comcast’s intention of acquiring Time Warner is just an indication of is ambitious expansion and diversification plan. According to the CEOs of the two companies, the main intent of Comcast is to establish a good environment for the clients of Time Warner Cable as well as Comcast firms. This merger is different in that it will establish a firm that offers total value for the investors, huge opportunities for the staffs and a better experience for the clients. It appears that consumers can anticipate cutting down on costs while gaining from a high speed internet and an upgraded video experience (Knee, Greenwald and Seave 231). The enterprise clients should also experience improvement, whilst advertisers will have their focus on one position. While this merger might sound bitter to the regulators, it is actually enticing and from the experience of the customers with cable networks, they should have reason to smile with the emergence of a one giant company. The main impediment of this merger according to the U.S regulators is the fear that the company would create a business that is well aware that clients have no other choices than to the poor provision of customer service as well as increased rates knowing there are no options out there. In any case, this is one of the fundamental concerns with any establishment of a monopoly where the US regulators will carry the ultimate decision. According to the authors, the strategy taken is a well conceived strategy which creates a moat or what is known as barriers to entry. The reason for their opinion are based on barriers to entry which entail competitive advantages such as economies to scale and the net network effects, captivity of customers, proprietary technology as well as government advocacy (Schlossberg and American Bar Association 469). This situation is not an accident as some people may explain but a strategic step created to achieve economies of scale and achieve customer captivity. Since the merger has the objective of saving on costs for the customers of both firms, this will make the barriers to entry very high. The situation cannot be termed as being created to destroy value through acquisitions. The value of the companies or competition cannot be destroyed. If the internet providers were to be left on their own, they would charge high prices given that they experience no oversight or face competition. The merger has the intentions of providing the customers with more efficient services which as well raise the standards in the provision of internet services. In the long run, the barriers to entry will further be strengthened because the customers will get used to being offered best quality services which has negative implications to the newcomers. The new firms in the industry will be forced to encounter very high costs to meet the set standards, which may reduce their ability to gain entry into the market. The market share is largely sustained given that the exit of customers will be minimized. The customers will be too excited to leave change their service providers given the best deals being offered. In the long-run, the operating margin can be increased for the company. It should be noted that through economies of scale, aspects such as reduced costs of advertisements and reduced costs of utilities will be realized. In particular, reduction in operation has a positive effect on the operating margin given that the sales volume does not fall. In this situation with the reduction in the operating costs for the company, the merger will capitalize on this opportunity to realize increased profitability without compromise on quality of services produced. Some analysts predict that the merger between Time Warner Cable and Comcast has the ability to increase the customer for Comcast by 50% from 22 million to about 33 million home subscribers, giving the company the opportunity to reach out to over 70% of the United States households and a way larger base which the company can diversify to on-demand venture (Hoskins, McFadden and Finn 121). In this perspective, it will be nearly impossible for the operating margin to remain the same or decrease. At the same time, the company’s shareholders value will actually be improved, which goes in contrary with the propositions by some section of concerned media groups. By using the analytical tools, the proposed deal can be understood in various ways. In terms of competitive advantage with government advocacy, the proposed deal might be easily influenced through the political influence. Some of the top politicians in the Congress and the Senate may be easily influenced with the merger to provide the company a go-a-head in the deal. However, the U.S regulation might be pressured by the media and the public to reject the deal. In any case, the deal stands a chance of being approved. In terms of net network effects, the proposed deal will have a big impact on the current network market. These are two companies in different markets but the proposed merger might easily influence their ability to change the quality of network being offered to the customers (Popelka 2). This goes hand in hand with the proprietary technology. The merger will create undue competitive advantage over other competitors in the market given that Comcast is the leading cable and internet provider the U.S, which has the intentions of merging with the second largest firm in the provision of network. The merger is being misunderstood to have the ability to reduce the competition level in the industry as well as establish excessive barriers to entry. The critiques also perceive that the merger does not have the public interest in their objectives. This is according to the Federal Communication Commission and the media fraternity that seems to have misunderstood the whole process given that focuses on the ensuring that program diversity is accessible to the public as opposed to looking at the deal in terms of possible benefits to the customers. The Commission is concerned over the disputes on the program fees from the networks. On the contrary, the customers are likely to experience immediate changes in relation to the lineup of channels and internet service. The opposition to the impending merger is linked to the normal dislike to Comcast for its perennial inflexibility in service visits scheduling price increases on certain occasions and infrequent outages (Santoli 1). Based on my scrutiny the justice department should approve the deal given that the proposed deal meets the stringent planning requirements. This is based on the fact that this deal must be viewed from the angle of quality of standards, the costs to the customers and the potential benefits from the deal in terms of taxation of potential profits. It’s logical that the higher profits, the higher amount of taxes and satisfied clients such as internet users and media groups will also stipulate to improved performance of their respective services and profitability. Works cited Hoskins, Colin, McFadden, Stuart and Adam Finn. Media Economics: Applying Economics to New and Traditional Media. Business and Economics Journal. New York: Portfolio, 2004. Internet source Knee, Jonathan A., Greenwald, Bruce C., and Ava Seave. “Bad Mogul: Media Mergers and Acquisitions.” The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies. Business and Economics Journal. New York: Portfolio, 2009. Internet Source. Popelka, Larry. Comcast-Time Warner Merger is Good for competition-and consumers. Bloomberg Business Week: New York. 2014. Internet Source. Santoli, Michael. Comcast and Time Warner Cable Merger: What it means for consumers. The Daily Ticker: Yahoo Finance. 2014. Internet Source. Schlossberg, Robert S. “American Bar Association. Section of Antitrust Law.” Mergers and Acquisitions: Understanding the Antitrust Issues. Chicago, Ill.: ABA, Section of Antitrust Law, 2008. Print. Read More