Comcast-Time Warner Cable: Merger Likelihood Begins to Slide

Josh LongFederal regulators may line up against Comcast Corp.’s $45.2 billion acquisition of Time Warner Cable Inc., according to analysts and other observers.

It’s been approximately one year since Philadelphia-based Comcast announced the planned merger, which would result in the combined company controlling roughly 40 percent of the national broadband market, according to a California administrative law judge.

Last week, a Comcast executive said the company has secured the bulk of the necessary local and state approvals necessary to acquire New York-based Time Warner Cable.

Comcast, which aims to close the merger early this year, has argued the agreement doesn’t present competitive concerns because the cable and broadband providers operate in different parts of the nation.

Some analysts have questioned whether Comcast can easily win over the Democrat-controlled Federal Communications Commission, which must find the merger is in the public interest.

Richard Greenfield, a media analyst with BTIG, has said it’s likely the government will formally oppose the merger. In a research note, he puts the odds of approval at just 30 percent.

Citing “stiffening political headwinds,” Craig Moffett of MoffettNathanson Research predicted in a report this week that the deal had a 60/40 percent chance of winning government approval, Variety reported on Feb. 17

Some analysts have interpreted the FCC’s change in direction on Net neutrality regulations as a sign that the agency will take a tough stance on the merger, either moving to block it or demanding significant concessions. FCC Chairman Tom Wheeler has proposed reclassifying broadband as a telecommunications service under Title II of the Communications Act of 1934.

The maneuver, if adopted on Feb. 26 during the FCC’s open meeting by at least three commissioners including Wheeler, will give the agency broader authority to regulate the Internet and broadband providers. The FCC is aiming to preserve the openness of the Internet and prevent broadband providers from favoring, blocking or slowing down certain Web traffic.

“What the FCC is now apparently going to adopt signals a much harder line on their view of the state of competition in the broadband market,” Kevin Werbach, a former FCC counsel and a professor at the Wharton School of the University of Pennsylvania in Philadelphia, told the New York Times. “If their view is that the market is not working as it is right now, it’s less likely that they’re going to feel that a combination of two of the largest players is going to be in the public interest.”

Mike Jude, a program manager at Stratecast/Frost & Sullivan, a market consulting firm, said the FCC’s focus on Net neutrality could impact the merger review.

“Consequently, just about everything it does will carry the flavor of Net neutrality. This means that the Comcast/TWC merger will likely be held hostage …

… to Net neutrality,” Jude said in an email to Channel Partners. “It is highly likely that the price for approval will be for Comcast to voluntarily adopt most of the FCC’s notions on broadband Title II regulation: reporting, pricing and access support.”

Chip Pickering, a former six-term U.S. congressman from Mississippi, heads up CompTel, an association representing such business-focused communications providers as EarthLink and Broadview Networks, competitors to Comcast and Time Warner Cable.

CompTel, the Independent Telephone & Telecommunications Alliance, and NTCA-The Rural Broadband Association run a campaign that is opposed to the merger.

Pickering recently cited growing opposition to the agreement. “Comcast may try to project confidence that this proposed merger is still on track,” Pickering wrote on Feb. 13, “but the markets tell a different story.”

He cited a Feb. 2 Wall Street Journal article, which reported that investors were concerned regulators might block the deal or demand significant concessions.

Skeptics of the merger, including Sen. Al Franken (D-Minnesota), worry the combined company will wield too much power in the broadband market.

Comcast has argued the FCC should examine competition in local areas while others have urged the agency to examine the national market. “If regulators take the ‘national’ approach to evaluating broadband competition, the FCC’s redefinition would appear to put the deal in even greater jeopardy,” Greenfield wrote in a research note.

The FCC has reported consumers have fewer choices when it comes to faster broadband speeds. In prepared remarks in September, Wheeler said more than 40 percent of American homes lack access to speeds of 100 megabits per second.

“While fast broadband is available to some, there are far too many parts of the country, particularly rural America, that are being left further and further behind,” Wheeler said in a Jan. 14 statement following a speech by President Barack Obama in Cedar Falls, Iowa. “Many other Americans lack competitive choices for broadband.”

The FCC is in day 142 of its unofficial 180-day review of the deal. The U.S. Justice Department also is reviewing the merger to determine whether it presents any antitrust concerns.

Justice lawyers have authority to move to oppose the deal in federal court. That happened in 2011 when the government filed a lawsuit to block AT&T’s $39 billion acquisition of T-Mobile USA. AT&T later walked away from the merger. FCC staff also found AT&T had failed to show the benefits of the merger would have outweighed the harms.

State Reviews

The FCC and Justice Department are not the only potential obstacles to Comcast’s acquisition of Time Warner Cable. Two of the nation’s largest states, California and New York, are reviewing the union.

An administrative law judge, Karl Bemesderfer, recently proposed California regulators approve the acquisition, subject to Comcast meeting a number of conditions. The California Public Utilities Commission could vote on the merger on March 26.

Opponents of the merger in California said the deal would enable Comcast to increase its footprint from 34 percent to …

… 84 percent of homes. That’s a greater percentage than Comcast’s national footprint (60 percent) after the merger closes, according to Bemesderfer.

David Cohen, Comcast’s executive vice president and chief diversity officer, indicated Comcast was willing to accept some of the judge’s proposed conditions to the deal. He was less eager to accept other recommended conditions.

“Some of the suggested conditions, however, could potentially prevent the full benefits of this transaction being realized by Californians, and create a more intrusive regulatory regime where innovative services could be hampered rather than helped,” Cohen wrote in a blog. “In addition, at least some of the suggested conditions simply lie outside the authority of the CPUC or are unrealistic.”

On Wednesday, U.S. Rep. Tony Cárdenas (D-California) lined up against the deal.

“The pending merger between Comcast and Time Warner Cable will enable an increased market dominance that will have a particularly negative impact on diversity of content and minority communities,” Cárdenas said during a briefing held at the headquarters of the Writers Guild of America, West.

On the opposite side of the country in Time Warner Cable’s home state, regulators also are scrutinizing the merger.

“Because of the proposed merger’s potential impact on consumers, and the complexity of the issues raised in the proceeding, Governor Cuomo has asked the PSC to do a full and complete review of all of the issues surrounding the transaction,” said James Denn, a spokesman with the New York Public Service Commission, in an emailed statement. “This is a complex matter and requires consideration of numerous facts that can affect millions of New Yorkers.”

The PSC has not scheduled a vote on the merger. It is following developments at the FCC and Justice Department.

The Justice Department did not respond to a request for comment on its merger-review timeline.

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