Comcast merger seems dead as FCC reportedly opposes it

Comcast has spent more than $200 million to obtain required approvals from the government for merger. The cable giant's plan has met with continuous opposition. ( Yong Kim / Staff Photographer )

Comcast Corp.'s giant deal for Time Warner Cable Inc. seemed dead Thursday after the staff of the Federal Communications Commission reportedly favored sending the $45 billion transaction to an administrative law judge for a decision.

Such a move indicates that the FCC does not believe the deal would benefit consumers.

A hearing before an administrative law judge - unlike private negotiations between high-level FCC officials and Comcast executives over conditions of the merger - would offer Comcast opponents another public forum in which to blast the transaction.

Robert McDowell, a former FCC member, said Thursday that the hearing process would be almost impossible for Comcast to win and could force a final decision in federal appeals court that could take months of litigating and millions of dollars.

"The FCC fired the fatal bullet," said McDowell, a commission member between 2006 and 2013. "An FCC designation for a hearing is really a bullet to the heart of the deal. There is no way out."

A collapse of the deal would be a setback for Brian Roberts, Comcast's chief executive officer and chairman, who has relentlessly bought out the Philadelphia company's rival cable operators over the last two decades, transforming it into a national telecommunications powerhouse.

Demise also would be a political defeat for Comcast executive David L. Cohen, a Democratic fund-raiser who is considered one of the most powerful lobbyists in Washington.

The FCC staff, according to McDowell, had concerns that Comcast had not lived up to the merger conditions in its deal for NBCUniversal in 2011.

The FCC also redefined the broadband market in late 2014, specifying that the high-speed market entailed Internet speeds of 25 megabits per second or faster - which would give Comcast vast control of broadband U.S. households. With that newly defined market, a combined Comcast/Time Warner Cable would control about 57 percent of the national high-speed market, according to merger documents.

Netflix and Dish Network, which recently launched its Sling TV online streaming service, lobbied against the deal and said that no conditions could satisfy their concerns over Comcast's resulting market power in the high-speed broadband market.

Further, Netflix and Dish believed that a larger Comcast would have the incentive to disrupt their streaming services and protect its own cable-TV business.

On Wednesday, Comcast rejected in a detailed blog post claims that it had not abided by the NBCUniversal merger conditions, such as placing news channels close together in cable-TV packages and offering stand-alone broadband Internet service at a reasonable price. The company has said repeatedly that the Time Warner Cable deal would have no ill effects on broadband competition because Comcast and Time Warner Cable do not compete with each other in towns across the United States.

Comcast also has said that a big benefit of the transaction would be extending its discounted Internet Essentials for low-income families to Time Warner Cable areas.

At midafternoon Thursday, Bloomberg News reported that Comcast would walk away from the potential megamerger. It has spent more than $200 million in efforts to obtain the required approvals.

An announcement could be made as soon as Friday, Bloomberg reported. Neither Comcast nor Time Warner Cable had comment on Thursday afternoon.

The Bloomberg story - which cited as sources people with knowledge of the matter - seemed to reflect the broader sentiment on Wall Street and in Washington's corridors of power that Comcast faced a perhaps insurmountable political climb.

In addition to the Justice Department and the FCC, state agencies in New York and California have yet to approve the merger, announced in February 2014.

Christopher J. Marangi, portfolio manager at Gabelli Funds, said on Bloomberg TV Thursday morning that he believed the deal had a less than 25 percent likelihood of closing.

"It could be any time," he said of an announcement by Comcast that it would abandon the transaction. "They report [earnings] in two weeks. The big cable [industry] show is in two weeks. Maybe they get the news out before then."

Telecommunications-industry analyst Craig Moffett said Thursday morning, "No, the Comcast deal isn't dead yet. But it's a bit like an elephant that has been dropped out of an airplane. At around 10,000 feet, it is technically still alive. But it is falling fast, there's not much you can do to stop it, and its odds of survival are pretty low when it hits the ground."

Abandoning the Time Warner Cable acquisition would be the second major setback at the FCC for Comcast this year. The first was the agency's decision in late February to regulate the Internet under Title II phone-utility regulations. Comcast opposed that decision.

"In a democracy like this, you have to gather your forces to say no to politically powerful people," Mark Cooper, a Comcast opponent and research director at the Consumer Federation of America, said of leaks at the Justice Department and the FCC on their staff positions on Comcast/Time Warner Cable.

Former FCC member Michael Copps, also a Comcast critic, said, "Comcast's withdrawal of its proposed merger with Time Warner Cable would be spectacularly good news for consumers concerned about the spiraling costs of cable and broadband, and for millions of citizens who want nothing more to do with gatekeeping and consolidation in the communications ecosystem on which our democracy depends."

But others did not believe that the megamerger posed an anticompetitive threat, saying wireless services could be considered alternatives to companies such as Comcast and Time Warner Cable in offering high-speed Internet.

"The Comcast-Time Warner merger would not have eliminated a competitor or choice for consumers," said Scott Cleland, chairman of NetCompetition, a pro-competition e-forum supported by broadband companies.

"Since the last cable-to-cable mergers were approved about a decade ago, every single facet of the communications marketplace has become dramatically more competitive, dynamic, and innovative," Cleland said. "Just like wireless substitution from [satellite-TV] competitors has transformed video competition, and wireless substitution from cellular competitors has transformed telephony competition, wireless substitution . . . is transforming broadband competition."

U.S. Rep. Charlie Dent (R., Pa.), one of the few lawmakers to openly support the merger, said the Obama administration "has a 19th-century view of antitrust law."

"I don't believe they understand the dynamic, evolving nature of this sector," he said.

Dent, of Allentown, said that the administration's decision to halt a proposed AT&T/T-Mobile union cost jobs in his district, and that now the roadblock for the Comcast-Time Warner deal will cost Pennsylvania.

"The additional jobs and other economic benefits that would have resulted will not be realized now," said Dent, who signed a letter in an effort led by U.S. Rep. Robert Brady (D., Pa.) that urged federal officials to approve the deal.

 


Timeline of the Time Warner Deal

2014

Feb. 13: Comcast Corp. announces a proposed $45 billion deal to acquire Time Warner Cable that would merge the nation's largest cable providers. The deal would add the New York and Los Angeles markets to Comcast's cable-TV subscriber base, boosting it to more than 30 million customers.

April 9: Senators and consumer groups criticize the proposed deal at a Judiciary Committee hearing, arguing that the combined company would wield an outsize influence on the pay-TV and Internet markets. Sen. Al Franken (D., Minn.), a frequent Comcast critic, says, "I am against the deal." Comcast executive David L. Cohen says that "consumers will be big winners in this transaction."

April 28: In an effort to sway regulators, Comcast says it would divest 3.9 million cable-TV subscribers if the deal were approved.

May 8: Comcast faces four hours of questions from skeptical legislators at a House Judiciary subcommittee hearing. A former U.S. Justice Department official says the deal is anti-competitive and "very likely illegal."

May: The American Customer Satisfaction Index rates Time Warner Cable as the nation's most unloved company, ranking worst in customer satisfaction for its Internet service, and next to last for its TV service. Comcast's rankings are nearly as bad.

July 7: The Federal Communications Commission appoints a team to evaluate the merger that includes William Rogerson, an economics professor and former FCC chief economist who voiced opposition to Comcast's earlier acquisition of NBCUniversal.

Aug. 21: Mayor Nutter and 50 other mayors declare support for the merger, saying the deal would lead to significant economic benefits in the communities they serve.

Aug. 25: Netflix and Dish Network are among the entities opposing the merger in more than 75,000 public comments filed with the FCC.

2015

Jan. 29: A Comcast customer in Spokane, Wash., says the cable-TV giant replaced his first name on his bill and online account with a vulgarity after he canceled his cable service. A Comcast senior vice president apologizes and calls it an "unacceptable situation."

Feb. 26: The FCC sides with Net neutrality advocates and votes to regulate the Internet as a utility. The action is strongly opposed by Comcast.

April 23: Bloomberg News and other media organizations report that Comcast is set to walk away from the merger after the FCC and the Justice Department reportedly inform the company that they are opposing the deal.


bfernandez@phillynews.com

215-854-5897 @bobfernandez1

 

Inquirer staff writer Jonathan Tamari contributed to this article.