Cable deal seen winning U.S. approval with open Internet conditions

Comcast's bid to buy Time Warner will probably have Internet protections

Bloomberg NewsFebruary 14, 2014 

WASHINGTON -- Comcast Corp.'s proposed purchase of Time Warner Cable Inc. faces as much as a year of U.S. scrutiny that probably will end in approval after regulators secure pledges the combined company won't harm Internet users.

Federal Communications Commission Chairman Tom Wheeler, a Democrat, may seek to protect online video providers like Netflix from excessive charges for streaming content and use the deal to extend fast Web access to more residences and schools.

"I think it gets through because it enables the Wheeler FCC to implement public policy that it might not be able to get done through rulemaking," Rob McDowell, a former Republican commissioner, said in an interview.

The largest two U.S. cable companies have been building a case that antitrust and FCC officials should view the deal in the bigger picture of Internet, cable and telephone competition, said two people familiar with the matter. They include as competitors AT&T and Verizon Communications, the people said.

Consumer groups said they would oppose the $45.2 billion deal to enlarge biggest cable company Comcast with assets of No. 2 Time Warner, adding major media markets New York and Los Angeles to its portfolio.

Comcast said it is willing to give up 3 million of the approximately 11 million subscribers the deal would bring. Analysts said that may not be enough.

The deal may face "raw political pushback from cable critics and possibly rivals" who would argue it goes too far and needs to be reined in, Stifel Nicolaus analysts Christopher King and Josh James said in a note Thurs

day. "But we ultimately expect the transaction will be approved."

The offer to divest subscribers is a nod to regulators' concerns about one cable company becoming large enough to dominate national markets for programming, such as television series and sports.

Comcast probably will need to make some divestitures and agree to conditions like those it accepted when it bought NBC Universal in 2011, the Stifel analysts said.

As part of that deal, Comcast agreed to follow the FCC's open-Internet rules, which required service providers to treat Web content equally, until 2018 regardless of how the regulations fared before judges. An appeals court vacated the rules last month, and Wheeler is considering how to respond.

With a merger the rules would extend to the acquired Time Warner broadband subscribers, David Cohen, a Comcast executive vice president, said in a conference call Thursday.

Shannon Gilson, a spokeswoman for the FCC, didn't reply to emails seeking comment. Federal government offices in Washington were closed Thursday because of snow.

Regulators have standing to question deals, even though there is no hard limit on cable-company size. Comcast in 2009 persuaded a U.S. court to throw out an FCC rule limiting providers to serving 30 percent of the pay-TV market.

Washington hasn't judged a major cable merger since the FCC and Federal Trade Commission in 2006 let Comcast and Time Warner buy assets of bankrupt Adelphia Communications Corp. The FCC required the buyers to offer their regional sports programs to competitors.

The FCC has singled out regional sports networks for attention while judging cable deals, saying that withholding coverage of games and events may be anti-competitive. Time Warner has regional sports networks in Los Angeles that show Lakers basketball and Dodgers baseball games.

Michael Copps, a former Democratic FCC commissioner, in a statement released by Common Cause said the deal "is so over the top that it ought to be dead on arrival at the FCC."

The FCC should block the merger because it creates a company with too much power over Internet traffic, Harold Feld, senior vice president of the Washington-based policy group Public Knowledge, said in an interview.

"The smart money never bets against Comcast, but at this point I'm not sure I'd bet on Comcast either," Feld said.

Questions for the FCC include whether Comcast unfairly charges more to middle-mile Web carriers such as Level 3 Communications Inc. and Cogent Communications Group Inc. because they carry traffic for competing video provider Netflix, Feld said.

"This will mean more consolidation and more control over what people see on the TV and the Internet," said Matt Wood, policy director of Free Press, a public interest advocacy group that opposes the deal. "You'll have to go through them or you can't be seen."

Not everyone onboard

Consumers Union, the non-profit publisher of Consumer Reports magazine, announced its opposition, as did Common Cause.

"This industry is notoriously unpopular with consumers due to poor customer service, not to mention ever-increasing bills, and a deal this size doesn't exactly convince us that things will get better." Delara Derakhshani, policy counsel for Consumers Union, said in an emailed statement.

Cable company mergers generally create efficiencies and reduce costs because they permit programming distribution over a wider subscriber base, Herbert Hovenkamp, a law professor at the University of Iowa, said in an interview.

Antitrust enforcers at the Justice Department or the Federal Trade Commission will have to decide "whether there is a significant group of customers who would be expected to pay higher prices or have reduced services," Hovenkamp said.

One area of scrutiny for the government will be whether the combined company can limit competition in programming, Hovenkamp said.

"Bigness itself is not an issue," he said. "It's the ability to eliminate competitive alternatives that is really the problem. We live in a world in which a lot of industries are big simply because it's more beneficial to consumers."

Comcast had been working on a potential bid for Time Warner Cable for months and sped up the process about two weeks ago, said two people familiar with the matter.

Together, Comcast and Time Warner will have 36 million subscribers. AT&T and Verizon have 100 million in a larger universe of digital content providers, one of the people said.

Some antitrust experts questioned whether the strategy will work in Washington. Federal agencies will be looking solely at the deal's impact on consumers, said David Balto, former policy director at the Federal Trade Commission who is now a public- interest attorney.

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