http://dealbook.nytimes.com/2015/02/08/comcast-time-warner-cable-deal-still-up-in-the-air-a-year-later/?ref=business
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Dealbook: Comcast-Time Warner Cable Deal Still Up in the Air a Year Later
2015-02-09 03:16:11.849 GMT
Dealbook: Comcast-Time Warner Cable Deal Still Up in the Air a
Year Later
By EMILY STEEL and DAVID GELLES
Feb. 8 (New York Times) -- A year after it was announced,
Comcast’s audacious acquisition of Time Warner Cable remains in
limbo as Washington regulators scrutinize the deal. No surprise
there. After all, the $45 billion merger would consolidate an
already-concentrated industry, uniting the two largest cable
operators in the United States.
But in recent weeks, the air of inevitability around the
deal has dissipated. With the Federal Communications Commission
proposing stringent new rules to govern the Internet, analysts
have grown more skeptical about the acquisition being approved.
Investors began betting against the combination late last month,
with shares of both companies falling sharply before recovering
last week.
“The prospects for the deal, while they’re still not bad,
have continued to go down,” said Kevin Werbach, a former F.C.C.
counsel and a professor at the Wharton School of the University
of Pennsylvania in Philadelphia.
Advisers to both companies acknowledge that passing
regulatory muster is far from certain. Yet David L. Cohen, an
executive vice president at Comcast, expressed confidence that
the merger would still be approved but acknowledged that the
outcome was hard to handicap.
“This is a bit of a black-box process,” he said. “You don’t
really know what’s going on under the surface.”
In Washington, officials at the Justice Department and
F.C.C. are poring over data to decide whether to approve the
deal, and what if any concessions the companies must make to
satisfy antitrust laws. The review continues even as Comcast and
Time Warner Cable are completing the minutiae of their planned
merger.
Among the issues being examined by regulators are whether a
combined Comcast and Time Warner Cable would have too much sway
over how traffic moves around the Internet and how much consumers
and companies pay for Internet access.
If regulators allow the deal, the company would control an
estimated 35 percent of broadband Internet service coverage and
just under 30 percent of the country’s pay television
subscribers.
Fueling the uncertainty is a series of remarks made by Tom
Wheeler, chairman of the F.C.C., before a vote by the commission
on Feb. 26. Mr. Wheeler has proposed regulating the Internet like
a utility, under Title II of the Communications Act.
If approved, such a move would give the F.C.C. the authority
to ensure that content is not blocked on the Internet, and that
broadband providers cannot charge companies for the privilege of
allowing their websites to load faster — the essential components
of what is known as net neutrality.
Though Mr. Wheeler’s proposal is not directly related to the
Comcast-Time Warner Cable merger, those familiar with the F.C.C.
say it signals a more vigorous approach to protecting customers,
which could also affect thinking on the deal.
“What the F.C.C. is now apparently going to adopt signals a
much harder line on their view of the state of competition in the
broadband market,” Mr. Werbach said. “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.”
If Comcast’s acquisition of Time Warner Cable were to be
blocked by either agency, the industry could be thrown into
tumult, with industry observers speculating that it would set off
a flurry of new deal activity.
“I don’t think they would say so publicly, but I think
everyone involved has to be at least considering a Plan B,” said
Craig Moffett, an analyst with MoffettNathanson research. He
recently lowered his odds that the deal goes through from 80-20
to 70-30, for factors including a changing regulatory environment
and potential changes to how regulators define the broadband
market.
Yet with all the uncertainty, it is impossible to know how
the F.C.C. and Justice Department will rule. Regulators rarely
telegraph their intentions, though in some past deals that have
been blocked, regulators have sent subtle signals about how
reviews were going; they have yet to do that during this review
process.
Comcast is in touch with regulators almost every day, Mr.
Cohen said, supplying them with information about business
operations and plans for the integration of Time Warner Cable.
“There is nothing that we have heard as part of those
contacts that suggest this transaction’s review is any different
than our prior transaction reviews, when our deals have been
approved,” he said.
Time Warner Cable executives also expressed confidence in
the deal, saying on a recent conference call that they expect the
closing of the merger with Comcast to occur “early this year.”
Comcast deploys a vigorous lobbying effort in Washington,
spending $17 million on such efforts last year, which made the
cable operator one of the biggest corporate campaigners in the
country. In several instances, state and local officials,
including Hawaii’s governor and Oregon’s secretary of state, have
sent letters to the F.C.C. supporting the deal that were written
almost entirely by Comcast employees. (Government officials first
had asked Comcast for help in providing the information.)
As for the government’s own timetable, the Justice
Department has no firm deadline. The F.C.C. has an informal
agenda to rule by the end of March, but could extend that.
Consideration of the deal by the F.C.C.is expected to
intensify next month, after the net neutrality vote. At the same
time, both the F.C.C. and the Justice Department are weighing the
antitrust ramifications of another proposed media merger, the
acquisition of DirecTV by AT&T.
Even if regulators approved the Comcast-Time Warner Cable
merger, they could demand onerous concessions from Comcast. If
that were to occur, or if Comcast decided that new net neutrality
rules would hurt the merged company, it could simply change its
mind and refuse to complete the deal, which forgoes a breakup
fee.
Mr. Cohen emphasized this point in an interview. “It is
absolutely accurate that we have a very broad right to walk away
from the transaction,” he said, without elaborating on what
conditions could cause Comcast to walk away.
Yet he cautioned that there was no indication that
regulators would ask for costly divestitures.
“There hasn’t been anything that we have heard at this point
that has led us to believe that anybody is thinking about
imposing overly burdensome conditions on this transaction,” Mr.
Cohen said.
But if regulators did ask for some divestitures, Comcast is
unlikely to simply abandon the deal. In Time Warner Cable,
Comcast sees the opportunity to become a truly national provider
of television, Internet and phone services, giving it
unparalleled scale.
Amy Yong, an analyst with Macquarie research, said the
importance of Time Warner Cable’s assets had only increased for
Comcast in the last year, as competition from telecom providers
like AT&T and new entrants like Google has grown fiercer.
Because there is no formal proposal, Mr. Cohen would not say
whether the new net neutrality rules might make the deal less
financially attractive to Comcast. Even if the proposal is
approved, it will face months, and possibly years, of review and
potential legal appeals. Before that process is complete, a new
administration could change the rules yet again.
Comcast, meanwhile, is spending countless hours and millions
of dollars planning to swallow Time Warner Cable, and brushing
aside any suggestion that the regulatory winds are blowing the
wrong way.
“There’s no demonstrable information out there that that is
the case,” Mr. Cohen said. “The regulators haven’t talked,
because they never talk.”
Michael J. de la Merced contributed reporting.
Copyright 2015 The New York Times Company
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