Comcast, Time Warner agree to merge in $45 billion deal

Comcast announced Thursday that it plans to buy Time Warner Cable in an all-stock deal worth over $45 billion. (Reuters)

Comcast’s $45 billion bid for Time Warner Cable would create a cable television behemoth in an industry that has steadily increased prices for bundles of channels and services that many consumers dislike but feel forced to buy.

But the merger would have far greater implications for the future of media and communications, with one firm controlling more fast Internet lines into American homes than any other company, along with a huge swath of content through its ownership of NBC Universal.

The combined company would have 33 million cable subscribers and nearly as many broadband users, giving it enormous power in negotiations with networks over licensing fees and in determining what shows reach consumers on mobile devices, laptops and television sets. It could influence whether the next Apple TV or Google device gets a fair shot at replacing cable set-top boxes. Without the second-biggest cable company to help keep pressure on prices for triple-play television, Internet and phone service, Comcast would have flexibility to set the market rates.

The expansion of Comcast’s footprint in the United States would give it greater control of lines known as the “last mile” into homes and businesses, infrastructure that has increasingly become like a utility for consumers who look to the Web for entertainment, education and communications. The company said it would not block competitors on its network or deliver its own video products with better quality than a competitor such as Netflix. Comcast does not overlap with Time Warner Cable in any cities, which means it would not eliminate competition, the firms said.

The broad implications will invite scrutiny by regulators who must judge whether a combined company would be anti-competitive or in the public’s interest.

Consumer groups, lawmakers and unions have criticized the proposal, saying it could send many consumers back to the monopoly phone era, when Ma Bell set prices and controlled the kinds of phones consumers were allowed to use.

“This is the future. Comcast is in the driver’s seat on how to define how Internet-enabled equipment, software and applications touch consumers,” said Gene Kimmelman, president of the consumer advocacy group Public Knowledge and a former antirust official at the Justice Department. “And everyone in programming and the television ecosystem will need to be in front of Comcast customers, so they will have to adjust their specifications for Comcast.”

To head off regulatory concerns, Comcast offered to shed 3 million subscribers to keep its ownership of the entire cable marketplace below 30 percent, a figure that television programmers say is the threshold for competition in licensing negotiations.

The company said it is confident it will win regulatory approval because it and Time Warner have no overlapping customers. Time Warner Cable subscribers are in the New York tri-state region and in Southern California, Texas, the Carolinas, Ohio and Wisconsin. Time Warner does not serve the D.C. area. Comcast serves the District and its Virginia and Maryland suburbs.

The merger would build on Comcast’s strategy to transform itself from a cable television business into a broadband and media powerhouse. The company has experienced a slow but steady decline in cable television subscribers as consumers increasingly turn to broadband Internet services for entertainment and communications. Netflix, with 31 million subscribers, has exploded in growth while using as much as one-third of bandwidth on broadband networks during peak hours.

Comcast will argue to regulators that the cable market is fiercely competitive, with new rivals among online video providers such as Hulu, and from television and broadband Internet ­providers such as Verizon’s Fios service and Google with its experimental ultra-fast fiber network in a few small cities.

“We believe the transaction will bring pro-consumer benefits,” Comcast chief executive Brian Roberts said in a call with reporters. “That’s because we have no business overlap, so there’s no reduction in competition.”

With its broader reach, the combined company would have more negotiating power with network broadcasters that rely on cable companies to distribute their content. Roberts said programming costs would be reduced, but he played down the significance of a combined company’s leverage over negotiations.

In total, the company said the merger would help reduce costs, or lead to “synergies,” which it estimates at $1.5 billion in operating efficiencies a year.

Analysts generally agree that Comcast is likely to win approval for the merger from antitrust regulators. The lack of overlapping markets means regulators won’t view the proposed merger with the same concerns as in AT&T’s proposed bid for T-Mobile, experts said. That deal, which regulators rejected, would have eliminated a major national carrier and given consumers fewer options.

When it acquired NBC Universal in 2011, Comcast agreed to “net neutrality” conditions that prevent it from prioritizing its online content over a competitor such as Netflix. Comcast is expected to offer similar restrictions in its proposed merger with Time Warner Cable.

Comcast said it expects to win approval within nine to 12 months.

The antitrust aspects of the deal will be reviewed by the ­Justice Department or the Federal Trade Commission. The Federal Communications Commission will review it separately, and it carries a broader mandate of protecting the public’s interest.

Two years into the Comcast-NBC Universal marriage, public interest groups say consumers have steadily suffered from increased monthly cable bills and few options for alternative broadband providers.

“The problem for regulators is clear. Programmers will claim that a merged [company] would simply be too large to be allowed,” wrote Craig Moffett, the head of research firm MoffettNathanson. “From a First Amendment perspective, they will argue that it is simply a bridge too far.”

Sen. Al Franken (D-Minn.) has written to regulators to express concern.

“Unfortunately, a handful of cable providers dominate the market, leaving consumers with little choice but to pay high bills for often unsatisfactory service,” he wrote.

Leaders of the Senate Judiciary Committee’s antitrust subcommittee said Thursday that they will hold a hearing on the proposed merger to look at how consumers could be affected.

But analysts also note the company’s powerful lobbying operation in Washington. It won approval for the NBC Universal deal even with major protests from consumer groups and some lawmakers. In 2012, a Comcast deal to sell spectrum to Verizon and to cross-market products was approved even though some analysts said the agreement effectively stopped competition between the firms.

David Cohen, Comcast’s executive vice president, is a longtime Democratic insider who has held fundraisers for President Obama and the Democratic National Committee. This week, he and his wife attended the White House state dinner for the president of France.

Said Jeffrey Silva, an analyst at Medley Global Advisors: “Comcast has a strong track record on transactions pursued during the Obama administration, and we believe the company is quite capable of once again negotiating a successful path forward on this deal.”

Cecilia Kang is a national technology reporter, writing about tech and Internet policies at the Federal Communications Commission and Federal Trade Commission and how regulations affect businesses and consumers.
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