The Washington PostDemocracy Dies in Darkness

Comcast chief’s last-minute pleas to a former ally fell on deaf ears

On Monday, the chief executive of Comcast made a Hail Mary call to Tom Wheeler, the chairman of the Federal Communications Commission. Brian Roberts told the regulator that his intention to buy Time Warner Cable was for the good for the entire country because it would bring faster Internet speeds to millions. His cable and media company would of course become a behemoth, but Roberts promised to behave and to not use his company’s power to unfairly thwart competitors.

The two men knew each other well. Wheeler, 69, was the former head of the cable industry’s leading lobbying organization. Roberts, 55, had spent his entire career at Comcast, where he once climbed telephone poles and sold cable subscriptions door-to-door. Both had been major fundraisers for President Obama’s campaigns.

But whatever history the two men had was now irrelevant as they talked. Roberts’s plea had come too late.

By the time of the phone call, Wheeler and his staff at the FCC had already decided to block the $45 billion megadeal, one of the largest ever to come before Washington regulators, people familiar with the matter said. On Wednesday, Comcast executives were summoned to a meeting in a nondescript conference room at the agency to hear the verdict: No amount of concessions would save the deal. Comcast and Time Warner would simply be too big and threatening to an array of competitors, particularly online video providers.

Comcast's withdrawal of its $45 billion bid could put Time Warner Cable into play. Charter Communications could pursue it again, analysts said. (Video: Reuters)

On Friday, Comcast officially called the mega-merger off. In remarks that expressed the exact opposite of the sentiments Roberts expressed over the phone, Wheeler said Friday that canceling the deal was “in the best interests of consumers.”

“Today, an online video market is emerging that offers new business models and greater consumer choice. The proposed merger would have posed an unacceptable risk to competition and innovation, especially given the growing importance of high-speed broadband to online video and innovative new services,” he said.

Roberts issued a short concession. “Today, we move on,” he said. “Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn’t agree, we could walk away.” Comcast declined to comment beyond that statement.

The failed merger was a striking and rare misstep for an ambitious and shrewd executive who joined the family business after graduating from Wharton Business School.

[Read: After Comcast's failed attempt, Charter explores bid for Time Warner Cable]

Roberts started out from the bottom, even installing cable lines for homes. But the son of Comcast founder Ralph Roberts had a bigger vision for the small rural cable company than his dad. He was the chief architect of major mergers that turned Comcast into a national cable and telecom behemoth and then an entertainment powerhouse with the acquisition of NBC Universal in 2011.

He hired David Cohen in 2002, a lauded political hand to former Philadelphia mayor Ed Rendell, and together they helped write a new playbook on lobbying in Washington to win over officials to their causes. Their executives were personally involved in big fundraisers for candidates. They hired scores of lobbyists and policy experts directly from the highest-ranking offices of the FCC. They also spent lavishly on ads and public events to convince government officials of the company’s social impact, highlighting its efforts to bring low-cost broadband Internet service to poor communities.

But behind the scenes, they could be ruthless. A local Comcast office pulled funding for a Seattle nonprofit for youth after the group posted critical tweets about Comcast hiring an influential FCC commissioner soon after the agency approved the NBC merger. Comcast had also hired seat-warmers to fill a 2006 FCC hearing to scrutinize the cable firm.

Perhaps Roberts's biggest coup was Comcast’s successful bid for NBC Universal. Comcast stunned the entertainment and telecom industries with the move and left regulators grappling to understand the implications of a merger of two entirely different companies -- one creating content and the other distributing it.

Ultimately, federal officials approved the deal, concluding that, because the two companies did not compete with each other in the same business sector, the merger would not be anti-competitive.

The moment was huge for Roberts. It thrust the cable industry executive into the center of the glamorous world of media, where he was afforded seats at Golden Globe and Oscars awards and schmoozed with stars such as Tiny Fey and powerful Hollywood studio heads.

When it was approved, Roberts said, “I believe our company is strategically complete.”

Such efforts helped Roberts prepare Comcast, perhaps better than any other cable company, for new start-ups and for other companies that would disrupt the cable landscape with a cheaper way to delivery television content — over the Internet. Several analysts say he has proven to be one of the more prescient minds on the changes now rocking the cable and entertainment world.

At the same time, these analysts say, Roberts also critically misjudged the government’s perspective on regulating what was fast becoming the most important part of Comcast’s business: high-speed Internet.

When Comcast announced its intent to buy Time Warner Cable 14 months ago, some stock analysts said the deal was a slam dunk. The companies didn’t compete directly in most regions, and where they did, they offered to shed customers to other rivals. Antitrust experts predicted that the deal would pass the key government test of whether competition would be reduced in the cable business.

But that argument, while a time-tested approach by companies looking to win regulatory approval for mergers, this time fell flat in Washington.

Regulators, especially those at the FCC, had been closely studying how highly profitable cable conglomerates also provided most of the country’s high-speed Internet. And it was on the Web that those cable companies were facing intense competition from online streaming firms such as Netflix.

As consumers turned away from expensive cable bundles, would cable companies make it harder for those streaming companies to reach consumers? Would a company such as Comcast quietly give its favored content more priority on high-speed networks than that of rivals?

At Justice and the FCC, officials indeed began to see signs of such anti-competitive behavior. Competitors began to complain that Comcast was treating them poorly or even slowing down internet speeds for their content to make it harder to watch. Netflix finally decided to pay Comcast so-called “interconnection fees” to make sure its videos were always delivered to consumers in a high-quality Internet stream — an arrangement that was noted in Washington.

Comcast's growing power, along with its long-standing ability to choose where networks such as Bloomberg TV and the Tennis Channel go on the cable dial — or whether they reach households at all — concerned regulators, said a senior official at the FCC, who spoke on the condition of anonymity because the review was private.

Comcast and Time Warner argued “there was no overlap of residential customers. That’s true. But it isn’t the only market. There is also a national market for interconnection and a national market for the purchase of programming,” the official said. “What we found was that Comcast would have bigger bargaining power in both those markets. . . [Comcast] could inflict potential harms on them.”

Meanwhile, as regulators continued to look at the deal, a flood of new streaming services hit the market this spring, including Dish’s SlingTV, HBO Now and Sony’s Vue. Suddenly, the idea of Comcast, a mammoth vertically integrated firm getting fatter on the profitable broadband business seemed a step too far for regulators. And they began to question the company’s use of its various businesses to leverage control over an array of industries.

“There were many concerns, and it was not just about broadband penetration,” said a person familiar with the Justice Department and FCC’s reviews. “The questions were about ... how the broadband business could affect competition across the ecosystem.”

Publicly, Comcast presented its drawn-out review as business as usual. As early as this month, Cohen, the Comcast executive vice president, said the deal would be complete by the middle of the year.

But privately, antitrust lawyers at the Department of Justice and the FCC, working together, began preparations to block the deal, according to people with knowledge of the regulatory review. In discussions with Comcast, regulators never raised the possibility that potential remedies by the companies — or conditions imposed on the companies by the federal government — would clear a path for the deal’s approval.

In early April, Attorney General Eric H. Holder Jr. authorized the filing of the suit against the Time Warner-Comcast merger after meeting with antitrust lawyers and economists, according to a senior administration official. The official, speaking on condition of anonymity to discuss internal deliberations, said Holder wanted the decision made on his watch before stepping down.

By the time Comcast officials held meetings on Wednesday with FCC and Justice officials, regulators were firmly determined to block the merger. The deal was all but dead.

The funeral came Friday. Summing up the sentiment at the Justice Department and the FCC, Attorney General Eric Holder said: “The companies’ decision to abandon this deal is the best outcome for American consumers.”

He added: “This is a victory not only for the Department of Justice, but also for providers of content and streaming services who work to bring innovative products to consumers across America and around the world.”