Comcast wants to gobble up its top rival Time Warner Cable in a $45 billion buyout—but the deal’s prospects appear to be growing dimmer by the day.
As company officials and federal regulators begin negotiations Wednesday over possible merger conditions, six US senators have strongly urged the Justice Department and the Federal Communications Commission to block the deal.
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In a letter sent to Attorney General Eric Holder and FCC Chairman Tom Wheeler, the senators said that the proposed merger—which would combine the nation’s two largest cable companies into a broadband behemoth with immense market power—would lead to “higher prices, fewer choices, and poorer quality services for Americans.”
Although the senators do not have a formal role in approving the merger, their letter is just the latest sign of growing resistance to the deal, and underscores the broad opposition among public interest advocates to a merger that would combine two corporate giants that perennially rank at the bottom of national customer satisfaction surveys.
Over the last few days, several reports have suggested that staff attorneys at both the Justice Department and the FCC are concerned that the merger would harm consumers and give the combined company too much power in negotiations with TV programmers, content companies, and online video distributors.
“With 57 percent of the broadband Internet market and 30 percent of the cable market, Comcast-TWC would have an ability to defeat competing TV and Internet companies and stifle American innovation across the industry,” according to the senators’ letter, which was signed by five Democrats, including Al Franken of Minnesota, Ron Wyden of Oregon, Richard Blumenthal of Connecticut, Edward Markey and Elizabeth Warren of Massachusetts, and one Independent, Bernard Sanders of Vermont.
If the merger is approved, Comcast would control 56.8 percent of the US fixed broadband market, using the FCC’s new 25Mbps baseline threshold, according to a recent company filing. Comcast says that if wireless broadband service is taken into account, its market share would be substantially lower, but critics of the deal argue that wireless service is not an adequate substitute for fixed broadband.
The senators also echoed concerns raised by public interest advocates that the merger would give Comcast unprecedented “monopsony” power—which is one buyer with many sellers, as opposed to “monopoly” power, which is one seller with many buyers—in the market for video programming.
“With Comcast’s ownership of NBCUniversal and the numerous popular TV networks it controls, the combined company would have incentives and means by which to extract higher prices from other multichannel video programming distributors and prioritize its own programming over that of competitors,” the senators wrote.
“Comcast-TWC would have an ability to defeat competing TV and Internet companies and stifle American innovation across the industry.”
Comcast argues that the proposed merger is not anticompetitive, because Comcast and Time Warner Cable don’t compete in any of the same cable markets. That’s because the nation’s largest cable companies long ago divided up the country by city and region so that a handful of corporate giants now control most markets.
Comcast also insists the deal will result in “significant consumer benefits—faster broadband speeds, access to a superior video experience, and more competition in business services resulting in billions of dollars of cost savings,” according to company spokesperson Sena Fitzmaurice.
On Wednesday, Comcast and Time Warner Cable representatives will meet with Justice Department officials for what could be the start of lengthy negotiations about possible merger conditions. For example, regulators might push Comcast to divest more customers than the 3.9 million it’s already pledged to spin off to Charter, a rival cable company.
The FCC could also require Comcast to abide by its tough new net neutrality rules, regardless of whether the new rules are struck down in federal court, where they are currently the subject of fiercely contested litigation. Comcast strongly opposes the new rules, which give the FCC the power to ensure that giant broadband companies can’t discriminate against rival content and service providers.
Recent reports have suggested that a new net neutrality condition might cause Comcast to walk away from the merger altogether. It’s worth noting that Comcast would not owe Time Warner Cable a breakup fee—such fees typically run in the billions of dollars for deals of this size—if it abandons the merger.
In a statement sent to Motherboard, Comcast pushed back strongly against any suggestion that it’s already decided that one condition or another would be a dealbreaker. “Any report that Comcast has decided anything related to potential conditions on the TWC deal is unequivocally false,” said Fitzmaurice.
The Justice Department is investigating whether the deal will harm competition, and the FCC must ensure that the merger is in the public interest. Regulators are also reportedly interested in whether Comcast interfered with attempts to sell Hulu, its online video joint venture with 21st Century Fox and Walt Disney, in violation of conditions the cable giant agreed to when it bought NBCUniversal.
As Comcast enters negotiations with government regulators, one thing seems clear. The telecom policy political environment has changed substantially since Comcast announced the deal more than one year ago. Since then, both President Obama and FCC Chairman Wheeler have forcefully called for increased broadband competition, and Attorney General Holder recently reiterated the Justice Department’s commitment to robust antitrust enforcement.
Rich Greenfield, a technology and media analyst at BTIG, believes that if regulators decide to oppose the deal, President Obama will not intercede, especially at a time when many of his critics claim that the White House exerted improper influence over the FCC’s new net neutrality rules.
“The political winds have shifted dramatically over the past 14 months since Comcast announced its acquisition of Time Warner Cable,” Greenfield wrote in a recent note to clients. “Since we lowered the odds of the transaction being approved or Comcast walking away due to harsh proposed conditions to only 30% in early February 2015, we have grown increasingly confident that the government will outright block the transaction.”
As political opposition to the merger mounts, Comcast appears as committed as ever to consummating a deal that would cement its status as the most powerful media and communications company in the country. And as the cable giant enters delicate negotiations with regulators over possible merger conditions, the company must now decide how far it is willing to go—and what concessions it is willing to make—to complete a deal that will reshape the US broadband market.
