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AMERICAN AIRLINES GROUP (AAL)
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Massive cable deal would make Comcast too powerful for some

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02/14/2014 | 03:26am CEST

WASHINGTON (Reuters) - Consumer advocates and U.S. lawmakers are worried that Comcast Corp's proposed $45 billion takeover of Time Warner Cable Inc will create a company with too much power to decide what Americans can watch on television and do online, and they expect intense regulatory scrutiny of the deal.

Their concerns are intertwined with a recent court decision to overturn U.S. open Internet rules, which enforced the principle that Internet service providers should treat all Web traffic equally and should not give preferential treatment to their own movies, websites and content. Comcast, a major provider of Internet services, is committed to network neutrality until 2018.

Separately, some media companies are concerned that Comcast would attempt to pay them less for their television shows, movies and other content, and have scheduled discussions with their attorneys with an eye toward lobbying regulators in Washington, said an antitrust attorney who spoke privately to protect business relationships.

Comcast's proposed takeover of Time Warner Cable would combine the country's top two cable providers into a colossus that could reshape the U.S. pay television and broadband Internet industry. The deal would put Comcast in 19 of the nation's 20 largest TV markets.

The deal will be reviewed by the Federal Communications Commission and either the Department of Justice or the Federal Trade Commission, the two agencies that share antitrust oversight in the United States.

Eight antitrust experts interviewed by Reuters were split on whether the merger would be approved. While Comcast has agreed to divest 3 million Time Warner Cable subscribers to keep their combined share of the U.S. pay television market at under 30 percent, it is unclear if that is enough to satisfy antitrust regulators, the experts said.

A Comcast-Time Warner combination could be especially troubling in light of the court ruling that struck down FCC rules aimed at preventing broadband service providers from favoring one website over another, said Bert Foer, head of the American Antitrust Institute.

"I hope it (the deal) is going to be fought tooth and nail," said Foer. "You're creating this giant and you're doing it in the absence of a network neutrality rule. That's dangerous to democracy."

Foer said that agreements between Comcast and federal agencies that were put in place at the time of the Comcast and NBC Universal merger in 2011 to assure network neutrality would end in 2018 and were nothing more than a "short-term bandage."

NOTHING BUT NET

The advocacy group Consumer Watchdog bluntly called on the FCC and Department of Justice to block the creation of "an unjustifiable monopoly" that could raise prices to customers and would have "no incentive to improve broadband service."

Antitrust authorities often challenge mergers or extract concessions when head-to-head competition would be diluted, although there are few areas of the United States where two cable companies compete directly.

Reed Hundt, FCC chairman during the Clinton administration, said the current spotlight on the issue of open internet principles meant the commission would carefully examine the size and power of the new combined company.

"The FCC will look at that broadband market share and they will say, 'Chairman Wheeler promised an open internet, what does this deal mean for that?'" he said. "The FCC will take a hard look at what is the durable, long-lasting, truly open internet commitment," Hundt said.

Robert McDowell, a former FCC commissioner who voted to approve Comcast's acquisition of NBC Universal, said the company could be asked to extend its net neutrality commitment, and if they do so, chances of approval are good.

"Comcast understood going into this that they'll have to agree to at least all of the same merger conditions that were put into the NBC merger deal plus some other things too. They will probably see an extension of the term of those conditions," McDowell said.

HEARINGS AHOY

Amy Klobuchar, chairwoman of the Senate Judiciary Committee's antitrust panel, promised a hearing "to carefully scrutinize the details of this merger and its potential consequences." No date has been set so far.

The Republican-run House Judiciary Committee is also expected to hold a hearing "to ensure that the interests of American consumers and overall competition in the marketplace is protected."

Senator Al Franken was a critic of Comcast's previous deal with NBC Universal. On Thursday he wrote to both FCC Chairman Tom Wheeler and top U.S. antitrust officials with "serious reservations" about Comcast's latest move.

"A handful of cable providers dominate the market, leaving consumers with little choice but to pay high bills for often unsatisfactory service. I am concerned that Comcast's proposed acquisition of Time Warner would only make things worse," wrote Franken, a Minnesota Democrat.

The Justice Department has stopped a couple of notable deals recently, particularly a proposed merger of AT&T with T-Mobile USA. Other deals it sued to stop - like the Anheuser-Busch InBev deal to buy Grupo Modelo and US Airways merger with American Airlines - were allowed to go ahead after the companies pledged big asset sales.

The companies maintain that customers will benefit from the merger as services and technology improves.

"This transaction is pro-consumer, pro-competitive and approvable," said Comcast executive vice president David Cohen. However, "we're certainly not promising that customer bills are going to go down or even increase less rapidly," he added.

NEGOTIATING BEHEMOTH

Wall Street analysts said the deal would give Comcast a stronger hand in negotiations with content providers such as Walt Disney Co, CBS Corp and Fox. Media companies collectively receive billions of dollars a year from pay TV operators for their programming.

"Content providers would face a negotiating behemoth with close to 30 million subscribers that, oh by the way, is vertically integrated with a direct competitor (NBC Universal)," Moffett Nathanson analyst Craig Moffett said in a note to clients. "Expect them to complain vehemently."

A Disney spokesman did not respond to requests for comment, and Fox had no comment. CBS' chief executive Les Moonves said in a CNBC interview that "if you have the right content, you're always going to have the (pricing) power."

The deal has generated "considerable opposition" among programmers who fear they will be offered less money for their content, said the antitrust attorney.

"This is a very problematic deal. ... And I don't know if it can be corrected," he said.

(Additional reporting by Alina Selyukh in Washington, Lisa Richwine in Los Angeles, and Jennifer Saba in New York; Editing by Ros Krasny and Ryan Woo)

By Diane Bartz

Stocks mentioned in the article
ChangeLast1st jan.
CBS CORPORATION -3.18% 49.33 Delayed Quote.-16.39%
COMCAST CORPORATION -0.81% 33.21 Delayed Quote.-17.08%
TWENTY-FIRST CENTURY FOX -1.40% 36.68 Delayed Quote.6.23%
WALT DISNEY COMPANY (THE) -0.64% 100.24 Delayed Quote.-6.16%
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