A day after the announcement that America’s two largest cable companies would merge, antitrust experts have expressed optimism that the transaction would receive regulatory clearance.
On the face of it, the combination of Comcast and Time Warner Cable…
A day after the announcement that America’s two largest cable companies would merge, antitrust experts have expressed optimism that the transaction would receive regulatory clearance.
On the face of it, the combination of Comcast and Time Warner Cable (TWC) looked to be a regulatory headache for the US competition authorities.
However, experts have told TelecomFinance that due to a combination of factors, Comcast is unlikely to have too many problems getting a deal over the line.
Dana Frix, managing partner at Chadbourne & Parke’s Washington DC office, said that this was in large part down to the way Comcast had gone about its business.
“Comcast has positioned itself as a white knight, and they’ve done that from a corporate perspective but also from a regulatory perspective,” Frix explained, referencing the fact that it had muscled out hostile bidder Charter Communications.
In the past the Federal Communications Commission (FCC) had taken the view that no single cableco should control more than one third of pay-TV subscribers.
But Frix noted that Comcast would only buy about three quarters of TWC, thereby reducing regulatory concerns. As part of the deal Comcast has agreed to divest 3 million of TWC’s 11 million subscribers, giving the merged company a below 30% share of America’s pay-TV market.
“It makes Comcast look reasonable and rational, so if you’re the regulators you say: ‘Well, they’re doing me a favour here. They’re not pushing my face into a terrible situation,’” he commented
Seth Bloom, former general counsel to the senate antitrust subcommittee, was similarly minded.
“From an antitrust point of view this deal might not be that consequential because, for consumers, these companies don’t compete … I think it’s very unlikely to get blocked.”
The lawyers’ comments echo those of Comcast EVP David Cohen, who yesterday played down the possibility of antitrust issues.
“This is simply not a horizontal merger,” Cohen said in an investor call. “Comcast and Time Warner Cable do not currently compete in a single zip code in America.”
The New York Times described Cohen as Comcast’s “secret weapon” in persuading regulators to go along with the deal.
He is said to have played golf with Barack Obama and raised US$1.2m at a fundraiser, held at his own home, for the US president’s campaign war chest.
Cohen was also reported to be a guest at the White House earlier this week for the state dinner in honour of French president Francois Hollande.
Vertical integration
The lawyers suggested that the FCC and the Department of Justice (DOJ) are more likely to look at the vertical integration aspects of the deal, due to Comcast’s US$16.7bn takeover of content-focused NBCUniversal a few years ago.
“More issues are implicated because of that acquisition,” Bloom said.
“With Comcast having all the NBC assets it makes it a different kind of merger, compared to how it would be with a pure play Comcast merging with TWC five years ago.”
Frix explained that an agreement attached to Comcast’s NBC deal was likely to be extended as one of the FCC’s conditions for allowing the TWC merger.
“The complexity of this deal is that Comcast is still subject to a seven-year consent agreement that it entered into with the government when it purchased NBC Universal,” Frix said.
“The regulators were concerned about Comcast’s ability, as a distributor of content, to affect the market for content.”
The regulators might ask Comcast to apply the consent agreement to the new cable systems they are buying, Frix suggested, and that they might ask for additional content-related protections.
Bloom agreed. “The FCC will probably extend [the consent agreement] in time, from the date of this transaction as opposed to the former transaction, to make it last longer.”
Not an antitrust test case
Stifel analyst Christopher King said that although the antitrust authority may not like aspects of the deal, they won’t pursue it.
He wrote in a memo: “We believe the government will probably have concerns about the ability of Comcast-TWC to bully competitors and suppliers, given their interwoven cable/broadband distribution, programming control, and broadcast ownership, but we’re sceptical DOJ will want to make this an antitrust test case for vertical integration.”
Therefore, significant remedies were likely unnecessary.
Bloom said that the merger could throw up issues in relation to advertisers, programmers and equipment manufacturers, but none of these factors were big enough to put a real spanner in the works for Comcast.
“I don’t think that kind of competition is a basis to stop the merger [but] it does give Comcast more leverage though,” Bloom said.
Alongside issues relating to pay-TV, the merger also creates the US’ largest broadband provider. Even with Comcast offloading 3 million TWC customers, the merged company would still have 28.8 million of America’s 83.6 million broadband customers – equivalent to 34.47% of the market – based on Q3 2013 figures from the Leichtman Research Group.
Still, Frix did not consider this a real problem. “I don’t think the FCC has done its due diligence to figure out the meaning of what that broader broadband and cable service offering really means here,” he explained.
“I think it will be uncomfortable for the regulators, but I think it will go through,” he concluded.
Wheeler’s first big deal
The review is the first big deal to fall on to the desk of Tom Wheeler, the new chairman of the FCC appointed last year.
“This is a very large merger and he has a lot of discretion,” Bloom commented. “I also suspect the antitrust agencies are not going to stop it so he’s going to be the last line.”
Wheeler, who once led the cable industry’s main lobbying group, is already coming under pressure from public interest groups.
This statement from the head of pro-consumer group Free Press Craig Aaron is representative of their views: “No one woke up this morning wishing their cable company was bigger or had more control over what they could watch or download. But that — along with higher bills — is the reality they’ll face tomorrow unless the Department of Justice and the FCC do their jobs and block this merger. Stopping this kind of deal is exactly why we have antitrust laws.”
Bloom felt that although there would be a lot of noise around the deal, it wouldn’t stop it going through.
“The interest groups will care, but will the public care? Probably not that much, although media consolidation always arises public ire.”
Comcast hopes to complete the deal by the end of the year, and if not then within twelve months. The general consensus is that the company’s target is not unrealistic.
