Comcast Buy of TWC Will Face Hurdles But Could Be Approved, Say Analysts, Attorneys

But several public interest groups and other organizations released statements opposing the merger as a threat to competition and consumers. A Comcast/TWC merger would give the new company “troubling” control over the Internet and video programming landscapes, said Public Knowledge Senior Staff Attorney John Bergmayer in an interview. “There’s a lot of reasons regulators should be skeptical of this."

The proposed Comcast/TWC deal is an all-stock transaction that would leave TWC shareholders with 23 percent of the new company’s shares -- a value of $158.82, said Comcast in a release. TWC’s board had asked for $160 per share when it rejected a $132.50 a share offer from Charter Communications in December that included a substantial cash component (CD Jan 15 p9), but TWC CEO Rob Marcus said in a conference call Thursday that the two offers were “apples and oranges.” TWC will continue to follow its existing business plan throughout 2014; Comcast officials said they expect the transaction to be completed by the end of the year. Comcast Cable CEO Neil Smit would run the new company, Comcast officials said. The deal doesn’t include a breakup fee, Comcast officials said.

Comcast plans to eventually move TWC subscribers to Comcast contracts, and introduce Comcast products like Xfinity, an all-digital network and faster Internet speeds into TWC systems, said Comcast Corporate CEO Brian Roberts, though he said a time frame for such a rollout is not yet clear.

Comcast’s announcement of the deal included a list of concessions that appear designed to make the deal more palatable to regulators, analysts said. Comcast will divest cable systems with a total of 3 million subscribers “in order to reduce competitive concerns,” the company said in a release. That divestiture will put the new company’s total subscribers at around 30 million, a number just below the FCC’s former 30 percent cap on total cable subscribership, which was struck down by the U.S. Court of Appeals for the D.C. Circuit. It’s possible that the divested systems could be snapped up by Charter Communications, said Wells Fargo analyst Marci Ryvicker in an email to investors.

Comcast also said the deal will extend the open Internet protections that Comcast agreed to as part of the NBCUniversal merger to all of the purchased TWC systems, despite the recent net neutrality decision that threw out the rule. “Unlike all other broadband subscribers in the country, the new company’s broadband customers will enjoy the enforceable protections of the no blocking and non-discrimination rules that were put in place by the FCC,” said Comcast.

The deal could face strong challenges from a public interest standpoint at the FCC and an antitrust perspective at either the Federal Trade Commission or Department of Justice, said Bergmayer. At the FTC or DOJ, antitrust arguments against the case could be “very strong” because it will be viewed as a horizontal merger, which he said antitrust authorities tend to focus on. Comcast officials said the current state of video competition for cable companies means antitrust arguments against the merger are “antiquated” and unlikely to find purchase with federal regulators. Stronger arguments against the deal will likely based on its effect on programmers, said Garvey Schubert cable attorney Bruce Beckner. Opponents of the deal will be able to argue that a carriage deal with the new company would be “an existential requirement for programmers” and the merger would give Comcast “unilateral control” over content on American TVs, said analyst Craig Moffett of MoffettNathanson in an email to investors. Democrats are likely to support arguments based on maintaining a “diversity of voices,” Moffett said.

"This deal would be a disaster for consumers and must be stopped,” said Free Press CEO Craig Aaron in a statement. “This deal would give Comcast control of more than a third of the U.S. pay-TV market and more than half of the U.S. triple-play market for video, voice and Internet service,” said Aaron. The two companies would have “a high bar to meet” to show that the merger is in the public interest, said the Communications Workers of America in a statement. The deal “must be carefully reviewed by federal regulators,” said CWA. “An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks that must interconnect with it, and distributors who must access its content,” said Bergmayer.

Despite those concerns, the deal is likely to eventually get regulatory approval, said several analysts and cable attorneys. The lack of “clear competitive harm” in the merger and concessions offered up by Comcast are likely to lead to approval, said Guggenheim Partners analyst Paul Gallant in an email to investors. “It will get through, but with strings attached,” said Beckner, echoing several analysts. Analysts Stiefel Nicolaus and several others said it’s likely that conditions on a Comcast/TWC merger would include possible extensions of the conditions of its merger with NBCU, which are currently set to expire in 2018. New conditions could go even further, Moffet said. “The option of moving to usage based pricing could well be a casualty of deal conditions as well,” he said. Comcast’s Cohen said the companies have already had initial conversations with regulators. “We fully expect the chairman of the FCC is going to engage and create a program he’s comfortable with,” said Cohen.