Comcast’s Sales Pitch on Time Warner Bid: More Innovation

Comcast Corp. (CMCSA), the nation’s largest U.S. cable company, told regulators it can offer advanced video services and spread high-speed Internet service without harming competition if it’s allowed to buy No. 2 Time Warner Cable Inc. (TWC)

Comcast also pledged to treat all Internet content equally for new customers and expand a program offering Web access to poor families, the company told the U.S. Federal Communications Commission in a filing today. Lawmakers will examine the deal in a hearing tomorrow.

The $45.2 billion acquisition would leave Comcast with 30 million video subscribers, including customers in 19 of the 20 largest U.S. cities. It could face “pushback” from senators critical of media consolidation, Paul Gallant, Washington-based managing director for Guggenheim Securities, said in a note today. The deal probably will win approval because the companies don’t directly compete, he said.

Regulators may set “tough conditions” such as pricing requirements for Internet access for subscribers and for peering, or access by companies that deliver large amounts of Internet traffic, Gallant said. Consumers face poor service if online video providers don’t pay Web providers such as Comcast and Verizon Communications Inc. for priority connections, Netflix Inc. Chief Executive Officer Reed Hastings said in a March 20 blog posting.

Photographer: Andrew Harrer/Bloomberg

Brian Roberts, chairman and CEO of Comcast Corp., at the 2013 National Cable and Telecommunications Association (NCTA) Cable Show in Washington, D.C. Close

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Photographer: Andrew Harrer/Bloomberg

Brian Roberts, chairman and CEO of Comcast Corp., at the 2013 National Cable and Telecommunications Association (NCTA) Cable Show in Washington, D.C.

‘Net Neutrality’

The acquisition announced Feb. 13 needs clearance from the U.S. Justice Department, which considers whether the combination could harm competition, and the FCC, which assesses deals against a broader standard of whether they are in the public interest. Congress, which doesn’t vote on the deal, has influence over the regulatory agencies.

Comcast in its FCC filing said it would extend open-Internet protections, also known as “net neutrality,” to the 8 million Time Warner customers it would add in the deal. Philadelphia-based Comcast has said it will shed 3 million subscribers to stay under the threshold of serving 30 percent of U.S. pay-TV homes, even though a U.S. court voided such a limit set by the FCC.

As it acquired NBCUniversal in 2011, Comcast agreed to abide by the FCC’s net-neutrality rules until 2018. A court in January voided the rules, leaving Comcast as the only cable provider bound by the regulations.

Google Expanding

Competitors such as Google Inc., which is expanding its offering of high-speed Internet service, are national or international in scale, Comcast Executive Vice President David Cohen said on a conference call with reporters today.

Comcast needs size “to be able to compete with the Googles and other generations of competitors” that are coming, Cohen said.

The deal is different from AT&T Inc.’s failed merger with T-Mobile US Inc. in 2011, which collapsed after regulators opposed it for reducing competition, because the cable companies don’t overlap, Cohen said in the blog post.

Since 2009, cable companies have lost 7.3 million subscribers while satellite-TV providers DirecTV and Dish Network Corp. added 1.7 million subscribers, and telephone companies led by AT&T and Verizon Communications have added 6.2 million subscribers, Cohen said in a blog post today.

Comcast will provide its Internet Essentials program, offering Web access for $9.95 monthly to low-income families, in former Time Warner markets including New York, where the company is based, and Los Angeles, Dallas, and Charlotte, North Carolina, Cohen said in the post.

Senate Hearing

Tomorrow’s hearing, the first of a possible four congressional hearings, is before the Senate Judiciary Committee. Witnesses are to include a wireless Internet provider and a budding golf network, showing lawmakers may want to ask whether a bigger Comcast could harm small competitors, said Bert Foer, president of the American Antitrust Institute.

“Can the combined firm discriminate against content providers who need access to their tube?” Foer, whose group favors vigorous enforcement of antitrust laws, said in an interview.

Questions include whether Comcast, owner of the Golf Channel, could give favorable treatment to its affiliated networks, and whether it can charge different rates for online access to different companies that rely on the Web, Foer said.

Witnesses are to include James Bosworth, chief executive of Back9Network Inc., and Richard Sherwin, chief executive of New Haven, Connecticut-based wireless provider Spot On Networks, according to a list released by the committee.

Golfing Lifestyle

Other witnesses at the hearing led by Senator Patrick Leahy, a Vermont Democrat, will be Comcast’s Cohen, Time Warner Cable Chief Financial Officer Arthur Minson Jr.; and Gene Kimmelman, a former Justice Department official who is president of the Washington-based policy group Public Knowledge. The group opposes the merger, saying it would give Comcast too much power over prices and distribution.

Back9Network, of Hartford, Connecticut, in a December filing said it had privately raised $5.3 million in financing, and was planning to raise as much as $15 million.

Incorporated in 2010, Back9Network calls itself a “lifestyle television network” about golf. Bosworth in a March 2012 interview with Bloomberg Radio’s “The Hays Advantage” answered questions about negotiating carriage with cable providers.

“It is tough,” Bosworth said. “Look, when you own the game you tend to make the rules.”

Consent Decree

Members of the Judiciary Committee include Senator Al Franken, who in a Feb. 27 letter to FCC Chairman Tom Wheeler said the deal would “concentrate significant power in the hands of an already huge corporation.”

Franken, a Minnesota Democrat, questioned whether Comcast has followed commitments to treat Web traffic fairly, and to provide local news on stations owned and operated by its NBC and Telemundo networks.

Franken pointed out a 2012 settlement between Comcast and the FCC, which said it was concerned the company hadn’t complied with an obligation to offer reasonably priced broadband to customers who don’t take its cable service. Comcast paid $800,000 as part of a consent decree.

The FCC in September said Comcast must carry Bloomberg Television, a competitor to the cable company’s CNBC, near other news channels. The agency acted on a complaint by New York-based Bloomberg LP, parent of Bloomberg TV and Bloomberg News.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net Elizabeth Wasserman

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