Feb. 14 (Bloomberg) -- Comcast Corp.’s proposed purchase of Time Warner Cable Inc. goes before U.S. regulators who may be more interested in ensuring Internet users can see Netflix Inc.’s videos than parsing the combined company’s market share.
U.S. Federal Communications Commission Chairman Tom Wheeler, a Democrat, may use his agency’s power to review the $45.2 billion deal announced yesterday to get faster Web access to more residences and schools, and limit what online video providers like Netflix can be charged to stream content.
“It enables the Wheeler FCC to implement public policy that it might not be able to get done through rulemaking,” Robert McDowell, a former Republican commissioner, said in an interview.
Comcast yesterday said it’s willing to give up 3 million of the approximately 11 million pay-television subscribers the deal would bring. That would keep the combined company below a threshold U.S. regulators once set of making sure no cable company served more than 30 percent of the market, David Cohen, a Comcast executive vice president, said in a conference call yesterday.
A traditional U.S. antitrust review focusing on market share may take a back seat to negotiations on how Internet traffic and online video will be handled, Paul Glenchur, Washington-based senior analyst with Potomac Research Group, said in a note yesterday.
Spokeswomen Shannon Gilson of the FCC and Gina Talamona of the U.S. Justice Department declined to comment on the deal. The Justice Department shares antitrust oversight with the U.S. Federal Trade Commission.
A 2009 court ruling on a lawsuit brought by Comcast threw out the U.S. cap on pay-TV market share, and Comcast doesn’t compete head-to-head for subscribers with New York-based Time Warner Cable because they have different franchise areas. They compete in providing video programming and high-speed Internet, or broadband, service against such rivals as AT&T Inc., Verizon Communications Inc. and satellite-TV providers Dish Network Corp. and DirecTV.
Comcast officials yesterday made the argument that it and Time Warner should be reviewed by regulators as a competitor to other broadband providers, not as rivals in cable TV.
Together, Comcast and Time Warner will have about 30 million subscribers after divestitures, Comcast said in a fact sheet on the deal.
At the end of 2013, AT&T had 21.9 million subscribers for video and broadband, and Verizon had 14.3 million, according to data compiled by Bloomberg Industries that excludes wireless customers.
Comcast probably will need to make some divestitures and agree to conditions like those it accepted when it bought NBC Universal in 2011, Stifel Nicolaus & Co. analysts Christopher King and Josh James said in a note yesterday.
As part of that deal, Comcast agreed to follow the FCC’s open-Internet rules, which required service providers to treat Web content equally, until 2018 regardless of how the regulations fared before judges. An appeals court vacated the rules last month, and Wheeler is considering how to respond.
With a merger the rules would extend to the acquired Time Warner broadband subscribers, Comcast’s Cohen said yesterday.
Questions for the FCC include whether Comcast unfairly charges more to middle-mile Web carriers such as Level 3 Communications Inc. and Cogent Communications Group Inc. because they carry traffic for competing video provider Netflix, Harold Feld, senior vice president of the Washington-based policy group Public Knowledge, said in an interview.
Cohen said such disputes have been resolved in company-to-company negotiations.
Buying the second-largest U.S cable-TV company extends Philadelphia-based Comcast’s leadership in the industry, giving it access to the New York City cable market and more bargaining power with content providers, said Bill Smead, chief investment officer at Smead Capital Management.
Increased national market share won’t give Comcast more clout over program providers, Cohen said.
“I’m going to make the argument to them, you guys can be calm,” he said. “This is not going to have a dramatic impact on our ability to negotiate with you.”
The Justice Department probably will review the deal because it handled Comcast’s transaction with NBC, said Maurice Stucke, a lawyer at GeyerGorey LLP and a law professor at the University of Tennessee.
“This deal can be enjoined if it gives too much clout to Comcast-Time Warner as a purchasing entity even though consumers may be unaffected,” Stucke said.
House and Senate lawmakers said they would hold hearings.
Representatives Bob Goodlatte, a Virginia Republican who’s chairman of the House Judiciary Committee, and Spencer Bachus, the Alabama Republican who’s the antitrust subcommittee chairman, said in an e-mailed statement the merger “could have a significant impact on competition.” A hearing would help ensure that consumers and competition are protected, they said. They didn’t provide a hearing date.
Separately, Senator Amy Klobuchar, a Minnesota Democrat and chairwoman of the Senate’s antitrust subcommittee, said she planned to “carefully scrutinize” the transaction in a hearing. She also didn’t provide a date.
Consumer groups said they would oppose the deal.
“This will mean more consolidation and more control over what people see on the TV and the Internet,” said Matt Wood, policy director of Free Press, a public interest advocacy group that opposes the deal.
Michael Copps, a former Democratic FCC commissioner, said in a statement released by Common Cause that the deal “is so over the top that it ought to be dead on arrival at the FCC.”
The merger may face “raw political pushback from cable critics and possibly rivals” who would argue it goes too far and needs to be reined in, Stifel’s King and James wrote. “But we ultimately expect the transaction will be approved.”
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