Comcast’s Week-Long Unraveling of TWC Deal Was Months in the Making

Comcast CEO Brian Roberts
Brian Roberts, chairman and chief executive officer of Comcast Corp. Photographer: Andrew Harrer/Bloomberg

The collapse of Comcast Corp.’s plan to buy Time Warner Cable Inc., which played out in public over the course of a week, was months in the making.

When Comcast announced its $45.2 billion bid 14 months ago, Chief Executive Officer Brian Roberts promised the new company would transform how Americans experience entertainment. But opponents stepped up their offensive in recent months. Government officials told executives they worried the new cable giant could stifle competition on the Internet.

While the chances of getting the deal past regulators were narrowing, Comcast executives still held out hope when they met Wednesday with officials from the Justice Department and Federal Communications Commission. As regulators set out firm objections to the deal, Comcast envoys quietly took notes. A Justice Department staffer invited them to come back soon to see a more senior antitrust official. Comcast never set up the meeting, and by the end of the next day, Roberts’s audacious bid to gain control of more than 50 percent of U.S. broadband was dead.

Descriptions of the unraveling of the Comcast-Time Warner Cable deal, provided by several people familiar with the negotiations, suggest there was no single turning point that doomed the merger of the two biggest U.S. cable companies. Justice Department officials began telling Philadelphia-based Comcast of their reservations about the deal early this year, said a person familiar with their thinking.

Final Days

Even so, into the deal’s final days, Comcast and Time Warner Cable remained optimistic that it would get done, saying the tie-up was good for consumers and the government had no case for blocking it. When the Justice Department’s sentiment on the deal was first made public on April 17, executives at New York-based Time Warner Cable were taken by surprise, according to two people familiar with the situation.

The Justice Department and FCC spent a year examining the merger from legal, regulatory and engineering angles. Among the questions: whether the deal would give the new Comcast, with almost 30 percent of the residential video market, an unfair advantage in negotiating for programming, either by paying lower prices than its competitors, or by demanding exclusive deals that could keep programming off other services.

Comcast’s message from the start was that the merger wouldn’t lessen choice for consumers, because it doesn’t compete with Time Warner Cable for video subscribers.

Broadband Market

That argument began to fray as regulators concluded the merger was more than simply a marriage of video providers, said one of the people. The deal’s center of gravity lay in the broadband market, where the combined company would have a 57 percent share of residential customers. Regulators worried that Comcast could have the incentive and ability to interfere with online video offerings -- like those from Netflix Inc. and Amazon.com Inc. -- that compete with the cable giant’s own programming.

At the FCC, Chairman Tom Wheeler offered a blunt warning.

“Broadband providers have both the economic incentive and the technological capability to abuse their gatekeeper position,” he said during a Feb. 26 public hearing as the agency passed net neutrality rules that guarantee fair treatment of Web traffic.

The Justice Department’s opposition to the deal began to coalesce at the start of the year, said one of the people familiar with its thinking, and the agency’s concerns were relayed to Comcast. By March, attorneys at the antitrust division were backing a lawsuit to block it, this person said.

Legal Challenge

People in the division then went to Attorney General Eric Holder to lay out their case that the merger would give Comcast too much power to act as gatekeeper for Internet video being delivered to consumers. Holder said he’d back a challenge to the deal, said one of the people.

Still, the first public indication that the government was leaning against the deal came last week. As recently as Monday, there was a feeling at the two companies that an accord could be reached, after Comcast CEO Roberts spoke with the FCC’s Wheeler, one of the people said.

The final blows came Wednesday afternoon. At a Justice Department satellite office in downtown Washington, officials didn’t say they would sue to block the merger, according to a person familiar with the situation, but their message was clear: The government was against it.

No Remedies

Later in the day, on a Potomac-view conference room at the FCC’s offices across town, officials led Comcast and Time Warner Cable executives through their own objections. The combined company would have several ways to throttle competing online video -- through its contracts with programmers, controls over set-top streaming boxes or retail pricing -- the officials said. There would be no way to devise conditions that would effectively keep such a company from restraining competition, the person said.

Comcast representatives expected to have an opportunity to push back on those concerns and discuss concessions but decided regulators didn’t want to approve the deal under any circumstances and that there was nothing they could do to change their minds, according to a person familiar with the talks.

Then came what was essentially the death knell: FCC officials told the executives that the agency was prepared to send the merger for an administrative hearing that would hash out the risks to customers. Such a hearing would take months, and similar threats have killed deals before: In 2011, AT&T Inc. abandoned its bid for wireless provider T-Mobile US Inc. only after the FCC proposed a hearing, almost three months after the Justice Department sued to block the merger.

Growing Gloom

Comcast officials didn’t respond to FCC and the Justice Department invitations to meet with more senior officials, said the people familiar with the talks.

By Thursday, people inside Comcast and Time Warner Cable were spreading the word that the deal was off, say people familiar with the situation. Many senior level executives at Time Warner Cable were despondent, said two people familiar with the matter, because the deal’s failure meant they wouldn’t receive severance packages. Other employees had already made plans to move on to new jobs, they said.

The gloom at Time Warner Cable was partially lifting by the time Comcast officially called off the deal on Friday, according to the two people. Advisers for the No. 4 U.S. cable company, Charter Communications Inc., had already reached out to Time Warner Cable to begin talks on an acquisition, people with knowledge of the matter said.

Later on Friday, Attorney General Holder -- whose replacement, Loretta Lynch, will be sworn in Monday -- celebrated the outcome during a going-away speech delivered to a crowd filling the floor and balconies of the Justice Department’s Great Hall.

“We heard today that a merger that I think would have been extremely anticompetitive -- and would not have been in the best interest of the American consumer -- has been abandoned,” Holder said.

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