GO
Loading...

For Comcast, Industry Shifts May Aid Its Takeover Bid

On the face of it, the merger of the country's two largest cable companies would seem like a nonstarter, given its steep regulatory hurdles and skepticism from consumer watchdogs.

But Comcast's proposed acquisition of Time Warner Cable comes at a moment of seismic change in the television industry, with consumers increasingly cutting their cable cords and instead streaming their favorite shows via the Internet through services like Netflix, YouTube, Amazon and Hulu.

This shifting landscape may aid Comcast as it seeks to persuade government officials — and deploy its prodigious army of lobbyists — to win approval for its $45 billion takeover.

(Read more: What a Comcast-Time Warner deal could mean for you)

A Comcast field service technician arrives to install cable service at a residence in Reading, Pa.
Bradley C. Bower | Bloomberg | Getty Images
A Comcast field service technician arrives to install cable service at a residence in Reading, Pa.

"I believe television will change more in the next five years than in the last 50," Brian L. Roberts, Comcast's chief executive, has said.

Still, the combination of the two companies, creating a cable and broadband behemoth serving 30 million customers across 42 states, is expected to come under intense scrutiny from the Obama administration, which has toughened its enforcement of federal antitrust laws.

But much of the focus on Thursday over how the proposed deal would affect competition in cable TV overshadowed what could be a more important consideration for regulators: the merger's effect on broadband Internet service, which is rapidly becoming the most important pipe running into the homes of most American consumers.

A merged Comcast and Time Warner Cable would have nearly twice as many high-speed Internet subscribers as the next largest company and would control roughly 38 percent of the high-speed Internet market, according to figures compiled by the Leichtman Research Group, an independent firm in Durham, N.H. The combined companies would account for nearly 32 million broadband customers, compared with 16 million for AT&T and nine million for Verizon.

(Read more: Comcast-TWC deal 'too big to sail' past regulators: Hundt)

The effect on cable TV and Internet service prompted many consumer advocacy organizations to immediately express hostility toward the deal.

"This industry is notoriously unpopular with consumers due to poor customer service, not to mention ever-increasing bills, and a deal this size doesn't exactly convince us that things will get better," said Delara Derakhshani, policy counsel for Consumers Union.

Washington lawmakers also said they would give it close scrutiny. Senator Amy Klobuchar of Minnesota, chairwoman of the Senate Antitrust Subcommittee, said that because the proposed merger "could have a significant impact on the cable industry and affect consumers across the country," she planned to convene a hearing to examine the deal.

The transaction also has raised concerns among some of the cable networks, whose channels reach consumers through providers like Comcast. Randel Falco, chief executive of Univision Communications, said the company would monitor the government review.

(Read more: Who are the biggest losers in the Comcast merger?)

"When the No. 1 and the No. 2 cable operators merge it is a cause of concern that requires significant scrutiny," Mr. Falco said.

But Comcast officials dismissed much of the criticism of the deal as "hysteria" and noted that the new company's market share of cable subscribers would be no higher than it was after completing a similar transaction with Adelphia in 2006.

In addition, Comcast said that it and Time Warner Cable did not compete in a single ZIP code anywhere in the United States. Nor is the deal likely to have an effect on other providers of television programming — including Verizon, AT&T, DirecTV and Dish — which in recent years have performed better than the cable companies. Since 2005, Comcast said, telecommunications companies and satellite providers gained 18 million customers while traditional cable companies lost 10 million subscribers.

"Previous antitrust concerns are truly antiquated in light of today's marketplace realities," David L. Cohen, a Comcast executive and its chief lobbyist, said on Thursday.

There are also "cord cutters" who have jettisoned their cable providers and watch television on the Internet via fast-growing services like Netflix and YouTube.

Comcast already has plenty of experience dealing with antitrust and other regulatory officials in Washington. In 2011, the company spent a year persuading officials at the Justice Department and the Federal Communications Commission to approve its takeover of the entertainment giant NBCUniversal. It gained the approval in part by agreeing to certain conditions, among them a promise not to use NBC's clout as a provider of programming to deny access to its customers by competing producers of television and films.

(Read more: Comcast-Time Warner Cable deal faces significant review in DC)

But many in Washington say that Mr. Cohen, a veteran of Philadelphia politics, is Comcast's secret weapon in trying to persuade government regulators to sign off on the deal.

Mr. Cohen has close ties to President Obama, perhaps even closer than Comcast's chief executive, Mr. Roberts, who has golfed with the president on Martha's Vineyard.

A major Democratic fund-raiser, Mr. Cohen and his wife hosted Mr. Obama at their Philadelphia home in 2011, raising $1.2 million at an event where the president called the couple "great friends."

Mr. Cohen also was a guest at the White House on Tuesday for the state dinner in honor of President François Hollande of France.

Other Comcast officials have the ability to reach deep into the regulatory agencies that will review the merger, while officials at those agencies also are very familiar with Comcast and the cable business. Shortly after the F.C.C. approved Comcast's purchase of NBCUniversal, one of the commissioners who voted in favor of the deal, Meredith Attwell Baker, joined Comcast as a lobbyist.

The current F.C.C. chairman, Tom Wheeler, once served as the leader of the ( cable industry's chief lobbying group. And the current director of the antitrust division of the Justice Department, William J. Baer, represented NBCUniversal during the Comcast deal as a lawyer in private practice.

A Justice Department spokeswoman declined to comment on whether Mr. Baer's work for NBC would affect his ability to oversee the investigation of the Comcast-Time Warner Cable transaction.

Last month, well before the announcement of the Comcast-Time Warner Cable deal, Mr. Baer said in an interview that any transactions involving telecommunications companies, including wireless phone companies or cable providers, would be closely scrutinized by the antitrust division. In 2011, the Justice Department blocked AT&T's proposed $39 billion acquisition of T-Mobile.

Comcast officials said on Thursday that they had not yet directly engaged regulators about the deal other than to tell them it was occurring. But the company has in a way already started negotiating, saying that as part of the deal it would divest about three million subscribers.

That will keep the combined company with about 30 million subscribers, or less than 30 percent of the national total. From 1993 until 2009, when a federal appeals court threw out the rule, cable companies were forbidden by the F.C.C. from controlling more than 30 percent of the nation's video marketplace. Though the rule is no longer in effect, Comcast officials cited it Thursday as proof that their transaction would not stifle competition.

Many consumer advocates disputed that position.

"No one woke up this morning wishing their cable company was bigger," said Craig Aaron, president of the consumer advocacy group Free Press. "This deal would be the cable guy on steroids — pumped up, unstoppable and grasping for your wallet."

By Edward Wyatt of The New York Times

Contact Media

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More