How Comcast, Time Warner Cable deal unraveled – USA TODAY
Time Warner Cable board members were summoned early Friday morning to put their stamp on an anti-climactic decision that had largely been made for them.
They voted to walk away from a deal that would have seen the New York-based company swallowed up by Comcast — the only cable company in the U.S. bigger than TWC — for $45.2 billion. The vote, by then a formality, closed a chapter that had been rife with anger and noise from all corners of the telecom and media world.
The night before, Comcast had thrown in the towel on its pursuit of TWC, an acquisition announced 14 months ago out of a belief that it needed to get larger to fend off persistent industry challenges and gain bargaining leverage against cable networks. Having been told in no uncertain terms by Washington, D.C., regulators that they would fight the deal, Comcast CEO Brian Roberts and his board decided late Thursday to end the pursuit.
Roberts saw the deal as the culmination of the years in dealmaking that had built his empire. The 55-year-old son of the company founder put on a brave face Friday morning: “I really am OK and looking forward to what comes next for our company,” he told CNBC. “It is an exciting time in the media landscape.”
That the Department of Justice was leaning against the deal — first reported by Bloomberg News — was leaked late last week. Comcast executives met with officials at the DoJ and the Federal Communications Commission this week, including at a grim, final sit-down on Wednesday, in a quixotic search for a last-minute miracle to save the deal. Despite the loud and determined opposition from consumers and advocacy groups, the companies’ executives were convinced until this week — even after Roberts met with FCC Chairman Tom Wheeler Monday — that they may be able to save the deal, said a person familiar with the decision.
In the end, the coup de grace was delivered via a classic Washingtonian maneuver — the threat of delay. The FCC told the companies that it was prepared to issue a hearing designation order, meaning an administrative judge would hear the case and the companies would have to wait months, if not years, for the outcome. That really spooked the executives, the person said. The tactic had doomed many deals in the past.
With no split-up fee involved, Comcast realized it was time to bow to the inevitable. The company decided the wait just wasn’t worth it, particularly given the rapid onslaught of change upending its business. It was time to move on.
The DoJ and the FCC — while pursuing their own separate investigations — collaborated often to scrutinize the deal. And “the DoJ got the FCC to do the dirty work here,” says Amanda Wait, an antitrust attorney at Hunton & Williams. The hearing order “pushes the timing so far that the parties can’t withstand it. The DoJ never had to show their hand.”
Several news outlets reported that U.S. Attorney General Eric Holder had authorized Justice Department lawyers to challenge the proposed merger in court. The DoJ did make clear on Friday that it had “significant concerns that the merger would make Comcast an unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers.”
With the post-merger Comcast controlling about half of the broadband market, it would have been in position to impose its will on new video-streaming services and possibly insert anti-competitive measures in the fledgling market. For example, Comcast could have insisted on a cable network forgoing an app on other smart-TV devices, such as Apple TV or Sling TV, if it wanted its content distributed to Comcast customers.
“The main issue is the development of new video services and new video companies,” says John Bergmayer, an attorney at consumer technology advocacy group Public Knowledge. “We are just seeing (this video) market starting to evolve. You get Comcast and (TWC) together, they’re going to be able to fight that change effectively.”
Comcast’s ambition was frequently compared to the last big telecom merger the DoJ killed in 2011 — AT&T’s $39 billion bid to buy T-Mobile. But Comcast’s case proved to be more difficult to assess, Wait says. “You’ve got two companies that don’t compete,” she says. “It’s much more complex.”
In buying T-Mobile, AT&T simply wipes out a competitor in an already concentrated market, an easier argument for DoJ lawyers. Comcast has argued that its case is different since it doesn’t compete directly with Time Warner Cable in any markets, and that its resources could help improve TWC’s customer service. Regulators didn’t buy it, choosing to focus on their impact on the broadband market.
Also working against Comcast was the anti-corporate fervor aroused by months of vocal support for the FCC’s net neutrality rules. After the FCC approved its rules in February, “this was in many ways the second round,” said Todd O’Boyle, program director at Common Cause, a government watchdog group.
More than 800,000 individuals submitted comments to the FCC about Comcast, according to Common Cause. “Regulators had never approved a merger over this much public opposition,” O’Boyle said. “There was nobody that really wanted this.”
Comcast’s Roberts called the FCC’s net neutrality decision “controversial rulemaking. … We do respect that customers want certain openness. … We have always said we are for that.”
Roberts stopped short of addressing what future deals might lie ahead. But Forrester research analyst James McQuivey sees potential as long as Comcast embraces the changes.
“Programmers are signaling they intend to break up the model, which they’ve done by supporting Sling TV and others,” he said. “That is now the competitive field that Comcast needs to set its sights on, not the mucky and overregulated business of putting cables in the ground and obsolete set-top boxes in people’s homes.”