Comcast-Time Warner Cable Regulatory Review Will Be Raucous

'No one woke up this morning wishing their cable company was bigger'

The proposed $45.2 billion merger between Comcast and Time Warner Cable will keep both public interest groups and regulators busy in the coming months. Expect a raucous and drawn-out transaction before regulators make their decision. 

Both Public Knowledge and Free Press came out swinging against the deal even before Comcast CEO Brian Roberts got a chance to explain it to investors this morning.

In order to get around regulators at the Department of Justice and Federal Communications Commission, Comcast said it is "prepared to divest systems serving approximately 3 million subscribers," bringing the merged entity's share of subscribers just below the 30 percent target threshold.

But complicating the review is the fact that Comcast is far more than just a cable company. Public Knowledge pointed this out in its statement warning that the combined company would have "unprecedented gatekeeper power" in several markets.

"It is already the nation's largest ISP, the nation's largest video provider, and one of the nation's largest home phone providers. It also controls a movie studio, broadcast network, and many popular cable channels," said John Bergmayer, senior staff attorney. "An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks that must interconnect with it, and distributors who must access its content."

The FCC, which has a public interest mandate, is likely to look at the impact the deal will have on consumers.

"No one woke up this morning wishing their cable company was bigger or had more control over what they could watch or download. But that, along with higher bills, is the reality they'll face tomorrow unless the Department of Justice and the FCC do their jobs and block this merger," said Free Press president and CEO Craig Aaron. "Americans already hate dealing with the cable guy, and both [of] these giant companies regularly rank among the worst of the worst in consumer surveys. But this deal would be the cable guy on steroids, pumped up, unstoppable and grasping for your wallet."

No one in Washington thinks the deal review will be easy; Comcast could be in for a rough ride. Even though the courts have thrown out the FCC's 30 percent national subscriber cap, regulators could still stretch out the review of the merger and extract numerous conditions, echoing the conditions imposed on Comcast-NBCU in 2011. The FCC for example, might impose net neutrality or other conditions on carriage deals. In the end, regulators could impose "gimmes" so onerous, the deal falls through.

Comcast knows regulatory review will be tough. The company's investor call was telling, beginning with making its case to regulators first, investors second.

"It will not reduce competition in any relevant model. We don't operate in any of the same zip codes," said Comcast CEO Brian Roberts.

As a sop to regulators, Comcast emphasized it will divest assets to go down to the 30 percent cap, even though the courts tossed that FCC regulation twice in the past.

The deal, said David Cohen, Comcast's evp and chief regulatory front man, is "pro consumer, pro competitive, strongly in the public interest and is approvable."

Cohen reminded investors that the company is still under the conditions of its merger with NBCU and that those conditions, which have another four years to go, "adequately address any competitive concerns and offer significant public interest benefits." For example, even though the court threw out the FCC's no blocking and no discrimination open Internet rules, Comcast agreed to follow those rules so they would also apply to the Time Warner Cable footprint. Another condition is Comcast's commitment to expand broadband to low-income Americans by offering affordable $9.95/month service. Comcast has already connected one million households through the program.

"This is not that complicated a deal from a regulatory and antitrust perspective," Cohen stressed. "It presents fewer issues than Comcast-NBCU did. It may sound scary, but when you parse it, you end up with a deal that has 30 percent of the marketplace…. We're only adding a modest 8 million customers to the portfolio."

Comcast-NBCU took 13 months to earn approval from regulators. Given the uproar this deal is likely to cause, Comcast may be optimistic that it can close on Time Warner Cable by the end of the year. During a conference call with media, Comcast CEO Brian Roberts said he expects the review will take nine to 12 months.