The FCC staff reached a conclusion that the best option for the FCC is to issue a “hearing designation order,” according to people familiar with the matter. In effect, that would put the $45.2 billion merger in the hands of an administrative law judge, and would be seen as a strong sign the FCC doesn’t believe the deal is in the public interest.
Comcast and Time Warner Cable may still have an opportunity to weigh in on the matter before the proceeding moves forward, people familiar with the situation said. Those people cautioned that the situation remains fluid and no final decision has been made.
A hearing could be a drawn-out process, and some regulatory experts describe the procedure as a deal-killer, though Comcast would be entitled to make its case for the tie-up.
Comcast executives on Wednesday met with officials at the FCC and the Justice Department, as those regulators’ reviews of the proposed merger enters its final stages.
Comcast has previously said its deal is in the public interest because it will bring a better video and broadband experience to Time Warner Cable customers and expand low income broadband options. In a written statement Wednesday, the company confirmed it met with FCC and Justice officials but said, “we do not believe it is appropriate to share the content of those meetings publicly.”
Regulatory scrutiny of the deal has intensified in recent weeks. The government is concerned about the influence the combined cable behemoth would have in the broadband and pay-television markets. The deal would create a company with control over roughly 30% of the pay-TV market and 57% of the market for broadband Internet service, which the FCC now defines as speeds 25 megabits-per-second and higher.
The Justice Department meeting with Comcast on Wednesday was a chance for both sides to air their views and begin discussing whether there are any concessions the cable companies could offer that would ease the regulators’ worries.
Justice officials made clear during the session they had significant concerns about the deal, but it wasn’t a drop-dead meeting and the two sides are expected to continue a dialogue, according to people familiar with the matter.
Justice officials are said to be wary of attempting to address the agency’s concerns through “behavioral remedies,” or pledges by Comcast that it will conduct business in a certain way.
But there might not be a lot of scope for more “structural” conditions on the deal. Comcast and Time Warner Cable already have deals with Charter Communications Inc. to sell or spin off systems serving 3.9 million customers if the merger goes through.
The use of hearing designation orders is rare, but the procedure doesn’t bode well for mergers. In 2011, AT&T Inc. and T-Mobile USA dropped a planned $39 billion merger after the Justice Department filed an antitrust lawsuit to block the deal and the FCC was preparing to release a hearing designation order on the deal.
If the deal were derailed, it would be a major win for media companies that lobbied aggressively to kill it, including Discovery Communications Inc., which was very vocal in its stance that a Comcast-Time Warner Cable combination would be bad for content companies. Other programmers including Time Warner Inc., Walt Disney Co. and 21st Century Fox Inc. have privately raised concerns about the deal to regulators.
“The fundamental problem with this transaction is there is no major constituency outside of Comcast and Time Warner Cable that want it to move forward,” said Rich Greenfield, analyst at BTIG Research, which has been predicting the deal falls apart.
Mr. Greenfield noted that it would be a “very uphill battle” for Comcast to prove its case through the FCC’s hearing process that its merger is in the public interest. “Is it really worth spending more time and resources to fight the government?”
For Comcast, the proposed Time Warner Cable deal is a way to seek out growth and synergies in a maturing U.S. cable sector. The pay-TV business is stagnating as consumers begin to “cut the cord,” and the future depends largely on the high-margin broadband Internet business.
If it were blocked from pursuing a major deal in the U.S., Comcast could follow the path of other big cable and media companies like Fox, Discovery and John Malone’s Liberty Global, by looking for acquisitions in faster-growing overseas markets.
Comcast also would be in a strong position, as the nation’s largest broadband operator, to offer a streaming video service, capitalizing on growing demand from consumers for services like Netflix. Launching such a service in the midst of the merger review would be challenging. Comcast also has made investments in the fast-growing digital-ad technology business.
Time Warner Cable, meanwhile, could move back into play if a deal with Comcast doesn’t pan out. Before Comcast snapped up the company, it was pursued by Charter Communications Inc., which is backed by Mr. Malone’s Liberty Broadband Corp.
Asked at an investor day last year whether Charter would look to buy TWC if its Comcast deal fell apart, Mr. Malone said emphatically, “yes!” Charter has big ambitions—last month, it announced plans to acquire Bright House Networks LLC, a cable operator with two million customers, for $10.4 billion in cash and stock. That transaction is contingent on the Comcast-Time Warner Cable deal passing muster with regulators.
Time Warner Cable is already preparing “Plan B” communications strategies for if the merger falls apart, people familiar with the company’s thinking said. The company believes its assets are more valuable today than they were a year ago thanks to better operating by management, a person familiar with the company’s thinking said. With its strong balance sheet, TWC could be an acquirer in its own right should the deal fall apart, the person said.
A TWC spokesman declined to comment.
The recommendation from the staff for a hearing order is the first step in a regulatory process. It must be circulated to all commissioners who would then vote on whether to approve it.
Comcast and Time Warner Cable can continue to lobby the FCC in the weeks ahead to attempt to make a case why the staff’s view is incorrect.
Separately, the other major media merger being reviewed by the FCC—AT&T’s proposed purchase of satellite broadcaster DirecTV—is on much more solid ground with the FCC’s staff, a person familiar with the matter said. That combination is seen as more healthy for competition than a Comcast-Time Warner Cable pairing, the person said.
Original Article
Source: wsj.com/
Author: SHALINI RAMACHANDRAN, JOE FLINT and BRENT KENDALL
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