A year-long effort to consolidate the U.S. cable industry will likely come to nothing, with Comcast expected to formally abandon its $45.2 billion bid for Time Warner Cable (TWC) on Friday.
[UPDATE: Comcast withdrew from the TWC deal later Friday. Click here for more.]
Staunch opposition from competition authorities at the Department of Justice (DoJ) and the Federal Communications Commission (FCC) has led officials at both companies to conclude that pursuing the merger would be impossible, according to sources cited by Bloomberg and The New York Times this week.
An official announcement is expected on Friday, and TWC is expected to set out its strategy as an independent entity in a conference call with shareholders on 30 April. With no break-up fee, TWC will have to make its way under its own steam.
The news will be cheered by smaller cablecos, streaming video providers and consumer advocates, which had voiced concern about the amount of power that a merged Comcast-TWC would wield in the broadband and pay TV markets.
It will also probably derail Charter’s attempt to acquire smaller rival Bright House Networks.
When Comcast CEO Brian Roberts announced in February 2014 his intention to acquire TWC, one of his arguments in favour of the deal – and why he believed it would ultimately be approved by regulators – was the lack of overlap between the companies’ network footprints, meaning competition on a market-by-market basis would be preserved.
Even so, it would have turned Comcast into a nationwide cable giant with a huge share of the fixed broadband market. In January, the FCC raised its benchmark broadband speed to 25 Mbps on the downlink from 4 Mbps. Under this new definition, the combined Comcast and TWC would have accounted for 57% of the market.
In addition, Comcast and TWC would also have had a 56% share of the cable TV market, even after divesting 3.9 million cable customers as per one of the concessions made to competition watchdogs.
Opponents of the deal argued that an enlarged Comcast would use this power to provide preferential treatment for content owned by its NBCUniversal arm, thwarting competition from smaller players, and in particular over-the-top (OTT) service providers like Netflix and Amazon.
"The Commission should reject this merger because it would result in too much power in the hands of one company," said consumer advocacy group Public Knowledge in an open letter to FCC chairman Tom Wheeler on 17 April. The letter was signed by a number of service providers and lobbyists, including Cogent Communications, Dish Network, the Rural Broadband Alliance, the Writers Guild of America, and the Media Alliance, among others.
The DoJ and FCC appear to have sided with the opponents.
According to the NYT’s sources, Comcast representatives made a last-ditch effort to sway the regulators at a meeting on Wednesday but to no avail.
While the collapse of Comcast’s TWC acquisition is good news for smaller cablecos, there is at least one mid-sized player that might be disappointed.
In late March, Charter Communications agreed to pay $10.4 billion for rival Bright House Networks, a deal that would have resulted in the former overtaking Cox Communications to become the country’s second-largest cable provider.
Charter was set to acquire 1.4 million TWC customers under the concessions offered by Comcast and TWC in a bid to win regulatory approval for their now moribund merger. The closure of this deal was a prerequisite for the Bright House buy.
Now that Comcast has all but formally walked away from TWC, Charter and Bright House will have to renegotiate terms if their tie-up is to prevail.
Alternatively, Charter, which was in the running to acquire TWC before Comcast swept in, might abandon Bright House and renew its interest, while Comcast might look to a smaller acquisition that will add scale without triggering a public backlash or alarms at the DoJ and FCC.
One thing is certain in light of this week’s developments: the U.S. cable market is set for the kind of upheaval that could reshape the pay TV and fixed broadband markets.
