Comcast Corp.'s CMCSA -4.12% announcement that it plans to acquire Time Warner Cable TWC +7.02% sparked an immediate effort by company officials, lawmakers and interest groups to shape the early debate over a transaction that could face a year of regulatory scrutiny.
Cable Megadeal
The combination of the nation's two largest cable systems presents a host of potentially complex issues, including the deal's effects on broadband service, cable prices, Internet practices and television programmers. But at its core, the question boils down to this: Would the merged firm be so powerful that it could hurt competition and consumers?
The deal will take center stage at two different agencies. The Federal Communications Commission must decide whether the deal is in the public interest. The Justice Department is likely to examine the deal closely for potential antitrust concerns, though the companies haven't ruled out the possibility that the department's sister agency, the Federal Trade Commission, could conduct the antitrust review instead.
The government's ultimate view of the transaction is difficult to predict, particularly in light of new leadership at Justice and the FCC. At a minimum, regulators are likely to extract a host of concessions from the companies, from asset divestitures to pledges on how the combined entity will play with rivals and serve the public.
Comcast made several of these types of commitments in 2011 after running the regulatory gantlet for a year to secure its deal to acquire control of NBCUniversal. Comcast has already offered to extend many of those commitments, which expire in 2018, to Time Warner Cable customers as part of the deal.
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Regulators were silent after Thursday's deal was announced, but, on Capitol Hill, lawmakers were laying the groundwork for their own scrutiny of the $45 billion transaction.
Sens. Amy Klobuchar (D, Minn.) and Mike Lee (R, Utah) said the Senate Judiciary Committee's antitrust subcommittee would hold a hearing to examine the deal's impact on the industry and consumers, while Sen. Al Franken (D., Minn) said he had "serious reservations" about Comcast's acquisition. The House Judiciary Committee, led by Rep. Bob Goodlatte (R, Va.), said it, too, would call a hearing on cable tie-up.
Lawmakers have no official say on whether a merger receives government approval, but they can put company executives on the hot seat and exert pressure on the Justice Department and the FCC.
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On Thursday, the companies began laying out their arguments on why the deal was good for consumers. Comcast Executive Vice President David Cohen argued Time Warner Cable would benefit because Comcast offers faster broadband access and more advanced video offerings.
"Once you get through the hysteria, [this transaction] is pro-consumer, pro-competitive and strongly in the public interest," Mr. Cohen told reporters on Thursday. He was also adamant that the deal wouldn't result in any reduction in choices for consumers.
Comcast proactively outlined several commitments it was prepared to make, including the divestiture of cable systems totaling 3 million subscribers. It also said it would extend current commitments in the NBCUniversal settlement related to the availability of news and children's programming, as well as broadband deployment.
Of potential importance to the FCC, the deal would expand the reach of Comcast's commitment to abide by open-Internet principles. The FCC has sought to impose rules that would prohibit broadband providers from favoring some Internet traffic with faster speeds while slowing down the transmission of other content. A federal court last month struck down the agency's regulations. The Comcast-TWC deal would give the Commission a backdoor to enforce the rules on roughly a third of the nation's broadband subscribers.
Broadband competition is likely to be of greater concern during the review than the pay-TV market, as regulators have suggested they view the pipe as more crucial to the future. While cable companies compete with satellite, over-the-air, online video providers and phone companies in video, there are far fewer options for high-speed Internet access.
A likely top question for the Justice Department will be whether the combined company will have too much leverage in fee negotiations with content providers such as CBS Corp.CBS +4.46% , Viacom Inc. VIAB +0.52% and Walt Disney Co. DIS -0.01%
Cable systems and programmers have, at times, waged fierce battles in recent years, including when Time Warner Cable subscribers in New York and other markets lost access to CBS programming last year during an extended dispute over how much TWC should pay in retransmission fees. The eventual agreement that ended the blackout was widely viewed as a win for CBS and content companies.
Comcast's Mr. Cohen said Thursday that the TWC acquisition wouldn't suddenly given the company the upper hand. "The balance of power has tilted pretty decisively on the programmers' side," he said.
The merger review will be the first under FCC Chairman Tom Wheeler, formerly the cable industry's top lobbyist. Mr. Wheeler hasn't been afraid to take on big, complex undertakings in his first three months on the job, and previously showed an appetite for approving large telecom mergers with additional regulation during AT&T Inc. T +1.67% 's failed bid for rival T-Mobile's U.S. operations. His familiarity with the cable industry has some lawyers and analysts believing he might have more faith in the ability of conditions to mitigate any potential harms from the merger.
The Justice Department's antitrust chief, Bill Baer, remains relatively new in his post, having held the job for a little more than a year. Mr. Baer hasn't shied away from bringing merger challenges so far, but it isn't certain that he will participate in the review at all. That is because Mr. Baer, a former top private-practice antitrust lawyer, represented NBCU in its earlier deal with Comcast.
A Justice Department spokeswoman declined to comment.
Consumer groups quickly raised objections to the deal.
"This has the potential to be a very bad deal for consumers," said Delara Derakhshani, policy counsel for Consumers Union, the advocacy division of Consumer Reports. "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."
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