Skies darken over Comcast merger

Comcast’s $45 billion bid to buy Time Warner Cable increasingly appears in peril, as public sentiment and other considerations before federal regulators threaten to torpedo the blockbuster deal.

The merger of the nation’s two biggest cable companies was once seen as inevitable, but growing public sentiment against the deal is causing many analysts to downgrade the odds that it goes through, with some already predicting it flat-out won’t happen.  

Among them is Craig Moffett, an industry analyst whose firm recently lowered its odds that the deal would be approved.

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“We wanted to clearly signal that there was no ambiguity about which way the wind was blowing,” Moffett said. “The odds were going down instead of up.”

The merger was announced one year ago Friday. And as reviews have dragged on at the Justice Department and Federal Communications Commission (FCC), the outlook has dimmed.

Moffett now gives the merger a 70 percent chance of happening.

Richard Greenfield, another industry analyst, gives it just a 30 percent chance of meeting regulators’ muster, largely based on a number of issues going on at the FCC.

Later this month, the FCC is planning to vote on net neutrality regulations that will take the politically controversial step of reclassifying broadband Internet service so that it can be regulated like a “telecommunications” service under the agency’s rules, rather than its current classification as an “information” service, over which it has less authority.

The move has been strongly backed by advocates on the left — including, notably, President Obama — and has brought “a whole new level of scrutiny” to the Comcast-Time Warner merger, Greenfield wrote in a note to investors last week.

“The aforementioned groundswell that has altered the course of FCC policy around net neutrality drove us to downgrade Time Warner Cable in December 2014 and leads us to believe the odds are now in favor of the government formally opposing/blocking the Comcast Time Warner Cable transaction,” he wrote. “[W]e put approval odds now at 30%, at best.”

Early criticism of the Comcast merger focused on its potential to create a TV behemoth that could crush competition and make things difficult for new cable channels. But lately, the opposition has started to coalesce around the potential harms that the deal could create for the Internet.

The net neutrality plan is part of a larger effort by the FCC to increase competition for broadband service in the U.S., which agency Chairman Tom Wheeler has said is in short supply.

Last month, the commission voted to increase its internal definition for what counts as high-speed broadband in the U.S., bumping the service up from 4 megabits per second (Mbps) for downloads and 1 Mbps for uploads to 25 Mbps and 3 Mbps, respectively.

Under the new definition, a post-merger Comcast would control 57 percent of all broadband in the country.

Later this month the commission is expected to step in and block two state laws limiting towns and cities from building out their own broadband networks, a prescription some have eyed to increase competition.

While the FCC has remained mum on whether the moves foretell anything about the Comcast merger, they certainly aren’t helping. 

“With the overlay of the populist uprising driving government policy, it is hard to imagine how regulators could approve the Comcast Time Warner Cable transaction at this point,” Greenfield wrote last week. 

Not everyone is as convinced that the FCC’s actions spell doom for the merger.

After its vote on raising the definition of broadband last month, Time Warner Cable President Rob Marcus said in an earnings call that the new 25 Mbps standard “is somewhat arbitrary.”

“Really I don’t anticipate that that has any practical implications for life going forward or for the DOJ’s analysis of the deal,” he said.

The companies have repeatedly pointed out that they don’t compete in any of the same markets, saying no customer would have fewer choices as a direct result of the merger.

The net neutrality move might also end prove to be a net benefit, some have speculated.

The bold plan from Wheeler “provides the underpinning for future regulation,” Jeffrey Wlodarczak, CEO of Pivotal Research Group, told The Hill in an email.

“This means they believe they are better able to regulate [the post-merger Comcast] than they were prior to passing these rules,” he added.

But as the review drags on, the lobbying effort against the rules is only ramping up.

In December, companies and groups including Dish Network, TheBlaze TV and the Consumer Federation of America joined up to launch the Stop Mega Comcast coalition. Last week, the trade group Comptel announced the formation of a similar group, called Networks for Competition and Choice.

Since the end of the year, stock prices for both Comcast and Time Warner Cable have steadily eroded, potentially out of concern about the merger’s prospects.

“It’s not inevitable,” said Craig Aaron, the head of Free Press and an opponent of the merger. “I would argue it was never inevitable, but I think people are rightfully raising a lot of questions.”

“They’re not rubber-stamping it,” he added. “If they were rubber-stamping it it’d already be done.”