Power, pricing at play in $45B Comcast deal
LOS ANGELES — With a single behemoth purchase, Comcast is forging a dominant force in American entertainment and presenting federal regulators with an equally outsized quandary: How should they handle a conglomerate that promises to improve cable TV and Internet service to millions of homes but consolidates unprecedented control of what viewers watch and download?
Comcast, which was the nation's No. 1 pay TV and Internet provider, says its $45.2 billion purchase of Time Warner Cable will provide faster, more reliable service to more customers and save money on TV programming costs. If the acquisition is approved, Comcast will serve about 30 million pay TV customers and 32 million Internet subscribers.
But industry watchdogs say the deal will give the company too much power and ultimately raise the price of high-speed connections.
“How much power over content do we want a single company to have?” said Bert Foer, president of the American Antitrust Institute, a Washington-based consumer-interest group.
The all-stock deal approved by the boards of both companies trumps a proposal from Charter Communications to buy Time Warner Cable for about $38 billion. It represents another giant expansion on Comcast's $30 billion purchase of NBCUniversal, operator of networks including NBC, Bravo and USA, which was completed in March.
Comcast says it will continue to operate under conditions the government imposed when it approved that transaction, including a requirement that it provide standalone Internet service without tying it to a pay TV package, make programming available without discrimination to other providers and treat all Internet traffic the same, even for video competitors such as Netflix. However, those conditions expire in 2018, and Comcast CEO Brian Roberts was not prepared to extend those voluntarily in a conference call with journalists.
Roberts argued that the cable industry has been losing TV subscribers for the past decade because of increased competition from satellite TV providers that include DirecTV and Dish and telecom companies such as AT&T and Verizon. Despite gaining subscribers in the final quarter of last year, the forecast is to lose more in 2014.
While video services are competitive, they are becoming less important for cable operators as higher programming costs cut into profits. On the other hand, Internet services are highly profitable and, in many markets, cable companies offer the best speeds available.
“In most places outside of a few big metro areas, you've only got cable as the only game in town,” said Craig Aaron, president of Free Press, a public-interest group that focuses on the media industry. “I don't see there on their list of proposed consumer benefits prices going down.”
In fact, Comcast Executive Vice President David Cohen told reporters on a conference call that Internet-service prices will likely keep rising.
“We're certainly not promising that customer bills are going to go down or that they'll increase less rapidly,” Cohen said.
In an interview, Cohen argued that cable companies shouldn't be “punished” for being the dominant player in too many markets and noted that competitors such as AT&T had twice the annual revenue of Comcast before the deal, with plenty of cash flow to improve their own broadband networks.
“Somehow we're going to put them at a competitive disadvantage? I think one of the strengths of the transaction is it puts us in a better position to compete against them,” he said.
Antitrust lawyers say that prices for Comcast's services will probably be one focus of a review expected to be handled by the Justice Department.
“If there's no claim of consumer gain at all, they'll have trouble gaining the Justice Department's approval,” said Keith Hylton, an antitrust expert and professor at the Boston University School of Law.
Antitrust attorney Michael Keeley of Axinn, Veltrop & Harkrider in Washington predicted that the Federal Communications Commission will use its review of the deal to extract concessions such as an extended promise to treat all Internet traffic fairly after the commission's rules on the subject were struck down by a federal appeals court.
The Justice Department and the FCC declined to comment.
The deal is expected to close by the end of the year, pending shareholder and regulatory approvals.
“I am confident that the transaction announced today will expand Comcast's ability to deploy its advanced technology and serve its customers around the country,” said Sen. Pat Toomey, R-Lehigh County. “This is good for the world-class workers in Philadelphia and Comcast customers around the state.”