Comcast, Time Warner rivals may see opportunity in mega-merger

Introduction

When Comcast Corp., a Washington lobbying powerhouse, fires up a campaign to convince lawmakers and regulators to support its $45 billion purchase of Time Warner Cable Inc., don’t expect much opposition from the companies’ biggest rivals.

Instead of fighting the deal — which would create a cable TV and broadband Internet provider with 30 million customers and a television network — rivals like Cablevision Systems Corp. and Cox Communications Inc. will likely try to use the merger of the No. 1 and No. 2 cable companies to extract their own concessions from the government, including seeking permission for their own mergers and lighter regulation.

If that happens, the Federal Communications Commission, which approves such deals, may trade off having a smaller number of cable television and Internet service providers for agreements that the remaining companies won’t block or slow Internet traffic for their personal gain. That’s the guarantee of a free and open Internet that President Obama has pursued since being first elected in 2008.

Charter Communications Inc., which was close to buying Time Warner Cable before Comcast undercut it with last week’s deal, would be viewed as a sore loser if it chose to oppose the merger. The company is already looking around at other cable companies to buy, including Cox, according to a Bloomberg report.

Rather than fighting, the companies are likely to say, “’We need scale to compete with Comcast,’” so approve our deals, said Harold Feld, a senior vice president at Public Knowledge, a consumer advocacy group in Washington.

AT&T Inc. and Verizon Communications Inc., the biggest wireless companies, are likely to lie low for the same reason.

“AT&T and Verizon typically have had a gentlemen’s agreement that, ‘We don’t comment on your merger and you won’t comment on our merger,’” Feld said.

Verizon spokesman Ed McFadden appeared to confirm that when asked about the deal. “This just changes the name of the competitor in some of our markets,” he said in an email. AT&T did not respond to a request for comment.

The big phone carriers also may devise a different, more subtle, approach to the Comcast purchase.

AT&T and Verizon may use the deal to push the Federal Communications Commission to give the more leeway as they tries to shift from providing Americans traditional wired-phone service to service based on the Internet and wireless frequencies, predicts Jeff Silva, senior policy director for telecommunications at Medley Global Advisors in Washington, D.C.

The FCC voted last month to proceed with pilot tests of the so-called IP-transition, which would send phone calls over wireless networks using the Internet. (IP stands for Internet protocol.) Traditional phone companies have sought permission to switch to IP-based networks because they are cheaper to maintain than the old copper-wire phone networks.

How phone companies may be regulated under an IP-based system is unclear, but it raises the possibility of rolling back rules.

“I can see AT&T and Verizon saying, ‘Look how big Comcast and all these cable companies are getting with all these consolidations, and we do the same thing as they do, but we are regulated differently. That’s not fair,’” Silva said. “So, they may use this as leverage to push for a more aggressive IP-transition policy at the FCC.”

That leaves it to satellite TV providers, smaller cable companies and consumer groups to fight the Comcast purchase – a lopsided battle if there ever was one.

Comcast spent the eighth-largest amount on lobbying in Washington in 2013, doling out $18.8 million, according to the Center for Responsive Politics. Comcast also upped its campaign contributions, with its political action committee raising $2.1 million in 2013, an increase from 2009 and 2011, the first years of the 2010 and 2012 election cycles.

Time Warner Cable spent much less on lobbying in 2013 — $8.3 million – but it still dwarfed DirecTV’s $2.5 million and Dish Network’s $1.5 million of lobbying spending in the same year, according to the Center for Responsive Politics.

Public interest groups that oppose the merger because it will reduce competition also have far less money than the corporations.

“The public interest community is definitely outgunned in terms of resources,” said Olivia Wein, a staff attorney in the Washington office of the National Consumer Law Center, an advocacy group that focuses on low-income and elderly consumers.

“David and Goliath is an image that comes to mind.”

What may be the biggest hurdle is the FCC itself. The agency, which will have to rule whether the purchase is in the public interest, may approve the merger if it can convince Comcast to agree to follow the FCC’s Open Internet rules, which the U.S. Court of Appeals for the District of Columbia Circuit overturned last month.

The so-called net neutrality rules barred broadband providers from blocking or slowing Internet traffic so that they could favor their own content over competitors’, or could charge for faster delivery, which would give an advantage to content providers with deep pockets over smaller, startup Internet companies.

“Instead of appealing the D.C. Circuit ruling to the Supreme Court, now all of a sudden you’ve got this deal to work with,” Silva said. “So the FCC may be looking at this as an opportunity to convince a huge broadband company and service provider to follow its net neutrality rules that they wouldn’t have been able to do previously.”

FCC Chairman Tom Wheeler announced Wednesday that the commission will propose new net-neutrality rules.

Comcast agreed to follow the FCC’s net neutrality rules through 2018 when the agency approved its purchase of NBC Universal in January 2011. A similar deal and even an extension of the rules may be part of an approval of buying Time Warner Cable. And if the FCC can secure that agreement, Internet companies that need an open Internet such as Google Inc., Facebook Inc. and Amazon.com Inc. may back off from any opposition.

“I’m thinking [FCC policymakers] are thinking real hard about what their strategy might be in this,” Silva said. “And if they can get some concessions on net neutrality, they may not oppose this.”