Comcast, the largest Internet service provider in the U.S., has agreed to buy media rival Time Warner Cable for $45.2 billion, pending regulatory approval. Consumer groups have already voiced strong objections to the acquisition. So will the deal go through?
Comcast offered $158.82 per share for Time Warner Cable (TWC), which spun off from Time Warner in 2009. Comcast is America’s biggest cable TV company and should the acquisition get the go-ahead, the newly-combined company will control three quarters of the U.S. cable market. Although that must sound like an intimidating prospect for cable providers, this deal is all about broadband internet.
A recent study by IHS revealed Comcast has claimed a fifth of the U.S. broadband market, making the company the sector’s largest stakeholder. AT&T and Time Warner Cable followed behind. The top five companies, which also included Verizon and CenturyLink, commanded 70 percent of the total market. A merger between two of these companies would seriously affect competition throughout.
In a statement responding to news of the agreement, John Bergmayer, Senior Staff Attorney of Public Knowledge, a consumer group focused on upholding the openness of the Internet, said the deal cannot be allowed to move forward. “If Comcast takes over Time Warner Cable, it would wield unprecedented gatekeeper power in several important markets. It is already the nation’s largest ISP, the nation’s largest video provider, and one of the nation’s largest home phone providers.”
Bergmayer added that it would be “simply dangerous” to place a large proportion of the country’s critical communications infrastructure in the hands of one company. Consumer rights groups claim the deal will result in higher prices for consumers, as Comcast would be in a position to bully out competitors in different sectors.
The New Jersey-based behemoth also owns the NBC broadcast network and Universal Studios, and dominates America’s cable market. Comcast currently serves 22 million pay TV customers – a number that will rise above 30 million if the deal is allowed to be completed.
The company attempted to preempt regulator objections when it announced the deal. Time Warner Cable has around 11 million pay TV subscribers, and Comcast has agreed to divest 3 million of the New York City-based company’s subscribers in order to ensure the deal goes through.But even that may not be enough.
Comcast will point to the fact that TWC’s areas of dominance differ from its own, but it’s likely that argument won’t convince regulators the deal as it stands won’t seriously reduce competition in the national market.
One surprising element of the proposed transaction is the fee Comcast will pay Time Warner Cable if the deal collapses – nothing. In agreements like these, the acquiring company usually agrees a set fee to pay its target, should the deal fall through. But in this case Comcast won’t pay Time Warner Cable anything. This can be seen one of two ways. The absence of a breakup fee could show Comcast’s confidence that the acquisition will go through. Another way of looking at it is the media giant is concerned it won’t and is unwilling to risk paying the fee.
Players big and small in the broadband, cable and the home phone markets will watch closely for a regulatory ruling over the coming weeks. Chances are high that if the deal goes through, it won’t do so in its current form, as its contents will affect both competitors and consumers greatly.