As Comcast prepares to meet with the Department of Justice to plead its case for its merger with Time Warner Cable, analysts remain split on the odds of the takeover ultimately taking place. The controversial deal is so unpopular it’s already essentially dead, according to some, but others say aggressive action by the DoJ may save the deal by forcing Comcast to support net neutrality rules.
Bloomberg reported last week that the justice department was set to recommend blocking the $45.2bn deal on the grounds that it would hurt consumers. The deal would create a company that controls two-thirds of the broadband market in the US. The two sides are set to meet on Wednesday.
Internet activists have rallied against the merger. In February, backed by tech companies including Etsy, Netflix and Reddit, the groups secured a major victory against the cable companies when the Federal Communications Commission passed new rules to protect net neutrality – the principle that all information must be treated equally online. But trade groups representing Comcast, Time Warner and others, have already filed suit to overturn the rules.
“There is no major constituency we can find that is in favor of the transaction,” wrote the BTIG analyst Rich Greenfield in a note to investors. “Silicon Valley hates it, traditional media companies hate it and you would be hard pressed to find an individual consumer/consumer group that thinks a bigger Comcast is in their interests.”
But, in his own investors’ note, James Ratcliffe of Buckingham Research Group said that he believed perceived trouble with the Department of Justice was “a negotiating tactic” on the part of the government. “We note that we have always believed that Comcast will need to make concessions to get this deal done beyond those it initially offered, probably including further network neutrality commitments, potentially concessions on interconnection arrangements, and further expansion of the company’s Internet Essentials package for low-income households,” Ratcliffe wrote.
The Obama administration has taken a dim view of larger mergers and Greenfield and others have said that the president would lose face if it appeared to ignore the concerns of grassroots organizations that campaigned so hard for net neutrality and municipal broadband. “All of the street cred that the FCC and the president have gotten would evaporate,” Greenfield said.
In a statement to the Guardian, Comcast contradicted the suggestion that the merger would negatively affect consumers, asserting that the merger “will result in significant consumer benefits” and saying that there was “no basis for a lawsuit to block the transaction”.
One Wall Street analyst who covers telecommunications, speaking on background because of his company’s policy, said that he believed the FCC would try to make the case to the public that the Comcast/Time Warner merger would in fact be good for consumers, not least because, if the DoJ is successful in its negotiations, it could write into the terms of the merger a list of safeguards requiring Comcast/Time Warner to incorporate specific net neutrality provisions as a condition of approval.
Such a concession would render any ultimate judgment against the industry-wide net neutrality regulations moot for most consumers for the length of the agreement. A similar provision was placed on the company after its 2011 takeover of NBC Universal, but it didn’t extend to requiring that internet service providers manage their networks in response to consumer demand for, for example, heavy loads of streaming video from Netflix. “The Open Internet rules never were designed to deal with peering and internet interconnection,” wrote Comcast’s executive vice-president, David Cohen, in response to Netflix’s demand that they do just that without charging content providers fees.
The resulting expenses, free of usage fees, would probably come to nine figures, the analyst said, but that’s a less impressive amount at the scale of the combined company. “The dollars involved are not big dollars, so if it comes down to the FCC and the DoJ saying to Comcast that you have to cost-share [with content providers] on any interconnection up to a certain point,” the analyst said, “Comcast will say, ‘Oh, gosh, that’s really burdensome. Where do we sign?’”
