Deck stacks against Comcast/Time Warner Cable approval

It begins to appear that the adage "all good things come to those who wait" will fail to apply to Comcast and Time Warner Cable, who have been waiting since early last year to receive federal regulatory approval of their proposed merger (see "Time Warner Cable agrees to merge with Comcast"). The Wall Street Journal reported yesterday that staff at the Federal Communications Commission (FCC) have recommended the proposed merger be designated for a judicial hearing, the review equivalent of limbo.

It begins to appear that the adage "all good things come to those who wait" will fail to apply to Comcast and Time Warner Cable, who have been waiting since early last year to receive federal regulatory approval of their proposed merger (see "Time Warner Cable agrees to merge with Comcast"). The Wall Street Journalreported yesterday that staff at the Federal Communications Commission (FCC) have recommended the proposed merger be designated for a judicial hearing, the review equivalent of limbo. On the heels of a Bloomberg report last week that Department of Justice (DoJ) staffers were drafting a memo suggesting a suit to block the deal, prospects for successful completion of the merger have never been more uncertain.

Reuters reports a Comcast spokesperson confirmed that the company had met with both the FCC and DoJ yesterday, but declined to describe the content of the discussions.

The Wall Street Journal report says the FCC staffers will recommend that the merger be placed before an administrative law judge to determine its fate. Comcast and Time Warner Cable would have the opportunity to present a case for approval of the merger. But the process would be time consuming and expensive. This action has been described as the FCC's way of killing a merger without making the potentially politically controversial move of formally rejecting it; the hope is that the parties involved would find the judicial review process daunting enough to drop their plans.

What remains uncertain, assuming both the Wall Street Journal and Bloomberg reports are accurate, is whether the FCC and DoJ truly want to stop the merger or are merely positioning themselves to enforce demands for significant concessions from Comcast. Comcast has already said it will divest certain assets to Charter Communications (see "Comcast agrees with Charter on post Time Warner Cable merger divestitures"). However, federal regulators could demand further divestitures, blanket acceptance of Net Neutrality, or other pounds of corporate flesh.

Failure of the transaction would reverberate throughout the cable MSO space. In addition to losing the assets it hoped to gain from Comcast, Charter likely would see its proposed acquisition of Bright House Networks fall apart (see "Charter to buy Bright House Networks"). That deal is contingent upon the success of the Comcast/Time Warner Cable merger; the latter company has a first option to acquire Bright House, which it would drop if it becomes part of Comcast.

It remains to be seen whether the significant momentum toward U.S. cable operator consolidation would totally dissipate should the Comcast/Time Warner Cable deal founder. Certainly it would appear difficult for Comcast to find another acquisition that would both meet its goals for scale and pass regulatory muster. Time Warner Cable might exercise its option on Bright House, as the smaller scale of that tie-up likely would have an easier time achieving a successful end.

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