Comcast, Time Warner Cable scrub $45-billion merger under federal resistance

Comcast, Time Warner Cable scrub $45-billion merger under federal resistance
Comcast beat Wall Street estimates on Monday with first quarter profit up 10% compared with the year-ago period. (Gene J. Puskar / Associated Press)

Pay-television leader Comcast Corp. withdrew its $45-billion bid for Time Warner Cable Inc. in the face of a long fight with federal regulators, sending the smaller cable firm on its own in a churning marketplace without the heft it had sought in a merger.

The decision, announced Friday, came after federal regulators earlier this week made their opposition to the deal on antitrust grounds clear to both sides.


Meanwhile, Charter Communications Inc. revived its interest in acquiring Time Warner Cable and its crown jewel markets of Los Angeles and New York, according to a person close to the situation who asked not to be identified discussing the situation.

Charter, backed by billionaire John Malone, took its first shot at the acquisition in mid-2013. That bid led Time Warner Cable to approach Comcast, which called off the effort after a 14-month battle to win regulatory approval.

Robert D. Marcus, chief executive of Time Warner Cable, declined to say whether the company would seek another deal. But an acquisition or a merger could eventually be an option for a company that is stronger than it was when the deal with Comcast was announced, he said.

"We are executing on our operating plan, and in the last year, we have built on our operating momentum," he said.

The company, which Marcus called a "one-of-a-kind asset," spent $1.7 billion last year improving its network. It's the second-largest cable carrier and the fourth-largest pay-TV provider.

For years, Time Warner Cable struggled with outdated technology and a clunky interface for consumers. But while the Comcast deal was pending, Time Warner Cable improved operations, increased its Internet speeds and worked to retain customers.

Now analysts question whether the company can shift gears again to dance with another suitor at a time of mounting competition from satellite TV and other competitors. Most analysts see the smaller Charter as the most likely partner.

More worrisome to some in L.A., perhaps, is what Time Warner Cable will do with SportsNet LA, the Dodgers-owned channel. The cable firm is paying nearly $8.4 billion over 25 years for the exclusive rights to distribute the channel, but it has failed to sell the programming to other major carriers, leaving telecasts unavailable to most homes in the Los Angeles market.

The deep-pocketed Comcast now has other options. It could declare a stock buyback plan to assuage investors or go back on the hunt for another deal.

Some analysts believe it could go after a telecom company such as T-Mobile US Inc. to better compete with the likes of AT&T Inc., which itself is trying to get into the pay-TV market with a proposed acquisition of DirecTV. But Chief Executive Brian Roberts dismissed such talk.

Time Warner Cable has about 11 million subscribers, including 2 million in Southern California, which makes the company the largest pay-TV provider in the region.

Charter has about 4.3 million subscribers, of which about 300,000 are in the region, mostly Long Beach, Burbank and La Cañada Flintridge.

In the broader pay-TV market, which includes satellite and telecom providers, Time Warner cable is No. 4 and Charter is No. 7.

Rich Greenfield, media analyst at BTIG Research, said he didn't think Charter could pull off an acquisition of Time Warner Cable.


"I'd be surprised if a little company could swallow that big of a company. It's one thing for Goliath to swallow another Goliath," he said. "I don't see Charter buying it."

Wall Street appeared to cheer the prospects of another deal. Time Warner Cable shares jumped $6.50, or 4.4%, to $155.26 on Friday. Charter shares rose $2.17, or 1.2%, to $185.75. Meanwhile, Comcast stock rose 41 cents, or 0.7%, to $59.64.

Another deal might not provoke the same alarm at the Department of Justice and the Federal Communications Commission, both of which were more concerned about the dominance Comcast would have than with a sale of Time Warner Cable.

The Justice Department said it had "significant concerns that the merger would make Comcast an unavoidable gatekeeper for Internet-based services that rely on a broadband connection to reach consumers."

Given the concerns, Roberts said the two companies agreed to give up on the deal.

"Today, we move on," he said.

Atty. Gen. Eric H. Holder Jr. and FCC Chairman Tom Wheeler, whose agencies shared responsibility for reviewing the deal, said Comcast's decision to abandon the deal was in the best interest of U.S. consumers.

The deal unraveled this week after high-level meetings with federal regulators in which Comcast and Time Warner Cable executives learned that the government was preparing to challenge the proposed transaction.

As part of their review, Justice Department staff interviewed representatives at more than 100 companies. Nearly all had deep reservations about how the proposed merger could affect the development of the Internet, said a Justice official involved in the review who asked not to be identified.

Had the deal been approved, Comcast would have controlled 57% of the high-speed broadband market.

Programming companies worried that a bulked-up Comcast would have the power to set pricing for their content and the rates that advertisers pay for spots on cable TV.

The Justice Department investigation eventually focused on the inner workings of Internet traffic flows and the so-called interconnection point. That's the spot where broadband lines branch off and eventually travel into customers' homes.

An acquisition would have put Comcast in control of the so-called last mile of Internet lines into at least 30 million homes, more than a third of U.S. households with high-speed Internet access.

Comcast would have picked up those lines in the Los Angeles and New York markets, in addition to the ones it already controls in Chicago, Philadelphia, San Francisco and Seattle.

The government team quickly discovered that, were it allowed to bulk up further, Comcast "would have a lot of leverage at that interconnection point," said the Justice Department official.

Casting a shadow over the debate was a dispute that movie-streaming firm Netflix Inc. had with Comcast early last year. That flap centered on Internet traffic flows and Netflix payments to deliver traffic to homes served by Comcast.

Although the Netflix dispute did not factor in to the investigation, "it made it clear there was a gate there, an important gate, and people felt that they had to deal with Comcast in order to reach consumers," the Justice official said.

Meanwhile, FCC officials were increasingly worried that the combined company would pose an unacceptable risk to the emergence of new programming services delivered over the Internet, said a senior FCC official who spoke on the condition of anonymity.

Offerings such as HBO Now and Dish Network's Sling TV promise to give consumers more options — and a reason to cut the cable cord. The FCC was concerned Comcast would have the market power to shut those options down just as they were coming to market, the agency official said.

Comcast's Roberts declined to criticize the regulators Friday for opposing the deal.


"It wasn't going to happen. That was the judgment we heard and the government had reached," Roberts said on CNBC-TV. "We have to live with it and respect that and move on."

Times staff writer Yvonne Villarreal contributed to this report.

Twitter: @MegJamesLAT