Comcast Corp. is pulling the plug on its $45-billion purchase of Time Warner Cable, conceding it had little chance of overcoming stiff resistance from regulators, lawmakers and consumers who mobilized to block the merger.
The deal collapsed after high-level meetings with regulators in which Comcast executives learned that the government was gearing up to challenge its plan to combine the nation’s two largest cable companies. The merger would have created a colossus that reached 30 million cable TV and high-speed Internet customers in the U.S., including 2 million in Southern California.
Comcast is expected to formally announce it is withdrawing its bid as early as Friday, according to a knowledgeable executive.
The apparent collapse of the merger leaves unsettled such issues as ownership of Time Warner Cable. It could also diminish odds that more L.A. Dodgers fans will soon be able to watch their team on TV, because Comcast was expected to resolve an impasse over distribution fees for the team’s TV channel.
It would be a stinging defeat for the Philadelphia cable company and chief executive Brian L. Roberts. In the end, the proposed acquisition succumbed to regulatory concerns about giving one company so much power as an Internet gatekeeper.
“Ultimately it was an antitrust problem, and it was hard to identify divestitures that would address the central concerns,” said Wall Street analyst Craig Moffett. Losing key assets, such as its NBCUniversal media company, “was a price that Comcast wasn’t willing to pay. And the FCC and the [Department of Justice]apparently did not feel that divestitures would be an adequate remedy and the deal could not be saved.”
Comcast, he said, had the option to go to court to continue the battle.
“But entering into a war of attrition with your own regulator is almost never a good idea,” Moffett said. “Comcast has a very strong collection of assets and operating momentum. They will return to their knitting and still be successful.”
Just this week, six influential U.S. senators weighed in, imploring federal regulators to block the deal. They worried the combination could lead to higher prices and fewer choices for consumers.
Behind the scenes, a parade of media executives during the last few months met privately with investigators with the Justice Department. They too expressed fears of how a bulked-up Comcast would have the ability to set prices for TV programming and advertising spots on cable TV. They asked the agency to thwart the merger.
“When it was announced 14 months ago, many people said this deal was a slam-dunk,” said Delara Derakhshani, the policy counsel for Consumers Union, the advocacy arm of Consumer Reports. “But they didn’t anticipate the huge response from consumers. Nearly 1 million consumers wrote in to regulators to express their concerns about the deal.”
The debate had shifted to the future of the Internet, which galvanized consumers who view their high-speed connections as the new frontier for communications and entertainment. They argued that a cable company, particularly one with a poor reputation for customer service, should not be allowed to become such a force.
Regulators also recognized that viewership patterns are changing.
Although the cable TV business remains strong, the Internet represents a potent delivery source of entertainment. Viewership of traditional television dropped nearly 4% last fall, whereas online video streaming viewership jumped 60%, according measurement company Nielsen.
Americans now stream Web video nearly 11 hours a month, up from nearly 7 hours a year earlier.
Comcast also was stung by the Federal Communications Commission’s change in definition of what constitutes high-speed Internet service. The new FCC standard, adopted earlier this year, automatically increased Comcast’s market share of broadband Internet service to 57% of the country, handing more ammunition to deal opponents who blasted Comcast for controlling too much of the Internet.
In addition, President Obama unexpectedly jumped into the debate about Open Internet rules in November. Although the president did not mention the Comcast-Time Warner Cable deal, he made it clear that he was not in favor of “cable companies” having so much power. The president’s speech, delivered via the Internet, served as a gut-punch to Comcast and other Internet service providers.
“Consumers are waking up about this,” said Susan Crawford, co-director of the Berkman Center for Internet and Society at Harvard University and author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.”
“Today, the basic utility is high-speed Internet access,” she said. “This is not a right or left issue. Everybody understands that it’s needed.”
Comcast also was losing the public relations war. Opponents rallied with slogans such as “Don’t Comcast the Internet.”
Small programmers saw the merger, and its lengthy review in Washington, as an opening to demand high fees for their programming. When Comcast refused, the company got blasted for being heavy-handed in its dealings with the little guys. Also, months ago, Comcast got outmaneuvered by Internet streaming service Netflix during a dispute over Internet traffic flows and priority lanes.
“That elevated the issue of Internet openness and put it on the tips of every consumers tongues,” said Rich Greenfield, media analyst with BTIG Research. “No one saw the Internet being threatened ... until Comcast and others started fighting with Netflix.”
The future of Time Warner Cable, the dominant pay-TV company in Southern California, now is uncertain. Top executives at Time Warner Cable initially solicited Comcast, which has been faster to adopt new technology and has solid finances, to rescue it when Charter Communications began circling in preparation to launch a hostile take over.
Comcast viewed the deal as a way to take over the Los Angeles and New York markets. It represents a second big defeat for Comcast, which mounted a failed hostile takeover of Walt Disney Co. in 2004.
“Citizen voices can still make a difference in our government’s decision making,” Miles Rapoport, president of the consumer group Common Cause, said. “More than 800,000 Americans told the FCC that the Comcast/Time Warner Cable merger would be bad for competition and innovation; their arguments were well-founded and have now carried the day. This is their victory.”
Comcast had long known that it could face high hurdles in Washington. It structured the deal so there would be no breakup fee if it had to walk away. It has spent more than $300 million in legal and other costs associated with the proposed transaction.
Times staff writers Yvonne Villarreal and Jim Puzzanghera contributed to this report.