Comcast Set to Buy Time Warner Cable for $45 Billion

A merger between the two largest U.S. cable companies faces an uphill regulatory battle

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The Comcast Center, home to Comcast's corporate headquarters, in Philadelphia

Comcast, the nation’s largest cable company, announced a deal Thursday to buy Time Warner Cable in a blockbuster merger worth about $45 billion. The proposed deal will be intensely scrutinized by the U.S. government, including the Justice Department, which will address antitrust concerns, and the Federal Communications Commission, which is charged with ensuring that the deal serves the public interest. The federal government review will take about one year.

Combining the No. 1 and No. 2 cable companies in the country would create a corporate behemoth with approximately 33 million customers. Comcast already owns NBCUniversal, one of the crown jewels of the media industry, after buying the company from industrial conglomerate General Electric in a highly controversial deal made complete last year.

As part of the deal, Comcast will extend its commitment to follow the FCC’s open-Internet rules in the Time Warner Cable acquisition. Last month, a federal court struck down the FCC’s open-Internet rule — serving a major blow to Net neutrality — but Comcast had previously agreed to abide by the rules until 2018 as part of its acquisition of NBCUniversal. Net neutrality is the principle that Comcast, Verizon and AT&T shouldn’t be able to favor certain Internet services at the expense of rivals.

If successful, the deal — first reported by CNBC — will end efforts by Charter Communications to buy Time Warner Cable. Last month, Time Warner Cable refused Charter’s $132.50 per share proposal as a “nonstarter,” because the price was too low. For months, Liberty Media, the broadband giant led by billionaire mogul John Malone, had made no secret of its interest in buying Time Warner Cable, but its efforts were spurned. Malone, the legendary cable-industry pioneer, is the largest Charter shareholder, with about 27% of the company’s shares. Comcast is offering Time Warner Cable about $160 per share.

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For the combined Comcast–Time Warner Cable, this deal will have substantial business benefits. In particular, the combined company would have increased leverage in contentious negotiations with the TV broadcasters over “retransmission consent fees,” which the cable and satellite companies must pay for the right to carry popular programming like prime-time shows and sports. These fees were at the heart of a recent dispute between CBS and Time Warner Cable, which led to an unprecedented, monthlong CBS blackout for more than 3 million Time Warner Cable subscribers in New York City, Los Angeles and Dallas.

Navigating the regulatory hurdles will be a tough undertaking for Comcast, but the company showed a willingness to do so when it purchased NBCUniversal, a deal that was subject to numerous conditions imposed by the Justice Department. Comcast does have a few legal precedents working in its favor. The D.C. Circuit Court of Appeals has twice thrown out an FCC cap limiting cable ownership to 30% of the pay-TV market — the most recent decision was in 2009.

From an industry perspective, Time Warner Cable is an attractive takeover target because of its major presence in several important markets, including New York City, Los Angeles and Dallas, as well as large swaths of Ohio, North Carolina and Maine. (Time Warner Cable was spun off from TIME parent Time Warner in 2009.)

Comcast does not expect that the proposed merger would result in the combined entity having more than 30% of the market. But in order to help assuage regulators, Comcast said it’s willing to jettison as many as 3 million subscribers in order to make sure the new company falls below the 30% threshold. That means that Comcast could sell off a chunk of Time Warner Cable’s business to another cable company.

Public-interest groups reacted swiftly to condemn the proposed merger. “In an already uncompetitive market with high prices that keep going up and up, a merger of the two biggest cable companies should be unthinkable,” Craig Aaron, president and CEO of Free Press, said in a statement. “This deal would be a disaster for consumers and must be stopped.” John Bergmayer, senior staff attorney at Public Knowledge, said, “Comcast cannot be allowed to purchase Time Warner Cable. Antitrust authorities and the FCC must stop it.”