Los Angeles Times - - FRONT PAGE - By Meg James

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 high­speed 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 NBC-Uni­ver­sal 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 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.

“When it was an­nounced 14 months ago, many peo­ple said this deal was a slam­dunk,” 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 high­speed 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 gut­punch 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.

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.

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