Conditions on TWC Buy Affecting Broadband Might Be Seen as Too Much for Comcast

It’s not clear if the FCC and Department of Justice will approve the Comcast/Time Warner Cable deal, but if they do, the companies could walk away from it if imposed conditions affect broadband pricing, analysts, cable attorneys and industry executives said in interviews last week. While a host of conditions ranging from divestitures to rules requiring greater transparency have been suggested by filers in docket 14-57, most industry observers told us those that could regulate broadband pricing have the highest potential to make the transaction unprofitable in Comcast’s eyes. “Anything that Comcast perceived as indirect price regulation of broadband” could cause it to walk away from the deal, Guggenheim Partners analyst Paul Gallant said.

Many commenters proposed conditions that would affect Comcast’s broadband business. The Writers Guild of America, West and the Future Music Coalition asked the FCC to compel Comcast to lease access to its broadband network to other ISPs, while CenturyLink said the FCC should allow competitors to use letters of agency to disconnect Comcast’s cable and broadband hookups to allow customers to change providers without calling Comcast. The possibility of Comcast walking away is exacerbated by there being no provision in the proposed deal for it to make a payment to TWC if the deal isn't concluded, industry observers said. Comcast confirmed the lack of a breakup fee, but declined to comment on possible conditions.

The net neutrality proceeding occurring at roughly the same time is likely to have a strong effect on what kinds of conditions a Comcast/TWC approval would involve, analyst Craig Moffett of MoffettNathanson said. Instead of Comcast-only conditions, rules designed to discourage discrimination by ISPs will likely be part of the net neutrality proceeding and apply to the whole industry, Moffett said. “The company specific stuff won’t be a game breaker -- all the important stuff is going to be in the open Internet order,” Moffett said. He pointed to FCC NPRM on changing the definition of an multichannel video programming distributor to include some over-the-top video services as an example of the FCC choosing to go outside the transaction to regulate Comcast’s behavior. Since the program access rules for MVPDs apply only to vertically integrated content, the proposed definition change is seen as mostly affecting Comcast-owned NBCUniversal’s content.

It would be difficult for the FCC to decide rules for the open Internet and then argue that even stricter rules for Comcast alone are justified almost immediately after, Moffett said. One industry executive disagreed. The net neutrality and transaction proceedings are wholly separate, that executive said.

For tough open Internet rules to replace conditions, regulators would have to be confident the rules would survive legal and political challenges, Moffett said. It’s not clear if new open Internet rules would regulate interconnection, an area of concern raised by Netflix and many other commenters on the deal (see 1501150054). If the FCC rulemaking results in Title II Communications Act regulation of interconnection, the deal is likely easier for regulators to approve, Moffett said.

Conditions regulating other aspects of Comcast’s behavior, such as program access or retransmission negotiation, aren’t seen as potentially “toxic” to the transaction, Gallant said. The American Cable Association has asked the FCC to make it easier for small- and medium-size cable companies to bring program access complaints against Comcast, including by requiring the company to share information about its programming rates with competitors. It would be very surprising for those sorts of conditions to cause Comcast to abandon the deal, said Cinnamon Mueller attorney Barbara Esbin, who represents ACA.

Many commenters, including the 27-member Stop Mega Comcast Coalition -- which includes Dish Network and Public Knowledge -- rejected the premise that any condition can alleviate public interest harms in Comcast/TWC. The FCC “has a failed track record” when it comes to conditions on Comcast, Dish Deputy General Counsel Jeffrey Blum said. Though Dish cites the same programming and interconnection concerns as many other commenters, it doesn’t propose conditions to fix them. “No set of conditions could conceivably alleviate these harms,” Dish said.

It's also not clear whether the FCC or Department of Justice would take the lead on rejecting the deal or approving it with conditions, industry observers said. Moffett believes the FCC will likely “mostly concur” with the DOJ, which will take the lead, he said. Industry attorneys involved in the proceeding said it’s less clear. The FCC acted first in the EchoStar/DirecTV proceeding, and the commission’s deal review process for Comcast/TWC appears to be modeled after the way DOJ examines a transaction, Esbin said. “When you look at the depth and breadth of their information requests, it looks like DOJ,” she said of the commission.