Comcast scrapped its $45 billion proposal to merge with Time Warner Cable after being faced with potential roadblocks from federal regulators who have been leery of the merger due to concerns about unfair competition and harm to industry innovation.
The ending of the merger proposal came in a terse statement on April 24 from Brian L. Roberts, chairman and CEO of Comcast Corp., who back in February 2014 had announced the then-newly-proposed deal as an exciting opportunity for the company, its customers and for its shareholders.
“Today, we move on,” Roberts said in his statement. “Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn’t agree, we could walk away.”
Comcast NBCUniversal continues to have strong momentum despite the end of the merger idea, he said. “I couldn’t be more proud of this company, and I am truly excited for what’s next.”
In a separate statement on the ending of the merger plans, Time Warner Cable’s Chairman and CEO Robert D. Marcus said that the company has “been laser-focused on executing our operating plan and investing in our plant, products and people to deliver great experiences to our customers. Through our strong operational execution and smart capital allocation, we are confident we will continue to create significant value for shareholders.”
Marcus called his own company a one-of-a-kind asset that is “strong and getting stronger.”
Tom Wheeler, the chairman of the Federal Communications Commission, which has been actively reviewing the merger proposal from the start, said in a statement that the ending of the proposal came on the heels of meetings earlier this week with officials from the FCC and the U.S. Department of Justice.
“Comcast and Time Warner Cable’s decision to end Comcast’s proposed acquisition of Time Warner Cable is in the best interests of consumers,” Wheeler said in his statement. “The proposed transaction would have created a company with the most broadband and the video subscribers in the nation alongside the ownership of significant programming interests. Today, an online video market is emerging that offers new business models and greater consumer choice. The proposed merger would have posed an unacceptable risk to competition and innovation, including to the ability of online video providers to reach and serve consumers.”
An April 23 report by The Philadelphia Inquirer said that the merger deal “seemed dead … after the staff of the Federal Communications Commission reportedly favored sending the $45 billion transaction to an administrative law judge for a decision,” which indicated “that the FCC does not believe the deal would benefit consumers.”
Such a hearing “would offer Comcast opponents another public forum in which to blast the transaction,” the article reported, rather than private negotiations between high-level FCC officials and Comcast executives over the merger conditions.
Robert McDowell, a former FCC member, told The Philadelphia Inquirer that such a process would be almost impossible for Comcast to win and could force a final decision in federal appeals court that could take months of litigating and millions of dollars.
“The FCC fired the fatal bullet,” McDowell told the newspaper. “An FCC designation for a hearing is really a bullet to the heart of the deal. There is no way out.”
The proposed mega-merger has had critics and inspired regulatory worries since it began.
Back in July 2014, executives from Dish Network told the Federal Communications Commission (FCC) that the mega-merger of the two giants in the U.S. cable industry would hurt competition and be bad for consumers, according to an earlier eWEEK report.
Comcast Drops $45B Bid to Merge With Time Warner Cable
The ending of the merger proposal also brings a halt to a related proposal that would have divested some 30 percent of Time Warner Cable’s subscribers to rival cable company Charter Communications in an effort that was aimed at winning over regulators. That idea was raised in April 2014 to try to help the merger gain more support, according to an earlier eWEEK story. Charter had earlier lost its own bid for Time Warner Cable to Comcast’s effort.
Several industry analysts told eWEEK that the ending of the merger attempt was not a surprise.
“It looks like they felt that the deal couldn’t stand the sunlight of an FCC hearing and investigation,” said Charles King, president and principal analyst of Pund-IT. “Given the weakened state of the cable business and the growing range of entertainment options available to consumers, it was probably wise, though you have to wonder why the companies attempted to pursue such a flawed venture in the first place. In any case, to quote one of TWC’s most beloved cartoon characters, Porky Pig, ‘Th-th-th, that’s all folks.'”
Rob Enderle, president and principal analyst of Enderle Group, said the collapse of the merger “is the cost of not maintaining good customer satisfaction,” which has been a longtime criticism of both Comcast and Time Warner Cable among the general public. “The only firm with worse customer satisfaction in this space than Time Warner is Comcast, and both are huge so that set the foundation for significant opposition to this deal.”
Had Comcast had a reputation for great customer satisfaction before the merger proposal, the company would have had support for the deal “because it would have fixed Time Warner, but the combination of making this a near national monopoly and [making] already upset customers even more upset was a deal breaker,” said Enderle. “Even Consumer Reports aggressively came out against this. If they want to do anything of this scale, they have to fix customer satisfaction.”
Additional pressures from groups like the Online Trust Alliance and from Google moving into providing network connectivity will also have continuing impacts that both cable companies should keep in mind if they ever get merger itches again, said Enderle. “If both firms don’t fix their customer satisfaction problem, they’ll likely be gone by the end of the decade.”
Angie Kronenberg, chief advocate and general counsel of COMPTEL, a trade association for competitive networks and competitive communications policy, told eWEEK in a statement that her group also lauds the ending of the merger proposal.
“Today is a huge victory for consumers and competition,” said Kronenberg. “COMPTEL commends the Department of Justice and Federal Communications Commission for their work on this merger, and we urge them to release their analyses so that all interested parties and the public will fully benefit from the year-long review of the merger.”