The Comcast-Time Warner Cable Merger Could Be Facing a 'Death Sentence'

Comcast's proposed $45 billion merger with Time Warner Cable could be doomed if the Federal Communications Commission hauls the two companies before an administrative law judge to justify their deal, according to industry experts.

That outcome seems increasingly likely now that FCC staff attorneys have reportedly recommended that the agency issue an extremely rare "hearing designation order," which could result in a lengthy, trial-like process in which Comcast would be burdened with proving that the merger advances the public interest.

"This would appear to be a death sentence for the transaction," said Rich Greenfield, a technology and media analyst at BTIG who has long been skeptical of the merger.

An FCC decision to move toward an administrative law hearing would be the latest and most serious setback for a deal that seeks to combine the nation's two largest cable companies into a broadband colossus with immense market power. The prospect of a complex, drawn-out, administrative law process could prove so daunting that Comcast may decide to abandon the deal altogether, according to industry experts.

Such an outcome would represent a humbling defeat for Comcast, a corporate giant that has exercised enormous influence in Washington by lavishing campaign contributions on lawmakers from both parties.

An FCC administrative law hearing on the merger would be extremely time-consuming, burdensome, and even embarrassing for Comcast. Top company executives like CEO Brian Roberts could be deposed, and angry consumers could be given the opportunity to tell a federal judge about their Comcast customer service horror stories.

"A designation for hearing is generally regarded as the kiss of death for a merger," said Harold Feld, a senior vice president at Public Knowledge, a DC-based advocacy group that opposes the merger. "It would be easier for Comcast to walk away and hope for a change in administration in 2016 than to slog it out in an administrative hearing."

Experts say that the FCC typically moves toward an administrative hearing when the agency doesn't believe a merger is in the public interest and is doubtful that any deal conditions would satisfy its public interest mandate. An FCC spokesperson declined to comment.

FCC merger hearings are vanishingly rare, in part because they are designed to place the public interest burden on companies that seek to merge. In Comcast's case, the process, which could include evidence discovery, depositions, oral arguments—and potentially several rounds of appeals—might take as long as one year or more. It's already been nearly 15 months since Comcast first announced the Time Warner Cable deal.

"No application designated for hearing in the last 30 or so years has ever actually proceeded to the hearing," said Feld. "To understand why, it is important to recognize that—unlike in antitrust—it is the merger applicants that carry the burden of proving that the merger will serve the public interest."

Over the last 15 years, the closest a major telecom merger came to reaching a FCC merger hearing was in 2002 when satellite giant EchoStar tried to buy rival DirecTV in a deal initially valued at $26 billion. The FCC designated that merger for a hearing, but the two companies abandoned the deal before the process began, in the face of vigorous opposition from the FCC and the Justice Department. In 2011, the FCC moved toward a hearing when AT&T wanted to buy T-Mobile in a $39 billion deal, but once again, the companies backed out under pressure.

Even before the FCC staff reportedly made their recommendation, the Comcast deal faced increasingly long odds. A growing chorus of lawmakers and public interest groups has voiced concern that the merger would harm consumers and give the combined company too much market power. This week, six US senators wrote a strongly-worded letter to Attorney General Eric Holder and FCC Chairman Tom Wheeler urging them to block the deal, which is fiercely opposed by public interest groups.

"There is no major constituency we can find that is in favor of the transaction," BTIG analyst Greenfield wrote in a recent note to clients. "Silicon Valley hates it, traditional media companies hate it and you would be hard pressed to find an individual consumer/consumer group that thinks a bigger Comcast is in their best interests."

Comcast says that the merger is not anticompetitive because it doesn't compete with Time Warner Cable in any of the same markets. But if the deal is approved, Comcast would control 57 percent of the national broadband internet market, using the FCC's new 25Mbps baseline standard, and 30 percent of the cable market.

On Wednesday, company representatives met with officials from the Justice Department and the FCC to discuss possible merger conditions. The Justice Department is already concerned that the deal will harm competition, and it's becoming very clear that the FCC has serious doubts that the merger will advance the public interest.

A Comcast spokesperson declined to comment on news of the FCC's apparent move toward a hearing, which was first reported by The Wall Street Journal, but confirmed that the company had met with regulators. "We do not believe it is appropriate to share the content of those meetings publicly," the Comcast spokesperson said.

If the Comcast merger collapses, it would represent the second major tech policy victory for public interest advocates so far this year. In February, the FCC approved strong new net neutrality rules designed to ensure that broadband companies like Comcast don't block or discriminate against rival internet content and services.

"The rejection of this merger would reflect the FCC and the DOJ's renewed commitment to competition and consumer protection," said Matt Wood, policy director at Free Press, a DC-based advocacy group. "The tens of millions of dollars that Comcast has spent on bankers, lawyers and lobbyists to push this ill-advised merger would have been better spent improving customer service and offering affordable high-speed fiber-to-the-home."​