Comcast reaches deal with Time Warner

  • Follow Business

LOS ANGELES — With a single behemoth purchase, Com­cast is creating a dominant force in entertainment and presenting federal regulators with an equally outsized quandary: How should they handle a conglomerate that promises to improve cable TV and Internet service to millions but consolidates unprecedented control of what viewers watch and download?

Comcast, the nation's top pay TV and Internet provider, has agreed to pay $45.2 billion in an all-stock deal to obtain Time Warner Cable. Industry watchdogs reacted negatively.  FILE/ASSOCIATED PRESS
Comcast, the nation's top pay TV and Internet provider, has agreed to pay $45.2 billion in an all-stock deal to obtain Time Warner Cable. Industry watchdogs reacted negatively.

Comcast, which was already the nation’s No. 1 pay TV and Internet provider, says its $45.2 billion purchase of Time Warner Cable will provide faster, more reliable service to more customers and save money on programming costs. If the acquisition is approved, Comcast will serve about 30 million pay TV customers and 32 million Internet subscribers.

Industry watchdogs say the deal will give the company too much power and ultimately raise the price of high-speed connections.

“How much power over content do we want a single company to have?” said Bert Foer, the president of the American Antitrust Institute, a Washington-based consumer-interest group.

The all-stock deal approved by the boards of both companies trumps a proposal from Charter Communi­cations to buy Time Warner Cable for about $38 billion.

Comcast says it will continue to operate under conditions the government imposed when it approved a $30 billion purchase of NBCUniversal last year, including a requirement that it provide standalone Internet service without tying it to a pay TV package, make programming available without discrimination to other providers, and treat all Internet traffic the same, even for video competitors such as Netflix.

However, those conditions expire in 2018, and Comcast CEO Brian Roberts said he was not prepared to
voluntarily extend them into the future.

Executive Vice President David Cohen said Internet-service prices will probably keep going up.

“We’re certainly not promising that customer bills are going to go down or that they’ll increase less rapidly,” Co­hen said.

Antitrust lawyers say prices for Comcast’s services will probably be one focus of a review expected to be handled by the Justice Department.

“If there’s no claim of consumer gain at all, they’ll have trouble gaining the Justice Department’s approval,” said Keith Hylton, an antitrust expert and professor at Bos­ton University.

Antitrust attorney Michael Keeley predicted that the Fede­ral Communications Commission will use its review to extract concessions such as an extended promise to treat all Internet traffic fairly. The commission’s rules on the subject were struck down in January by a federal appeals court.

The Justice Department and the FCC declined to comment.

The deal is expected to close by the end of the year, pending shareholder and regulatory approvals.

Comcast has 22 million pay TV customers but plans to divest 3 million after the deal closes. Time Warner Cable will contribute 11.4 million customers. The deal will give the combined company a strong presence in 19 of the top 20 metro areas in the U.S.

The price amounts to $158.82 per share for Time Warner Cable and is about 17 percent above that stock’s Wednesday closing price of $135.31. It tops a Charter Communications Inc. proposal to buy Time Warner Cable for about $132.50 per share.

Charter had pursued Time Warner Cable for months, but Time Warner Cable CEO Rob Marcus consistently rejected what he called a lowball offer, saying he would cut a deal for $160 per share in cash and stock.

For a time, Comcast stayed in the background, waiting to purchase any chunk of subscribers that a combined Charter-Time Warner Cable would sell off.

Roberts said Comcast’s concurrent talks with Time Warner Cable sped up recently, and that the last week “was a real flurry.” Executives signed a deal at 1:30 a.m. Thursday, he said.

The company says the deal restores its video market share to just under 30 percent, about what it had when it bought AT&T Broadband in 2002 and part of Adelphia Communications in 2006. It’s also below the 30 percent cap that had been imposed by the FCC until the rule was struck down by an appeals court in 2009.

Comcast is also taking the position that because Comcast and Time Warner Cable do not serve overlapping markets, combining the two won’t reduce competition for consumers.

Comcast operates in Chicago and mainly in Northeast markets that include Boston, Washington and its home base of Philadelphia. Time Warner Cable has strongholds around its headquarters in New York, as well in Los Angeles, Dallas and Milwaukee.

In many of those areas, the combined Comcast-Time Warner Cable will face competition from rivals AT&T and Verizon, which provide both pay TV services and Internet hookups. Both AT&T and Verizon are growing quickly. They ended 2013 with 5.5 million and 5.3 million pay TV subscribers, respectively.

Time Warner Cable shareholders will receive 2.875 Comcast shares for every Time Warner Cable share they own. Once the deal is final, they will end up owning about 23 percent of the combined company.

Comcast and Time Warner Cable are expected to save $1.5 billion in annual costs over three years, with half of that realized in the first year.

Comcast also plans to add an additional $10 billion in share buybacks at the close of the deal, on top of a recent plan to boost its share buyback authority to $7.5 billion from $1 billion.

Shares of Time Warner Cable jumped 7 percent, or $9.49, to close Thursday at $144.80 after the deal was announced, while broader trading indexes rose less than 1 percent. Comcast shares fell more than 4.1 percent, or $2.28, to close at $52.97. Charter shares dropped 6.3 percent, or $8.66, to close at $128.91.

Comments (0) Add comment
ADVISORY: Users are solely responsible for opinions they post here and for following agreed-upon rules of civility. Posts and comments do not reflect the views of this site. Posts and comments are automatically checked for inappropriate language, but readers might find some comments offensive or inaccurate. If you believe a comment violates our rules, click the "Flag as offensive" link below the comment.
jimmymac 02/14/14 - 10:49 am

The loss of competition will only hurt the consumer. A lack of competition already is causing prices to be manipulated. We need more options not less. This merger should be rejected because it creates a monopoly in too many markets.

dickworth1 02/15/14 - 09:13 am
Say no to comcast

Comcast is a ripoff for all consumers. You pay for many channels that
you probably never watch and then Comcast has pay per view channels, a joke, all channels are pay per view. If you don't pay, you can not watch any channel! Comcast is dictating what channels you get and even though you are paying to watch free TV, you still get thousands of commercials everyday. It is sickening to watch sports because of the commercials, a football game in real time should not be over 2 -2.5 hours, but with espn and your cable provider, the games are 4 hours long. I have stop watching sports and have ordered the antenna for the free tv channels and the heck with cable tv. Save your money or let Comcast continue to monopolize the industry!

Back to Top
Search Augusta jobs