Comcast will drop takeover of Time Warner Cable, sources say

Comcast is expected to announce Friday that it is abandoning its $45 billion takeover of Time Warner Cable after the deal encountered intense regulatory scrutiny over whether it was anti-competitive and in the public interest, people briefed on the matter said.

The merger would have united the country’s two largest cable operators and reshaped video and broadband markets. Just a day earlier, Comcast met with the Justice Department and the Federal Communications Commission.

Some lawmakers, public advocacy groups and media and technology companies had rallied against the merger, saying it would invest too much power and market share in one company. The combined company would have controlled just under 30 percent of the pay television subscribers and 35 to 50 percent of the nation’s broadband Internet service, depending on how regulators define the market.

A Comcast spokeswoman declined to comment, as did a spokesman for Time Warner Cable.

Sen. Al Franken, the Minnesota Democrat who led opposition to the deal in Congress, said the combined company would have had the power “to destroy its competition, abuse its customers, and bully the government agencies charged with regulating it.”

Opponents also saw the merger as a direct threat to the growing trend of a la carte television since the combined company would have even greater control over what it allowed over its broadband networks.

“This isn’t just about cable programming. This is about broadband,” said Michael Copps, a former Democratic member of the Federal Communications Commission and a special adviser to Common Cause, a public interest group. “This is about content and distribution. It’s about the medium and the message.”

In the Kansas City area, Time Warner Cable is the main cable and broadband provider in many areas, but Comcast is a big provider in Olathe, Independence, Raytown, Belton, Blue Springs and parts of Lee’s Summit.

The collapse of the deal is a big blow for Brian Roberts, the chief executive of Comcast who has steadily built his company into one of the country’s largest media conglomerates through a series of acquisitions in recent years. That includes the prominent 2011 acquisition of NBCUniversal, which also drew intense regulatory scrutiny but was ultimately approved.

The implosion also is a setback for David L. Cohen, the Comcast executive who was in charge of navigating the deals past regulators. The well-connected executive is known for his lobbying skills in Washington.

On Wednesday, Comcast officials met with the Justice Department and the FCC, facing signs of stiff resistance from the regulatory agencies. Justice officials were considering whether the deal would harm competition, while the FCC was evaluating whether the deal was in the public interest.

Last week, staff lawyers at the Justice Department raised concerns about the merger and were leaning toward recommending that it be blocked, people familiar with their thinking said. Though the development was preliminary, it signaled that the tide had turned against the deal.

The death knell for the deal came on Wednesday when Jonathan Sallet, general counsel of the FCC, met with staff members. He told them that he was going to recommend that the transaction be referred to a hearing before an administrative law judge, one lawyer involved in the transaction said, an account confirmed by a former FCC commissioner.

That results in a drawn-out process that essentially is a way of saying the deal would be blocked, said Robert M. McDowell, who until last year served on the commission and is now in private practice. He said that in his 25 years of observing actions by the FCC, he cannot recall a transaction being approved after such a referral.

“That is a fatal bullet to the heart of the deal,” he said.

In 2011, the FCC formally proposed the same path when considering AT&T and T-Mobile’s bid to merge; within a week the two companies had withdrawn their application.

The FCC staff had concluded that Comcast had failed to honor the conditions of the NBC merger, McDowell said, and it had little confidence that the company would comply with new agreements.

The FCC proposal to follow that course for Comcast was only a preliminary one; no formal order was circulated among the agency’s commissioners. Nonetheless, the message from the general counsel’s office this week was strong, according to people familiar with its content, and it deterred Comcast from proposing further, seemingly futile, concessions.

This story was originally published April 23, 2015 at 2:47 PM with the headline "Comcast will drop takeover of Time Warner Cable, sources say."