Comcast-Time Warner Cable Merger

Comcast-Time Warner Cable Merger

May 5, 2014
Comcast-Time Warner Cable Merger
Background
Cable also owns some local and cable channels, most
notably Time Warner Cable SportsNet, which has the
On February 12, 2014, Comcast Corp. announced a bid to
broadcast rights to the Los Angeles Dodgers and Lakers.
acquire all of Time Warner Cable Inc. The Boards of
Directors of both companies agreed to a stock-for-stock
Meanwhile, as part of the 2011 acquisition of
transaction whereby Comcast will acquire 100% of Time
NBCUniversal, Comcast agreed to a number of conditions
Warner Cable shares for approximately $45.2 billion in
and committed to specific undertakings in the public
equity value. If approved, this acquisition would be the
interest, many of which are intended to maintain a
largest cable TV merger of all time.
continuing competitive environment in the marketplace.
Comcast has stated that several of these conditions and
Comcast is the largest cable operator in the United States,
undertakings will be extended to the acquired Time Warner
with approximately 21.6 million subscribers receiving cable
Cable systems in the event that the merger is approved. For
television, high speed data, and/or voice service. Time
example, Comcast has stated that the FCC’s Open Internet
Warner Cable is the second largest cable operator with
protections will be extended to its acquired broadband
approximately 11 million subscribers in major markets such
networks, irrespective of whether the FCC re-establishes
as New York City, Southern California, Texas, the
such protections for other industry participants. Comcast
Carolinas, Ohio, and Wisconsin. Table 1 shows subscriber
has also promised to extend broadband adoption and digital
data for the top four cable system operators in the United
literacy programs to low-income subscribers in the acquired
States. Table 2 shows subscribers for all MVPDs
systems.
(multichannel video programming distributors) including
cable, direct broadcast satellite (DBS), and telephone
Table 1. Top Four Cable System Operators
companies.
(in millions of subscribers)
As part of the acquisition, Comcast announced its
High
willingness to divest 3 million of Time Warner Cable’s 11
Speed
million subscribers. This would result in Comcast adding 8

Basic
Digital
Data
Voice
million subscribers, bringing its total subscribership to
about 30 million or just under 30% of the 100.1 million
Comcast
21.6
21.5
20.3
10.5
U.S. subscribers to multichannel services. Thus, Comcast
Time
11.6
9.1
11.5
5.1
would voluntarily remain under the 30% horizontal
Warner
ownership cap that had previously been imposed by the
Cable
Federal Communications Commission (FCC), although this
cap was subsequently vacated in 2009 by the D.C. Circuit
Cox
4.4
3.2
4.7
2.6
Court of Appeals (Comcast v. FCC). Comcast, on April 28,
Charter
4.3
3.8
4.5
2.3
2014, announced an agreement with Charter
Communications, to complete a complex three step
Source: SNL Kagan. September 2013 third quarter data.
transaction which would, among other provisions, result in
the net reduction of approximately 3.9 million subscribers
Federal Review Process
of the merged Comcast-Time Warner. This proposed
agreement, which is contingent on Comcast-Time Warner
The Comcast-Time Warner Cable proposed merger will be
merger approval, will be accomplished through three
subject to a multi-faceted federal review process. The
separate transactions, involving an asset sale, an asset
Department of Justice (DOJ) will review the merger based
transfer, and an asset spin-off, following the merger.
on compliance with the antitrust laws. The FCC will subject
the license transfers that will occur in the proposed merger
A combined Comcast-Time Warner Cable company would
to review using a more broadly defined “public interest”
own cable and broadcast networks and stations as well as
standard.
cable operating systems. In January 2011, Comcast
received governmental approval for the acquisition of
As a result of this review the merger may be approved as
NBCUniversal, a major producer and aggregator of video
proposed, approved subject to conditions, challenged in
content including the NBC broadcast network, a number of
court by the DOJ, or the license transfers may be denied by
national cable networks, local major-market NBC-owned
the FCC. If conditions are attached to the approval,
television stations, and various other media and
Comcast has the option to not agree to the conditions and
entertainment properties. Additionally, Comcast owns a
withdraw its application. The merger is also subject to
number of regional cable sports networks. Time Warner
shareholder approval and state and local scrutiny.
www.crs.gov | 7-5700

Comcast-Time Warner Cable Merger
Many proposed mergers contain a penalty clause where the
Next Steps
acquiring party (in this case Comcast) pays some form of
compensation to the party being acquired (in this case Time
Reaction to the proposed merger has been mixed. Some see
Warner Cable), if the transaction is not completed.
this as an inevitable consolidation of an industry facing
However in this case no such penalty clause exists.
high costs and an increasing pressure to respond to
Therefore there would be no penalty if Comcast decides
competition brought about by technological change, and
that the conditions placed upon it to gain approval are too
that the merger will result in significant consumer benefits.
stringent and withdraws the proposal.
Others, however, have expressed reservations about the
merger, stating considerable concern over the potential
Issues Under Consideration
negative consequences that the consolidation of the two
largest cable system operators and their wide range of
A merger of this magnitude will give rise to the
assets and services may have on consumers and suppliers in
examination of a number of issues pertaining to a wide
the converging information market.
range of converging markets. Cable systems are no longer
just suppliers of video, but now provide access to
Comcast and Time Warner filed on April 8, 2014, their
broadband and its vast array of interactive voice and data
applications and public interest statement for consent to
services and applications. As a result, this merger has the
transfer control of licenses and authorizations at the FCC
potential to impact the consumers and suppliers of the
thereby commencing the review process. All parties will
video, voice, and broadband applications and services
have a chance to voice their opinions as the FCC solicits
markets.
public comments (MB Docket No. 14-57). Similarly, the
companies also submitted their premerger notification to
Included among the issues that may be under consideration
the DOJ in compliance with the Hart-Scott-Rodino
are: the appropriate definition and size of the relevant
Antitrust Improvements Act. DOJ review is not open to
market; implications for open access, peering, and other
public comment.
competitive issues in the broadband market; and the impact
on retransmission consent negotiations and other aspects of
It is likely that review will also be conducted by the
the video programming market.
appropriate state and local authorities. Congress will also
play an oversight role as it examines the potential
Table 2. MVPD Video Subscribers
consequences, both positive and negative, of the proposed
(in millions)
merger.
End of
End of
Angele A. Gilroy, agilroy@crs.loc.gov, 7-7778
Year
End of
Year
End of
Lennard G. Kruger, lkruger@crs.loc.gov, 7-7070

2010
June 2011
2011
June 2012
IF00010
Total
100.8
N/A
101.0
N/A
MVPD
Cable
59.8
58.9
58.0
57.3
Comcast
22.8
22.5
22.3
22.1
TWC
1
2.4
12.2
12.1
12.5
Cox
4.9
4.8
4.8
4.7
Charter
4.5
4.4
4.3
4.3
Cablevision
3.3
3.3
3.3
3.3
All Other
11.9
11.6
11.3
10.5
DBS
33.4
33.5
33.9
34.0
DIRECTV
19.2
19.4
19.9
19.9
DISH
14.1
14.1
14.0
14.1
Telephone
6.9
N/A
8.5
N/A
AT&T
3.0
3.4
3.8
4.1
Verizon
3.5
3.8
4.2
4.5
All Other
0.4
N/A
0.5
N/A
Source: FCC, Annual Assessment of the Status of Competition in
the Market for the Delivery of Video Programming, Fifteenth Report,
released July 22, 2013, pp. 61-62.
www.crs.gov | 7-5700

Document Outline

Background

Table 1. Top Four Cable System Operators

Federal Review Process

Issues Under Consideration

Table 2. MVPD Video Subscribers

Next Steps