Comcast-Time Warner Cable Merger

Comcast-Time Warner Cable Merger

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May 5, 2014
Comcast-Time Warner Cable Merger
Background
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
Comcast
21.6
21.5
20.3
10.5
about 30 million or just under 30% of the 100.1 million
U.S. subscribers to multichannel services. Thus, Comcast
Time Warner
11.6
9.1
11.5
5.1
would voluntarily remain under the 30% horizontal
Cable
ownership cap that had previously been imposed by the
Federal Communications Commission (FCC), although this
Cox
4.4
3.2
4.7
2.6
cap was subsequently vacated in 2009 by the D.C. Circuit
Charter
4.3
3.8
4.5
2.3
Court of Appeals (Comcast v. FCC). Comcast, on April 28,
2014, announced an agreement with Charter
Source: SNL Kagan. September 2013 third quarter data.
Communications, to complete a complex three step
Federal Review Process
transaction which would, among other provisions, result in
the net reduction of approximately 3.9 million subscribers
The Comcast-Time Warner Cable proposed merger will be
of the merged Comcast-Time Warner. This proposed
subject to a multi-faceted federal review process. The
agreement, which is contingent on Comcast-Time Warner
Department of Justice (DOJ) will review the merger based
merger approval, will be accomplished through three
on compliance with the antitrust laws. The FCC will subject
separate transactions, involving an asset sale, an asset
the license transfers that will occur in the proposed merger
to review using a more broadly defined “public interest”
transfer, and an asset spin-off, following the merger.
standard.
A combined Comcast-Time Warner Cable company would
own cable and broadcast networks and stations as well as
As a result of this review the merger may be approved as
cable operating systems. In January 2011, Comcast
proposed, approved subject to conditions, challenged in
received governmental approval for the acquisition of
court by the DOJ, or the license transfers may be denied by
NBCUniversal, a major producer and aggregator of video
the FCC. If conditions are attached to the approval,
content including the NBC broadcast network, a number of
Comcast has the option to not agree to the conditions and
national cable networks, local major-market NBC-owned
withdraw its application. The merger is also subject to
television stations, and various other media and
shareholder approval and state and local scrutiny.
entertainment properties. Additionally, Comcast owns a
number of regional cable sports networks. Time Warner
Many proposed mergers contain a penalty clause where the
Cable also owns some local and cable channels, most
acquiring party (in this case Comcast) pays some form of
compensation to the party being acquired (in this case Time
Warner Cable), if the transaction is not completed.
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Comcast-Time Warner Cable Merger
However in this case no such penalty clause exists.
End of
End of
End of
End of
Therefore there would be no penalty if Comcast decides
Year
June
Year
June
that the conditions placed upon it to gain approval are too

2010
2011
2011
2012
stringent and withdraws the proposal.
AT&T
3.0
3.4
3.8
4.1
Issues Under Consideration
A merger of this magnitude will give rise to the
Verizon
3.5
3.8
4.2
4.5
examination of a number of issues pertaining to a wide
All Other
0.4
N/A
0.5
N/A
range of converging markets. Cable systems are no longer
just suppliers of video, but now provide access to
Source: FCC, Annual Assessment of the Status of Competition in
broadband and its vast array of interactive voice and data
the Market for the Delivery of Video Programming, Fifteenth Report,
services and applications. As a result, this merger has the
released July 22, 2013, pp. 61-62.
potential to impact the consumers and suppliers of the
Next Steps
video, voice, and broadband applications and services
markets.
Reaction to the proposed merger has been mixed. Some see
this as an inevitable consolidation of an industry facing
Included among the issues that may be under consideration
high costs and an increasing pressure to respond to
are: the appropriate definition and size of the relevant
competition brought about by technological change, and
market; implications for open access, peering, and other
that the merger will result in significant consumer benefits.
competitive issues in the broadband market; and the impact
Others, however, have expressed reservations about the
on retransmission consent negotiations and other aspects of
merger, stating considerable concern over the potential
the video programming market.
negative consequences that the consolidation of the two
largest cable system operators and their wide range of
Table 2. MVPD Video Subscribers
assets and services may have on consumers and suppliers in
(in millions)
the converging information market.
End of
End of
End of
End of
Comcast and Time Warner filed on April 8, 2014, their
Year
June
Year
June
applications and public interest statement for consent to

2010
2011
2011
2012
transfer control of licenses and authorizations at the FCC
thereby commencing the review process. All parties will
Total MVPD
100.8
N/A
101.0
N/A
have a chance to voice their opinions as the FCC solicits
Cable
59.8
58.9
58.0
57.3
public comments (MB Docket No. 14-57). Similarly, the
companies also submitted their premerger notification to
Comcast
22.8
22.5
22.3
22.1
the DOJ in compliance with the Hart-Scott-Rodino
TWC
12.4
12.2
12.1
12.5
Antitrust Improvements Act. DOJ review is not open to
public comment.
Cox
4.9
4.8
4.8
4.7
It is likely that review will also be conducted by the
Charter
4.5
4.4
4.3
4.3
appropriate state and local authorities. Congress will also
Cablevision
3.3
3.3
3.3
3.3
play an oversight role as it examines the potential
consequences, both positive and negative, of the proposed
All Other
11.9
11.6
11.3
10.5
merger.
DBS
33.4
33.5
33.9
34.0
DIRECTV
19.2
19.4
19.9
19.9
Angele A. Gilroy, Specialist in Telecommunications Policy
DISH
14.1
14.1
14.0
14.1
IF10220
Telephone
6.9
N/A
8.5
N/A

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Comcast-Time Warner Cable Merger

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