By Shalini Ramachandran, Joe Flint and Brent Kendall
Comcast Corp. and Time Warner Cable Inc. are slated to sit down
for the first time on Wednesday with Justice Department officials
to discuss potential remedies in hopes of keeping their $45.2
billion merger on track, according to people familiar with the
matter.
The parties haven't met face-to-face to hash out possible
concessions in the more than 14 months since the deal was
announced.
Staffers at both the Justice Department and the Federal
Communications Commission remain concerned a combined company would
wield too much power in the broadband Internet market and give it
unfair competitive leverage against TV channel owners and new
market entrants that offer video programming online, said people
with knowledge of the review.
One of the options that the FCC is considering is to designate
the merger for a hearing, people familiar with the agency's
thinking said. A hearing order would put the merger in the hands of
an administrative law judge, a move which would be seen as a sign
that the FCC isn't convinced the deal would be good for the
public.
"Mergers are never put to hearing in order to approve them,"
said Robert McDowell, a former Republican FCC commissioner. "They
are designated for a hearing in order to kill them."
Combining the nation's two largest cable and Internet providers
would create a company with control over roughly 30% of the pay-TV
market and 57% of the market for broadband service, now defined by
the FCC as 25 megabits-per-second speeds and above. The companies
have presented the deal as a straightforward cable merger that
doesn't reduce consumer choice since cable operators don't overlap
geographically, but the increased market share in broadband
Internet has been under more intense scrutiny, people familiar with
the reviews have said.
Comcast has argued that the Time Warner Cable deal isn't
anticompetitive and is necessary for the company to compete against
an array of emerging threats to the traditional pay-TV model,
including technology competitors like Apple Inc. and Netflix Inc.
"We continue to believe that our transaction with Time Warner Cable
will bring substantial benefits to consumers without any
competitive harms," Comcast spokeswoman Sena Fitzmaurice said in a
statement. "We will continue to engage in our productive
discussions with the government and do not see any value in
commenting on rumors and speculation."
The Justice Department, which evaluates antitrust concerns, and
the FCC, which must decide if the deal is in the public interest,
are nearing the final stages of scrutinizing the acquisition. Both
agencies are continuing to ask media companies for more information
regarding their dealings with Comcast, people familiar with the
talks said. Discussions on potential remedies would be an
indication that the agencies haven't yet made a firm or final
decision on the merger.
The Wednesday meeting with antitrust officials could be the
first of many, but it isn't clear whether the companies can offer
concessions that will satisfy regulators.
Looming over any discussion about merger remedies will be the
concessions Comcast made in 2011 to win approval to acquire control
of NBCUniversal. People familiar with the current review process
say the Justice Department and the FCC have been examining whether
Comcast has fully complied with those earlier commitments.
Specifically, the Justice Department is looking closely at
Comcast's role in Hulu, the streaming service it became a part
owner of through the NBCUniversal purchase, people familiar with
the matter said. In return for approval of the NBCUniversal
takeover, Comcast agreed to have no management role in Hulu and be
a silent partner.
The department is said to have asked questions in the past few
weeks about that arrangement, particularly with regard to the
aborted effort by co-owners Walt Disney Co. and 21st Century Fox
Inc. to sell Hulu in 2013. Comcast rivals DirecTV and AT&T Inc.
were among the bidders at the time. Hulu ended up being taken off
the sale block. (News Corp, owner of The Wall Street Journal, and
21st Century Fox were until mid-2013 part of the same company.)
A spokesman for the Justice Department declined to comment. An
FCC spokesman declined to comment.
Staff attorneys at the Justice Department's Antitrust Division
were leaning toward a recommendation to block the acquisition,
Bloomberg reported on Friday, citing people close to the matter.
The attorneys could submit their recommendation as soon as this
week, according to the report. Such input by department staffers
marks an initial milepost in the final decision-making process.
Senior Justice Department officials will be the ones to decide
whether to challenge the transaction.
One potential concession that could be up for discussion is the
divestiture of more of the roughly 30 million customers the
combined company will serve if the deal closes. The companies have
already agreed to deals with Charter Communications Inc. to sell or
spin off systems serving 3.9 million customers if the Time Warner
Cable purchase is completed.
Another factor is the FCC's decision to impose utility-style
regulations on Internet service earlier this year to make sure
broadband providers treat all Web traffic equally. If regulators
require Comcast to live under the new "net neutrality" policies
regardless of whether they are held up in court to win deal
approval, Comcast may walk away from the acquisition, people
familiar with the matter said. Comcast wouldn't owe Time Warner
Cable any breakup fee if it were to abandon the deal.
Comcast's planned purchase of Time Warner Cable has been dogged
by regulatory delays, and the most recent expected closing date was
bumped to the middle of the year. Meanwhile, Wall Street has
remained cautious about the potential for the deal to be approved.
After Bloomberg's report, Time Warner Cable shares fell 5.4% to
$149.61 on Friday, and Comcast slipped 2.1%. The stock drop left
Time Warner Cable trading 11% below the value of Comcast's
all-stock bid, signaling skepticism among traders that the deal
will close.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com,
Joe Flint at joe.flint@wsj.com and Brent Kendall at
brent.kendall@wsj.com
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