D.C. plays ball, OKs Comcast-AT&T merger
Hitting the ball out of the park for cable mogul Brian Roberts, the Federal Communications Commission and the Dept. of Justice on Wednesday blessed the union of Roberts’ Comcast and AT&T Broadband as a home-run victory for the American TV viewer.
The sprawling conglom will be the country’s largest cabler, serving approximately 27 million customers, a whopping 29% of the pay TV market. The $30 billion deal was nothing short of a coup for Roberts, the soft-spoken exec from Philadelphia who will become the nation’s primary gatekeeper for content. He managed to navigate Washington’s lengthy merger review process without raising any significant cries of protest.
Instead, the proposed EchoStar/DirecTV merger drew most of the heat. Both the FCC and DOJ recently turned down the satcasting union, marking the first time in three decades that a major media deal got the boot from the FCC.
New interest in sector
FCC topper Michael Powell said the cable merger will spark new investment in the sector, including high-speed Internet service. Powell and his staffers couldn’t say the merger would actually result in lower cable bills, but he doesn’t think they’ll go up.
Powell said the merger accomplished a critical task: pushing AT&T and AOL Time Warner to unravel their joint ownership of Time Warner Entertainment, which includes Warner Bros., HBO and Time Warner cable systems. The joint ownership has long perplexed the FCC (and Time Warner shareholders) since it meant each company had a stake in distribution and programming.
“This is the most significant public interests benefit of the transaction,” Powell said. “By the action we take today, the commission finally severs a complex relationship of intertwining programming and distribution assets that have plagued the commission for years.”
Divestiture a condition
The FCC said AT&T’s divestiture of TWE was actually a condition of the merger, but consumer advocates argued it wasn’t a condition at all, considering that AT&T and AOL Time Warner were planning to divest anyway and that it was the companies who arrived at the terms.
According to the FCC’s order, Comcast and AT&T must place their interest in TWE into an irrevocable trust on the day the merger closes, and fully divest themselves within 5½ years. Counting TWE’s cable systems, AT&T Comcast would serve more than 38 million customers, or 41% of the pay TV market.
Democratic FCC commish Michael Copps voted against the deal, sharply dissenting from his three Republican brethren. He agreed with consumer advocates that the merged company could easily strong-arm programmers and that it is in no way good for the biz.
“When all is said and done, any public interest benefits that may potentially issue from this huge consolidation of commercial power are vastly outweighed by the potential for significant harm to consumers, the industry and the country,” Copps said.
His Republican counterparts had hoped to sway him before announcing their decision.
The DOJ announced its approval of the cable merger shortly after the FCC held a midafternoon press conference. Antitrust attorneys at Justice also made mention of the TWE restructuring plan, and the requirement that AT&T and Comcast place their interest into the trust.
“After a thorough investigation and analysis that included a large number of interviews of industry participants and a review of documents from various firms in the business, the department’s Antitrust Division has closed its investigation into the merger,” a DOJ statement said.
Consumer advocates say they intend to file a lawsuit appealing the FCC’s order approving the merger. They say the FCC should have required AT&T/Comcast to divulge the details of an agreement giving AOL carriage on its broadband lines.
FCC media bureau chief Ken Ferree told reporters Wednesday that the carriage agreement did not relate to the merger. He said he was confident that the merger order would survive any court challenge.
The complex TWE transaction calls for AOL TW to hand AT&T Comcast $2.1 billion in cash, $1.5 billion worth of stock and 21% of a reconstituted Time Warner Cable. In exchange, AT&T Comcast will turn over its 25% stake in TWE, which houses AOL TW film, TV and cable assets.
AOL TW will own 79% of the cable company, which will be active on the acquisition front once it has its own stock to use as currency, execs said.
Some reports say the carriage deal will require AOL to pay Comcast $30-$40 per subscriber along with a portion of advertising and e-commerce revenue.
The deal is crucial for AOL, which had not signed up any big cable operator outside of Time Warner to carry its high-speed service. AOL gets access to 10 million subscribers over three years and another 9 million subsequently if both parties agree — representing half of AT&T Comcast’s total subs and 30% of all U.S. cable subscribers.