Comcast, TW Cable Merger Approval Now Less Certain, Says Analyst

Comcast’s proposed merger with Time Warner Cable now has a 60-40 chance of winning government approval, according to a key Wall Street analyst who was once much more optimistic that the massive transaction would get the greenlight.

Craig Moffett of MoffettNathanson Research, in a report released on Tuesday, also downgraded Comcast and Time Warner Cable to neutral, as well as Charter Communications, the latter of which would buy as well as swap subscribers if the deal gets approved.

“We still believe that the deal is more likely than not to be approved, but we are cutting our probability of approval (again) to 60/40, from 70/30, to reflect stiffening political headwinds,” Moffett wrote. He added, “If anyone doubts the hostility of the regulatory climate in Washington now, imagine how clear it would be on the morning after a rejection. These risks must at least be acknowledged.”

On Friday, an administrative law judge recommended that California’s Public Utilities Commission approve the transaction, but with significant conditions. The PUC is, of course, limited in its authority, leaving the major decisions over the merger to the FCC and the Department of Justice.

Other analysts have also been lowering odds on the deal’s approval, largely citing a tougher regulatory climate.

Much of the concern among cable companies and telcos centers on FCC chairman Tom Wheeler’s proposed net neutrality rules, which would prohibit Internet service providers from blocking or throttling Web content, or from charging companies for speedier access to their subscribers.

To establish the FCC’s authority to issue the rules, Wheeler has proposed reclassifying broadband service as a Title II telecommunications service, the same regulatory designation given to phone companies. But he would limit the FCC’s reach, prohibiting the agency from imposing price controls or restrictions on bundling.

Although Moffett noted that investors now seem “unconcerned” with Title II regulation, he wrote that it would be “naive” to believe that pricing oversight isn’t a risk for the future. Moffett also cited “pesky clouds gathering around the health of the pay TV ecosystem,” citing worsening viewership and advertising trends.

Cable stocks have actually risen as it has become clear that the FCC would seek the Title II approach, viewed as the toughest regulatory option as Wheeler sought to rework the net neutrality rules. The FCC also redefined the standard for broadband service at 25 Mbps, from 4 Mbps, meaning that the landscape for faster Internet service is less competitive.

The FCC is scheduled to vote on the net neutrality proposal on Feb. 26.

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