Comcast to Call Off Time Warner Cable Merger in Face of Lengthy Legal Battle

The controversial merger between Comcast and Time Warner Cable appears to be dead after the top regulator in the United States recommended handing the deal over to a lengthy hearing by an administrative law judge.

The blockbuster combination of the two top cable companies in the US was already threatened by a widely reported decision from the Department of Justice to block the merger on antitrust grounds. On Thursday, in the face of a threat from the staff of the Federal Communications Commission, Bloomberg reported that the deal is doomed.

Citing “people with knowledge of the matter,” the business news service said Comcast could decide whether to walk away from its proposed Time Warner Cable takeover as soon as Thursday, with an announcement on Friday.

A spokeswoman for Comcast said the company had no comment on the report of the merger’s dissolution.

The two telecommunications giants proposed to create a single operator that would have controlled up to two-thirds of US Internet connections and provided cable television to more that a quarter of the American market.

“The reason this is essentially a ‘death sentence’ is that it’s a multi-year process,” explained Rich Greenfield, an analyst at the research firm BTIG.

An FCC hearing under its rigorous judicial process, he said, “would involve senior Comcast executives taking the stand, and it’s very hard to imagine Comcast fighting a multi-year battle with the government. Even if they won that, it sounds like the Department of Justice is waiting to sue, so then you’d have to go to war with the DoJ.”

Rather than face a lengthy legal battle on two different fronts, the easiest way forward for Comcast appears to be to scuttle the merger entirely.

A reverse termination fee, or breakup fee, is usually a consolation prize for the smaller partner in a merger, paid by the larger partner if such a mega-deal fails—in Comcast’s case, probably about $1.35 billion. Time Warner agreed to waive that fee last year.

From the moment the Comcast-Time Warner deal was proposed, critics questioned the possible consumer benefit from a merger that created a company with such a large share across multiple markets. Others pointed to Comcast’s moves during its most recent huge merger with NBCUniversal, in particular its record on providing broadband to low-income households in markets like its hometown of Philadelphia, as it had promised to do. Comcast was responding to those charges as recently as Wednesday.

“[I]nternet users can breathe a sigh of relief,” Matt Wood, policy director of the internet rights lobbying group Free Press, wrote in a statement.

“Designating the deal for a hearing would make Comcast and Time Warner Cable go through a lengthy evidentiary procedure. That’s a very high hurdle to clear in its own right, and a huge barrier to overcome for a disastrous deal like this one, which has no real public interest benefits to show.”

Groups that support the merger objected to the FCC staff’s referral, saying that Comcast and Time Warner don’t compete because they don’t serve the same households.

“Blocking the Comcast-TWC merger won’t actually do anything to increase competition, encourage deployment or promote adoption among the underserved,” said Berin Szoka, president of anti-regulation group TechFreedom. “Making competition easier requires a lot of small reforms, none of which will make headlines, but together will help telcos compete with cable providers, help new players like Google Fiber enter the market, and make wireless a stronger alternative.”

Greenfield said he believes there are other attractive partners for a potential Comcast merger, but they are mostly in complementary industries rather than direct competitors. Wireless broadband, he said, was a good bet for the next step in the evolution of the cable market. “The world is all about broadband,” Greenfield said.

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