LOS ANGELES - With a single purchase, Comcast is creating a dominant force in American entertainment and presenting federal regulators with a quandary: How will they handle a conglomerate that promises to improve cable TV and Internet service to millionsof homes but also consolidates control of what viewers watch and download?
Comcast, which was already the nation’s No. 1 pay-TV and Internet provider, says its $45.2 billion purchase of Time Warner Cable will provide faster, more reliable service to more customers and save money on TV programming costs.
If the acquisition is approved, Comcast will serve some 30 million pay-TV customers and 32 million Internet subscribers.
But industry watchdogs say the deal will give the company too much power and ultimately raise the price of high-speed connections.
“How much power over content do we want a single company to have?” said Bert Foer, president of the American Antitrust Institute, a Washington-based consumer interest group.
The all-stock deal approved by the boards of both companies trumps a proposal from Charter Communications Inc. to buy Time Warner Cable for about $38 billion. It also represents another expansion after Comcast’s $30 billion purchase of NBCUniversal, operator of networks like NBC, Bravo and USA, which was completed last March.
Comcast said it will continue to operate under conditions the government imposed when it approved that transaction, including requirements that it provide stand-alone Internet service without tying it to a pay-TV package and that it make programming available without discrimination to other providers, including online video providers.
However, those conditions expire in 2018, and Comcast Chief Executive Officer Brian Roberts said he was not prepared to voluntarily extend them.
“Those Internet conditions would apply on Day One,” he said during a conference call with journalists. “How long that goes is not something I want to speculate on, but many years at the very minimum.”
Roberts argued that the cable industry has been losing TV subscribers for the past decade because of increased competition from satellite TV providers DirecTV and Dish and telecommunications companies AT&T and Verizon.
Despite gaining subscribers in the final quarter of last year, the forecast is to lose more in2014.
“It’s a very competitive business,” he said. “That being said, we’ve expanded for consumers their capabilities and access to content in remarkable ways.”
While the provision of video is competitive, it is becoming increasingly less important for cable operators as higher programming costs cut into their profits. On the other hand, providing Internet services is highly profitable and in many markets, cable companies offer the best speeds available.
“In most places outside of a few big metro areas, you’ve only got cable as the only game in town,” said Craig Aaron, president of Free Press, a public-interest group that focuses on the media industry. “I don’t see there on their list of proposed consumer benefits prices going down.”
The deal is expected to close by the end of the year, pending shareholder and regulatory approvals
The two companies already have strongholds in the major markets of New York, Chicago and Los Angeles. Comcast has 22 million pay-TV customers but plans to divest 3 million after the deal closes. Time Warner Cable will contribute 11.2 million customers.
The price amounts to $158.82 per share for Time Warner Cable and is about 17 percent above that stock’s Wednesday closing price of $135.31. It tops a Charter Communications proposal to buy Time Warner Cable for about $132.50 per share.
Charter had pursued Time Warner Cable for months, but Time Warner Cable CEO Rob Marcus consistently rejected what he called a lowball offer, saying he would cut a deal for $160 per share in cash and stock.
For a time, Comcast, which also owns NBCUniversal, stayed in the background, waiting to purchase any chunk of subscribers that a combined Charter-Time Warner Cable would sell off. Charter had planned to finance its bid with $25 billion in new debt.
As part of a plan to pay off the debt quickly, the company considered selling off some of its territories after a deal had closed. Time Warner Cable’s Marcus had also balked at the huge debt burden the Charter takeover represented.
The Comcast-Time Warner Cable combination’s total of roughly 30 million customers is believed to be a level that won’t trigger the concern of antitrust authorities. Divesting subscribers could help the deal get approved more quickly.
Comcast also is taking the position that because Comcast and Time Warner Cable don’t serve overlapping markets, their combination won’t reduce competition for consumers.
Comcast operates in Chicago and mainly in Northeast markets that also include Boston, Washington and its home base of Philadelphia. Time Warner Cable has strongholds around its headquarters in New York, as well in Los Angeles, Dallas and Milwaukee.
Time Warner Cable shareholders will receive 2.875 Comcast shares for every Time Warner Cable share they own. Once the deal is final, they will end up owning about 23 percent of the combined company.
Shares of Time Warner Cable jumped 7 percent, or $9.50, to close Thursday at $144.81. Comcast shares fell 4.1 percent, or $2.28, to $52.97.
Business, Pages 27 on 02/14/2014