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Originally published February 13, 2014 at 4:55 PM | Page modified February 13, 2014 at 7:20 PM

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Comcast deal for Time Warner Cable to face federal scrutiny

Comcast says its $45.2 billion purchase of Time Warner Cable would provide faster, more reliable service to more customers and save it money on TV programming. If the acquisition is approved, Comcast would serve some 30 million pay-TV customers and 32 million Internet subscribers.

The Associated Press

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My bet is the FCC will let it happen, because they'll buy Comcast's argument that, yes... MORE
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LOS ANGELES — With a single behemoth purchase, Comcast is creating a dominant force in American entertainment and presenting federal regulators with an equally outsized quandary: How should they handle a conglomerate that promises to improve cable-TV and Internet service to millions of homes but also consolidates unprecedented control of what viewers watch and download?

Comcast, already the nation’s No. 1 pay-TV and Internet provider, says its $45.2 billion purchase of Time Warner Cable would provide faster, more reliable service to more customers and save money on TV programming. If the acquisition is approved, Comcast would 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, D.C.-based consumer-interest group.

The all-stock deal approved by the boards of both companies trumps a proposal from Charter Communications to buy Time Warner Cable for about $38 billion.

It also represents another giant expansion after Comcast’s $30 billion purchase of NBCUniversal, operator of networks like NBC, Bravo and USA, which was completed last March.

Comcast says it will continue to operate under conditions the government imposed when it approved that transaction, including a requirement that it provide stand-alone Internet service without tying it to a pay-TV package, make programming available without discrimination to other providers, and treat all Internet traffic the same, even if it is for video competitors such as Netflix.

Those conditions expire in 2018, and Comcast CEO Brian Roberts was not prepared to voluntarily extend those into the future in a conference call with journalists.

“Those Internet conditions would apply on Day One,” he said. “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 last decade because of increased competition from satellite TV that includes DirecTV and Dish, and from telecom companies like AT&T and Verizon.

Despite gaining subscribers in the final quarter of last year, the forecast is to lose more in 2014.

“It’s a very competitive business,” Roberts said. “That being said, we’ve expanded for consumers their capabilities and access to content in remarkable ways.”

While video services are competitive, they are becoming less important for cable operators as higher programming costs cut into profits. On the other hand, Internet services are highly profitable, and cable companies offer the best speeds available in many markets.

“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.”

In fact, Comcast Executive Vice President David Cohen told reporters on a conference call that Internet-service prices will probably keep going up. “We’re certainly not promising that customer bills are going to go down or that they’ll increase less rapidly,” he said.

Antitrust lawyers say that prices will probably be one focus of a review expected to be handled by the Justice Department.

“If there’s no claim of consumer gain at all, they’ll have trouble gaining the Justice Department’s approval,” said Keith Hylton, an antitrust expert and professor at the Boston University School of Law. “They tend to demand efficiency gains in the form of lower prices to consumers.”

Antitrust attorney Michael Keeley of Axinn, Veltrop & Harkrider in D.C., predicted the Federal Communications Commission will use its review of the deal to extract concessions such as an extended promise to treat all Internet traffic fairly after the FCC rules on the subject were struck down last month by a federal appeals court.

The Justice Department and the FCC declined to comment.

The deal is expected to close by the end of the year, pending shareholder and regulatory approvals.

Comcast has 22 million pay-TV customers but plans to divest 3 million after the deal closes. Time Warner Cable will contribute 11.4 million customers. The deal would give the combined company a strong presence in 19 of the nation’s top 20 metro areas.

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