By Shalini Ramachandran, Brody Mullins and Brent Kendall
WASHINGTON-- Comcast Corp. Chief Executive Brian Roberts called
Federal Communications Commission Chairman Tom Wheeler on Monday to
lobby for his $45 billion deal with Time Warner Cable after rumors
surfaced it was in trouble.
Mr. Wheeler didn't tip his hand during their call even though he
had made up his mind to oppose the merger. Instead he said Comcast
would learn more later in the week. On Wednesday, FCC officials
told Comcast they had concluded the deal wouldn't be in the best
interests of consumers and were preparing to recommend it for a
hearing, which would effectively kill the merger.
The 11th-hour lobbying push from the Comcast's chief executive
represented one last failure of Comcast's vaunted lobbying effort
in a 14-month drive to secure regulatory approval to merge the
nation's No. 1 and No. 2 cable and broadband Internet
providers.
The company's inability to convince Mr. Wheeler--once a cable
lobbyist and a longtime acquaintance of Mr. Roberts--was a final
and unexpected blow. In recent weeks, people close to the companies
had claimed that Mr. Wheeler may be on their side.
In the end, Comcast's strong ties in Washington were no match
for a more powerful force: Concerns that the broadband giant
created by the deal would have the power to harm the burgeoning
streaming-TV industry.
To help its latest merger succeed, Comcast built a giant
lobbying operation in Washington, employing more than 100
individual lobbyists at a 40 lobbying firms. It spent $17 million
on lobbyists in Washington last year--the first time Comcast has
spent more than any other U.S. corporation, according to the
nonpartisan Center for Responsive Politics.
Among those paid to press for the merger were former aides to
just about every significant lawmaker and policy maker with any
level of influence over the transaction, as well as Mr. Wheeler
himself.
Few companies have a closer relationship with President Obama.
Mr. Roberts golfed with the president in Martha's Vineyard and Mr.
Obama has attended more than one fundraising event at the
Philadelphia-area home of David Cohen, the head of Comcast's
government affairs division. Both Messrs. Cohen and Roberts have
visited the White House, according to visitor logs.
But officials at both the FCC and Justice Department's Antitrust
Division concluded the combined companies would have the incentive
and the ability to prevent online video competitors from gaining
traction. They also were concerned Comcast would have more power to
favor its own NBCUniversal content over programming being offered
online by its rivals.
Attorney General Eric Holder authorized the Justice Department
to challenge the deal two weeks ago after he was briefed on the
merger by senior officials in the antitrust division, according to
a department official.
Comcast's decision to drop the deal "is a victory not only for
the Justice Department, but also for providers of content and
streaming services who work to bring innovative products to
consumers across America and around the world," Mr. Holder said in
a written statement on Friday.
Government investigators were concerned about several ways
Comcast could abuse its market power, including its ability to
impose restrictive contractual terms with programmers,
interconnection fees for Internet traffic, data caps on consumers'
broadband use and limitations on the use of third-party devices
like Roku and Xbox to receive cable programming.
Ultimately, it was Mr. Wheeler's FCC that killed the deal.
Comcast long thought it had a shot at convincing Mr. Wheeler,
given his lobbying ties to the telecommunications industry. Yet
from the beginning, Mr. Wheeler didn't see much positive in the
deal, a person familiar with his thinking said. He tipped his hand
in a speech last fall, when he said few Americans have competition
in the market for high-speed Internet service.
In recent weeks, as staff analyses showed the combined company's
market power, the negatives of the deals crystallized for Mr.
Wheeler, the person said.
Staffers began to sum up their research in recent weeks and
reached two main conclusions: Comcast's claimed benefits for the
deal were slight, while the potential risks posed by the
transaction were large, according to an FCC official. The FCC also
thought there were no potential merger conditions that would
alleviate their concerns.
Officials at both agencies focused on the sheer breadth of a
combined Comcast-Time Warner Cable, which would control about 57%
of the broadband market, as defined by the FCC. Such control over
the nation's Internet pipes would have given the firm the ability
to restrain companies such as Netflix Inc., Amazon.com Inc. and
Google Inc., which deliver programming over broadband, government
investigators believed.
A pivotal moment came in November, when Mr. Obama announced he
wanted the FCC to create the strongest possible rules on net
neutrality. The announcement was seen by many as undercutting Mr.
Wheeler, who had been working for a year on his own, more moderate
version of a net-neutrality proposal, which he had not yet
unveiled.
Mr. Wheeler embraced Mr. Obama's guidelines and in February the
FCC approved net neutrality rules that tracked the White House
request that all Internet traffic be treated equally.
At the time, observers as well as Comcast executives thought the
government's new net neutrality rules were so strong the "broadband
concentration issue" arising from putting together Comcast and Time
Warner Cable would no longer be a concern for regulators. Indeed
some people close to Comcast believed the tough net neutrality
rules made it more likely that the deal would win approval from the
FCC.
Officials at both agencies said the net neutrality rules didn't
reduce or resolve the competition concerns raised by the deal.
In the later stages of the review, FCC staff decided to
recommend to the chairman's office the agency refer the merger for
a hearing in front of an administrative law judge, a move that
would effectively kill the deal.
On Monday's call with Mr. Wheeler, Comcast's Mr. Roberts said
that the before the company announced the merger, it hired four
antitrust law firms to predict whether it would win government
approval. All four said it would, Mr. Roberts told Mr. Wheeler.
On Wednesday afternoon, the FCC staff told aides to the
commissioners they had concluded the deal wasn't in the public
interest.
About an hour later, Comcast lobbyists and lawyers went to the
FCC and met with Mr. Wheeler's team. Jonathan Sallet, FCC general
counsel, broke the news to Comcast. Messrs. Wheeler, Roberts and
Cohen didn't attend the meeting.
Mr. Sallet and other senior FCC staff told Comcast and Time
Warner Cable executives and lawyers FCC staff didn't believe
approving the deal would be in the public interest. The combined
broadband clout would have the potential to hinder the growing
online video market, the government told the firms.
People familiar with the meeting said there was no discussion of
alternatives.
On Thursday, Mr. Cohen called Mr. Sallet to make sure that what
he heard about the meeting was true. He also wanted to confirm that
the FCC's views matched Mr. Wheeler's perspective on the deal.
Mr. Sallet said yes but reiterated that the company was welcome
to come back and meet with the agency. Mr. Cohen told Mr. Sallet
that the company would examine its options. He hung up the phone
and began planning to call off the merger.
A few hours later, on Thursday evening, Comcast's board voted to
abandon the deal.
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