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Time Warner Cable
It won such an insurance policy on Tuesday, when Charter included as part of its $56 billion takeover agreement a pledge to pay Time Warner Cable a $2 billion breakup fee if the deal goes south. Comcast, by contrast, had made no such pledge and was able to walk away scot-free when its bid collapsed.
Time Warner Cable Chief Executive Rob Marcus said in an interview that the company had more leverage to negotiate various terms of the deal with Charter because it was a competitive process. Reuters reported that French telecom company Altice had been in talks about buying the company as well.
Time Warner Cable's insistence on a breakup fee reflects lingering worries that the Federal Communications Commission, which rejected the Comcast deal over concerns about its broadband market reach and the future of online video, could do something similar in this case.
Charter, meanwhile, was willing to pledge $2 billion because it is confident the deal will go through and it ultimately won't have to pay the fee, according to people close to the company who declined to speak on the record.
Underscoring the high stakes involved, FCC Chairman Tom Wheeler issued an unusually quick statement when the new deal was announced on Tuesday, reiterating that the agency will review the deal to determine whether it is in the public interest. "In applying the public interest test, an absence of harm is not sufficient," Wheeler said. "The Commission will look to see how American consumers would benefit if the deal were to be approved."
'A HARD LOOK'
While one FCC official noted that "absolutely nothing about this transaction has been pre-judged" and other experts warned against reading any implicit indications of opinion in the comment, some insiders saw Wheeler's statement as a reason for concern.
"That's a shot across the bow," said one antitrust expert and former FCC official, who asked not to be identified to protect business relationships. "If I were the parties, I wouldn't like that statement."
Although the FCC and the Department of Justice will both review the merger proposal, the former will present a higher hurdle for Charter because of its broad public interest standard. The Justice Department reviews deals' antitrust impact and has to prove actual harm to consumers to stop a merger.
One issue of concern for regulators is whether the combination of Charter and Time Warner Cable will result in higher prices for cable and broadband, said Gene Kimmelman, a veteran of the Justice Department who is now president of the public interest group Public Knowledge.
"It will get a hard look and it will depend on whether they will work out conditions," he said, adding that conditions usually can be worked out in such deals.
Other industry analysts said Charter's deal would be viewed as less risky than that of Comcast because of its relatively smaller scale and lack of major content assets like Comcast's NBC Universal.
"This is a qualitatively different deal," said Adonis Hoffman, former chief of staff to FCC Commissioner Mignon Clyburn and founder of Business in the Public Interest think tank.
Charter kicked off a charm offensive in the deal's favor on Tuesday, pledging to invest more in faster broadband, public WiFi networks and high-speed Internet connections for small and medium-sized businesses. It also promised more affordable telephone service and better video products, including high definition channels.
'DISMAL' CUSTOMER SERVICE
Still, Charter will face tough questions on the U.S. broadband Internet market, of which the combined companies would control more than one-fifth, according to data from research firm MoffettNathanson.
Wheeler said the FCC's review of a possible Comcast-Time Warner Cable combination led regulators to begin to consider cable companies less as traditional pay-TV providers and more as Internet service providers. The regulators are likely to seek reassurances that the new company would not harm the growing online content competition, for instance by charging high fees for access to its network, experts say. Charter currently does not charge such fees.
"One of the biggest questions about Charter and Time Warner Cable is whether the deal is in the public interest. Frankly, we're skeptical," said Delara Derakhshani, policy counsel for Consumers Union, the advocacy arm of Consumer Reports.
"Prices for cable and broadband continue to go up, and customer service is dismal."
And, as with any cable or Internet deal, regulators will look to see if Charter and Time Warner systems overlap, and require asset sales in areas where they do before approving any deal. Both Time Warner Cable and Charter are strongest along the eastern United States with a smattering of customers in Texas and California, although they directly compete in few, if any of those markets.
