When Comcast (NASDAQ:CMCS.A) announced its blockbuster buyout of chief rival Time Warner Cable (NYSE: TWC), even the most ardent anti-monopoly observers threw their hands up in defeat. Nobody lobbies harder than the cable industry and Comcast in particular. All the complaints in the world seemed unable to topple the deal. The rubber-stamp seal of regulatory approval hovered just around the corner.
But then the tenor around the Time Warner buyout started to change. First, analysts wondered if the buyout wasn't facing more resistance from the FCC and the Department of Justice than initially thought. In October, Craig Moffett from analyst firm MoffettNathanson gave the buyout only a 75% chance of regulatory approval based on headwinds in Washington and negative investor reactions.
Now, the tech experts at GigaOm say that "all bets are off." The deal is skating into final approvals on "thin ice." Investors seem skeptical, consumers have voiced strong opposition to the buyout, and rivals in the media industry have teamed up to fund anti-merger projects like the strikingly named "Stop Mega Comcast" web site.
These merger-busting moves may come late in the game, but that only underscores the power of the underlying movement. According to GigaOm, this newfound hope for change "is a contrast from the summer when merger opponents sometimes conceded in private that they viewed Comcast as too big and too well-connected to stop."
Comcast's Time Warner deal may still overcome all of these threats to create the largest broadband and cable TV service in the United States. But now there are substantial obstacles on the road to completion. What happens if the merger is unraveled by political pressure or public backlash?
Big-ticket mergers often come with very large breakup fees if the deals go sour. For example, AT&T took a $4 billion charge when its bid for T-Mobile USA hit the regulator wall. A combination of cash and wireless spectrum licenses changed hands, enriching T-Mobile and draining AT&T.
That won't happen here.
The Time Warner takeover makes no mention of breakup fees of any kind. In fact, Comcast would most likely never have entered a bid at all if the target company had insisted on breakup payments.
From an investor's point of view, deep-sixing this deal won't change the status quo. Comcast will remain what it is today, and Time Warner Cable won't see any windfall from the termination.
Of course, Time Warner shares would quickly lose the buyout premium that has been baked into the stock price. Likewise, AT&T investors would breathe a sigh of relief as the economies of scale from this megamerger fail to materialize.
What about their customers?
Judging from the consumer furor against this merger, shutting this deal down would be in everyone else's best interest. Here are a few examples:
"The market is already suffering from too little real competition and the merger will just make things worse," says the Consumers Union policy arm of Consumer Reports. "Though worrisome enough on its own, our concern goes further than Comcast's growing market share as a cable and broadband provider. Comcast is a major content producer and owns a large amount of programming as a result of its previous merger with NBC Universal. Add all of this together and you would have a company with the ability to control the speed, quality, and type of programming for an unprecedented number of consumers."
New York City mayor Bill de Blasio wrote FCC chairman Tom Wheeler to express his concern about the deal. The mayor worries about Comcast's reduced incentive to improve its already low service quality. The deal also "poses a threat to net neutrality and innovation."
Moreover, the combined entity would control 80% of the National Cable Communications clearinghouse, through which all cable advertising is placed on a national level. "This extreme degree of consolidation threatens to make it more difficult and expensive for [New York] businesses to secure local advertising opportunities that are essential to their success," de Blasio wrote.
And that's just the tip of the iceberg. Consumer-friendly interest groups have collected hundreds of thousands of signatures in opposition to the merger. An all-star cast of economists and antitrust experts filed a protest based on problems with "increased market power, judicial precedent and scale."
My two cents
If approved, this merger seems destined to limit consumer choice and raise (or at least conserve) already high service prices.
So here's the bottom line: If you're a Comcast or Time Warner investor, you should cheer this merger at the top of your lungs. The economic benefits of holding a near-monopoly on cable TV and Internet services cannot be denied.
But if you don't own either one of these stocks or identify more as a consumer, you should hate the very idea of combining the two largest cable service networks. That same pricing power, influence over the larger media industry, and limits to effective competition that make this a great deal for insiders also work against any other stakeholder you'd care to name.