Why Comcast thinks it should be allowed to buy Time Warner Cable — and how the merger process will play out

Many consumers wonder how regulators could allow the biggest cable company in the U.S. to swallow its largest rival: wouldn’t that be a violation of antitrust law? Unsurprising, Comcast(s cmcsa) executive, David Cohen, thinks it’s ok — and even pro-consumer — for his company to acquire Time Warner Cable(s twc). On Thursday afternoon, he explained why.
Cohen says Comcast has four answers to the antitrust concerns. Here’s a rough summary: 1) there’s no antitrust issue in the first place since  the deal is not a “horizontal transaction” and consumers will have the same amount of choice as before; 2) Comcast is already subject to a bunch of pro-consumer rules as a result of its purchases of NBC, and those rules will expand to Time Warner Cable customers; 3) the merger will improve service for consumers by letting the companies invest in more infrastructure; 4) current FCC regulations and antitrust laws already force companies to be on their best behavior.
He added that the “sky is not falling,” and suggested critics get past the “hysteria” and accept that antitrust concerns are “truly antiquated in light of today’s market.” It’s another story, of course, whether regulators will actually buy these arguments. To understand what lies ahead, here’s a plain English overview of how the regulatory process works and how it could play out.

Just what are the “regulatory hurdles” Comcast must clear?

The proposed merger is a stunner but many reports qualified it by citing “high regulatory hurdles.” These “hurdles” are actually laws, and Comcast has two sets of them to worry about.
First, these type of telecom deals require the blessing of the Federal Communications Commission. Specifically, the FCC will vote on whether or not Comcast buying Time Warner Cable is in the “public interest.” That term is as broad as it sounds and means the agency can look at all aspects of the deal, including the winners and losers.
Second, there is the Justice Department which, along with the FTC, enforces America’s antitrust laws. It’s important to note that Justice can’t stop Comcast from merging with Time Warner Cable — or with AT&T(s t) or Google(s goog) or anyone else for that matter. But it can file a lawsuit asking the courts to declare that a company is violating the Sherman Act. Even a hostile signal from Justice could lead Comcast to fold its cards rather than take a chance in court.

How long does the approval process take?

Comcast and Time Warner Cable executives predict this could be a done deal by the end of 2014. That sounds optimistic. Even though the FCC could complete a required notice and comment period in a month or two, and sign off on the deal, it will take much longer than that.
We can expect a few rounds of back and forth as the companies offer various concessions to appease the government’s competition concerns. The Comcast-NBC deal took around 13 months from the deal’s announcement to final approval. If this deal is approved, it will take at least that long.

What are the key factors that will determine if the deal is approved?

Comcast is pointing to the overall number of cable subscribers the combined company will have, and say it will divest 3 million subscribers to keep its market share below 30 percent. The companies also say they’re not competitors in the first place, since they operate in different geographic markets and since they will still compete with satellite services and, as Comcast points out, with services like Google Fiber(s goog) and Netflix(s nflx).
These arguments may be a red herring since, as Om points out, it’s all about the broadband — meaning what the companies really want is to sell internet service, which is more profitable and growing much faster than TV.
A wild card in the whole deal is net neutrality, a concept that would require broadband providers to treat all internet traffic equally. In light of a recent court ruling, this is no longer the law — but for Comcast it is thanks to the terms of its merger with NBC, which requires Comcast to uphold net neutrality principles (aka the open internet order) until 2018. Net neutrality is likely to come up as bargaining chip between the FCC and Comcast in the current deal.

So, bottom line, will the deal get approved?

Our read here at Gigaom is that Comcast, which has enormous lobbying clout, will likely have the FCC on its side; it certainly doesn’t hurt that the agency’s new chairman, Tom Wheeler, is a former lobbyist for the cable industry. This means the biggest obstacle to the deal is likely to lie with President Obama, who can tell the Justice Department to put the brakes on the deal. The Department has been aggressive in the past at enforcing antitrust laws, including against Apple and AT&T (see below), but it’s too soon to say how this will turn out.

Two other major mergers that went through — and one that didn’t

Comcast and Time Warner Cable value the proposed merger at $45 billion, which is a gargantuan deal, but hardly the biggest. Here are some others:
AOL buys Time Warner (Announced in 2000, valued at $186.2 billion)
Still, the granddaddy of all corporate deals– and hands-down the worst merger in tech history. It was announced in January, 2000 and received final approval from both the FTC and the FCC exactly a year later.
Comcast buys NBC Universal (Announced in 2011, valued around $30 billion)
Some people are still scratching their heads about how this got through. Here’s how the Wall Street Journal sums it up: “Comcast spent roughly a year under the microscope after it reached a deal in late 2009 to acquire a controlling interest in NBCUniversal from General Electric Co. In January 2011, Comcast agreed to an array of commitments with Justice, the FCC and state attorneys general in order to secure regulatory approval.”
AT&T (almost) buys T-Mobile (Announced in 2011, valued at $30 billion)
The idea that America’s biggest phone carrier should buy the fourth-biggest biggest, and one popular with low-income customers, set off a series off yelps, including from Om, that became so loud, the Justice Department sued to stop it months later. The deal is now dead as a doorknob.