Memo to Tom Wheeler regarding Charter-TWC: Hurry it up this time

Daniel Frankel, FierceCableI recall being part of an email thread on Sunday, May 18, 2014, about 18 hours before my first day at FierceCable: AT&T had just purchased DirecTV.

'Wow,' I thought. 'Things really happen fast in the pay-TV business.'

Well, yes and no. As Charter's $56.7 billion takeover of Time Warner Cable this week may well prove again, acquisition proposals can take just days to assemble, but the ensuing regulatory angst can be never-ending.

I had my one-year anniversary in this post last week, and the $49 billion merger that preceded me by a day still hasn't closed. And had Comcast not walked away from its 14-month regulatory quest to buy TWC, it would probably still be in regulatory limbo for another 14 months.

"I don't understand why it takes so long," former CBS Corp. and Sirius XM Satellite Radio chief executive Mel Karmazin said last month, while speaking at NAB. "It's 'yes' or 'no.'"

Of course, with so much public opposition facing Comcast's TWC proposal, it was understandable that the FCC and Justice Department took their time and conducted thorough public commentary processes.

But over a year of exhaustive FCC memos and "shot clock" delays created an almost untenable business atmosphere.

As the Comcast-TWC review hit the doldrums in October, for example, the share price Comcast agreed to pay for the MSO and TWC's actual trading price swelled to a differential of 7.75 percent, threatening to undermine the value proposition to shareholders.

During the 14-month chasm, the U.S. video business incurred all sorts of foundational shifts, including major programming networks like HBO and CBS going over-the-top. Internet regulation became significantly more strident. And vendors had to wait around for major clients in integration limbo to greenlight major capital expenditures.

"It's not so much a depressed level of business, it's that we expected a boost in spending once the deal was done as they realigned their networks," said Arris CEO Bob Stanzione, speaking to investors late last month, shortly after the Comcast-TWC deal collapsed.

Certainly, a strident regulatory review process may be more than fair to an American public, which would have had to live with a single Internet service provider controlling nearly 60 percent of the market, had Comcast-TWC gone forward. 

But are extraordinarily long review processes fair to the dealmakers, who have to guess what kind of regulatory climate they'll have in a year--two years--after forgoing an M&A agreement? Comcast was lucky enough to have incurred no breakup fee after walking away from TWC. Should Charter find itself similarly blocked, however, it's on the hook for $2 billion.

There's a perception among media analysts and other cable industry watchers that "New Charter" will move through the regulatory process more easily than "New Comcast" did. For starters, there was FCC Chairman Tom Wheeler's assuring phone call in recent weeks to Charter CEO Tom Rutledge and TWC chief executive Rob Marcus, indicating the agency isn't philosophically opposed to cable mergers in general. There's also the fact that the combined "New Charter" is set have less than 30 percent U.S. broadband penetration rather than the 57 percent Comcast was bless/burdened with--it was that high threshold that regulators most fixated on.

For the sake of the broader pay-TV business, an easy regulatory birth would be a good thing. For a pay-TV industry fighting for its future against over-the-top threats, spending three years with most of the top five operators in regulatory limbo at any given time, with little consolidated fruit to bear, would be a damaging prospect.

But with Wheeler indicating the deal will have to yield consumers more than a mere "absence of harm," who knows where this all goes?

It's useful to remember that Comcast-TWC was once viewed as a regulatory layup … before it wasn't.

"This was just going to get waved through," said Christopher Pultz, head of merger arbitrage for Kellner Capital, to Bloomberg in October as Comcast began to experience its first real oppositional headwinds. "All of the sudden people realize, maybe there's a little more risk in this than [they] thought."--Daniel

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