Feds Will Watch At&t Comcast

The planned creation of the largest U.S. cable company, AT&T Comcast, will face a lengthy regulatory review, with market concentration and power over content providers being likely issues of concern, industry observers said Thursday.

The merger will face "a rigorous regulatory review as Washington considers what potentially may become a very rapidly consolidating multichannel TV distribution universe," ABN AMRO analyst John Martin said. While the combination does not appear to violate current regulations, according to Martin, reviewers will take about a year to "think through the ramifications that such a deal would have on the media landscape."

The proposed merger will have to win approval by the Justice Department or the Federal Trade Commission and the FCC. While antitrust officials will examine the merger to ensure that the combined company will not have too much market power, the FCC will ensure that it is in the public interest.

"There's a very good possibility that there will be hearings, if not on this specific merger, then on the state of competition in this marketplace," said Ken Johnson, spokesman for House Commerce Committee chairman Rep. Billy Tauzin, R-La., one key lawmaker.

Johnson added that "clearly, an AT&T Comcast behemoth changes the marketplace" and "will definitely help our case for broadband legislation." Tauzin has been pushing legislation that would make it easier for telecom companies to roll out broadband service, so far without getting a vote in the House.

Lobbyists for media firms without cable interests expressed worry that the planned cable megamerger would cause problems for their companies, especially given comments from AT&T and Comcast that they were hoping to use their size to gain leverage in talks with TV network providers over carriage rights and fees. "We're not happy about it," an executive for a top broadcast firm said. "It's becoming a programmer's nightmare."

With 22 million subscribers and a cable household reach of about 25%, "AT&T Comcast will wield a huge amount of power," Forrester Research analyst Josh Bernoff said. "You will be in a terrible position if you are a content provider." He said programmers could have trouble reaching carriage agreements with AT&T Comcast for new networks or renewing deals for established networks at higher prices. "Also, if they decide that your network should get channel position 91 instead of 14, your ratings might be hurt," he said.

Bernoff said the large content providers in the media and entertainment industry — such as Viacom, the Walt Disney Co., General Electric's NBC unit and News Corp. — stand the most to lose.

No. 2 satcaster EchoStar Communications on Thursday tried to take advantage of the proposed cable merger to support the arguments for its planned purchase of larger peer Hughes Electronics. In the face of cable consolidation and must-carry rules that satellite TV is now facing, "the pending merger of EchoStar and Hughes must be taken seriously as it is the last hope to create the efficiencies necessary to compete effectively against the cable behemoths," the firm said in a statement. The EchoStar-Hughes combination would reach more than 16 million subscribers, making the firm the second-largest multichannel provider in the nation. But it would virtually eliminate competition within the direct broadcast satellite space.

Executives at AT&T and Comcast said their transaction would benefit consumers through new and cheaper products. And the National Cable & Telecommunications Assn., a trade group, said the merger would allow the bigger entity "to compete with phone giants the likes of SBC and Verizon and the proposed EchoStar-DirecTV."

Brooks Boliek reported from Washington; Georg Szalai reported from New York.