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Will the Comcast-Time Warner Merger Pass?

What if the Comcast (CMCSA)-Time Warner Cable (TWC) merger goes through?

Such a reality could kill the internet as you know it.

In a post-merger world, Comcast would control half of the nation’s high-speed broadband market.

Here’s why that’s a ghastly proposition. Click the video below to listen now.

Robert Williams

Founder, Wall Street Daily

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Interview Transcript:

Justin Fritz: Hi there. I’m Justin Fritz, Wall Street Daily’s Executive Editor. I’m joined today by Robert Williams, Founder of Wall Street Daily. Robert, the Comcast-Time Warner deal could be coming to a head soon. You’ve been tracking the deal since the beginning. Please get our readers up to speed.

Robert Williams: Yes, I have been following the deal since the very beginning, Justin. Let me get you guys caught up on the timeline. The deal was first publicly disclosed on February 13, 2014, over a year ago, so it’s a long time for a merger to be hanging out there. Comcast put $45 billion on the table to acquire Time Warner. Now, on April 8, 2014, Comcast filed what’s called a public interest statement with the Federal Communications Commission, the FCC. The proposed merger was approved by Comcast’s shareholders last fall on October 8, and Time Warner’s shareholders approved the deal the next day.

Now this deal, Justin, looked like a cinch for a long time, but it’s now facing mounting opposition from both the public and certain policymakers. The FCC and the U.S. Department of Justice are reviewing the deal and a decision [could be] expected as soon as the end of March.

Justin Fritz: All right, and as is almost always the case with these mega-mergers, we’re seeing a lot of passion on both sides.

Robert Williams: We definitely are. Supporters of the deal, Justin, are saying it’s good for consumers because more of them will get faster broadband internet service. Comcast is far and away the leader in broadband technology, so the deal – if it goes through – would give millions of former Time Warner customers vastly higher internet speeds.

Now another thing that’s not really being talked about is that this merger could also give Comcast the scale it needs to become a larger threat in the market for business services. Now business services – I mean telephone, broadband, and video services to businesses. That could put some price pressure on key markets like New York, Los Angeles, Washington, D.C., and Philadelphia where Comcast doesn’t have so much traction.

Now critics of the deal – they’re saying just very simply that it’s bad for consumers. It’ll harm competition. It’ll lead to less diverse content and more expensive cable and internet access. Remember, if this deal goes through Comcast would control half of the nation’s high-speed broadband market, and that could allow it to extract higher delivery fees from big companies like Netflix, Amazon, and other media outlets.

Justin Fritz: All right, so what’s really at the heart of this deal? Something bigger must be at stake. I mean, the deal has been on the table for a year now.

Robert Williams: Yeah, you’re right, something bigger is definitely at play. It’s something we’ve written about, Justin. It’s the topic of net neutrality and will the internet stay open, so to speak, if the deal goes through. Now net neutrality basically means all content on the web is treated equally, whether it’s a Netflix movie or a cat video posted on YouTube. Service providers can’t slow down some feeds and speed up others, or charge higher fees for a certain kind of content; everything is treated the same.

Now Comcast says it’s in favor of net neutrality, but the fear is that Comcast will gain so much additional power by acquiring Time Warner that it could move the goalposts and start giving certain content better streaming speeds while slowing down others. Now basically Comcast would be able to play God, and nobody wants that.

I wrote an article last summer, Justin; you may remember it. I referred to Comcast as the internet mafia.

Justin Fritz: Right.

Robert Williams: In that piece I explained how Comcast consumers were experiencing terrible download speeds on their Netflix content, but when Netflix paid Comcast a fee, suddenly the download speeds increased. So there is reason to be pessimistic here.

Justin Fritz: All right, so now it’s time for me to put you on the spot, Robert. Will the deal get done?

Robert Williams: Yes, it’ll get done. I say that based on decades’ worth of history, decades of big corporations teaming up with key politicians to get their way regardless of what the public wants. It all comes down to expanded earnings, and the internet, unfortunately, it needs to change for giants like Comcast, AT&T, and Verizon to keep growing their bottom lines.

Now there is a silver lining here, a small one albeit. What the deal – if I’m right and the deal does go through, what that does is it allows us to earn a quick 6% profit on the day the deal officially closes, which could be as soon as late March. It’s called merger arbitrage, something else we’ve written about here, Justin. Basically on the day the deal closes, Time Warner’s shareholders are set to receive $154.39 per share, but shares presently trade at around $148.00. So if you bought Time Warner shares today and the deal closes, you’d be able to earn that spread.

Justin Fritz: Great. Thanks so much, Robert. We’ll be sure to link to those articles you mentioned in the transcript below. For Wall Street Daily, this is Justin Fritz signing off.

[End of Audio]

Robert Williams