October 17, 2014 / 8:03 PM / 5 years ago

DEAL TALK: U.S. DOJ digs into Comcast's Internet reach in merger review

WASHINGTON (Reuters) - The leverage a bigger Comcast Corp could wield over Internet access nationally is one of the key issues U.S. antitrust regulators are discussing in meetings about the proposed merger with cable rival Time Warner Cable Inc, according to sources who have attended such meetings.

Investigators from the U.S. Department of Justice (DOJ), who could block the $45 billion merger plan, have held numerous confidential meetings with Comcast’s competitors, partners, interest groups and other stakeholders.

The meetings dig deep into the workings of the Internet and video markets invisible to consumers, such as how companies negotiate connection fees and work out programming deals. A question that has come up is whether a larger geographic footprint for Comcast’s broadband offerings could hurt national video services, the sources said.

Four antitrust experts briefed on the talks by Reuters were split as to whether the regulators’ inquiries on potential competitive concerns at a national level - as opposed to the locally focused, market-by-market level common in other cable mergers - suggested a threat to the deal.

Still, observers are hungry for insight on what regulators are asking about because of the implications of a merger between the two largest U.S. cable providers, which could reshape the telecoms industry, as well as what conditions might be imposed to allow the deal to proceed.

The DOJ is weighing the merger’s competitive implications alongside the Federal Communications Commission, which is focused on whether the deal would be in the public interest. The reviews are expected to stretch into 2015.     

The meetings at Justice have included up to 25 people and lasted for three hours, several sources said, adding representatives of the 24 state attorneys general also reviewing the proposed deal often listen in as well.

Comcast said it had expected tough questions from the agencies involved and a lengthy review.

“We’ve submitted over a million pages of documents to the agencies. We will continue to work with them as the process continues,” a Comcast spokeswoman said in an email.

REVIEW ‘IN THE WEEDS’

In the better-known market for cable TV, a post-merger Comcast would serve almost 30 percent of the U.S. pay television market. But there is little of the geographic overlap which traditionally raises antitrust red flags.

Comcast has said it is willing to divest 3.9 million subscribers to address any overlap.

Beyond consumer-facing businesses are less visible markets, including one where cable companies buy video content that subscribers watch, and another where companies work together to ensure that Internet users get the online content they want.

Comcast has said that after the merger, it would serve about 35 percent of U.S. broadband subscribers. Critics say the portion is far larger if narrowed only to customers with access to download speeds of 25 megabits per second (Mbps) or faster.

Stakeholders who have attended some DOJ meetings said one of the questions asked was whether a bigger Comcast would have the incentive to slow or meddle with video from providers whose customers use Comcast to connect to the Internet. Those people said investigators asked about companies’ future plans, concerns over interconnection, programming negotiations and data caps.

The DOJ has also delved into a situation involving Cogent Communications, which supplies interconnections between companies like Netflix and Internet users, who watch its programming.

Cogent has accused Comcast of refusing to upgrade interconnections to ease congestion, which Comcast denies. The result, according to Cogent, is that Netflix paid Comcast to connect directly to deliver some video.

Justice and FCC investigators asked a lot of questions about the dispute, Cogent CEO Dave Schaeffer told Reuters.

“The majority of the inquiries are around very technical data showing congestion, the timing, showing the impacts on our customers,” he said. “They’re very in the weeds.”

U.S. regulators also asked “focused questions on growth, and on Comcast’s ability to control the direction and pace of the growth of their Internet,” Schaeffer said.

Reporting by Alina Selyukh and Diane Bartz; editing by Ros Krasny and G Crosse

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