An Ignoble Experiment

2. Comcast takes bipartisan heat in House Judiciary hearing on TWC merger

Dish Network (NASDAQ: DISH) might be able to revive a once-defeated merger with DirecTV (NASDAQ: DTV) in today's regulatory environment--if the merger could be positioned as a response to a merged Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC). But, economically, it's not feasible, Charlie Ergen, co-founder and chairman said during wide-ranging comments with analysts after Dish announced first quarter earnings.

Ergen

"I guess I would be cautiously optimistic you could get it through regulators (if you could ) show them that … as a result of the merger, competition would be enhanced and a stronger Dish-DirecTV in the wake of a Comcast-Time Warner-Charter Communications (NASDAQ: CHTR) consolidation, new entrants in the marketplace, OTT and concentration and broadband, is probably not a bad thing for consumers," Ergen said.

The problem is that Dish isn't in a financial position to advance such an idea. That would be better left for AT&T (NYSE: T), reportedly the top suitor for the top satellite company.

"Would Dish look at DirecTV? Of course we'd look at DirecTV if they're for sale. And there would be a lot of synergy and … that would make a lot of sense from our perspective because there'll be just a tony of synergy between the two companies," Ergen said.

On the other hand, he said, the economics don't favor such an idea.

"DirecTV would be too frothy for us for our board to look at those kinds of prices," he added. "We could never outbid an AT&T or a Verizon (NYSE: VZ) or anyone else for DirecTV."

The same might go for getting into the wireless business with both feet via a T-Mobile US (NYSE:TMUS) acquisition, although, again depending on the regulatory environment, a reverse with T-Mobile acquiring Dish is not completely out of the question, he said.

"We don't have the kind of money to go outbid Sprint (NYSE: S) for T-Mobile," Ergen said. "We can't compete in that space."

Sprint, he added, can and "they'd have a lot of synergy. Why wouldn't they go after T-Mobile?"

The regulatory environment could be a stumbling block, but "you could go broke bettering on Washington," Ergen said. "So if, in fact, Sprint didn't proceed or was denied, then T-Mobile would have a strategic interest in us."

If that regulatory environment, as is expected, looks the other way and allows the number one cable operator to acquire number two, it could create a tectonic shift in the entire telecommunications space, Ergen speculated.

The merger, while good for Comcast and Time Warner and their shareholders, isn't so good for everyone else.

The merger "has serious consequences to the future of telecommunications and content and everything else in the United States. That's a big merger. It would not be a merger that typically would sail through Washington … even though, obviously, they're very well connected."

The merger has too many bad side effects to glide through the approval process, he added.

"Everybody has to compete against them. So how do you then put together things that would be beneficial to American consumers and shareholders? AT&T and DirecTV might be one of those chain reactions, but there would be others and you can use your imagination on what would be for me to talk out of school," he said.

That could, if the dollars broke in the right direction, even include a new move to combine Dish and DirecTV.

"You'd have to spend some time with the regulators and make your case" as part of a changing environment that would include a merged Comcast-Time Warner Cable, Ergen said. "Strategically I think people would understand the fairness of that and you probably either would approve both of them or you would disapprove both of them., if they can go to 30 million subs and higher, somebody else ought to be able to go to 30 million subs, too."

A merged satellite company, at least from Dish's perspective, won't be the one to do it, though.

"We're small guys, we can't afford DirecTV," he concluded.

For more:
- see this transcript

Read more about: Comcast, DirecTV, Dish, Dish Network
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By Jim Barthold

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3. Liberty Media spinning cable businesses into new Liberty Broadband unit

Members from both sides of the U.S. House of Representatives expressed concerns about Comcast's (NASDAQ: CMCSA) proposed $45.2 billion takeover of Time Warner Cable (NYSE: TWC) during a Judiciary Committee hearing.

Democrat John Conyers of Michigan used statistics to question Comcast's dual role as a cable company and programmer. The merged company, he said, would hold a 30 percent share of the cable market, 40 percent of the broadband market, serve 19 of the 20 biggest cable markets, own a major Spanish language channel and have access to movies and television and sports programming.

"I don't know if it's resolvable," Conyers said.

Georgia Republican Doug Collins questioned the company's commitment to rural markets, especially in light of Comcast's move to reduce the number of areas where it carries rural-based RFD-TV.

"A lot of people who move from the farm to the urban area still want to be connected to the farm," Collins said.

Rural programming--and where it's shown--is a relatively new element in Comcast's ongoing battle to overcome consumer and regulatory concerns about its merger. Patrick Gottsch, founder and chairman of the Rural Media Group, which runs RFD-TV, was present at the hearings and said that Comcast dropped its channel from cable systems in Colorado and New Mexico in favor of Al Jazeera America.

"Isn't there room for one independent channel devoted to rural interests, which make up 27 million homes in this country?" Gottsch asked at the hearing, according to a story in the Washington Free Beacon. "Just one channel devoted to rural America is all we're asking for."

As has been the case throughout the process, Comcast EVP David Cohen explained the company's side.

"We carry 160 independent programming networks," Cohen said, according to 4-traders.com. "We're a company that really tries to find the niches of programming that customers in particular markets are interested in."

On the other hand, he said, geography matters.

"We are primarily an urban-clustered cable company. Even in Western states most of our consumers are in the urban area. It is our goal of providing our customers content they want to see," he said, according to Free Beacon.

In addition to rural programming, the merger received the usual complaints that a merged entity would stifle competition, such as over-the-top content from Netflix (NASDAQ: NFLX) and smaller cable operators competing for reasonably priced programming.

Finally, just the politics of the matter raised hackles and concerns. Comcast employees, family members and its PAC have donated more than $33 million to political campaigns since 1989; CEO Brian Roberts plays golf with President Obama; and Cohen is a rainmaker for the president's campaigns, the Free Beacon story said.

Comcast reportedly employs 100 lobbyists to deal with matters such as the merger, and has donated thousands of dollars to almost every member of the Senate Judiciary Committee, including outspoken critic Sen. Al Franken, a Democrat from Minnesota.

For more:
- the Washington Free Beacon has this story
- 4-traders.com has this story

Read more about: Comcast, Time Warner Cable
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By Jim Barthold

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4. STELA compromise boosts satellite providers, impacts broadcaster JSAs

Liberty Media will spin off its cable business holdings, including its 26 percent stake in Charter Communications (NASDAQ: CHTR), a minority investment in Time Warner Cable (NYSE: TWC) and a mobile subsidiary TruePosition into a new company called Liberty Broadband.

Maffei

Liberty Media President-CEO Greg Maffei said the spinoff "will offer investors greater choice and transparency and is well timed with Charter's agreements with Comcast (NASDAQ: CMCSA) which will result in Charter owning or serving over 8 million video customers" as a result of a Comcast sell-off/swap of customers in its $45.2 billion acquisition of Time Warner Cable.

Financially, holders of Series A-C common stock would get a fourth of a share of the corresponding series of Liberty Broadband common stock for each share of common stock held as of the record date for the spinoff, the company said. Fractional shares would be bought with cash. Additionally, stockholders will also receive a subscription right to acquire one share of Series C Liberty Broadband common stock for every five shares of Liberty Broadband common stock they get from the spinoff, the press release continued.

John Malone's Liberty Media reported a first quarter 2014 operating profit of $155 million, $4 million more than the same period in 2013. That was a 20 percent improvement in revenue, from $1.01 billion to $1.05 billion.

Another Liberty company, Liberty Interactive, had higher revenue driven primarily by its largest business, QVC, which posted 0.6 percent higher revenues to exceed the 0.2 percent improvement of Liberty Interactive overall.

Yet another Malone-controlled Liberty company, Liberty Global, is coming under the European Union (EU) microscope as it attempts to acquire Dutch service provider Ziggo for about $6.8 billion.

The EU, citing potential problems from combining the Netherlands' two main providers of broadband, TV and fixed telephony, has set a Sept. 18 deadline to rule on the deal.

"The removal of Ziggo as an autonomous player could increase the likelihood that the remaining competitors, in particular the merged entity and KPN, would coordinate their competitive behavior and increase prices or delay investments," the EU said in a Bloomberg story.

Liberty Global's Amsterdam-based spokesman said the increased scrutiny isn't worrying the company.

"We remain confident that we can address any competition issues that may, in the end, be identified by the commission and of ultimately receiving a positive decision," Holtcamp told Bloomberg.

For more:
- Liberty Media has this press release
- Bloomberg has this story

Read more about: liberty global
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By Jim Barthold

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5. Verizon extends D.C. FiOS wait, as AT&T-San Francisco cabinet battle continues

A satellite TV bill approved by the House Energy and Commerce Committee would give broadcasters until 2016 to undo joint sales agreements (JSAs) while relaxing some restrictions on satellite providers Dish Network (NASDAQ: DISH) and DirecTV (NASDAQ: DTV) when they try to bring in TV signals from other markets for subscribers who cannot get local stations due to retransmission disputes.

The revised Satellite Television Extension and Localism Act (STELA) included a compromise that gives broadcasters a little breathing room to disband JSAs that had been used for joint negotiations with pay TV service providers. The FCC banned these JSAs effective March 31, but compromise language allows broadcasters that apply for a waiver from the FCC to keep their sharing agreements intact for 18 months or until Dec. 21, 2016, whichever is later.

Broadcast-centric publication TVNewscheck pointed out that broadcasters could get their backs up if the pay-TV industry continues to lobby for still more retransmission reforms.

"As it pertains to STELA, NAB prefers no bill to a harmful bill," Marci Burdic, NAB TV board chair and senior vice president of Schnurz Communications said in testimony before a House Judiciary subcommittee, prior to the House Energy and Commerce Committee vote on STELA.

"The pay TV industry is lobbying for 'reforms' that would undermine local broadcasters' right to be fairly compensated for programming. The committee should reject these proposals," she said.

The American Cable Association was among the more vocal members of the pay TV industry reacting to the STELA changes--and lobbying for retransmission reforms.

"ACA believes that the rules governing the retransmission consent marketplace need a major overhaul, and we're very pleased to support the Committee's STELA compromise bill that moves in the right direction regarding reform of the 22-year-old rules, which in no way reflect today's market conditions," ACA President-CEO Matt Polka said in an organization press release.

For more:
- TVNewscheck has this story
- Reuters has this story
- see this ACA press release

Read more about: retransmission, STELA
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By Jim Barthold

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