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Comcast-Time Warner Cable merger is no longer viewed as inevitable

LOS ANGELES – Comcast Corp.’s bold move to buy rival Time Warner Cable in a $45 billion deal once seemed inevitable.

Wall Street figured combining the nation’s two largest cable operators wouldn’t have much problem clearing regulatory hurdles. Both companies operate in different parts of the country, and wouldn’t be seen as anti-competitive. Subscribers would have the same number of choices for pay-TV as they currently do.

But that was 11 months ago – and a lot has changed.

Now, it is unclear whether the U.S. Department of Justice and the Federal Communications Commission will give Comcast their blessing.

“They’ve had a lot of trouble, more than they thought they would – and rightly so,” said Gene Kimmelman, a former top lawyer in the Justice Department’s antitrust division who now leads advocacy group Public Knowledge, which opposes the Comcast-TWC merger.

Here’s the rub for Kimmelman and others: The new Comcast would be the nation’s dominant supplier of high-speed Internet service. The company would boast 30 million customers in major cities such as Los Angeles, New York, Chicago, Philadelphia, Denver, Dallas, San Francisco, Buffalo and Seattle.

Streaming service Netflix, satellite giant Dish Network, lawmakers and others have voiced concerns that Comcast could use this grip to stifle development of the Internet video business. In a sense, Comcast would have an incentive to beat back online challengers to its core business of bundling cable TV channels.

Meanwhile, a parade of major TV network executives have privately met with federal investigators, outlining their worries about a bulked-up Comcast, according to people involved in the meetings who were unauthorized to speak publicly. They fear Comcast would use its size and influence to undercut how much programmers such as CBS, Viacom and Discovery are paid for their channels.

Comcast, for its part, maintains the regulatory review of its acquisition is proceeding on schedule.

The FCC, which must decide whether the deal serves the public interest, has until March 30 to make a decision. The Department of Justice is also in the process of reviewing whether the deal would be anti-competitive.

“We believe it is too early to come to any conclusions about which way regulators are leaning,” said D’Arcy Rudnay, Comcast’s chief communications officer. “We continue to believe this is a pro-competitive deal in the public interest and that we are on-track for the approval process to conclude early this year.”

The landscape has changed dramatically since the Comcast-Time Warner Cable deal was announced last February.

Comcast’s acquisition was originally viewed as a combination of huge cable TV providers. But opponents have painted Comcast as a potential gatekeeper of the Internet, raising the stakes as regulators wrestle over how best to regulate the Internet.

And there have been many developments in the digital and streaming video space.

Netflix reached 39 million subscribers in the U.S. and Amazon.com is spending millions of dollars on original content to bolster its streaming service. Programmers, including HBO and ESPN, have changed their strategy to sell their channels to consumers who don’t subscribe to pay TV – essentially providing an alternative to the cable bundle.

Satellite television provider Dish Network this week rolled out its own Internet-delivered programming service called Sling TV, a $20-a-month option that includes ESPN as one of its channels.

The federal government’s review of the Comcast merger is only one part of its mission to figure out how best to regulate the Internet.

The FCC has been consumed with another aspect of that issue – so-called net neutrality, which requires Internet service providers to treat all traffic equally. The agency next month will unveil its solution, and wrestle over whether to regulate Internet service providers as utilities.

Comcast has agreed to abide by the principles of net neutrality.

Industry executives expect the FCC won’t take up the Comcast-Time Warner Cable merger, or a second blockbuster combination between AT&T and DirecTV, until after it grapples with the Internet rules.