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Comcast, Time Warner Pitch FCC on Merger

5/19/2005 10:47:00 AM Eastern

Comcast and Time Warner Thursday spelled out in a filing why the FCC should approve their plan to carve up bankrupt Adelphia Communications.

Last month, the two giant cable MSOs announced plans to split Adelphia’s 5.2 million subscribers between them and to swap some of their own existing subscribers between each other.

For starters, the two companies said the deal would allow Adelphia subscribers to receive advanced services such as cable telephone, high speed Internet and high-definition television.

Adelphia systems lag in delivering new cable products because of the company’s financial woes. The Coudersport, Pa. company declared bankruptcy in 2002.

For instance, Adelphia has no voice customers while Comcast and Time Warner serve 1,725,000 between them. Only 14.4% of homes passed by Adelphia systems subscribe to high-speed Internet whereas 21% in Time Warner franchise area subscribe and 18% in Comcast areas.

Among Time Warner subscribers, 5.3% buy high-definition packageswhile 6.7% of Comcast subscribers do. Adelphia, by contrast, sells HD service to only 2.8% of subscribers.

The companies also said the deal will set them up to better compete with regional Bell phone companies by boosting the size of their regional clusters.

Individual cable franchises are generally much smaller than phone company service areas. With larger service areas, Comcast and Time Warner say they will be able to roll out voice and Internet services that will compete with the phone companies.

Another longstanding aim of the FCC will also be achieved—Comcast will finally return its partial investment in Time Warner Cable and Time Warner Entertainment back to their parent company.

Comcast’s Time Warner stakes can be traced back to U.S. West’s 1993 investment in TWE, which was then passed along in subsequent mergers to MediaOne, AT&T and, finally, Comcast.

The deal will put an end to the costs of running Adelphia from bankruptcy, which are estimated at $20 million a month in fees for attorneys, accountants, and investment bankers.

In the meantime, few anti-competitive effects will be generated by the merger because Time Warner will remain well below the FCC’s 30% cap on one company’s pay-TV household reach and Comcast’s reach will rise only slightly from 28.2% to 28.9%."

The deal "will generate real and substantial benefits for consumers that are not achievable through other means and will do so without violating any statue or commission rule," the companies wrote.

Public interest groups have warned the FCC they will sue the agency if it approves the deal before complying with a 2001 court order to set a new national cable ownership cap.

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