Report: DOJ leaning toward nixing Comcast bid for Time Warner Cable

Shares of Comcast fell 2.1% Friday after Bloomberg News reported that the Justice Department will likely recommend blocking the cable giant's bid to buy Time Warner Cable and consolidate the nation's two largest cable companies.

Citing anonymous sources, Bloomberg News reported that staff attorneys at the department's antitrust division "are nearing" their decision and could submit findings by next week.

The Justice Department's no-go recommendation would be a huge setback for the two companies that have bet on the merger to fend off a wide set of challenges facing the industry. In creating a larger cable operator, Comcast is hoping to boost its bargaining leverage against cable networks for content fees, retain higher pricing powers, generate savings to invest more in the rapidly evolving Internet technology and control more markets for the Internet pipes that are increasingly used for video consumption.

Comcast, the largest U.S. cable company, fell $1.25 to end regular-hours trading at $58.42. Shares of Time Warner Cable fell 5.4% to $149.61.

Renata Hesse, a deputy assistant attorney general for antitrust, will decide, along with the division's top officials, whether to file a federal lawsuit to block the deal, the report said.

Another troubling sign for Comcast, the report said, is the fact that the DOJ and officials at the Federal Communications Commission, which also has to approve the deal, aren't negotiating with Comcast about merger conditions that would alleviate some concerns.

In a statement, Comcast reiterated that the transaction will result in "significant consumer benefits" by enabling the company to invest in faster broadband speeds and better TV offerings.

"These benefits have been essentially unchallenged in the record — and all can be achieved without any reduction of competition," the Philadelphia-based company said. "As a result, there is no basis for a lawsuit to block the transaction."

Peter Carr, a Justice Department spokesman, declined to comment.

"We've had no indication from the DOJ that this is true," Bobby Amirshahi, a spokesman for Time Warner Cable, said in a statement. "We have been working productively with both DOJ and FCC and believe that there is no basis for DOJ to block the deal."

In February 2014, Comcast struck a deal to pay $45.2 billion to buy Time Warner Cable. But the massive merger proposal immediately triggered howls of protest from consumer advocates and thorough reviews by federal regulators of its implications.

While Comcast has a large lobbying presence in Washington, D.C., and its executives visited Capitol Hill repeatedly to testify why the merger would benefit consumers, analysts have recently begun to air doubts that the government would accept the proposal as is.

The combined company would control about 40% of the U.S. market for broadband Internet. The market share could be higher under the new definition of broadband issued by the FCC.

After the merger, Comcast would control high-speed Internet access in 19 out of the 20 largest U.S. cities, said Richard Greenfield, a media and tech analyst with BTIG in New York. BTIG had given only a 30% chance that the deal would be approved. "It's very hard to see how you give one company majority control over the U.S. Internet," Greenfield said.

Comcast disputed BTIG's figure and said it would control broadband access in 16 of the 20 largest cities.

Analysts also viewed the new net neutrality rules that were recently approved by the five-member FCC commission as a reflection of the pro-consumer regulatory climate in Washington, D.C., that portends trouble for Comcast.

The new rules would classify Internet service providers as telecommunications service providers and prohibit attempts to throttle speeds or require payments for faster transmission speeds. Comcast, Time Warner Cable, AT&T and Verizon have fought vigorously to defeat the proposal.

The game isn't necessarily over for Comcast, Mike McCormack, an analyst at Jefferies, wrote in an investor note Friday. "Prior to any formal opposition, Comcast could approach the DOJ in an effort to find common ground that would support the deal, though we view this as a longshot," he wrote.

Comcast also could sue the DOJ and claim that the decision is unjustified based on antitrust grounds. "However, a concurrent FCC opposition and designation for a hearing with an administrative law judge could essentially kill the deal," he wrote.