By Diane Bartz
WASHINGTON (Reuters) - Any expansion by cable provider Comcast, including a deal with Charter Communications to split provider Time Warner Cable between them, would get a tough review from U.S. regulators, who might use the proposal to force Internet providers to treat all traffic equally, antitrust experts said.
Charter Communications Inc reached out to Comcast Corp this week about teaming up to buy Time Warner Cable Inc, according to people familiar with the matter.
Comcast is the top U.S. cable provider and video provider, Time Warner Cable is No. 2 and Charter is the fourth largest.
The Federal Communications Commission and U.S. antitrust authorities will closely scrutinize any deal between the companies since it would involve a vast range of content, video, cable and telephony.
But ultimately the government would be unlikely to try to stop a deal, said Robert Doyle, an antitrust expert at Doyle, Barlow and Mazard PLLC, who argued that some antitrust concerns could probably be remedied by strategic asset sales.
"We don't think this is one that rises to the level of a challenge," he said, referring to a lawsuit that the Justice Department could file to stop a deal.
Antitrust experts agreed, however, that any approval - particularly for Comcast - would almost certainly come with strings attached.
In particular, the FCC could require the companies to treat all traffic the same, which means that companies such as Comcast with lots of content would be deterred from charging customers more if they watch movies or shows owned by other providers, such as Netflix Inc.
That is no small matter. Netflix's share price fell following Tuesday's decision by U.S. Court of Appeals for the District of Columbia Circuit to reject federal "net neutrality" rules that required Internet providers to treat all web traffic equally.
Antitrust expert Jacqueline Grise of the law firm Cooley LLP said there was no guarantee a deal would be approved. The merger proposal would get a careful look from antitrust regulators, but the companies might craft a "creative solution" to satisfy the government, she said.
The net neutrality condition is similar to one that Comcast was required to agree to in order to win approval for a $30 billion deal to take control of NBC Universal in 2011. Those conditions expire in 2018.
Or, again echoing a condition in the 2011 deal, regulators could require Comcast to make content available to online providers, said Grise.
Harold Feld of the group Public Knowledge, which campaigns for the preservation of an open Internet, agreed that the 2011 agreement could lead to similar conditions should the Time Warner transaction go ahead.
"The conditions that they (regulators) would want, if I were Comcast I'm not sure I would want to take," he said.
Charter, backed by billionaire John Malone's Liberty Media Corp, formally announced its $132.50 per share bid for Time Warner Cable on Monday, which the larger rival promptly rejected as too low.
Bert Foer, president of the American Antitrust Institute, urged regulators to reject the gobbling up of Time Warner Cable.
"I'm very worried about control over the pipes that allow the cable company to discriminate against content particularly in the absence of a net neutrality rule. If the deal goes through, we're likely to see a spiral of consolidation both at the pipe end and the content end," he said.
"What's so wrong with having Time Warner (Cable) remaining an independent company?"
(Reporting by Diane Bartz; Editing by Ros Krasny and Stephen Powell)