The US president has called for broadband providers to be reclassified as a type of public utility, giving the Federal Communications Commission sweeping powers to ban internet fast lanes and enforce “ net neutrality” – the idea that all online traffic should be treated equally.
Lawyers and analysts expect any attempt to introduce so-called “Title II” regulation to be delayed by a Republican backlash and a lengthy battle in the courts, but Robert McDowell, a former FCC commissioner, has suggested Comcast could be asked to sign up to the tougher rules as a condition of the Time Warner Cable tie-up.
Mr McDowell pointed to the precedent set following Comcast’s purchase of NBC in 2011 when the group agreed to abide by the FCC’s Open Internet rules as a condition of the takeover – and had to continue doing so even after the regime was struck down by a federal appeals court.
“The merger conditions could contain some form of Title II,” Mr McDowell said, which would make the deal far less attractive for Comcast.
“They could have to live under Title II and the potential for pricing regulation. They would have to think long and hard about that, and I’m sure they will be discussing it around the board table,” added Mr McDowell, a Republican FCC commissioner between 2006 and 2013 who is now a partner at Wiley Rein LLP.
The president has asked for the FCC to reclassify broadband groups as “common carriers” while refraining from introducing price controls, but the telecoms industry fears the adoption of new Title II rules will make it easier for future administrations or federal politicians to introduce rate caps.
Investors have become increasingly jittery about the chances of Comcast completing the takeover. The spread between the current value of its offer and Time Warner Cable’s share price was 12.4 per cent in New York trading on Tuesday, the biggest gap since the deal was announced.
One hedge fund manager said the spectre of further regulation was to blame for the nervousness, adding there was a greater degree of uncertainty around politically contentious takeovers after AbbVie’s £35bn takeover of Shire was torpedoed by a crackdown on tax inversions.
Keith Moore, an analyst with MKM Partners, said: “What generally happens when there’s a lot of uncertainty is people get out the sell orders, and that’s what’s been happening here. This situation is about as strange as I’ve seen in all my years.”
A person familiar with the deal said Comcast was “happy to accept reasonable conditions but not conditions that don’t make sense”. They pointed out the agreement did not include a “break-fee”, which means the company can walk away from the transaction without compensating Time Warner Cable.
Mr Obama’s proposals were denounced by Republicans, who are being urged to hold back funding from the FCC. The Republicans will soon control all congressional committees, including the groups that oversee the FCC’s budget, after big victories in last week’s midterm elections.
“We’re looking at our options, and looking at the FCC budget could be a part of it,” said a Republican Senate aide.
“We fully expect them to act quickly after they return [from recess this week] and for there to be significant action to prevent the FCC from implementing the president’s recommendations,” said a cable industry representative.
Mr McDowell criticised the president’s intervention, describing it as “virtually unprecedented in FCC history” and warning “the issue of how independent the agency is was now in question”.
“Does this development portend to how the president wants to spend his last two years, by pushing through his own agenda and rejecting overtures of compromise?” asked Mr McDowell.
Michael Copps, a former Democrat FCC commissioner who is now an adviser to Common Cause, which advocates government accountability, said: “The president always weighs in on important policy discussions but it was a bit unusual for him to be this direct. It shows that the president gets the bigger picture of how much the internet helps drive the economy.”
Tom Wheeler, FCC chairman, has said he welcomes the president’s input and that the legal issues surrounding net neutrality show it will take the agency more time to review it.
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