Comcast may be seeking advice on the antitrust risks of a merger with Time Warner Cable less than a year after completing its acquisition of NBCUniversal.
Talks are unofficial at this stage but people familiar with the internal conversations told CNBC that if Time Warner sells itself then Comcast would be the preferred buyer.
Comcast completed its acquisition of NBCUniversal this year after receiving flack on the deal from critics including Sen. Al Franken, D-Minn., and consumer advocacy group Free Press that the expansion would give the company too much control of subscriber fees and programming.
Time Warner Cable is a standalone cable and Internet provider, which does not include the media properties of the former part of Time Warner, which spun off from AOL in 2009.
Cable markets are losing subscribers as media viewing on the Internet grows, but Time Warner has been losing Internet subscribers as well, which is a growth area for many providers. Charter Communications is also considering a purchase of the lagging cable provider and is in talks with Bank of America, Barclays and Deutsche Bank AG to borrow money to buy Time Warner, which could be worth $35 billion, people familiar with that process told The Wall Street Journal. Liberty Media, which is led by media mogul John Malone, is the largest shareholder of Charter, so a bidding war to purchase Time Warner could result between the telecom giants.
Both the Department of Justice and the Federal Communications Commission would review the merger. The DOJ would be looking at antitrust concerns while the FCC would be concerned with public interest concerns, including whether a merger would improve efficiency and consumer services enough to be worth a potential negative impact on market competition.
A merger between Comcast and Time Warner Cable "ought to be unthinkable" says Harold Feld, senior vice president of Public Knowledge, a consumer advocacy group on communications issues.
"Comcast is already super huge in terms of its market power in every single area of telecommunications and media," Feld says. "It would be very difficult to argue a public interest benefit. Time Warner Cable is far from bankruptcy, so they don't need money to upgrade their systems. The significant argument people are going to make is that there is not a lot of harm."
In some cases the agencies approve a merger of two large companies but set conditions including requiring them to divest properties or enact new practices.
The DOJ reached a deal like that on Nov. 12 with US Airways and AMR, American Airlines' parent company, that may allow them to merge into the largest airline in the world, pending conditions that they maintain hubs in certain cities for several years, and that they divest gate slots and takeoffs at major U.S. airports.
This deal may have emboldened Comcast on the possibility that they could get a similar deal on a merger with Time Warner, Feld says.
"Comcast is floating this thought and they will see how people react. If the reaction is negative they can pull it back," Feld argues.
Comcast is also likely testing the waters around the new FCC Chairman Tom Wheeler, who told open Internet groups including Public Knowledge that the agency should encourage industry competition, Feld says. There is some room for uncertainty on the new chairman's stance about mergers because he also has deep roots as an advocate for the telecom industry. Wheeler headed the National Cable and Telecommunications Association from 1976 to 1984 and the Cellular Telecommunications and Internet Association from 1992 to 2003. Telecommunications firms like Verizon are major competitors to the cable industry.
If the U.S. Court of Appeals for the D.C. Circuit Court decides in a case involving Verizon that the FCC does not have the authority to regulate Internet service providers, that could raise questions about the agency's authority and limit Wheeler's resistance to a large merger, Feld explains.