Comcast Corp.'s stunning decision in late April to abandon its $45 billion deal for Time Warner Cable Inc. will likely lead to a lull for the acquisitive cable giant, experts say.
Wall Street analysts said last week that federal regulators seem hostile to any new big transaction that Comcast brings to Washington and that they expect the merger-hungry Philadelphia company to lay low for a year or so, perhaps until a new president is sworn in to office in early 2017.
Comcast customers, meanwhile, could see a greater focus on service as well as more options in TV packages.
Comcast could be forced to lean on revenue growth from its current portfolio of TV, Internet, and entertainment assets, or expand globally, as other telecom companies, such as AT&T Inc. and DirecTV, frantically arrange mergers in the United States.
"Comcast is likely sidelined for the time being for any material transactions. Even large content deals would be a tough sell," telecom analyst Craig Moffett said.
"That could force them to look overseas," he said. "But for now, they don't have to do anything at all. They are performing very well, and they still have lots of organic growth opportunities to pursue."
The unfriendly environment in Washington seems to be a combination of the backlash to the Time Warner Cable deal and other concerns aired during the exhaustive year-long regulatory review of the deal, analysts say.
Online streamer Netflix, Dish Network, and consumer advocates opposed the Time Warner Cable merger, saying it would concentrate too much market power in Comcast/Time Warner's broadband business.
Comcast seemed to give its opponents ammunition. After it acquired news giant NBCUniversal in 2011, Comcast failed to position the Bloomberg TV business channel with other news channels, infuriating Bloomberg and forcing the government to referee the dispute.
Washington is "really annoyed with Comcast. Obviously, it's political," said John Tinker, media analyst with the Maxim Group L.L.C. "They are in the penalty box. The issue is how long they will stay in the penalty box."
Tinker says Comcast could "stay low for a year and a half," or the rest of the Obama administration. "It's something that they have to be thinking about," Tinker said. "A year and a half is not a long time. [CEO] Brian [Roberts] will be around at the end of next November. Obama won't."
D'Arcy Rudnay, Comcast spokeswoman, said the company had worked with regulators for 50 years on many "issues that are important to our business, including our ability to grow. We expect that strong relationship to continue."
Comcast recently hired Nike executive Chris Satchell as chief product officer for its cable division. He will lead the product-development teams in Philadelphia, Denver, and Silicon Valley. Comcast plans to open its second skyscraper in Philadelphia in early 2018 as a tech center to house engineers and product developers now scattered around Center City in leased offices. The new building will be taller than the current Comcast headquarters.
"Our No. 1 priority is to improve the customer experience," Rudnay added, including better service and more "customer support apps."
Comcast has said it will open three new call centers and hire 5,500 representatives and hundreds of technicians. Recent national surveys again ranked Comcast's customer satisfaction near the bottom of U.S. industry for the telecom sector.
Charlie Herrin, a rising executive star in Comcast's cable division, is heading the internal project to revamp customer experience.
Amy Yong, analyst with Macquarie Capital USA Inc., said that Comcast probably cannot acquire a large cable system but could swap local cable systems with other operators to cluster them for efficiencies in advertising and service. "Probably they lay low for a while and buy a lot of stock and look at other assets in media, technology, and international," Yong said.
While Comcast could be sidelined in Washington, other telecom companies are doing deals and closing the size gap with the Philadelphia company. The AT&T/DirecTV deal could create a larger pay-TV distributor than Comcast.
Charter Communications Inc. wants to acquire Time Warner Cable and Bright House Networks, which would create a cable giant slightly smaller than Comcast. Regulators must approve both deals.
Yong said she did not believe the Charter/Time Warner/Bright House combination would change the competitive landscape for Comcast because cable firms don't compete with one other.
But the combination of AT&T and satellite operator DirecTV could pose a threat to Comcast because of DirecTV's ability to take customers from cable over the last two decades.
Imran Shah, managing partner of the IBB Consulting Group in Philadelphia, which serves cable, wireless, and technology firms, said he believed the industry had entered the "dawn of the post-cable era" with the untethering of consumers from TV to watch entertainment. Factors driving this include the global scale of new operators such as Netflix, and the rise of cloud-based technologies.
Netflix does not own wire line or wireless assets but streams directly to consumers, using the equipment provided by telecom operators. It can enter a new country "with the flick of a switch" and spread its costs for content rights, user interface, and other technology over millions of subscribers in many countries, Shah said.
Telecom companies need to attain real scale, such as merging with each other, or virtual scale to spread costs over a large base, Shah said. An example of virtual scale is Google's Android operating system, which can be used on differently branded devices, or Comcast's X1 set-top box technology, which the company would like to license to others.
Laura Martin, senior analyst with Needham & Co., said some consumer advocates believed Comcast did not honor the "spirit and letter" of the NBCUniversal conditions. Martin disagrees.
But because government effectively prevented Comcast from buying Time Warner Cable, Martin expects Comcast to spend more money overseas and create fewer U.S. jobs in the next few years, a potential negative for Philadelphia.