By Alina Selyukh and Sinead Carew
WASHINGTON/NEW YORK (Reuters) - A pair of potentially transformative U.S. telecoms and cable deals could run afoul of Obama administration regulators who worry that mergers among market leaders would hurt consumers.
With both cable and mobile phone operators grappling with slowing growth, speculation has intensified recently about potential takeovers of No. 4 wireless service provider T-Mobile US Inc and No. 2 cable service provider Time Warner Cable Inc.
Some possible buyers, including Sprint Corp and Comcast Corp, may face headwinds in convincing U.S. regulators that their deals would improve competition.
"The Obama administration definitely is more skeptical of large corporate combinations... They are concerned about the effects of market concentration on consumers," said Robert McDowell, who stepped down as the senior Republican member of the Federal Communications Commission earlier this year.
"It's not an impossible wall to climb over but it is a high wall nonetheless," said McDowell, now a visiting fellow at the nonprofit Hudson Institute in Washington.
The Obama administration's pro-consumer tack could threaten deals that eliminate big competitors within an industry, such as a Sprint bid for T-Mobile or a Comcast bid for Time Warner Cable. Regulators could, on the other hand, welcome transactions that bolster new entrants, such as one combining satellite TV service provider Dish Network Corp with T-Mobile, experts say.
"Dish/T-Mobile, from a regulatory standpoint, it would be a slam-dunk," said Stifel analyst David Kaut.
All the companies mentioned in this story declined comment.
Sources earlier told Reuters that Dish is considering making a bid for T-Mobile next year, potentially setting the stage for a new bidding war with Japan's SoftBank Corp, which owns 80 percent of Sprint.
Comcast Corp and smaller rival Charter Communications Inc and Cox Communications Inc are all circling No. 2 U.S. cable provider Time Warner Cable.
WIRELESS MARKET CONCENTRATION
Sprint and T-Mobile executives have argued that the wireless market would be much healthier with a stronger third competitor that could better challenge the leading players, Verizon Communications Inc and AT&T Inc.
AT&T and Verizon Wireless have roughly a third of the U.S. wireless customers each, while Sprint and T-Mobile have a third between them, according to Roger Entner of Recon Analytics.
Both FCC and Justice Department chiefs have signaled they will take a hard line in scrutinizing consolidation bids.
"We have a responsibility at this agency to protect competition that exists and promote competition in those areas where it doesn't," new FCC Chairman Tom Wheeler, in the past a cable and wireless lobbyist, told reporters earlier this month.
The FCC, in an annual report released in March, said competition in the wireless industry is "highly concentrated." Similarly, the Justice Department's assistant attorney general for antitrust, William Baer, has described the industry as "not uniformly competitive."
"The Department believes it is essential to maintain vigilance against any lessening of the intensity of competitive market forces," Baer told the FCC in a filing in April related to an upcoming auction of low-frequency airwaves.
The government's rejection of AT&T's $39 billion plan to buy T-Mobile from Deutsche Telekom in 2011 remains the biggest shadow looming over big communications deals.
T-Mobile, which is 67 percent-owned by Germany's Deutsche Telekom, was hemorrhaging customers at the time AT&T sought to buy it. But this year, T-Mobile started to add subscribers and its new service plans have also forced AT&T and other rivals to offer cheaper and more flexible packages.
Roe Equity Research analyst Kevin Roe agreed that T-Mobile and Sprint, now under Japan's SoftBank, have better balance sheets and stronger networks than before.
"Neither company deserves any pity. They did two years ago but no longer," he said of the No. 3 and No. 4 providers.
Some antitrust experts pointed to the U.S. Airways and American Airlines merger to form the world's largest airline as a sign of hope for big deals. Regulators ultimately allowed that combination to proceed but only after the two companies agreed to divest gate slots at key airports, including in Washington and New York.
Similarly, McDowell said if regulators were to approve the Sprint/T-Mobile deal, it would carry "extraordinary conditions and divestitures."
In cable, antitrust experts say that a Time Warner Cable merger with a smaller competitor, such as Charter or Cox, raises fewer red flags than a deal with market leader Comcast.
Time Warner Cable has 12 million video customers, or 12 percent of the U.S. households that pay for TV access. Charter and Cox have around 4 million each, while Comcast has over 22 million.
Antitrust experts say a Comcast deal cannot be ruled out either, but could mean sacrifices from the merging companies, potential divestitures or agreement to other stipulations.
The fear with a cable deal is that it may create a company powerful enough to withhold content from other distributors, such as satellite TV or Internet video streaming sites.
Agreeing to license content to competitors could resolve that issue, as Comcast did when it bought NBC in 2011, said Robert Doyle of the law firm Doyle, Barlow and Mazard PLLC.
The Justice Department may also worry that the power of a Comcast/Time Warner combination could depress prices paid to content-providers, which are on the rise.
Together, Comcast and Time Warner Cable would have "a tremendous amount of bargaining power" against studios and other channels as Comcast also owns NBC Universal, Entner said.
"I think that theory is going to get a lot of traction," said Matthew Cantor of the law firm Constantine Cannon.
(Reporting by Alina Selyukh and Diane Bartz in Washington and Sinead Carew, Liana B. Baker and Nicola Leske in New York; Editing by Christian Plumb and Andrew Hay)