Want a Big Cable Merger? Good Luck Charter!

By Doug Mohney May 29, 2015

Charter Communications wants to buy both Time Warner Cable and Bright House Networks in a $67 billion deal.  It will create an entity second in size to Comcast among the cable operators.  Will Charter have better luck than Comcast? I'm willing to give the deal 50-50 odds at this point, because there's no real reason not to stop the deal – but no real reason to be behind it, either.

First, can we kill all the noise about Charter being a "rival" to Comcast and this all about competition? The cable companies have their assigned territories – footprints of people they can reach.  Charter doesn't directly compete against Comcast, Cox or anyone else.  It isn't like the Washington/Dallas rivalry in football, where two teams battle on the field for bragging rights. Charter is assembling a bigger geographic footprint by some measures, so it may get bragging rights at the next cable show if they can pull the merger, but Comcast is way too big by far.

Broadband seems to be the biggest driver for the merger, with the ability for the new company to offer faster services and hints of new streaming and mobile options for services. Maybe.  Certainly Comcast has rolled out a lot of new tech, including industry-leading service packages and multi-gig broadband offerings, but it still hasn't figured out how to clean up its horrific customer service issues.  

 Charter would have 24 million customers when the smoke cleared, giving it mass to negotiate better details in programming rights.  This, in theory, along with annual cost savings of up to $800 million, might result in lower costs to subscribers.   But nobody will swear a vow that better pricing will result.  And you can't undo the deal if better pricing isn't delivered.

Image via Shutterstock

Customer service is likely to be the big sticking point among consumer advocates.  Charter and Time Warner are near the bottom when it comes to customer satisfaction surveys.  Big mergers usually don't equate to better customer service, but more often consolidation of back office services for those annual cost savings.

Wall Street hasn't balked yet, but Charter would have an estimated $48 billion in debt upon completion, with $23 billion coming from Time Warner and another $25 billion to finance the merger.  Charter also agreed to a $2 billion breakup fee to Time Warner if it can't the deal done, so Charter must feel fairly confident.  Some analysts think Charter may need to raise broadband prices to pay down the debt it is taking once the deal is done.

The Federal Communications Commission (FCC) has an interesting issue of its own. If Charter completes the deal, it and Comcast will control 75 percent of the cable Internet world.  Charter-TWC would have 34 percent while Comcast currently holds 42 percent.   It's an oligopoly that might not sit well with regulators.  Does the concentration of broadband in the hands of two providers cause issues with competition, especially if the two tacitly collude in negotiations for programming rights and network connectivity issues?  The only win for the FCC is it would have one "throat to choke"/regulate, rather than three separate companies to monitor.

Stepping back, there are no great incentives for either the FCC or consumer advocates to support the Charter-TWC-Bright House merger.  Nobody's going to get better customer service and it is likely broadband rates are going to increase – not decrease – because the new company will have $48 billion in debt to service.  The FCC may also be uncomfortable in concentrating cable broadband into the hands of two large cable providers, figuring that Comcast is already enough of a headache with its high market share.

If Charter doesn't try the Comcast strategy of making increasingly unbelievable statements about how wonderful a merge would be – stirring consumer advocates and the media into a frenzy – it probably has a shot at seeing the merger go through. But this isn't any clear win-win for anyone touched by the deal.




Edited by Maurice Nagle

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Compliance: Hope Is Not a Plan

By: Special Guest    8/1/2018

Internal misalignment between compliance and business teams can lead to major problems for organizations seeking to implement new digital communicatio…

Read More

Modern Moms Shaping Influence

By: Maurice Nagle    7/19/2018

Everyone knows Mom knows best. The internet is enabling a new era in sharing, and sparking a more enlightened, communal shopping experience. Mommy blo…

Read More

Why People Don't Update Their Computers

By: Special Guest    7/13/2018

When the WannaCry ransomware attacked companies all over the world in 2017, experts soon realized it was meant to be stopped by regular updating. Even…

Read More

More Intelligence About The New Intelligence

By: Rich Tehrani    7/9/2018

TMC recently announced the launch of three new artificial intelligence events under the banner of The New Intelligence. I recently spoke with TMC's Ex…

Read More

Technology, Innovation, and Compliance: How Businesses Approach the Digital Age

By: Special Guest    6/29/2018

Organizations must align internally to achieve effective innovation. Companies should consider creating cross-functional teams or, at a minimum, incre…

Read More