Charter confirms $56BN play for TWC
DetailsMichelle Clancy | 27 May 2015
All the rumours were well-founded: John Malone's Charter Communications has proposed a $56 billion merger with Time Warner Cable.
The move blows away Comcast's failed $45 billion bid for the No 2 cable MSO, and well surpasses the $37.3 billion offer that Charter itself made for the company last year.
Charter also has put a $10.4 billion offer on the table for Bright House, the sixth largest cable MSO. By combining TWC's 11-million strong base with Charter's 4.1 million and Bright House's two million, the new Charter will have 17 million pay-TV subscribers and 18.8 million broadband customers.
Charter has pledged to fund and improve consumer services as part of the deal, but FCC approval is far from guaranteed. It will need to rely on its technology investments to convince regulatory overseers that the deal is good for consumers.
The move was expected, and comes less than a month after Comcast dumped its own proposed merger with TWC after it became clear that it wouldn't get past regulators. FCC chairman Tom Wheeler said that he's open to "any and all future cable deals," but that competitive neutrality won't be enough.
"In applying the public interest test, an absence of harm is not sufficient," he said. "The Commission will look to see how American consumers would benefit if the deal were to be approved."
Charter said that it would use its new-found scale to build out faster broadband for subscribers; launch an improved cable TV interface; and wider availability of public Wi-Fi. It also stressed that it would invest in innovation that would benefit consumers.
To this point, Charter's recent $47 million deal with ActiveVideo and Arris will be key to its plan, according to MoffetNathanson analyst Craig Moffet. He said that the technology will allow Charter to much more rapidly deploy its cloud-based graphical user interface to acquired subscribers in a cost-effective manner, by making that interface backward-compatible with TWC and Bright House set-top boxes.
"In the process, it will neatly side-step what otherwise would be the large merger integration expense of compatibility testing between user interfaces and pre-existing head-end and customer premise equipment," Moffet said. "The importance of this development cannot be overstated. Not only will ActiveVideo save Charter a tremendous amount of capital spending that would otherwise have been spent on new set-top boxes, it will also make for a much more rapid integration of the newly acquired properties. It is only a small overstatement to say that this deal may not have been possible, at least at this price, without ActiveVideo's technology."
Charter CEO Tom Rutledge said that added scale will help put the technology into more consumer hands as well. "Put simply, the scale of New Charter, along with the combined talents we can bring to bear, position us to deliver a communications future that will unleash the full power of the two-way, interactive cable network."
IBISWorld analyst Will McKitterick said that Charter's acquisition lacks some of the negative qualities that sunk Comcast's deal with TWC last April. The arrangement would be between the industry's second and fourth largest companies, a combination that seems more palatable to regulators than Comcast's mega-merger proposal.
"Nevertheless, a Charter TWC union would concentrate the vast majority of the nation's landline high-speed broadband connections in the hands of two companies; Charter and Comcast," he noted. "With little competition throughout most of the country for high speed Internet and cable, regulators may still axe the deal."
IBISWorld estimates that the top five players — Comcast, TWC, Cox, Charter and Cablevision — generate about 84.1% of industry revenue, and said that Charter and TWC would constitute a combined 29% of market share if the deal were to go through. And while the deal will better position Charter to compete with its larger rival, Comcast, McKitterick said that the new company would be unlikely to unseat Comcast as the industry's dominant player.
"What is unclear is whether the merger will lead to better services or faster streaming for customers, or whether it will stem the exodus away from cable providers towards pure stream services," he said, in an emailed comment.