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Six Takeaways from the Comcast-Time Warner Cable Deal


News of Comcast’s (CMCSA) agreement to buy Time Warner Cable (TWC) for $45.2 billion may have come as a surprise to many. Here are some quick thoughts on what it might mean.

This might actually be good for consumers. Comcast and Time Warner Cable are both among America’s most hated companies from a customer service point of view, so it would seem only natural for consumers to assume that this is a raw deal for them. Maybe not.

Comcast has better technology—and more importantly, more money to spend—than TWC. By joining forces, a larger, combined company could help bring consumers into the future at a faster rate. A bigger company could also be a check on content providers. When the likes of CBS (CBS), Disney (DIS), and Discovery (DISCA) ask for higher subscription fees, Comcast could help keep customer bills lower by keeping those sub fees lower. Additionally, Comcast and TWC have almost no overlap in local cable markets, so customers won’t be losing their current choices.

This might be bad for Netflix (NFLX), Hulu, and YouTube (GOOG). A merged company would be by far the biggest Internet provider in the country, giving them almost monopolistic-type powers. Comcast could begin to dictate terms to the big Internet content companies, possibly undermining the goal of net neutrality. It could have a lot of strength in future negotiations.

Brian Roberts outfoxed John Malone. The big surprise was that Malone lost out on this deal. The expectation was that Charter Communications (CHTR) would get it done, having agreed with Comcast on effectively leaving Comcast out of the big play. In the end, Comcast wasn’t satisfied, realized it didn’t need to cooperate with Charter, and went ahead on its own to do the deal. It’s possible Charter could still get in the action by purchasing assets that the combined company could sell.

This is better for TWC shareholders. They would prefer to have Comcast stock, which is stable and strong, rather than Charter’s highly leveraged and highly volatile stock. The deal came at an enormous premium to TWC’s stock price, but at an 8.3x multiple of TWC’s forward earnings, it’s actually in line with the 8.35x multiple at which the industry currently trades.

Comcast gets East Coast dominance. A huge spot missing in the Comcast footprint was the New York metro area. That was Time Warner Cable turf. With this deal, Comcast now has a strong hold in the Northeast, ranging from Philadelphia all the way through New England.

There is no breakup fee. If the regulators find a way to stop this from happening, Comcast can walk away with its cash intact. The Federal Communications Commission, the Federal Trade Commission, and the Justice Department could all play a role in deciding if the combined company will have too much market share. They will also decide whether Comcast needs to divest any assets before they agree to the deal. Comcast is ready to divest 3 million subscribers, which would reduce its national market share to 30 percent—a level that should avoid antitrust issues.

 

Eric-chemi
Chemi is head of research for Businessweek and Bloomberg TV.

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Companies Mentioned

  • CMCSA
    (Comcast Corp)
    • $54.39 USD
    • -0.74
    • -1.36%
  • TWC
    (Time Warner Cable Inc)
    • $148.36 USD
    • -1.64
    • -1.11%
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