Comcast has agreed to buy Time Warner Cable in a deal valued at almost $45 Billion.
Comcast and Time Warner Cable are already the two largest cable TV, internet, and telephone providers in the U.S., and this deal combines them to create one super-sized telecommunications company – the largest in the world!
Wall Street and Time Warner Cable shareholders have been looking to cash in by getting Time Warner Cable acquired by another company. Every major player in the industry has been circling the company since at least September of last year in an attempt to grab TWC’s 11 million customers and their near-monopoly on New York City.
The deal, which has already been approved by the major shareholders of both companies, will see Comcast pay $159 per share for TWC; 18% higher that its closing price today, which values the company at around $45 Billion. Comcast is currently valued at $147 Billion.
Time Warner Cable has 11 million subscribers. Comcast has 23 million subscribers.
Charter Communications, the fourth largest telecoms provider in the U.S., had tried to merge with Time Warner Cable for the past four months, but they just couldn’t drum up the financial support to close the deal. Their last failed offer of $133 per share was rejected by TWC, who called it a “low-ball” offer for the company.
What Does This Mean For Subscribers?
Nobody knows, yet. The market for internet and cable TV in the U.S. is already grossly overpriced and sorely lacking in competition and this merger only serves to makes matters worse for consumers. Comcast already has the resources to offer true innovation in the market, and this deal only strengthens their financial position. However, it’s unlikely they will use their new-found strength for the good of their customers. The company will likely take the hundreds of millions of dollars they save every year in infrastructure costs and put it in their shareholders pockets.
Unfortunately, that’s just the start of it.
For subscribers, the biggest potential downside of the deal is that it gives Comcast enormous bargaining power to leverage its Internet subscribers against your favorite streaming services such as YouTube and Netflix.
Last month, a federal court confirmed that the government does not have the power to stop Internet providers from throttling (slowing down) web traffic. Companies like Comcast have asked the likes of Netflix and YouTube to share the cost of delivering videos to subscribers for some time now, but neither side is budging. Net Neutrality is an important part of not only the success of any web-based service, but it’s also a key driver of innovation on the web. It’s already been noted that Netflix streaming has been slowing down on Verizon and Comcast networks for months now, and now that Comcast can legally slow down a web service and get 34 million Americans advocating for these companies to pay Comcast in order to prevent Comcast from artificially slowing down their web traffic. Something is very wrong with that picture.
Will the regulators allow the merger?
The Boards of Directors at both companies have already signed off on the deal, but the ink isn’t dry yet.
Both the FCC and the Department of Justice will take a close look at this deal, but in my opinion it seems unlikely that they will raise any meaningful objections. There used to be a long standing rule that no single telecom provider could control more than 30% of the market. However in 2009, the same year Comcast spent 12.6 Million on lobbying activities according to the Senate Office of Public Records, Comcast managed to get that rule removed in one of the greatest examples of regulatory capture in U.S. history.
Given that Comcast spent $20.7 Million on its lobbying activities last year, something tells me the regulators aren’t going to get in the way of this one.
Also, many commentators have suggested that this merger creates a monopoly, but that’s not true. Comcast and Time Warner Cable are already monopolies in almost every market they operate in, and as a result they don’t actually compete with each other in any meaningful way, so Market Concentration (one of the main factors in any anti-trust review) remains largely unchanged with the merger.
However, if it does become an issue, Comcast has made it clear that it is willing to let up to three million subscribers go in an attempt to satisfy any regulatory hurdles that may arise while happily accepting fresh income from the 11 million new subscribers TWC is bringing to their doorstep.
This will be an interesting one to watch…