Thursday, February 13, 2014

FCC Should Let Comcast Buy Time Warner Cable

Charter Cable may want Time Warner Cable (TWC), but Comcast is willing to offer the asking price.  And the FCC should let Comcast win with no strings attached.  While the concern may be that it would make Comcast too big, truth is it could enable a more improved infrastructure.  As to the worry of lack of competition, that already exists. 

In most markets, there is only one cable operator, one telco, and DirecTv or Dish.  Some markets get the an overbuilder like RCN or WOW to compete with the cable operator, but it makes little difference.  So whether the cable operator in a market is Comcast or Time Warner Cable has little effect on the consumer.  It is an oligopoly no matter how you look at it.  The only way that really changes is for the FCC to encourage new broadband competition.  Unfortunately, Lightsquared is in bankruptcy and other options don't yet exist.

So this acquisition makes sense for Comcast.  And TWC sees Comcast as the white knight and Charter as the enemy.  So marks a classic M & A scenario.  Will consumers see a reduction in their bills from consolidation, unlikely.  Programmers and vendors of Time Warner Cable will be most affected.  Comcast likely gets the lowest license fees and best prices so once TWC systems are Comcast, programmers will lose any differential they have between the two contracts.  For example, if a network charges TWC $0.10 a subscriber a month, they may only be getting $0.08 a month with Comcast.  Comcast will see more cost efficiency while the programmer immediately loses $0.02 a month on each subscriber.  Add up the channels and add up the months and it can be quite a savings for Comcast. 

At the same time, Comcast will have to spend monies on the Time Warner infrastructure in order to align it with other Comcast properties.  But in the long run, it could make for a better experience for TWC customers.  And it may help to win back some of the customers TWC lost from its nasty license fee negotiations. 

Charter may try to counter bid.  How high they would be willing to go remains to be seen.  But it is unlikely that Charter will ever get the chance again to become a much bigger player, something John Malone seemed to desire when he invested in Charter.  It could be fun to watch Charter battle Comcast for TWC systems.  But should Comcast win, they should argue to the FCC it makes sense to own all the systems.  It makes no difference given consumer choices for their cable and broadband provider. 

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