While analysts and lawyers tend to agree Charter Communications’ planned US$56bn purchase of Time Warner Cable (TWC) is unlikely to meet as many regulatory hurdles as the failed Comcast-TWC merger, opinions are divided on whether it will eventually…
While analysts and lawyers tend to agree Charter Communications’ planned US$56bn purchase of Time Warner Cable (TWC) is unlikely to meet as many regulatory hurdles as the failed Comcast-TWC merger, opinions are divided on whether it will eventually be cleared.
Charter announced yesterday that it had agreed to buy TWC and would go through with an earlier US$10.4bn deal to acquire Bright House Networks, originally contingent on the failed Comcast deal.
The three-way merger will create a strong competitor to number one player Comcast. New Charter, as the merged entity will be known, will have 23.9 million customers across 41 states and cables passing about 48 million homes.
Given the FCC and Department of Justice’s resistance to the Comcast-TWC merger, which collapsed last month, the Charter-TWC deal will surely face intense regulatory scrutiny.
In a brief statement yesterday, FCC chairman Tom Wheeler said the deal will be reviewed “on its merits” to determine whether it would be in the public interest.
“In applying the public interest test, an absence of harm is insufficient,” he said. “The Commission would look to see how American consumers would benefit if the deal were approved.”
The inclusion of a US$2bn break-clause in the Charter-TWC certainly suggests John Malone’s Charter is confident it will complete. The fact it is smaller in scale than the rejected Comcast deal has prompted many analysts and lawyers to predict that it will be cleared by regulators, although some, such as Gene Kimmelman, president and CEO of public interest group Public Knoweldge, are still sceptical.
Kimmelman, a former chief counsel of the DoJ’s antitrust division, told TelecomFinance that he is unsure as yet what the federal regulators will decide. If they do clear the deal, he believes strong conditions will be imposed.
While Charter-TWC is smaller in scale than Comcast-TWC, Kimmelman said it could still present the same “gamekeeper/monopsony problems”.
“We’re still reviewing the deal to see if there are likely to be problems and, if so, whether it would be possible to alleviate them with conditions,” he said.
Unlike Comcast and TWC, Charter and TWC are not vertically integrated and don’t have the same history of alleged non-compliance with conditions in the past, he said.
“I am curious if they are willing to be more open toward customers using their own set-top boxes than Comcast has been, and generally more open in that area,” he noted, adding that Comcast has been pushing its own X1 software platform.
In terms of potential deal conditions, Kimmelman said he would be looking for customer service protections as well as provisions designed to protect the open internet and online video competition, among other things.
Amanda Wait, a partner with Hunton & Williams in Washington, also believes it is hard to say yet whether the deal will ultimately be approved.
Aside from the companies’ overlaps in terms of market share and geography, she said regulators will also look closely at whether the deal would tip the scales toward New Charter in terms of its bargaining power with content providers.
Charter will also need to carefully detail how the deal will benefit consumers, she noted, saying it’s no coincidence that the cableco’s announcements on the merger have sought to set out what these will be.
Given both the FCC and DoJ have already spent a considerable amount of time assessing the sector as a result of the Comcast-TWC deal, she predicts the Charter-TWC review will be much shorter. In her view, we should have a clearer idea of what to expect from a regulatory perspective once a decision is made on the planned AT&T/DirecTV merger.
Meanwhile, Todd Antonelli, managing director of Berkeley Research Group in Chicago, is optimistic that the deal will be cleared, noting that Charter-TWC will be number one in just five of the top 20 markets and therefore much less dominant than Comcast-TWC would have been.
“That opens up an opportunity for pretty smooth sailing,” he said.
New Street Research analyst Jonathan Chaplin also said he believes regulators will green light the deal, albeit with some conditions, as it does not pose the same threat to competition as the Comcast merger. Charter-TWC’s share of the broadband market would be about 24%, compared with the approximate 57%, he noted.
Chaplin also pointed to Charter’s lack of content assets in comparison with Comcast as another reason why the deal stands a greater chance of regulatory approval.
“We would expect a relatively short review period of six to nine months,” he noted.
Conversely, Delara Derakhshani, policy counsel for Consumers Union, questioned whether the Charter-TWC deal is in the public interest, saying she and her team are sceptical.
“When it comes to cable consolidation, history teaches us to be very concerned about the benefits for consumers. Prices for cable and broadband continue to go up, and customer service is dismal. In a customer satisfaction survey of 17 cable providers by Consumer Reports, Charter ranked fourteenth and Time Warner Cable was sixteenth.”
She called for “tough scrutiny” by regulators and noted that her team will meet with them to ensure the consumer perspective is put forward.
