Time Warner Cable Inc. (NYSE: TWC) and Cox Communications Inc. have reportedly held talks about swapping cable systems in California and perhaps moving ahead on a "broader alliance" aimed at reducing programming costs.

The Reuters report, which cites two unnamed sources, labeled the discussions as "early-stage" and aimed at competing better against Comcast Corp. (Nasdaq: CMCSA, CMCSK), which is in the process of taking control of NBC-Universal. (See Comcast to Take Control of NBC Universal.)

The competitive angle is a strange one, since cable MSOs don't typically compete head-to-head for subscribers. However, that could change if cable operators end up pursuing over-the-top strategies that deliver subscription video services outside their traditional footprints via high-speed Internet connections. (See Comcast Forges 'Excalibur' for IPTV, Rumor: Comcast Plots OTT Stealth Attack, and Boxee CEO: MSOs Should 'Go Over-the-Top'.)

What seems to make more strategic sense is a straight swap in California coupled with an alliance that might allow the operators to negotiate better programming carriage and broadcast TV retransmission deals. If the MSOs were to align from a programming negotiations standpoint, they would represent 20 million cable subs, roughly 3 million fewer than Comcast. (See The New Deal .)

Reuters said those discussions slowed down last month but may soon heat up again.

It also spelled out the possibility that TWC might be interested in buying Cox's cable business outright. Cox Enterprises, which operates the privately held MSO, also owns units that run TV stations, newspapers, advertising sales rep firms, as well as online properties such as AutoTrader.com and Kudzu.com, a service that connects consumers with a range of local service providers.

As the California swap idea goes, Cox currently operates systems serving Irvine and San Diego and smaller properties in Santa Barbara and Rancho Palos Verdes. TWC has parts of Los Angeles and Orange County and the majority of the city of San Diego. If a swap were to take place, it may make sense for Cox to take over TWC's San Diego property and for Time Warner Cable to assume control of Cox's Irvine system.

Cox and TWC declined to comment on the Reuters report, but two industry sources told Light Reading Cable that they were aware of the California swap discussions but had heard nothing about any deals involving straight-up acquisitions.

— Jeff Baumgartner, Site Editor, Light Reading Cable