Comcast-TWC Deal: Playing All the Numbers
Alan Breznick, Cable/Video Practice Leader, Light Reading
Unlike the big cable mergers of the past, Comcast is buying Time Warner Cable for more than TWC's cache of video subscribers. A lot more.
Although much of the early coverage of the proposed $45.2 billion deal has focused on the 11.2 million video subscribers that Time Warner Cable Inc. (NYSE: TWC) would add to Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s already market-leading stash of 21.7 million basic cable customers, that's far from the whole story.
That's because the North American cable business is now about non-video services at least as much, if not more than, it's about the traditional video services. (See Comcast's TWC Coup: 3 Things to Know.)
So let's play the numbers game here by looking at some other key numbers driving this deal, not just the usual video numbers. Then it will become clear just how dominant a force the planned Comcast-TWC combo could be.
With an impressive total of 20.7 million high-speed data customers today, Comcast already leads the US cable broadband market by a wide margin. In fact, like most major North American MSOs, it now has nearly as many broadband customers as video customers. Throw in TW Cable's 11.1 million broadband subscribers and you've got a grand total of nearly 32 million high-speed data users, nearly as many as the 33 million video customers that the new company would inherit.
While Comcast executives have solemnly vowed to sell off 3 million video customers to cap the combined company's size at 30 million (or 30% of the US pay-TV homes) to ease federal antitrust concerns, they've said nothing about divesting any broadband subscribers. That's even though the combined company would control close to 40% of the US cable broadband market, well above the MSO's self-imposed 30% limit on the video end.
To be sure, most cable video subscribers are also cable broadband subscribers these days and vice versa. So it would be tough to divest one without the other. But, even if it sold off 3 million broadband homes, Comcast would still have a commanding broadband presence nationally.
Voice services don't get much attention (or respect) for cable operators anymore for some reason. But they are still huge, growing revenue generators for the industry, trailing only video and broadband. So they count for a lot in this deal as well.
With nearly 10 million VoIP customers, Comcast is already the fourth-biggest wireline phone company in the US. Toss in TW Cable's 4.8 million phone customers and you're talking about a total of almost 15 million subscribers, which is a formidable total.
Major metro markets
Similarly, Comcast already boasts cable operations in 20 of the 25 biggest metro areas across the US, including nearly every major market on the East Coast and many of those on the West Coast. But the two big markets that it doesn't dominate right now are the two largest in the country -- New York City and Los Angeles. Guess which ones TWC controls?
Besides the nation's two biggest cities, TW Cable would also bring Columbus, Cincinnati, Cleveland, Charlotte, Kansas City, Dallas, San Antonio, and part of San Diego into the Comcast fold, at least before the planned divestiture. So, with just a handful of exceptions like St. Louis (Charter Communications Inc. , New Orleans (Cox Communications Inc. ), and Tampa (Bright House Networks ), every NFL city would be a Comcast city.
Business services revenues
Here's the pièce de résistance for Comcast in this deal. With business (enterprise/wholesale) services now the fourth-biggest revenue generator for major US MSOs, Comcast has become king of this category during the past three years. The MSO racked up a total of $3.2 billion in business revenues last year, up more than 26% from nearly $2.6 billion in 2012. (See Comcast Makes Middle Market Gains.)
TWC has been no slouch in this area either, though. It took in $2.3 billion in 2013, up 21% from nearly $1.9 billion the year before. So the combined company would instantly generate $5.5 billion in business services revenues, at least before divestiture. (See TWC: Charter's Got Nothing on Us.)
Even more importantly, perhaps, TWC would grant Comcast access to the New York City and Los Angeles commercial markets, the two biggest in the country. With control of those two markets and a true national presence for the first time, the combined company could not only sign up more small and midsize firms in those markets, but break into the large enterprise sector as well. That prospect should have AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) somewhat concerned.
Indeed, on the joint Comcast-TWC conference call with the press Thursday morning, Comcast Chairman and CEO Brian Roberts made a note of the enhanced competitive capabilities of the merged firm. He said the new Comcast would be better able to compete with other national and international companies for larger customers.
— Alan Breznick, Cable/Video Practice Leader, Light Reading