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Cable/Video

What If the Comcast Merger Fails?

Reports surfaced from Bloomberg over the weekend that the US Department of Justice is looking for a way to put a halt to Comcast's plans to acquire Time Warner Cable. (See DoJ May Sue to Block Comcast-TWC Merger.)

The Wall Street Journal also chimed in, reporting that Comcast Corp. (Nasdaq: CMCSA, CMCSK) is scheduled to meet with the DoJ on Wednesday to discuss possible conditions for merger approval. However, according to the WSJ, both the Justice Department and the Federal Communications Commission (FCC) have major concerns about the transaction, and they are considering submitting it to an administrative hearing that would likely kill the deal.

If the reports are correct (note that none of the companies or agencies involved are ready to comment on "speculation"), this is a major change from the rosy picture Comcast has painted since it announced its bid for TWC more than a year ago. According to Comcast's ongoing rhetoric, the deal would be overwhelmingly positive for consumers, and Comcast Executive Vice President David Cohen has repeatedly said that he expects the transaction to be approved.

On the latest reports of the DoJ's plans, however, a Comcast spokesperson said only to the WSJ, "We continue to believe that our transaction with Time Warner Cable Inc. (NYSE: TWC) will bring substantial benefits to consumers without any competitive harms. We will continue to engage in our productive discussions with the government and do not see any value in commenting on rumors and speculation."

So what happens if the deal is blocked? A lot of mess for one thing, but there are plenty of other short-term implications as well.

Here are a few takeaways to consider.

Comcast still reigns
Regardless of whether Comcast swallows up Time Warner Cable, it will still be the largest video service provider in the US unless you count Netflix Inc. (Nasdaq: NFLX), which brings in far less revenue per user than the cable giant. It will also still be the largest broadband provider, delivering Internet service with download speeds of at least 25 Mbits/s to more than half of the nation's subscribers. (See FCC Sets 25/3 as New Broadband Bar.)

That said, Comcast is feeling pressure from both new online video providers and the competitive marketing of new gigabit broadband services. If it can't acquire TWC, it will look for other ways to extend its customer base and to build up leverage for ongoing negotiations with programming and technology suppliers.

Next page: TWC goes on the block again

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dfoote 4/22/2015 | 2:53:55 PM
Re: A naive question There is currently little competition among cable operators (MSOs and smaller cablecos) primarily because there aren't any significant areas where two different cable operators own wiring all the way to the same homes/businesses. 

This is primarily because of the historical franchise agreements between local municipalities/governments and cable operators.  These agreements provided for the cable operators to have right-of-way on public lands for running their cables primarily to homes (and now small-medium businesses along the same cable routes).  As a result, there was only one cable company in each local/municpal area.  So once the cable infrastructure was built out such that most parts of the country had two wireline-based providers (i.e. a telco and a cableco who owned cable all the way to your home), it became impractical* for two cablecos to provide service to the same homes and businesses in the same area (technically, cost/business/ROI and from policy/government.  As some cablecos have deployed fiber in their metro/regional areas, there is the possibility for some customers (especially businesses) to be close enough to their fiber networks that two cablecos possibly could compete.  But it is not very common.

In addition, cablecos have historically focused more on the telcos as their competitive focus (and satellite for video only services).  So it is commonly thought that cablecos have a kind of "tacit understanding" of not significantly competing with each other.  

But with the possibility of cablecos becoming wireless providers (probably primarily thru Wi-Fi), the potential for competition among cablecos becomes more likely. 

And with the introduction of some new services that could be offered over-the-top (OTT) (like streaming content to your mobile device) or services with "bring-your-own-broadband" (like home security or smart home), the possibility for future direct competition increases.

Finally, since broadband has nearly saturated in North America and there is little differentiation among triple play competitors, there is increased pressure for cablecos to find ways to grow revenue and sustain/improve margins.  In part, this is some of the motivation for the Comcast/TWC deal (improved costs thru economies of scale and streamlined/merged operations).  These same factors will also increase pressure for cablecos to look for new customers and new services outside of their historical franchise territories (i.e. compete with other cablecos).  

 
Phil_Britt 4/22/2015 | 8:56:28 AM
Re: A naive question Geographically they don't compete or do so only in some fringe areas. But there's not a lot of competition (cable v cable) anywhere. Any merger will make it tougher for those smaller cable firms to compete with Comcast/Time-Warner in the markets where competition exists today.
brooks7 4/21/2015 | 5:41:04 PM
Re: A naive question I saw a picture that showed a small amount of overlap. But in general, the are geographically diverse. The overlap could be solved by forcing a sale of some properties. The map was not detailed and it could be that they served nearby cities in a region and the map showed them both in the region. seven
Mitch Wagner 4/21/2015 | 4:59:35 PM
What if the Comcast merger fails? TWC has to update its Tinder profile. 
Mitch Wagner 4/21/2015 | 4:59:08 PM
A naive question Here's a naive question -- do Comcast and TWC compete? Do they serve the same regions? Or do they serve different geographies entirely?
DHagar 4/20/2015 | 9:49:13 PM
Re: then the next lawsuit will be filed... KBode, I like your assessment.  I agree that the Comcast customer service has made the deal potentially "politically" unattractive.  And, as you say, DirecTV has better service.  The public view of DOJ approval of the deal that would trap customers into a lower level of service would be a major failure to protect the consumer.

I am also wondering how much the "net neutrality" classifications and rules have influenced this deal and made it politically unworkable?
KBode 4/20/2015 | 3:02:55 PM
Re: then the next lawsuit will be filed ... Meanwhile AT&T hasn't found its name in the press nearly as much in regards to its DirecTV merger, in large part because their U-Verse TV service has relatively decent (at least for pay TV) customer satisfaction rates. I also think there's a kind of ingrained disdain for "the cable company" established by bad customer service for two decades now (install windows that stretch for three days, etc.).

I'm relatively surprised the deal may not pass. I thought they'd rush to use this as an opportunity to require conditions related to the Title II shift (though reports suggest Comcast is balking at any such provisions).
cnwedit 4/20/2015 | 2:54:00 PM
Re: then the next lawsuit will be filed ... KBode, good point about Comcast's customer service gaffs, which were newsworthy in the extreme - and one of the few times truly awful custoner service has really come back to bite a big player in a major way. 

They've been able to shrug off the complaints for the most part because consumers don't really have many choices. 

 

 
KBode 4/20/2015 | 2:49:38 PM
Re: then the next lawsuit will be filed ... Honestly the deal was looking pretty good until the press realized just how bad Comcast customer service is. I honestly think that if Comcast had even a C grade support ratings the deal probably would have gone through.

Meanwhile, AT&T's surely thankful that all the attention has been on Comcast, and not on their DirecTV acquisition -- which actually DOES eliminate a direct competitor.
KBode 4/20/2015 | 2:48:20 PM
Re: then the next lawsuit will be filed ... I'd agree. AT&T walked away, and I think when it comes to corporate culture AT&T has a much more inflexible attitude to these sort of things. I think Comcast would probably just get to work considering about other deals, perhaps with Cablevision?
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