Being a top ten cable provider doesn't mean what it used to mean.
With the news that TPG has agreed to acquire RCN Corp. and Grande Communications for $2.25 billion, the private equity firm announced that it would combine the operations of both companies to form a "top ten US cable operator." That's not insignificant, but as the market continues to consolidate, it's not as impressive as it once was. (See TPG Splashes $2.25B on RCN & Grande.)
Ironically, it's growing easier for smaller cable operators to jump up the industry leaderboard, a point WideOpenWest Holdings LLC (WOW) executive Sean Albertson emphasized at The Independent Show in July. Thanks to acquisitions by Altice and Charter Communications Inc. , the truly big US cablecos are now clumped together in the top four slots, and WOW, for example, has moved all the way up to sixth place from tenth place just a year ago.
It's a similar situation for TPG with the combination of RCN and Grande. The joint entity looks impressively large when considered among the decreasing pool of cable companies in the country. But SNL Kagan reports that RCN only has an estimated 289,000 residential video subscribers and 434,000 residential data subscribers, while Grande reports 88,000 video and 139,000 data customers in the residential market. That compares to top operators Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Charter, both of which have more than 20 million residential customers each. (See Coming Soon: The New Cable Trinity.)
Size, of course, isn't everything. TPG is gaining cable operations in some very appealing markets, including New York City, Boston, Washington, DC and Dallas. And Grande has been a first mover in the gigabit speed race, bringing gigabit service to Austin and San Antonio in 2014 and 2015 respectively. (See Grande Preps 1-Gig for San Antonio.)
And both RCN and Grande have been progressive on the video front. The two companies were early to market in integrating Netflix and Hulu services into their own pay-TV packages. (See Netflix Streams Onto US Cable.)
All told, TPG is getting a small but attractive set of markets and services. The question is, what does it do with them?
Of course, TPG could be looking for a long-term investment with its acquisitions of RCN and Grande. But it's also quite possible that the private equity firm will try to optimize operations and then resell the joint assets to another buyer in the future.
Notably, Altice has said it's not done buying up US cable companies. In a couple years, that aggressive market entrant may find that RCN and Grande can help it solidify the Altice position as number three among MSOs, complementing its Cablevision properties in the New York metro area and its Sudenlink properties in the Southeast and Southwest.
TPG is climbing its way into the cable top 10 today, but the market may not be done consolidating.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading