Charter Communications, the fourth largest cable provider in the US, has announced it is buying Time Warner Cable, the country’s second largest cable company, in a $55.3bn deal that will create a new giant in the cable industry and a close rival to Comcast, Time Warner’s last suitor.
The proposed merger comes as the US cable industry is attempting to consolidate arguing the shift to people watching TV via the internet is fundamentally altering their business. The deal has been rumored ever since the Federal Communications Commission (FCC), spurred on by activists concerned about creating a monopoly, torpedoed a merger between Time Warner and Comcast last month.
The FCC, which is also reviewing telecoms giant AT&T’s bid for DirecTV, the satellite broadcaster, immediately announced it would look at the proposed transaction. Analysts said the deal faces some of the same problems that ended Comcast’s bid for Time Warner, as well as new ones of its own.
If successful the merger will be a crowning achievement for John Malone, the 74-year-old billionaire who is Charter’s main backer. Charter is backed by Malone’s Liberty Broadband. Charter had been discussing a merger with Time Warner before Comcast made its move.
As part of the transaction, Charter also will merge with small operator Bright House Networks. The combined companies would have 24 million customers compared to Comcast’s 27 million. The company would be renamed New Charter.
“With our larger reach, we will be able to accelerate the deployment of faster internet speeds, state-of-the-art video experiences, and fully featured voice products, at highly competitive prices,” Charter’s chief executive, Thomas M. Rutledge, said on Tuesday in a statement.
But some analysts are skeptical that a deal will be done. Comcast’s courting of Time Warner collapsed after a year of intense criticism from activists concerned about the impact of consolidation on consumers. BTIG’s Rich Greenfield has argued that this merger could face many of the issues the scuppered Comcast’s bid had to deal with.
Greenfield wrote earlier this month that the companies would not have a strong case before regulators. “We believe it will be next to impossible for Charter and Time Warner to demonstrate that the consumer benefits outweigh the potential harms of a combination,” he said.
The Charter/Time Warner deal has already drawn the ire of groups opposed to the Comcast deal.
“Just because this potential merger isn’t as massive as Comcast’s failed takeover of Time Warner Cable does not mean it doesn’t raise similar public interest problems,” wrote S Derek Turner, research director for internet rights lobbying organization Free Press, “nor does it mean the the FCC should not apply the lessons learned in the prior review, to this deal.”
Time Warner and Charter have among the worst customer experience ratings in the US. According to research firm Temkin Group’s 2015 poll the two companies’ TV service ranked joint 278th for customer experience, only Comcast was worse. Time Warner’s internet service ranked 281st.
FCC chairman Tom Wheeler said: “The FCC reviews every merger on its merits and determines whether it would be in the public interest. In applying the public interest test, an absence of harm is not sufficient. The commission will look to see how American consumers would benefit if the deal were to be approved.”
