Analysts Conflicted on Charter/TWC, BHN Prospects

Charter Communications’ planned buy of Bright House Networks and Time Warner Cable doesn’t face the same regulatory hurdles as Comcast/TWC, said industry officials, analysts and public interest groups. But they don’t agree on the new deals' prospects, according to interviews and statements Tuesday. Charter CEO Tom Rutledge is “confident” regulators will sign off on the deal, he said on an investor call Tuesday. “We’re a very different company than Comcast.” Comcast/TWC opponent Free Press said Charter/BHN and TWC doesn’t offer a public interest benefit, which FCC Chairman Tom Wheeler highlighted in his statement.

“An absence of harm is not sufficient,” Wheeler said. “The Commission will look to see how American consumers would benefit if the deal were to be approved.” Media reported last week that Wheeler phoned Rutledge and TWC CEO Rob Marcus to reassure them the FCC wouldn't oppose all cable merger and acquisitions; the FCC declined to comment. Pressure to approve Charter/TWC after blocking Comcast/TWC isn't likely to affect Wheeler, said Georgetown Law Institute for Public Representation Senior Counselor Andrew Schwartzman, who opposed Comcast/TWC. “Wheeler calls them like he sees them.”

Charter will trade cash and shares of the newly merged company for each TWC share, valuing TWC at $78.7 billion, Charter said in a presentation on the deal. Charter will also buy BHN, for $10.4 billion. Liberty Broadband announced it will buy $4.3 billion of newly issued shares of the merged company after the TWC deal, and agreed to buy $700 million worth of shares after the BHN, Charter said. The newly created entity would have 19.4 million Internet customers, 17.3 million video customers, and 9.4 million voice customers, Charter said. “This represents 17 percent of national MVPD [multichannel video programming distributor] subscribers and less than 30 percent (estimated) of national broadband subscribers taking speeds of 25 Mbps and above.”

The BHN deal is contingent on the TWC deal's being successful, and the TWC deal includes a $2 billion breakup fee, Charter said. The deals are expected to close by year end, Rutledge said, and he believes the regulatory process could be sped up since the Media Bureau is already familiar with a great deal of information about all the companies involved from the Comcast/TWC proceeding. “They know the data and they know what they think,” Rutledge said. “I would think you’d be able to a have a faster process.”

The deal is in the public interest because it will lead to Charter's upgrading all BHN and TWC customers to digital, and providing those customers with faster broadband for less money, Rutledge said. The deal also will create U.S. customer service jobs when Charter revamps TWC’s customer service offerings, Rutledge said. Charter will invest in Wi-Fi, and will be a competitive alternative to Comcast, Charter said. “Larger size will enable New Charter to be a competitive alternative in the setting of technical standards, creation of device options, and availability as an alternative platform over which businesses can reach consumers.”

Charter doesn’t carry the same history of interconnection problems and thwarted deal conditions as Comcast, but could be seen as a threat to competition, said an industry official who opposed Comcast/TWC. Charter could be seen as having the incentive and ability to act anticompetitively against over-the-top companies, though not at the same level as Comcast/TWC, the official said. Charter’s focus on robust broadband offerings is OTT-friendly, said an industry official. Comcast’s perceived threat to OTT is seen as a primary reason that deal was blocked. “It’s very difficult to argue that with 24 percent market share you’re in a position to distort development of the over-the-top market,” said New Street Research analyst Jonathan Chaplin in an interview.

“These potential mergers won't make Charter as massive as a merged Comcast-Time Warner Cable would have been but they raise similar public interest concerns, and the FCC should apply the lessons learned in its prior review here,” Free Press said.

Industry observers said that despite its size, Charter/BHN and TWC is small enough to be approved. Groups asking for conditions will be in a much weaker negotiating position than in Comcast/TWC, said Chaplin. “There’s no way you could characterize this market share as dominant,” he said. "The previous deal's adverse public interest concerns will not be a factor in this deal -- and that bodes very well for its approval,” said Adonis Hoffman, former aide to FCC Commissioner Mignon Clyburn. “Yes, it is ‘probable.’ No, it isn’t a slam dunk," Moffett Nathanson analyst Craig Moffett emailed investors. "With a combined scale of 17.4M video and 19.9M broadband subscribers (defined as any-speed-broadband counts), one has to be sober about genuine risks that this deal could still be rejected."