Comcast has agreed to acquire Time Warner Cable Inc. for $45.2 billion in an all stock deal. The acquisition would effectively combine the two largest US cable companies, leaving many consumers and US regulators with questions. The deal is somewhat of a surprise after recently hearing that Charter was in talks with TWC regarding a similar acquisition. According to Bloomberg, “The Comcast-Time Warner agreement caught Charter by surprise.”
While it may have been a surprise, one thing that isn’t a surprise is the rising the importance of broadband in the US and around the world. The revenue growth available in the broadband market is far greater than in video (TV). In fact, According to UBS estimates, the combined company (Comcast and TWC) could see its consumer data-only revenues go from $17 billion at end of 2013 to about $23 billion by end of 2018. Voice revenues will go from about $6 billion at the end of 2013 to $6.6 billion at end of 2018.
Meanwhile, video revenues would go from estimated $31 billion at the end of 2013 to $34 billion at the end of 2018, according to UBS estimates. The cost of video programming for combined companies were estimated to be around $14 billion at the end of 2013 and will increase to $19 billion by 2018, according to UBS estimates.
Om Malik said it best, “Netflix, Hulu and YouTube are programming our video watching behavior — any amount of video, anytime, anywhere on any screen, as long as there is broadband. The more we watch internet video, more bandwidth we need. The fact, that cable companies (big and small) have already started to meter broadband and are putting limits on the networks; we are only on the cusp of seeing a big inflation in internet access costs.”
But this acquisition still has to be approved by a regulatory committee — something Comcast likely feels very confident about as it has had a lot of success with getting its way when it comes to acquisitions. Most recently, Comcast spent about a year under the microscope after it reached a deal in late 2009 to acquire a controlling interest in NBCUniversal from General Electric. In January 2011, Comcast ended up agreeing to an array of commitments with the Justice Department, the FCC, and state attorneys general in order to secure regulatory approval. Nonetheless, I suspect Comcast will need to agree to a number of serious and enforceable commitments to get this particular deal approved.
Despite the US Court of Appeals for the District of Columbia Circuit striking down most of the FCC’s Open Internet rules, Comcast has said it will continue to honor its agreement with the FCC. I would like to see Comcast’s commitment net neutrality expand to Time Warner Cable subscribers. Not only would it be a huge win for consumers, it would give the Commission a backdoor to enforce net neutrality on roughly a third of the country’s broadband subscribers.
The deal may be agreed to between both companies but it still needs to be approved, which is never an absolute guarantee. In other recent news, Sprint which wants to acquire T-Mobile is facing some regulatory hold up and may be rethinking its deal. And there was AT&T, which also wanted to acquire T-Mobile, but was blocked by the Justice Department from making the deal in 2011.
A deal of this size should absolutely be reviewed as there are a number of questions and potential concerns, we’ll keep an eye on this story.