With the specter of consolidation looming over the cable operator industry, eyes are already turning to Washington, where regulators are bound to look closely at the antitrust issues surrounding any potential merger.
On Monday, Charter Communications made public a proposal to acquire Time Warner Cable with a mix of cash and stock. Should it succeed, Charter would take on Time Warner Cable’s 12.2 million television subscribers. Combined with Charter’s existing 4.2 million subscribers, it would then become the third-largest provider of television services in the United States, behind Comcast and DirecTV, according to data from the National Cable & Telecommunications Association.
A base of 16.4 million subscribers alone is enough to get the attention of regulators. But Charter has competition in its pursuit of Time Warner Cable.
Comcast, the largest cable operator, is considering a bid as well. A combination of Comcast and Time Warner Cable would bring together two of the largest cable operators in the country, creating a powerhouse with 34.2 million television subscribers.
Antitrust regulators are understandably skeptical about allowing big companies to get bigger. However, there are reasons why Charter, or even Comcast, might be able to prevail in its pursuit of Time Warner Cable.
Cable operators make two arguments in favor of consolidation. The first is that broadcast and cable networks are demanding ever higher fees for their programming. Cable operators are being forced to pay up, and the consumer is getting hit with higher cable bills. A bigger company would potentially have more bargaining power, and cable operators argue that they will be have more leverage with the programmers, allowing them to keep costs down and save consumers money.
Perhaps. But a more compelling argument made by the cable operators is that while there are a few big companies that dominate the market, they have very little overlap when it comes to customers. In most markets, consumers don’t have a choice between Comcast, Time Warner Cable or Charter, or even two of those three. In fact, most big markets have only one of these available, which might compete against other telecommunications firms, like Verizon and AT&T, and the satellite operators DirecTV and Dish Network.
It’s a point neatly visualized in new illustrations provided by Mosaik Solutions, a research firm. In the maps below, Mosaik compares the footprint of Time Warner Cable with that of Charter, and in another map, with Comcast. Charter and Time Warner Cable overlap only slightly, with pockets in Texas, Wisconsin, North Carolina and New York. Comcast and Time Warner Cable appear not to overlap at all.
This suggests that while antitrust officials will no doubt take a hard look at any consolidation in the cable industry, they will be hard pressed to suggest a merger between Time Warner Cable and either of its two main suitors will hurt consumer choice.
