Comcast swooped in late Wednesday to bid $45 billion for Time Warner Cable, or about $159 per share, topping a lower offer from Charter Communications (CHTR), which had begun a proxy fight to acquire TWC, its much-larger rival. With their proposed merger, Comcast (CMCSA) and Time Warner Cable (TWC) are asking federal regulators to bless the creation of a behemoth, one that would provide cable TV to nearly one-third of all U.S. households.
Too big—it’ll never happen, right? After all, the Justice Department blocked AT&T (T) from acquiring T-Mobile USA (TMUS) in 2011 and initially refused last year to let American (AAL) and US Airways merge and make the world’s largest airline. (The Federal Communications Commission will also need to approve the proposed cable deal.)
Evaluating this union will be a little more complicated. The cable companies don’t actually compete with each other now, as Time Warner Cable has been quick to point out. When you move to a new city, you don’t get to choose among Comcast, Time Warner Cable, or Charter. In New York City, for example, Time Warner Cable “owns” Manhattan and sections of Brooklyn. Long Island-based Cablevision (CVC) has big parts of Brooklyn, Queens, and the Bronx, plus numerous customers in the suburbs north of the city, in Connecticut and New Jersey. In some areas, these boundaries make about as much sense as gang turf or gerrymandered congressional districts.
Given the already well-defined turf, the merger pits the cable companies against a newer competitive set: satellite TV providers, yes, but also such companies as AT&T and Verizon, which have made sizable incursions into pay TV. Others, such as Google (GOOG)—and potentially Apple (AAPL)—have also begun building high-speed fiber networks in many cities, new networks that could deliver everything Comcast and Verizon now do.
For another thing, there’s reason to think that subscription services, such as Netflix (NFLX), Amazon.com (AMZN), and Hulu, have caused many Americans to reconsider their monthly commitment to cable TV. Between the cord-cutters, streaming devices such as Roku and Apple TV, and the development of fiber networks, “cable TV” is quickly becoming an antiquated phrase. As cable customers gradually—and perhaps inexorably—leave the companies’ primary product, it may be tougher for antitrust regulators to game out ways in which an enlarged Comcast may inflict harm.
To help appease regulators, Comcast says it will sell off 3 million of Time Warner Cable’s 11 million video customers, giving the combined company roughly 30 million subscribers. In a news release today, Comcast said that level would keep it below a 30 percent market share of the U.S. pay-TV market “and will be essentially equivalent to Comcast Cable’s subscriber share after its completion of both the 2002 AT&T Broadband transaction and the 2006 Adelphia transaction.” If that’s true, it’s a testament to cable’s struggles over the last decade—and to how badly these companies want this merger.