Comcast to Follow 1 Million Who’ve Fled Bankrupt DetroitTodd Shields
Detroit lost more than 1 million residents and three-quarters of its retail businesses on its way to bankruptcy.
Now Comcast Corp. wants to go, too.
The largest U.S. cable-television company says it will shed 2.5 million customers in Detroit and other Midwestern and Southern communities as part of a plan to buy No. 2 Time Warner Cable Inc. Relinquishing the markets will help keep Comcast’s market share below 30 percent of U.S. pay-TV homes -- a level that regulators once set as a limit and Comcast has volunteered to honor.
“It’s not helpful when a company like that leaves,” said James Fouts, mayor of Warren, which borders Detroit and likewise will see the end of Comcast service.
As it drops Detroit, Comcast would gain the nation’s top two markets, New York and Los Angeles. The $45.2 billion acquisition would enlarge Comcast by 7 million video customers. The castaways in Detroit, Minneapolis and elsewhere would belong to a new company, GreatLand Connections Inc., to be created in what the companies call a tax-efficient spinoff. The new company’s debt would exceed industry averages -- something that has raised concerns about service in those communities.
“We don’t have the answers we need,” said Ron Styka, an elected trustee with responsibility for cable-service oversight in Meridian Township, Michigan, a town served by Comcast about 80 miles west of Detroit.
Municipal officials say they have questions about service, including whether subscribers can keep Comcast e-mail addresses or if the cable-channel lineups may change.
GreatLand will start with $7.8 billion in debt, according to a securities filing. That debt is equal to five times Ebitda, or earnings before interest, taxes, depreciation and amortization, Comcast said. The debt ratio for Comcast is 1.99 times Ebitda and for New York-based Time Warner Cable it’s 3.07 times Ebitda, according to data compiled by Bloomberg.
The new company will buy management services from Charter Communications Inc., which has a debt ratio of 5.1 times Ebitda. Charter, which had sought to buy Time Warner Cable, would own a 33 percent interest in GreatLand and become the second-largest U.S. cable company with more than 8 million customers counting GreatLand’s and subscribers it gets in purchases and swaps with Comcast after the merger is completed.
Detroit, the cradle of the automobile assembly line and once a symbol of industrial might, last year filed history’s biggest U.S. municipal bankruptcy after decades of decline left it too poor to pay billions of dollars it owed bondholders, retired cops and current city workers.
The slide began in the middle of the previous century as U.S. carmakers began moving production out of town. Residents followed. Detroit’s population fell to less than 700,000 in 2013 from a peak of 1.85 million in 1950, according to the latest U.S. Census Bureau data. Manufacturing jobs fell from about 296,000 in 1950 to fewer than 27,000 in 2011.
The city wouldn’t be alone in losing Comcast service. Comcast also has proposed spinning off customers in Alabama, Indiana, Kentucky, elsewhere in Michigan, and in Minnesota, Tennessee and Wisconsin, Comcast and Charter said.
“Comcast from my point of view is expensive,” said Styka, the Michigan resident whose monthly bills run over $200. “On the other hand they seem to be pretty reliable and they do have quite an array of services.”
The whiff of nostalgia for Comcast, amid service complaints that prompted New York Mayor Bill de Blasio to ask that improvements be a condition of approving the merger, highlights the uncertainty for prospective GreatLand communities.
“Answers have been inadequate at best and mostly not forthcoming” as communities in Minnesota question Comcast about the spinoff, David Osberg, city administrator of Eagan, Minnesota, said in a filing to the Federal Communications Commission. The community of 66,000 residents about 18 miles southeast of Minneapolis is luring technology jobs and needs “first-rate connectivity” at home and in workplaces, he said.
It’s not clear whether GreatLand will be financially qualified, Osberg said.
“GreatLand will continue to provide top-quality video, broadband and voice services to its subscribers,” said John Demming, a spokesman for Philadelphia-based Comcast. “It will have experienced and well-trained personnel coming from Comcast to ensure a smooth transition.”
Comcast will aid GreatLand for a year, Charter Communications said in a Sept. 23 regulatory filing.
“The ultimate objective of the company coming in is to make the transition seamless for customers,” said Alex Dudley, a spokesman for Stamford, Connecticut-based Charter.
GreatLand will offer shares and trade independently following the close of Comcast’s deal, which could happen in the first quarter of next year if the FCC and the Justice Department approve the transaction.
Finances for the new company appear to be “less-than-middling,” Craig Moffett, senior analyst at MoffettNathanson in New York, said in a Sept. 18 note.
“It’ll be a little more leveraged than Charter, but it’s not out of line” with companies such as New York-area cable provider Cablevision Systems Corp., Moffett said in an interview. Bethpage, New York-based Cablevision carries a debt to Ebitda ratio of 5.1, according to Bloomberg data.
GreatLand will be “more than adequately capitalized,” Charter said in its Sept. 23 filing with the FCC.
“We have a very vested interest in this company,” said Dudley, the Charter spokesman. “The idea is not to set it up to fail, but set it up to succeed.”
Comcast hasn’t provided adequate information about GreatLand, and there’s nobody to talk to at the new company, said Jodie Miller, executive director of the Northern Dakota County Cable Communications Commission, in suburban Minneapolis.
“We’re in a really hard place” as mid-December deadlines approach for local authorities to approve switching service to GreatLand, Miller said.
A change of a cable TV providers requires the approval of communities like hers. Though, Miller said, “turning off a system in the Twin Cities -- not likely.”
GreatLand has no track record, she said.
“We’re not even saying it’s unqualified,” she said. “We’re saying we don’t really have information.”
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