Comcast (NASDAQ:CMCSA) wants to buy Time Warner Cable (UNKNOWN:TWC.DL) in a $42.5 billion transaction that has left many subscribers of both companies wary about how the proposed merger would impact their cable and broadband bill.
The Federal Communications Commission is wary, too, or is at least putting on a show of being concerned, holding hearings about the potential deal. Regulators in New York -- where both companies have subscribers -- are also examining whether it's a good idea for the two largest cable companies to merge.
Any approval from the regulating board, the New York State Public Service Commission, is likely to include concessions that could cost Comcast as much as $300 million, the paper reported. Those concessions would include the combined companies keeping jobs in New York, improving customer service and broadband speeds, adding service to rural areas, and changing standards for a program that offers cheap broadband to poor families. Other states, including California, are looking at the merger as well.
There's a lot to review, but price increases might not be on the top of the list as cable companies, which once had monopolies in broadband and TV service, now have competition from satellite and phone companies, which keeps prices in check.
What is the FCC doing?
Comcast Executive Vice President David Cohen and Senior Vice President Kathy Zachem met with FCC officials in mid-August, where, not surprisingly, the two executives were highly in favor of the merger.
The FCC has also been soliciting comments from citizens on its website and a number of companies have gone on record with the federal regulator opposing the deal. Media companies including DISH Network (NASDAQ:DISH), a rival cable provider, and Netflix (NASDAQ:NFLX), which has sparred with various broadband providers over speeds offered to its customers, have publicly asked the FCC to oppose the merger.
Perhaps more credibly, a number of municipal leaders, including Los Angeles Mayor Eric Garcetti have raised concerns. "There is a real risk that this transaction will lead to worse customer service," Garcetti wrote, The Los Angeles Times reported.
LA was joined by the city of Portland, Ore., along with Montgomery County, Maryland, and two Minnesota counties in filing a petition with the FCC sharing concerns about the merger, Governing.com reported. "There is a real prospect that this increased power will be used in a way that dominant companies often use power: to deter competition, increase prices and reduce output," the governments argue in their petition.
Could conditions be imposed?
When satellite radio providers Sirius and XM merged the FCC allowed it, but included conditions on keeping pricing flat for three years. Something similar is possible as a condition of approving this deal, but one independent industry analyst told the Fool in an email interview that while he expects prices to rise in the case of most mergers, that won't necessarily be true in this case -- at least at first, though increases could come along with service changes.
"Comcast and Time Warner don't compete now. So there will be no change in the competitive landscape. That could mean prices will not rise," wrote technology industry analyst Jeff Kagan in his email. "If anything I would expect the Time Warner side to embrace the Comcast side including pricing and speeds over time."
Comcast offers faster speeds at higher prices while Time Warner offers slower speeds at lower prices, Kagan explained in the email.
The combined costs for cable, Internet, and wireless phone service have risen about 6.3% on an annual basis for the past three years, according to Macquarie Capital analyst Kevin Smithen as reported by CNN Money. Those hikes bring the average bill to $273 per month, at a time when inflation is running roughly 2% per year overall. The increases, the website reported, are "unsustainable in the long run," according to Smithen.
The reality is while the merger of Comcast and Time Warner Cable gives the combined company a scary large subscriber base, it does not change anything for cable and Internet subscribers. The cable industry's pricing, which was once set based on consumers having no other choice, is no longer set that way.
Customers can, in most cases, opt for one of the two satellite providers, DISH or DirecTV (NYSE:DTV.DL), for cable service and they almost always can choose broadband access from one of the phone companies. Customers can, and are, also deciding to skip cable altogether in favor of various streaming services.
There are many reasons to be wary of a Comcast/Time Warner merger, but higher prices is not likely to be one of them. The industry has changed and just being bigger no longer means you can push customers around.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.