Comcast's (NASDAQ:CMCSA) decision to abandon its proposed $45 billion acquisition of Time Warner Cable (NYSE: TWC) will have ripple effects that impact the entire cable industry.
First, the end of the Comcast deal means Time Warner Cable is very much in play and a number of other transactions could happen -- or not happen -- due to the fallout of this canceled deal.
One deal is off, another in limbo
The end of the agreement between Comcast and Time Warner Cable had the immediate effect of also cancelling a deal for Comcast to sell some of its operations to Charter Communications (NASDAQ:CHTR). That arrangement, which was an attempt by the cable giant to make its acquisition of TWC more palatable to federal regulators, became unnecessary when the Federal Communications Commission sent clear signs that it would not approve the merger, causing Comcast to back away.
Another deal has fallen into limbo. Charter recently announced plans to acquire privately owned Bright House -- the sixth largest U.S. cable operator, serving approximately 2 million video customers in central Florida -- in a $10.4 billion deal. However, TWC has a right of first refusal on that transaction, according to The Tampa Bay Times. To make matters even more complicated, Charter could bid for Time Warner Cable.
|Pay-TV Providers||Subscribers at
the end of 2014
|Other Major Private Cable Companies**||6,450,000||(225,000)|
|Total Top Cable||49,278,617||(1,192,777)|
|Satellite TV Companies (DBS)|
|Total Top Phone||11,592,000||1,047,000|
|Total Top Pay-TV Providers||95,200,617||(125,777)|
About that TWC deal
With Comcast out of the picture, Charter has jumped into the picture to acquire Time Warner Cable. The two companies have begun "friendly negotiations," according to Reuters, which reported that no official offer had been made as of April 28 in the early afternoon.
This is not the first time Charter and its biggest shareholder -- John Malone's Liberty Media -- have tried to buy TWC. The company "bid $37.3 billion or about $132.50 per share for TWC last year," according to Reuters, ultimately losing out to Comcast which was willing to pay more.
Charter is not the only potential partner for Time Warner Cable. The company also has had an "investment-banking advisor" reach out to privately held Cox Communications to discuss a potential merger of the two companies, The Wall Street Journal reported.
A Cox spokesman told the paper "We've been clear we're not for sale, and we'll continue to explore any potential growth opportunities that align with our business objectives."
Either of these deals is likely to be approved by the FCC because both would create a more viable competitor to Comcast.
AT&T and DirecTV have mostly skated
Though AT&T's purchase of DirecTV is actually a bigger deal in terms of dollars than the scuttled Comcast/Time Warner Cable merger, it has not received anywhere near the same level of negative public feedback. It has mainly slipped below the radar and most analysts expect it to be approved by federal regulators.
That could be because AT&T's subscriber base combined with DirecTV's would make it a suitable rival to Comcast (it would actually have more pay-TV customers). If that deal happens and either Charter or Cox merges with TWC, then the pay-TV industry could potentially have three strong players as opposed to now, when Comcast and DirecTV are significantly larger than all of their competitors.
In addition, DirecTV doesn't offer broadband or phone service itself. Being able to offer those services to its 20 million plus customers would create more choice.
The FCC stands strong
The end of the Comcast/TWC deal and the recently adopted net neutrality rules have made it clear that the FCC, under Chairman Tom Wheeler, plans to be assertive. In the cable world, that means mergers will be allowed as long as they don't remove competition from the space.
Wheeler has been very consistent about this. He spoke openly about how he was not likely to support a merger between Sprint and T-Mobile because it would reduce the number of wireless competitors from four to three. The cable industry is more crowded, but his actions in the Comcast/TWC merger show that while he will allow some deals, he is likely to stop any company from gaining too dominant a position.