**Editor's Note: Please click here for a recap of the biggest channel-impacting mergers in Q3 2013.**
Late last week, speculation erupted that Charter Communications wants to buy Time Warner Cable, while TWC would prefer Comcast Communications as a potential buyer. Such consolidation would set off shockwaves, perhaps most of all within the indirect channel.
Analysts Tackle Potential Cableco Consolidation
Charter Communications, along with its largest shareholder, Liberty Media, reportedly is in hot pursuit of Time Warner Cable. But TWC, according to outlets including the Wall Street Journal, is not so keen on the idea and is said to be in talks with Comcast Communications, the largest MSO in the United States, about a merger instead.
Nothing has been confirmed and, to maintain some perspective, a TWC-Comcast pairing would invite extensive and prolonged regulatory scrutiny, given Comcast's vast reach and market power. In fact, analysts at financial firm Raymond James & Associates on Nov. 25 dubbed a Comcast-TWC union "unlikely." (If such a deal were to materialize, however, Raymond James pegged the value at about $150 per share.)
Analysts at investment bank Stifel-Nicolaus also predict huge backlash if Comcast and TWC, the second-largest cableco, teamed up.
"This would be a brawl," Christopher King and David Kaut wrote in a Nov. 22 memo to clients.
Such a merger "would draw intense antitrust/regulatory scrutiny and likely resistance, stoked by raw political pushback from cable critics and possibly rivals who would argue it’s simply a 'bridge ... too far' or 'unthinkable,' among many other things."
Neither does a Charter-TWC transaction appear inevitable, namely because TWC is not in financial trouble.
"Let's keep in mind that TWC is a very capable company that's not in any need of being acquired, though in the end, investors will decide," said Brian Washburn, service director, global business network and IT services, for Current Analysis.
Craig Clausen, executive vice president of New Paradigm Resources Group, agreed.
"Charter and TWC is a long shot at this point," he said. "Charter’s network is much more limited than Comcast’s, and the potential to realize the benefits and returns from an expansive fiber-based network are therefore more limited. Investors realize this and will ultimately go with the combination that will create the largest footprint and open up the large enterprise opportunities, among others."
Still, whenever consolidation talk heats up in the network services industry, fire usually accompanies the smoke. Back when Ma Bell started putting herself back together, the rampant rumors tended to come to fruition – think Verizon-MCI and AT&T SBC, for starters. Cable has not yet seen the same kind of consolidation as telecom and perhaps its time has come. After all, there's little overlapping territory. And, on the consumer side, cable influence over channel negotiations is waning as more people turn to the Internet for programming. On the business side, the ability to offer nationwide connectivity to multilocation enterprises and SMBs would give cablecos a more competitive standing against the telcos.