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TWC Merger Talk: What a Comcast or Charter Tie-Up Could Mean for Partners

**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 its 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. “Charters network is much more limited than Comcasts, 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.

What Could Go Wrong for Partners?

If MSO consolidation were to come about, the strategy certainly would seem to serve cablecos’ goals for footprint and revenue, even in areas where the FCC and DOJ might impose customer ownership limitations. But what about the impact on the indirect channel? Opinions vary.

In analysts’ views, a Charter-TWC or Comcast-TWC merger would provide advantages and disadvantages.

On the plus side, partners would get to pitch another large, national provider of fiber and coax services to enterprise and SMB customers, respectively, Clausen said. That segmentation would give partners “more focused services at price points that are attractive to both sets of business customers.”

When it comes to negatives, systems integration would prove difficult and partners could take the brunt of that process. Still, Clausen said that no matter which cableco bought the other, “the channel [would] be in a better position and as we see it, there is a limited or no downside for partners,” he said.

Washburn, meanwhile, remained a little more wary about potential effects.

“I think all the players are relatively channel-friendly (at least not channel-averse), but parceling out TWC while trading to consolidate properties between Charter and Comcast [would] throw lots of markets into disarray for the channels,” he said. “If TWC were to be acquired, larger master agents might just pick up with both Comcast and Charter, and that way continue to have their bases in terms of geographic availability of services covered.”

Channel headaches would ensue as properties were shuffled, Washburn said, but, overall, any of the cablecos involved would have “strong incentives” to migrate programs and partners.

Agents React

For some of the agents who would be directly affected by any cableco merger, but regarding TWC-Comcast in particular, there’s a mixture of approval and apprehension.  

Ken Mercer, vice president of sales at Telecom Brokerage Inc., said Comcast would bring size, money and marketing, while TWC would offer smooth processes and ease of doing business. That would make for “an unstoppable communications company with a national footprint to rival traditional telecom companies for WAN technologies,” he said.

Vince Bradley, CEO of WTG, said that, depending on how the transaction and subsequent integration were handled, a Comcast-TWC deal could be favorable.

“Both channels are well-run so the outcome can be positive,” he said.

Along those lines, both TWC and Comcast provide the easiest business processes, said Curt Allen, president of master agency X4 Solutions. Selling large, geographically dispersed packages also would be easier for the master agency and its customers to manage.

However, a Comcast-TWC combination “does concern us.”

To begin with, Comcast has a very small partner base, with three partners at the top level, he said. TWC extends top status to more partners.

“If the Comcast model prevailed, that consolidation would take on even more scale,” Allen said. “That decreases the number of competitive master agent providers with top-level terms. That, in turn, decreases the options for sales partners/subagents, and limits the need to compete on support and commissions. Seems anti-competitive, potentially.”

Next, so much shared, exclusive footprint would hurt price competition and service delivery, Allen said. Overall, he said, “This would be far more monopolistic than even an AT&T or Verizon, and look what they do to their partner base on a regular basis.”

Finally, Michael Bremmer, CEO of TelecomQuotes.com, sees an unavoidable dark side to cableco mergers.

“Here comes metered broadband for business,” he said. “Why do you think they all want you to put your stuff in the cloud? ‘Buy your cloud from us, we’ll charge you for that traffic.’ I’ve been calling this out for years and have been mocked. But unfortunately, I’m going to be right.”

Besides that, he added, with so much market control, the combined MSOs would have reason to raise prices “and probably kill compensation plans because if they’re a monopoly, why would they pay us?”

While Charter might make a better candidate for TWC, as the markets are better aligned, Bremmer said, any cable merger would be “horrible for the channel,” he said.

“It would not be a positive outcome.”

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