Cable customers could see better service as a result of the industry’s latest planned merger—and maybe mitigate rate hikes.
Charter Communications said Tuesday it will purchase Time Warner Cable for $55 billion in a deal that would merge the second and third biggest U.S. cable companies. Charter said it also plans to acquire sixth-largest cable provider, Bright House Networks, for $10.4 billion. If regulators approve the deals, the resulting company could have as many as 23 million total customers, second only to Comcast’s 27.2 million. (Comcast owns NBCUniversal, CNBC’s parent company.)
This early, it’s tough to say how the deal will ultimately shake out for consumers, said Mukul Krishna, market research firm Frost & Sullivan’s digital media senior global director. “Frankly, it really depends,” he said. “Many times with mergers, people just keep going on. It’s business as usual.”
Executives from Charter Communications, Time Warner Cable and Bright House Networks said in a joint statement the merger puts them in a better position to deliver competitive services. “With our larger reach, we will be able to accelerate the deployment of faster Internet speeds, state-of-the-art video experiences and fully featured voice products, at highly competitive prices,” said Tom Rutledge, Charter’s president and chief executive.
There’s little market overlap among the three providers, so consumers won’t see hikes from fewer options. “It’s not like we’re taking competitors out of the market,” said Erik Brannon, senior analyst of U.S. television for research firm IHS. Currently, a 300-channel television package averages $106.53 per month nationwide, according to comparison site WhiteFence.com, although consumers often get better promotional pricing through new-customer packages or multiservice bundles.
Competitive pricing is relative, however. All three providers have mid-to-high revenue-per-user figures, Brannon said. A company with more subscribers will create savings through economies of scale. “When you think of the pricing power that would give the combined company, I would expect that [consumer] rate increases would be somewhat less,” Brannon said. But he said that’s a “best-case scenario.” The new company might also choose to use any savings to boost its revenue or apply the funds to other projects.
In at least one market—Southern California—consumers could also have access to more content. There, Time Warner Cable is the only major distributor to carry the SportsNetLA channel, jointly owned by the Los Angles Dodgers, Major League Baseball and Time Warner Cable, which means fans of the baseball team who live in one of Charter’s service areas currently can’t tune in for a game. “It’s pretty reasonable to assume that as part of the regulatory conditions for an approval here, the Dodgers problem be worked out once and for all,” said Brannon. (A Charter spokesman said that the company will be adding the SportsNetLA channel in “the coming weeks.”)
Where consumers really stand to benefit is in better services. Paid TV providers have been competing more on features than price, said Krishna, and subscribers of the new company could have more access to options like video on demand and app access than they do under current providers. Internet service could improve, too. Time Warner Cable has lagged on broadband speeds; the merger could yield faster connections for those customers, said Brannon. “There is room for tremendous improvement across the board,” he said.
It’s worth noting that cable companies tend to have dismal customer service reviews. According to the 2014 American Customer Satisfaction Index, subscription television service providers averaged 65 out of 100 points, with Charter and Time Warner scoring even lower at 60 and 56, respectively. (Bright House was not listed.) For perspective, by the latest rankings, consumers were happier with hospitals (average score of 80), airlines (71), and the U.S. Postal Service (69).
To an extent, combining forces provides a clean slate. “When you come up with a new company, saying this is New Charter or what-have-you, it gives you a very, very good way to write a lot of things off your books,” said Krishna. “From a marketing standpoint, there’s an ability to go back with new messaging.” Promises of better service could be enough to lure new subscribers who had a bad experience with one of the companies previously, he said—although how long that grace period will last still depends on whether the cable guy actually shows up on time.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC and CNBC.com.