Tom Paine
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Comcast's proposed deal to acquire Time Warner Cable for $45 billion (if approved) could accomplish four primary objectives:
First, it would assure in terms of nationwide economies of scale in the video content business, that Comcast would continue to maintain a considerable size advantage. This is important for achieving technological leadership, the ability to spread technology investment costs across as many customers as possible, greater marketing power, and bargaining power with content providers as well as technology vendors. Some cable execs have tried to downplay the value of the latter because they don't want those words used against them in front of an FCC or congressional hearing, but it is important.
While Charter backer John Malone has options, he couldn't come close to matching the scale of a combined Comcast/Time Warner Cable. Lets say he were to pick up the all of the three million subs Comcast says it would shed as part of the deal and
somehow buy out the next five largest systems and add them to Charter's base subscribers. That would give Charter approximately 20 million subs versus Comcast's forecasted nearly 30 million. And that's unlikely to happen for a number of reasons.
In broadband, it gives Comcast the ability to build a stronger network, particularly along the east coast but also one with nationwide reach. This will make it more competitive with the telcos, including Verizon and AT&T. Some industry observers consider broadband to be a more attractive future market than delivering packaged video content.
If you look at
Comcast's existing markets plus the ones it is likely to pick up from
Time Warner Cable, you can see how many of them are major national or regional communications hubs. It would put Comcast in a very powerful position in the telco world.
Regionally, it will strengthen Comcast's position in key metros such as New York,
Los Angeles, and Charlotte. In New York, Comcast already has some pieces in the area in
Connecticut and New Jersey. However, a combined Comcast/TWC would face strong competition there from Verizon's FiOS (often for the same subs) and in terms of regional presence from Cablevision (on Long Island and in Connecticut and New Jersey). Could Cablevision be Comcast's next target to round out its New York footprint? Remember what it did in the Philly market.
The fourth objective is to build an infrastructure capable of competing for larger enterprise accounts in business services.
A fifth tentacle of the octopus may be wireless. The cable industry has largely given up
on trying to build its own 4G LTE-type network, and I don't think much has come out of the joint product marketing agreement with Verizon Wireless. But
cable operators see Wi-Fi
as a increasingly valuable option, not just for in-home or near-range network extension but possibly for building significant networks on the back of Wi-Fi hotspots, of which both Comcast and TWC have an ample supply.
What's next: Unless Comcast wants to buy a fill-in cable acquisition (such as Cablevision), my guess is its next large acquisition will be outside of the US.
