New York - Time Warner Cable is once again at the centre of a cable mega-merger, in the form of a $55-billion deal with Charter. The last time a cable giant tried to buy Time Warner Cable, the deal collapsed, largely over concerns about how bad it would be for customers. Charter is already hard at work arguing why it’s different this time around. And while Charter will be talking largely about how the cable industry will stay competitive, the deal could also result in some new competition in another arena dominated by a small number of companies that wield immense power: wireless.
Cable companies and wireless companies haven’t traditionally infringed on each others’ territory. The cable industry has focused on pay television; the wireless industry was all about phone calls. Today the main business of both industries is selling access to the Internet. Cable companies are developing their own wireless services in which people spend most of their time connected to Wi-Fi networks and fall back on cellular service to fill the gaps.
Doing this requires some access to cellular spectrum. Both Comcast and Time Warner Cable sold Verizon their rights to wireless spectrum in a $3.6-billion deal in 2011 but maintained the ability to access Verizon’s network for their own services. Verizon was largely seen to have secured a sweetheart deal at the time, says Jonathan Chaplin, an analyst at New Street Research. But he doesn’t think Verizon would strike a similar deal today.
“Nobody was talking about Wi-Fi-first wireless models,” he says. “Between then and now, though, a couple of these businesses were launched in Europe by cable companies and have been incredibly successful.” One of them, notably, was Telenet, a Belgium-based company owned by Liberty Global. John Malone is chairman of both Liberty Global and Liberty Media, Charter's largest shareholder.
Wi-Fi-first wireless services are slowly coming to the US. Smaller players have offered similar services for years at very low prices, Google used the approach when it launched its own wireless service last month, and Cablevision recently launched its own Wi-Fi-first wireless service. T-Mobile and Sprint have been happy to sell wholesale access to their networks for companies looking to resell wireless service. None of the existing products seem quite ready to compete with standard cellular plans - but the big players haven’t yet arrived.
The Charter-Time Warner deal would give the combined company about 17.8 million web subscribers second only to Comcast's 22.4 million, according to data compiled by Bloomberg. Comcast is planning its own service Wi-Fi-first service while Charter believes it will inherit its access to Verizon’s spectrum if the Time Warner deal moves forward.
Charter Chief Executive Tom Rutledge told Bloomberg that one of Charter's next moves would be to build out its Wi-Fi business in homes and public spaces if the deal is approved. In a call with investors, he said that wireless will allow the company to add mobile-only customers. “I think that’s a long- term opportunity of the industry and one that’s enhanced by this combination,” said Rutledge. Presumably, these would come from people who have existing relationships with a wireless provider already.
Google’s wireless ambitions inspired predictions that prices would be pushed down by Wi-Fi-first plans. But Google Fi is a tiny experiment. When Comcast and the new Charter put the resources of their cable empires behind the idea, it could be real trouble for wireless companies, says Craig Moffett, an analyst with MoffettNathanson. AT&T, he wrote in a note to investors on Monday, “will be far smaller as a percentage of the US broadband market, and they will lack Charter's and Comcast's two-way infrastructure. That's a huge disadvantage. More broadly, the 'two camps' of Cable will each have the scale to compete with TelCos even more aggressively than in the past.”
The border incursions do go both ways. AT&T has reached a deal to acquire DirecTV, but the purchase still has to be approved by regulators. Verizon, meanwhile, is preparing to launch a mobile video service. Both companies have cable-like pay television services already. But the wireless companies aren’t cutting to the core of the cable business in the way cable could do to them. “Of all the businesses that any of these guys are in, pay TV is the worst,” says Chaplin. “Depending on how you allocate costs, it may be that pay TV doesn’t make money for the cable companies anyway.”
Bloomberg