The next wave of mergers and acquisitions is trying to begin once again. First Comcast (CMCSA) and Time Warner Cable. Now it sounds like AT&T (T) and DirecTV may join the party. So will these mergers be approved and what does this next wave mean to the investor and consumer?
First we should pull back the camera and take a look from a longer-term historical perspective. Mergers tend to happen in waves. Then after that wave there is quiet for several years until the next wave starts. We are seeing this next wave try to start once again.
A decade or two ago there were many smaller competitors competing in smaller geographic areas. Then there was a wave of consolidation and those smaller regional players became much larger providers. This next wave will make them even larger and even closer to national.
Is there any reason these mergers should not happen? Not really, as long as there remains competition and available resources like spectrum, we should let companies get larger and stronger. That will mean they will invest more, offer better quality, more innovation and competitive pricing.
This will make their investors happy and that’s an important piece of this puzzle. Keeping consumers happy is a different question. However if a company can do both, a merger is generally a good thing. If it can’t, well that’s where some problems arise over time.
We are moving toward a world of larger and national competitors. It’s important to note that size is not the only signal for success. There is still plenty of room for smaller providers to do very well in smaller footprints. There are many smaller firms who are really kicking butt and doing themselves proud.
However, for larger companies to keep their investors happy it’s important for them to continue to grow. That’s one important reason. Another is to have more scale and spend more on innovation.
Will regulators approve is the next question? Generally speaking, mergers are easier under a Republican President. So under a Democratic President it will be more difficult. Not impossible by any stretch, but it will be more difficult.
So that’s why today in 2014, I think more will be required of companies who want to merge. There is less to be concerned about with an AT&T-DirecTV merger than a Comcast-Time Warner Cable merger simply because they are in different businesses.
However, I have a feeling that if one is approved, the other will be as well. Likewise if one is blocked, the other will be as well.
Investors generally think these mergers make good sense. They will reward the companies. Turning both AT&T and Comcast into larger and more national companies would be a home run.
Generally speaking, the AT&T DirecTV merger would make sense. It would let DirecTV customers see much more innovation. And AT&T would be able to bundle more together making customers happier. Since these are not the same kind of company I don’t see any negatives.
Comcast and Time Warner Cable customers may be a different story. Comcast seems to pay more attention to their investors than their customers and that could be a source of friction.
One example is when Comcast upgraded to a digital network and put digital converter boxes on all televisions, they then turned off the analog network quickly. Time Warner Cable also upgraded their technology to digital and put boxes on all televisions, but left their analog signal on.
What that meant was customers who had problems with the digital boxes could just go back to analog on Time Warner Cable and stay happy. Comcast customers did not have that escape hatch.
So customers who have problems with digital boxes, like many do especially in the early days of this transition are taken care of better by Time Warner Cable than they are by Comcast.
Based on this it seems Time Warner Cable cares more for the customer than Comcast does.
With all that said, I think Comcast will have a higher price to pay than AT&T in getting their merger approved. They have already said they would so some. It will be interesting what more regulators will ask.
At this point the chances of winning approval for both mergers are 50–50, but I tend to think they will both go one way or the other. If one is approved I think the other will be approved as well.
We just better get used to a world with larger and national providers. However if you don’t want to stick with a huge national company full of innovation and loads of television commercials, there are always smaller competitors who take great care of customers just waiting for your business.
As long as we have real, strong, vibrant, competition, where everyone has access to the same spectrum and technology, I think these mergers may indeed be approved.
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