As an industry analyst, I have been following the Comcast Corporation (CMCSA) , Time Warner Cable (TWC) merger since it was announced. After hearing all the different points of view, I have concluded that there is only one real answer...and it may not be what you expect.
Granted, there are real benefits that will come about if these two companies were allowed to merge. That’s one reason to approve. However, there are also plenty of other areas, which would potentially cause stress to the consumer and to the industry due to lack of competition.
There are multiple ways to look at this potential merger:
- From an investment point of view, which is how the two companies look at it.
- From the consumer point of view. Will it bring increased competition, innovation and lower prices?
- From the industry point of view. Will this merger enhance or harm the industry?
The question today is, "Should regulators approve the merger or not?"
I would say yes, but not today. Perhaps a few years down the road, when the marketplace is ready. Right now, this merger is not ready, because while there are good things that will come from it, there are also potential downsides as well. Regulators must consider all sides, and while good things will happen - like faster Internet and other innovative services, the problem is that there is little or no competition in the majority of America yet. In short, a merger could skew the industry.
Similar Merger...Very Different Market
There was a similar merger request that was denied in the late 1990’s. SBC wanted to acquire AT&T (T) . At that time the telecom marketplace was changing, and the baby bells were strong while the long distance players were weak. So from an investment point of view, this merger made sense.
However, regulators said no, because it did not yet make sense from the marketplace or the consumer point of view. So over the next several years, the telecom marketplace continued to change and grow, and those problems were solved.
In the mid-2000’s, SBC tried once again to acquire AT&T. This time, the merger was approved. SBC took the AT&T name, then acquired BellSouth and Cingular and transformed themselves from the smallest baby bell to quite possibly the largest telecom company in the United States.
The result was spectacular. Today, AT&T is one of the very few largest and strongest companies in the USA. They provide excellent quality and top shelf customer care. This was not only good for AT&T, but also for Verizon Communications Inc. (VZ) , the overall telecom industry and all the consumers.
That is what regulators should be focused on today. Regulators should make sure this Comcast, Time Warner Cable merger is a win-win-win for everyone.
So Why Not Approve the Comcast, Time Warner Cable Merger Today?
It appears that the Comcast, Time Warner Cable merger would be good for the companies, so why not approve it? The reason is simple - the average customer still doesn't have choice yet. Satellite TV companies like DirecTV (DTV) and DISH Network Corp. (DISH) have carved out a niche over the last couple decades. AT&T U-verse, Verizon FiOS and CenturyLink Prism (CTL) started rolling out their services in recent years as well.
While these are award-winning services for quality, innovation and price, they are not available everywhere or to every customer yet. That’s the problem: Timing. In the vast majority of America, the average customer does not have choice yet. That’s why I don’t believe the industry or consumers are ready for a Comcast, Time Warner Merger yet.
Give the new and changing television marketplace a chance to grow and to expand. After several more years, when all customers have a choice, then a merger would make more sense. At that time, it would provide innovation to Time Warner Cable customers without a threat of Comcast having too much power since there are real competitors in this space if the customer is not happy.
Generally speaking, I have no problem with a Comcast, Time Warner Cable merger. As a consumer I use both in two different locations. I can see the benefits of a merger. However I do have a problem with the timing.
Bottom line: Wait on this merger by saying no today. Let the marketplace continue to grow and change, and get to the point where the merger will not only be good for these two companies and their investors, but for the consumers and the marketplace, as well.
Several years from now, just like with SBC and AT&T, when the deal makes sense for every angle, it can be approved.
Until then, we must encourage every competitor to grow and expand - both Comcast and Time Warner Cable should want this as well. That would be in the best interest of the companies, the customers and the marketplace. Eventually, a merger will make sense...just not today.
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