Charter Communications is buying Time Warner Cable for $55.1 billion and Bright House Networks for $10.4 billion, in a major consolidation of the US cable industry. Here are the details:
- If the deals are approved by regulators, they would combine the second- (TWC), fourth- (Charter), and tenth-largest (Bright House) cable companies in the US, with a combined 23 million customers.
To understand this latest transaction, you first need to forget about television. Charter, TWC, and Bright House may be best known for providing Americans with TV service, but that business has been declining for many years. Instead, think of them as internet providers with a declining side business in television.
Cable companies still generate more revenue from television than internet service, but those lines are converging, too. In any event, broadband internet is a higher-margin business than cable TV, which requires hefty payments for programming licenses. Internet service providers are also less susceptible to competition.
Take a look at the average bill for residential customers of Time Warner Cable, which was 5.96 at the end of 2014. While the price of television has held steady over several years, internet service is getting costlier, up 21% over the past two years.
Broadband internet is clearly TWC’s only potential source of future growth.
The same trends are happening at Charter, Bright House, and other cable companies. In the first quarter of this year, Charter lost 7, 000 television customers but gained 125, 000 internet customers, and its average residential monthly bill ticked up modestly to $112.25.
Once you understand that the consolidation of US cable companies is about internet service, then you need to look at some maps to see what parts of the country will be affected. TWC is attractive to a buyer because its areas of broadband internet service include the coveted markets of New York City and Los Angeles:
Charter is smaller than Time Warner Cable but covers complementary areas of the US, including some markets that are directly adjacent:
