FYI.

This story is over 5 years old.

Telecom Giants Are Merging to Stop the Nascent Broadband Revolution

Charter Communications is buying Time Warner Cable—are cable companies looking at startup competitors and getting worried?

Another month, another major telecom merger: This time, Charter Communications and Time Warner Cable are seeking to combine forces. Telecom's biggest companies are reshuffling the deck in an attempt to maintain the dominance they've built over the last decade.

Roughly a month after Comcast's much-hyped deal with Time Warner Cable fell apart, TWC has found another suitor: Charter Communications, the country's fourth-largest cable operator, will buy Time Warner Cable, the country's second-largest cable operator, for $55 billion. Together, they will form, well, a bigger version of the country's second-largest cable operator (Comcast will still boast the most cable subscribers).

Advertisement

Both Charter and Time Warner Cable are profitable companies, but overall profits have started to fall as the US cable industry in general is signing up fewer customers as many begin cutting the cord for internet-only services such as Netflix. Meanwhile, a flurry of startup internet service providers and community-funded gigabit fiber internet collectives have begun to challenge incumbents in cities all around the country.

It's early days for both of those movements, but it's clear that big telecom is looking into the future and is working hard to conserve the market share it already has by forming even larger companies capable of weathering the damage smaller startups will do as the latter begin to chip away at former's customer bases.

It's already common knowledge that Comcast, Time Warner, Charter, and Cox Communications do not really compete in the United States. Instead, they divvy up the country into different geographic regions: Philadelphia is a Comcast city, New York is a Time Warner Cable City, St. Louis is a Charter city. The companies are competitors in name only; they rarely encroach on each others' territory.

It makes sense that these companies would, as some economists have suggested, want to work together somewhat informally to maintain the strength of each competitor. But it also makes sense that they would eventually want to merge to stay strong to protect against competition from a startup in a key city.

Advertisement

Last year, for instance, Comcast and Charter reached a tentative agreement to "swap subscribers" and spin them off into a new business entirely, in part so Comcast had a better chance of getting its own merger approved by the Federal Communications Commission.

Should the Comcast-Time Warner Cable merger have gone through, here's what would have happened, according to Susan Crawford, co-director of Harvard's Berkman Center and one of the country's foremost experts on broadband.

"When the smoke clears after a series of ensuing swaps and sales among friendly cable guys, Comcast would control most of California, Oregon, Washington, and the eastern seaboard from North Carolina to New England," Crawford wrote last year. "At the same time, Comcast would stop serving Minnesota, Wisconsin, Indiana, Kentucky, Michigan and Ohio in order to avoid having more than 30 percent of the market of pay TV customers—a threshold the FCC has considered as indicating too much market share."

Charter is a smaller company than Comcast, but its end goal is the same as any other company's: To maximize its profits both today and in the future. By snatching up as many customers as is possible in a time where both the FCC and consumers themselves are beginning to reject predatory pricing and a lack of broadband options, it is attempting to protect itself against future threats.

In addition to Time Warner, Charter also has a deal to buy Bright House Networks, which is a top 10 cable and internet company in its own right. You've also got the specter of an AT&T/DirecTV merger, which will create yet another massive telecom conglomerate.

Meanwhile, an increasing number of cities looking for more consumer choices are attempting to build their own networks to compete with companies like Charter. Startups like Ting in Maryland and Virginia, Rocket Fiber in Detroit, Pilot Fiber in New York City, Angie Communications in Los Angeles are challenging the status quo.

Big telecom is hoping that by banding together, they can squash these companies before they really get going.