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Cable swap would create regional duopoly for TV and broadband

By   /   Friday, May 2nd, 2014  /   Comments Off

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A cable television deal announced in preliminary form on April 28 would give the tri-county media landscape its most dramatic makeover in years, consolidating control over local cable advertising and business broadband service into the hands of just two major players.

As proposed, Charter Communication and Comcast would swap millions of customers nationwide. The swaps would enable Comcast to acquire rival Time-Warner Cable without exceeding the 30 percent of U.S. households threshold that might cause regulators to block the deal on antitrust grounds.

For the Central Coast, the impact would be profound. Comcast, which currently operates a sliver of territory in Santa Maria and the Santa Ynez Valley, would take over all of Time Warner’s Ventura County holdings as well as Charter’s San Luis Obispo County operations. That would reduce the number of operators of cable systems from four to two, with Comcast dominating most of the

Tri-Counties while longtime incumbent Cox holds on to its valuable South Coast franchise.

Regional advertising platform

What would likely emerge is the first truly regional advertising platform for the Tri-Counties, giving auto dealers, political candidates and retailers a better way to target messaging at specific channels and specific communities.

Comcast would likely offer vastly improved community Wi-Fi services and it would aggressively court medium-sized businesses and nonprofits such as hospitals for broadband services.
But Comcast consolidation in the Tri-Counties could have effects beyond residential TV subscriptions. Independent business communications providers often tap the networks of cable and telecommunications companies at wholesale rates to provide marketplace competition.

“Time Warner Cable actually provides wholesale access, at least to its fiber network,” said Dave Clark, president of Santa Barbara-based Impulse Advanced Communications, which does not have any relationships with Time Warner but provides services throughout the region. “From a competitive telecom perspective, they cooperate and work with competitive telecoms. Comcast does not. The big fear in the competitive telecom industry is that Comcast buys Time Warner and cuts [wholesale access] off.”

Less competition

The situation stands in contrast to incumbent phone carriers such as Verizon who have to open their copper lines to companies such as Impulse to provide competing services. The tri-county cable swap could spell less competition in some parts of the region.

“The worst impact is going to be Ventura County, which has chunks of Time Warner. If Time Warner down there stops providing any wholesale access to facilities, those customers will be worse off. They’ll have fewer competitive options,” Clark said.

Another impact of a Comcast rollup will be the negotiations over the fees that cable operators pay to retransmit local television stations. As reported by the Business Times recently, one company, News Press & Gazette Co. of Missouri, is vying to consolidate the region’s ABC, CBS and Fox affiliates. The move would go against the Federal Communications Commission’s general rules against owning more than one full-power station in a market.

But broadcasters across the country have argued that such deals are necessary to give them the clout they need in retransmission negotiations with massive cable operators. Because Comcast already owns NBC, the argument for having ABC, CBS and Fox in the hands of a single owner might be strengthened.

In the region, the NBC signal is carried by independently owned KSBY in San Luis Obispo, which broadcasts on Channel 6.

Though Impulse is not in the broadcast business, Clark said he can understand the pressure stations feel when dealing with big cable firms. “It doesn’t’ feel right to have all this local consolidation, but on the flip side, from a leverage standpoint, the cable companies are such huge monopolies,” Clark said. “When market power is consolidated under two companies, it’s the same whether it’s TV or broadband.”

By the numbers

Here is a look at how the deal would unfold:

• Charter will buy 1.4 million Time Warner Cable customers as soon as Comcast buys Time Warner.

• Charter will create a new company that will acquire another 2.5 million Comcast customers.

• The companies will also swap 1.6 million customers, with Charter, based in Stamford, Conn., greatly expanding its footprint in the Midwest. Comcast will wind up with a vastly expanded territory in California.

“This convoluted transaction may change the final tally of subscribers under the proposed merger, but it can’t change the fact that this deal is a big loss for innovation and competition,” Matt Wood, policy director for advocacy group Free Press, said in a statement to Bloomberg News.

The series of transactions announced April 28 are an attempt to head off antitrust issues raised by Comcast’s go-it-alone bid for Time Warner, which has caught the eye of regulators and congressional leaders.

Earlier, Comcast outbid Charter for the right to buy Time Warner, but CEO Brian Roberts and Comcast and cable veteran John Malone, whose Liberty Media is a major owner of Charter stock, have a history of fighting hard and then working together when a transaction makes sense.

“Despite what may be some lingering bad blood between Comcast and Charter, this deal illustrates that these companies can work well together to efficiently consolidate the cable-TV industry,” said Paul Sweeney, an analyst for Bloomberg Industries.

—  Bloomberg News and Business Times Senior Editor Stephen Nellis contributed reporting.

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