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Prospect of Time Warner merger raises issues of impact locally

The region’s Time Warner Cable subscribers may be paying their bills to a new provider before long.

As Charter Communications plans to acquire Time Warner Cable, answers to the usual questions on consumers’ minds – whether prices will go up, what the customer service will be like – will have to wait until Charter actually completes the deal. That could happen by year’s end.

The merger’s approval is not a certainty. In February 2014, Comcast announced a plan to merge with Time Warner Cable, only to see that deal fall apart this year amid regulatory concerns. Still, industry experts believe that Charter’s $78.7 billion deal stands a better chance, partly because the merged company would still be smaller than Comcast.

Time Warner Cable, which provides cable television, phone and Internet service, has about 365,000 residential and commercial customers in Western New York. That total represents only a fraction of Time Warner Cable’s customers across the country, including in megamarkets such as New York City and Los Angeles. But Time Warner Cable has become a familiar name since entering the Buffalo market in 2006, after acquiring the assets of Adelphia Communications.

Frederick G. Floss, a SUNY Buffalo State economics and finance professor, does not expect the potential merger with Charter to change things much for local subscribers, since the deal would not expand the number of cable providers. “From a normal economic competitive point of view, you’ve still got what’s essentially a monopoly on cable for most people,” he said. Verizon FiOS remains an option available in only certain markets here.

Connecticut-based Charter is the fourth-largest cable operator in the United States. Even so, Charter is probably unfamiliar to most Buffalo-area consumers.

Arun K. Jain, a marketing expert at the University at Buffalo’s School of Management, said Charter and Time Warner Cable are aiming for greater efficiency and scale by joining forces.

And there is yet another piece to their strategy: Charter plans to acquire Syracuse-based Bright House Communications for $10.4 billion and bring its subscriber base into the fold. Put together, Charter, Time Warner and Bright House would be a company with about 24 million customers in 41 states. The CEO would be Thomas M. Rutledge, now Charter’s CEO. The new company would be named New Charter.

“That will make them quite big,” Jain said. “That’s where that they see where maybe they can negotiate better prices with networks and HBO and so on. That’s where I believe there will be savings to them. Whether they will pass the savings to consumers, it’s not very obvious to me.”

Floss also wonders if Charter would maintain the community presence that Time Warner has through its local news channel and local programming such as sports. “It’s also something that needs to maybe be worked out with the regulators.”

Nathalie Burgos, a Time Warner Cable spokeswoman, said that the two companies share a “common operating philosophy” and that their combined scale will allow them to “accelerate development of products that consumers want. The combined company will accelerate the transition to an all-digital network for Time Warner Cable customers.”

Burgos said Time Warner Cable expects that the deal would have “very little impact” on the vast majority of employees, though there is likely to be some overlap in the management ranks.

John Wilcox, a SUNY Buffalo State lecturer in economics and finance who tracks mergers and acquisitions, said the potential deal reflects the pressure cable faces as a “stagnant” industry, with competition fueled by satellite TV providers, “cord-cutters” who drop cable TV, and alternative services such as Netflix.

“If you are a corporate executive for one of these cable companies, your job is to grow, so that your shareholders have higher share prices and dividends,” Wilcox said. “And if you don’t grow, you are basically not doing your job.” One way to growth: buying another company and combining operations.

Wilcox believes that the Charter-Time Warner deal has a good shot at winning federal regulators’ approval. “The logic behind Charter acquiring them is, they simply want to get bigger,” he said. “The bigger you are, you have economies of scale, which allow you to drive your costs down. If you’re Time Warner Cable, you’re not as profitable as you’d like to be. They’ve been looking for a partner.”

And the landscape continues to change. Wilcox said cord-cutting “has gone from being an isolated type of thing to something the market is facilitating.” With more consumers streaming video via high-speed Internet, selling Internet service to them has become increasingly important, he said. But he is doubtful that customers would see big decreases in their bills, even if New Charter has more clout with the networks. “Obviously,” Wilcox said, “these companies want to maintain as much as they can.”

Bloomberg News contributed to this report. email: mglynn@buffnews.com