Comcast, Charter Propose Deal Contingent on Time Warner Merger

If the Comcast-TWC merger is approved, Comcast will divest 3.9 million customers and spin off a new company that Charter will run.

Comcast, as part of its ongoing efforts to win regulatory approval of its proposed $45 billion acquisition of Time Warner Cable (TWC), has said it will divest 30 percent of its subscribers. On April 28, it announced it has a deal in the works with rival cable company Charter Communications that will accomplish exactly that.

The deal proposes that the combined Comcast-TWC will divest approximately 3.9 million video customers.

More specifically, Comcast will sell 1.4 million subscribers to Charter for $7.3 billion, and then divest another 2.5 million subscribers into a new publicly traded company that it will own 67 percent of, while Charter will own 33 percent. The new company will have six independent directors, three of whom will be designated by Charter. Comcast will have no ownership interest and no role in managing the new company.

The deal would make Charter—which lost its own bid for TWC to Comcast and is currently the nation's fourth-largest cable company—the second largest cable provider in the country.

"The realignment of key cable markets achieved in these transactions will enable Comcast to fill in our footprint and deliver operational efficiencies and technology improvements," Comcast CEO Brian Roberts said in a statement.

Charter CEO Tom Rutledge added that the announced transactions will provide "greater scale, growth opportunities and improved geographical rationalization of our cable systems, which in turn will drive value for shareholders and more effective customer service."

A Changing Cable Industry

Before any of this can go through, regulators will have to allow the TWC-Comcast merger.

During a meeting of the U.S. Senate Committee on the Judiciary April 9 to study the matter, executives from the cable companies argued that the greater scale they could achieve together is "essential" to compete in the fast-growing and fast-evolving technology landscape.

"New digital platform providers, with their roots in software and hardware, are using the robust Internet connectivity provided by Comcast, TWC and our competitors to grow into global powerhouses. These companies are increasingly pursuing new businesses that compete with ours," they said in written testimony.

Gene Kimmelman, president and CEO of Public Knowledge, a consumer advocacy group, said at the meeting that the deal would give Comcast control of nearly 50 percent of high-speed Internet access in the country, 30 percent of Multi-Channel Video Programming Distributor (MVPD) subscribers and almost 60 percent of cable subscribers.

Comcast owns NBC Universal, a movie studio and also numerous cable channels.

The deal, Kimmelman added, could "stifle slowly emerging competition from rivals such as Netflix and Amazon"; position Comcast as the dominant gatekeeper for all new services; slow the pace of equipment, device and service innovation to lock in maximum revenue for Comcast's own infrastructure and business model; and, among other offenses, drive up the cost of programming to other distributors and so increase prices to consumers.

The merger, he concluded, "must be rejected."

Comcast introduced a new video ad April 28 telling Americans that the merged companies will extend net neutrality protections, make low-cost Internet access available to more families and make "life online better for more people." The tagline for the ad is, "Time Warner Cable and Comcast. Together is better for more people."

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