Time Warner Cable Agrees to be Acquired by Comcast

Tine Warner Cable has accepted a $45 billion acquisition offer from Comcast, after rejecting earlier offers from Charter Communications, and presenting the Federal Communications Commission with another test of U.S. service provider market power.

The new twist is that the merger might not be most significant for its impact on video markets, though that will be an issue, but for the impact on high speed access markets. And though it is formally unrelated, the potential Sprint acquisition of T-Mobile US could be affected as well, if Sprint concludes either that the Comcast purchase of Time Warner Cable is likely to fail, or that it is likely to be approved.

Though regulators will look at the impact on relationships between video content owners and distributors, the tougher questions are likely to revolve around the impact on high speed access markets, even though there is almost no overlap of Comcast and Time Warner Cable operating areas.

Few would question the centrality of broadband access for fixed network service providers. And few would argue with the notion that cable tends in most markets to be the top provider, in terms of market share.

On the other hand, recent experience suggests that the DoJ would be willing to approve a Comcast acquisition, after deal adjustments.

In 2013, the DoJ sued to block major deals in the beer and airline industries, but both mergers were eventually allowed after concessions. Some think that is the likely outcome for the Comcast acquisition of Time Warner Cable as well.

The unknown, for Sprint, is whether that also would work for its desired acquisition of T-Mobile US.

Ironically, the amount of market share lost by cable operators, collectively, over the last decade to satellite and now telco competitors will make the Comcast deal easier than it would have been in the past. By 2012, the U.S. cable industry market share had dipped below 60 percent.

Without that loss of share, Comcast already would have well exceeded an informal rule that no provider can serve more than about 30 percent of U.S. customers without triggering antitrust review.

A formal Federal Communications Commission rule to that effect had been in effect until 2001, when the FCC rule was declared unlawful. The FCC adopted a new version of the rule in 2007, but that version again was struck down by an appeals court in 2009.

The U.S. Court of Appeals for the District of Columbia Circuit said the FCC "failed to demonstrate that allowing a cable operator to serve more than 30 percent of all cable subscribers would threaten to reduce either competition or diversity.”

Still, most executives voluntarily prefer not to push the informal limit, so Comcast likely will shed enough subscribers to stay at or below the 30 percent limit.

Time Warner Cable had been the second=largest U.S. cable operator; Comcast clearly the largest. Comcast has about 21.6 million subscribers, while Time Warner Cable has about 11.4 million customers, for a combined total of about 33 million, out of 92.5 million U.S. video subscription customers.

By that reckoning, where the market is defined as all video subscription customers, instead of just “cable customers,” Comcast would have 34 percent market share. That means Comcast will have incentives to divest up to four percent of the newly-acquired customers, to stay at 30 percent share.

Since the beginning of 2010, Time Warner Cable has has been losing customers, at least 2.05 million video subscribers, or approximately 16 percent of its subscriber base.

That is one good reason for the recent interest in an acquisition by both Comcast and Charter Communications. An acquirer would assume it can do better.

It is possible the deal could falter, especially if Comcast equity price dips significantly. It also is possible there could be adjustments if Time Warner Cable’s equity price were to rise substantially. And Charter could raise its bid, though most seem to think that is unlikely.

Instead, Charter likely would be offered a chance to buy the customers Comcast would shed.

U.S. merger law is governed by the Hart-Scott-Rodino Antitrust Improvements Act, under which the Federal Trade Commission and the Department of Justice evaluate mergers for their impact on fair competition. By current law, all mergers that are valued above $66 million must receive approval to go forward. But deals smaller than that can be reviewed whenever the Department of Justice believes a deal would affect competition in an industry negatively.

The Comcast acquisition also must be reviewed by the Federal Communications Commission as well.

Merger activity can heat up in a particular industry for various reasons, such as poor overall growth prospects for the industry, underperformance by one player within the industry, or opportunities to grow more profitability through synergies. Consolidation expectations within the cable TV industry have begun to heat up due to all three of these drivers.

Auto, Health and Fitness Lead M2M Opportunities?

There are good reasons for mobile service provider interest in machine-to-machine services: M2M represents the likely next wave of revenue growth for the industry, collectively. The issue is that M2M represents numerous vertical  markets, not a single revenue segment.

At least for the moment, automotive applications and health and lifestyle segments seem to be getting attention, mirroring end user interest.

Verizon Wireless Seems Forced to Respond to Mobile Market Wars

One unanswered question about the current U.S. mobile market wars has been whether, when and how Verizon might respond. 



It looks like Verizon has been forced into the fray. Reportedly, "Share Everything" plans will become "More Everything" plans, with lower prices, higher usage caps and unlimited messaging to anywhere in the world from the United States.

Tablets Drove Half of Mobile Commerce in 2013

2013 marked an important mobile payment's “first,” with tablet payments comprising almost half of all mobile commerce, according to Javelin Strategy & Research.

Of course, all forms of mobile commerce continue to lag e-commerce as a whole, representing perhaps $960 billion to more than $1 trillion in annual sales in 2013.

In 2013, tablets accounted for $28.7 billion in mobile online commerce, or over half of the entire mobile online payments space, up from the 2012 level of $5.1 billion.

Hard to Say Whether Typical Internet Access Prices Have Climbed or Dropped

Relatively minor changes in broadband access pricing are not uncommon. A price hike for Clear service provides an example.

But assessing changes in Internet access pricing is difficult, since the typical pattern is for the actual product to change over time.

Consumers might once have paid $20 to $22 a month for a dial-up connection operating at 56 kbps to 128 kbps. Consumers now pay about $40 a month for a 15 Mbps connection. So absolute prices have increased, but prices per megabit have declined.

Also, the types of products have changed over time. Where once consumers had only one choice--dial-up access or no access--they now can buy service at varying speeds, with the faster services costing more each month.

That obviously skews spending patterns. If more people choose to buy faster access, “average” spending also rises. Something like that likely happened in 2009, as more people chose to upgrade to faster levels of service.

The increase in what people pay for broadband is evident in prices for basic and premium services, according to the Pew Research Center's Internet & American Life Project.

For subscribers to basic services, the average monthly bill was $32.80 in 2008, a figure which rose to $37.10 in 2009.

For premium subscribers, those thirsty for faster home broadband speeds paid about $38.10 per month in 2008 and roughly $44.60 in 2009.

Across different service types, broadband subscribers reported higher prices for cable modem service than DSL by a $43.20 to $33.70 margin. This compares with 2008 figures of $37.50 for cable modem subscribers and $31.50 for DSL users.

That shift in demand--from DSL to cable modem, for example--also affects average pricing, as cable offers tend to be faster, on balance.

The point is that the actual product consumers are buying has differentiated over time, and appears to be in the process of segmenting further, as top end services start to stretch an order of magnitude.

The other important change is the rise of mobile Internet access as a material factor in the market. By about 2020, about 10 percent of all broadband connections will be supplied by fixed lines, the overwhelming majority of connections being supplied by mobile networks.

On a percentage of household income basis, Internet access prices have been dropping globally, with the biggest changes in developing markets. Though prices have dipped in developed nations, the changes are relatively slight.

Average Top Advertised Speed

Will TV Delivery Go Non-Linear?

Though communications service providers might prefer growth, they probably would not be too perturbed about a service whose take rates or  adoption was declining less than 0.7 percent annually, especially when average revenue per unit was growing about four to five percent annually.

But that is about the industry-wide dip in subscriber numbers in the U.S. market, it appears, according to Forrester Research. With the important caveat that most trends in technology, media or communications have adoption rates that vary tremendously over time, if the slow decay of traditional video subscriptions continues at present rates, change will be graceful, for content providers, video distributors and others in the ecosystem.

Of course, when new products displace older products, there tends to be a longish period when nothing too dramatic seems to happen. And then there is the inflection point, and change becomes non-linear. 

So as logical as it might seem to base actions on the theory that "tomorrow will pretty much be like today," that will prove a dangerous notion if change goes non-linear. And big changes that affect "most people" often have a non-linear adoption pattern, in the end. 

If that is the case, we might not be able to infer very much from current trends in subscription TV. 


Mobile adoption, for example, shows the non-linear adoption pattern. Adoption patterns, especially in India and sub-Saharan Africa illustrate the difference between pre-inflection point growth and post-inflection point growth.

The same is likely to happen to subscription TV, if online delivery really develops as a substitute product. 

Public Wi-Fi Does Not Have to "Compete" with Mobile to Provide High Value

Some questions never go completely away. Whether Wi-Fi can compete with mobile networks seems a perennial question. It was asked of 3G networks and now is asked about 4G networks.

Some mobile service providers, including Scratch Wireless and Republic Wireless , actually build their mobile services on primary use of Wi-Fi connections, automatically defaulting to Wi-Fi for voice and Internet access whenever possible, and then switching to 3G only when Wi-Fi connections are not available.

As newer blocks of spectrum (5 GHz, 60 GHZ) are opened up for commercial use, the questions--and the potential--are likely to grow. But the questions will be asked in a new context.

Wi-Fi is a low-power application, compared to mobile service, which is a high-power application. Over time, the predominant use of a mobile device--especially a smartphone--has shifted from apps where high power is required (on the go calling, texting or Internet access) to application scenarios are well suited to low power.

That puts the older question--can Wi-Fi compete with mobile--into a new context. Originally, the question might have been whether public Wi-Fi could approximate the connectivity of a mobile network for purposes of making phone calls.

The original value proposition for mobile phones was “calling on the go.” So the potential use of public Wi-Fi was to create a viable network to support calling. These days, smart phones are multi-function devices, used for calling, texting, messaging and content consumption.

And the use venues are different as well. These days, perhaps only 10 percent to 20 percent of total mobile device usage, for all apps and purposes, actually happens when people are “on the go.” all the rest of the usage is in untethered mode at locations where there is Wi-Fi access.

In other words, content consumption now is a major mobile device activity, and most of that consumption does not happen in mobile mode. In other words, the new pattern for content access is primarily untethered, not mobile.

And one might argue that future needs for network capacity increasingly will focus on low-power, localized access, not high-power mobile access. That is why one hears so much about small cells and carrier Wi-Fi, as well as Wi-Fi offload, these days.

That casts the question of whether public Wi-Fi can compete with mobile networks in a new light. End user requirements and device usage have changed.

The crucial need is not so much the usefulness of public Wi-Fi to support voice, but its usefulness in supporting content consumption. Public Wi-Fi might have some value for occasional offload of voice, but it has high value for offload of content consumption, in large part because content consumption does not typically require handing off sessions from one macrocell to another.

The big change to the way we interact with WiFi will only be seen as the HotSpot2.0 standard gains wider adoption. This initiative is based largely on the 802.11u standard and will genuinely transform the industry.

The Hotspot 2.0 standard should improve the utility of public Wi-Fi further, allowing an easier authentication experience, especially for users of public Wi-Fi hotspot services.

So the new question is not so much whether public Wi-Fi can compete with mobile networks, but whether public Wi-Fi will be useful for smart phone content consumption, to say nothing of providing meaningful primary access for devices that also can default to mobile networks when required.

That is a different question than we used to ask. And the point is that the usefulness of public Wi-Fi networks will be dramatically higher as more device communications is supplanted by device media and content consumption.