Editor’s Note: This article is part of our 2018 Preview feature, which looks at the big topics facing the industry next year. Click here for the 2018 preview in wireless, click here for the 2018 preview in cable and video, and click here for the 2018 preview in the wireline industry.
At times, the breathless telecom M&A rumor mill became overheated this past year, with no less than three companies said to have been kicking the tires on Charter Communications alone.
“What is most surprising about the flurry of reported suitors—first Verizon, then SoftBank, now Altice—isn’t that they are considering deals, it is instead that the market takes them all seriously. None are credible,” wrote MoffettNathanson analyst Craig Moffett, who dismissed the credibility of most of the M&A speculation that went on in 2017.
Indeed, having a president with a deregulatory agenda enter the White House, flanked by Republicans in both houses of Congress, a huge telecom merger was kind of expected this year. But outside a few smaller deals, such as T-Mobile's bid to buy pay TV start-up Layer3 TV, a giant cable merger didn't happen.
Notably quiet was Altice, which had its U.S. ambitions stunted by debt problems back home. Altice USA officials told FierceCable last week that a decision to shelve a fiber-to-the-home plan in France does not mean it won't go through its plan to build FTTH in its Optimum footprint. However, the energy surrounding potential acquisition by Altice of U.S. midsized MSOs such as Cable One or WideOpenWest has cooled.
Then, of course, there was the Justice Department’s demure on the AT&T/Time Warner Inc. merger, which showed that there was, in fact, something in the universe the federal government would regulate.
“I personally have very little insight into what the antitrust division is smoking these days,” Liberty chief John Malone said, summing up the telecom industry's collective bafflement over the DOJ's decision to block the deal.
Going into 2018, however, we suspect that the DOJ's resistance of AT&T/Time Warner Inc. is an anomaly. The regulatory tide is right for a big deal. And the desire for scale is strong.
With two of the biggest media companies, Disney and Fox, getting together earlier this month, there’s just too much imperative—and just too little in the way—for a big U.S. cable merger or two not to happen in calendar year 2018.
Is Comcast going to stand by as one of its biggest rivals in film, TV programming and theme parks, Disney, bulks up across the globe with the formidable acquisition of 21sth Century Fox? The fact that Comcast briefly competed head-on with Disney for Fox could be taken as a sign that the No. 1 U.S. cable company has completed its M&A sabbatical, self-imposed in 2015 after the Time Warner Cable deal fell apart, and is ready to buy something nice for itself.
Certainly, in a world in which AT&T prevails in federal court against the DOJ and finally closes on Time Warner Inc., and Disney succeeds in purchasing Fox, scale will no longer be an option for major telecom companies in the video space.
Given such a new consolidated landscape on the programmer side, would Charter's biggest shareholder, Liberty Media chief John Malone—who has admitted there’s nothing not for sale—continue to allow Charter to say no?
Might privately held Cox Communications, which has also stridently insisted it's not for sale, finally get an offer it can’t refuse?
Certainly, the clock seems to be ticking on what appears—save for a cloud or two—to be perfect regulatory weather.
With polls showing Democrats poised to begin sweeping back into power with the 2018 midterm elections, look for cable operators to make hay on the current regulatory climate and start turning their rivals into that most precious of resources: scale.