Although most analysts expect federal regulators to approve Charter Communications' (NASDAQ: CHTR) bid to simultaneously buy Time Warner Cable (NYSE: TWC) and Bright House Networks, BTIG Research analyst Richard Greenfield remains highly skeptical.
In his latest blog post, Greenfield described Charter's public interest statement for the deal as "naive." In Charter's public interest statement, the company contends that cable companies operate in distinct regional markets, and that there is no national market for broadband.
"The DoJ sees both video and broadband as national markets, with harms increasing with scale. The DoJ simply believes that bigger is badder," Greenfield wrote. He pointed to recent comments made by Nancy Rose, deputy attorney general for economic analysis for the Department of Justice, as bolstering his view.
"As you listen to the DoJ," the analyst adds, "it is very difficult to see how the government can approve the creation of a company nearly the size of Comcast (and given New Charter's growth, it could be larger than Comcast in a few years), particularly as it is far from clear what concessions would alleviate the government's underlying concerns without true competition materializing. … The DoJ believes there is fallacy in thinking about consolidation of cable as having no impact on competition just because they operate in geographically distinct markets with no overlapping customers."
If Charter's deal does close, it will control a total customer base of around 23 million vs. around 27 million for Comcast. The combined "New Charter" would only control around 30 percent of the U.S. broadband market, vs. around 57 percent for a combined Comcast-TWC. Most analysts see this difference is being key to what separates the two deals in the eyes of regulators.
"The reason Comcast-Time Warner Cable was a problem for the government was because they were going to have a dominant share of the national broadband market," said Jonathan Chaplin, an analyst at New Street Research, to the Wall Street Journal.
- read this BTIG Research blog post (sub. req)
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