It's not quite as big as the $52 billion merger of Comcast (NASDAQ: CMCSA) and AT&T Broadband back in 2001, which created the nation's leading cable company, with 21.3 million customers at the time.
"But this is definitely pretty big, too" said NewStreet Research analyst Spencer Kurn, discussing the ongoing, simultaneous integration of Time Warner Cable and Bright House Networks into Charter Communications (NASDAQ: CHTR).
With the closure of its deals in May, the so-called New Charter now serves around 19 million broadband users and about 15 million pay-TV customers, forming the cable industry's second biggest player next to Comcast.
To understand Charter's broader integration strategy, Kurn says it's useful to look back to the middle of 2012, when former Cablevision executive Tom Rutledge, who had recently taken over as CEO of Charter, embarked the MSO on a wave of digital conversion and rebranding of a number of disperate cable systems into the unified, two-way Spectrum brand we know today.
"A lot of Charter's strategy is offering better product that customers are more satisfied with, less service visits, fewer calls, less churn. It's a virtuous cycle that needs to get started," Kurn said.
Party like it's 2012
Charter reps didn't respond to FierceCable's request to lay out their vision for how the integration of TWC and Bright House will unfold.
However, speaking to investors in April, Rutledge said this strategy is "also an indication of what we believe we can do at Time Warner Cable and Bright House. That will require time and investment just as it did at Charter, but I believe it can happen faster because of the relatively better starting condition of the assets we're acquiring."
With the conversion to all-digital, two-way set-tops in every residential outlet Old Charter serves, Rutledge said his company is now enjoying all kinds of efficiencies. One of them, for example, is conducting electronic disconnects instead of having to pay for truck rolls.
"This change in practice also allows us to fully scale our self-install practices beyond what we did during all-digital," he said. "Electronic disconnects and self-installs will provide significant benefits to Charter systems in the coming years. It will also reduce operating costs and capital expenditures and raise customer satisfaction through greater control over the installation process and will also reduce the opportunity for service failure in a way that provides even better security."
How long will it take to bring those efficiencies to the TWC and Bright House portions of TWC's footprint?
Kurn said it took Charter about eight quarters to fully migrate all its systems to digital and rebrand them under the "Spectrum" moniker.
MoffettNathanson analyst Craig Moffett expects the entire TWC and Bright House footprints to be converted to digital, rebranded under Spectrum, and repriced by the end of 2018.
"Pricing changes for legacy TWC and BHN subscribers are not expected to be dramatic, notwithstanding the transition to New Charter pricing plans, as both companies offered bundlers that were broadly priced similar to Charter's," Moffett said.
Charter has already begun delivering standard pricing to new customers across the New Charter footprint, regardless as to whether a customer is signing up for a service that has yet to be rebranded under Spectrum.
Management transition already well underway
That conversion process is already underway. While there have been no formal announcements, we do know that TWC's top executive management ranks have received their severance pay and have, by and large, left the building.
In fact, the first announcement Charter made after the deals closed in May was that the entire company would ultimately be named "Charter," and that all services would eventually be marketed under the Spectrum brand.
Very little, if any, of the TWC and Bright House management structure is being left in place.
Notably, Charter hired a refugee from the cable industry's other big merger, former Cablevision executive David Ellen, to serve as a top lieutenant under Rutledge, overseeing programming, news and sports networks, strategic policy development, regulatory compliance, human resources, communications and security.
Ellen has already brought in a few of his old Cablevision colleagues, including Michael Bair, who will oversee TWC news and regional sports networks, which are being rebranded as "Spectrum Networks."
Beyond expansion of the executive management team managing the newly combined company, Charter is also in the process of reshaping the rank and file of TWC and Bright House.
Charter confirmed that it's planning to ditch TWC's 75,000-square-foot Manhattan headquarters when the lease expires at the end of the year. It has not said how many, if any, of the 350 employees working in that building will be moved back to Charter's Stamford, Conn. headquarters.
Kurn noted Charter's pledge to hire 20,000 new workers, bringing back outsourced positions from oversees. "Part of their strategy is to bring in higher-skilled, better trained people," he said. "I think that's going to be one of their first steps."
Meanwhile, those TWC and Bright House employees who do remain recently received a memo, intercepted by Multichannel News, which underlines a more buttoned-up New Charter workplace, not as friendly to blue jeans and work-from-home employee relationships.
Synergies are already being enjoyed
"If you look at Charter's proxy, they see CAPEX falling in 2019, which is the last year of their projection," Kurn said. "That whole projection is really predicated on getting the Charter game plan rolling. Really, in the next 12-18 months, we should start seeing tangible signs the Charter method is working."
Just consolidating the management team and ditching facilities like the Manhattan headquarters will probably achieve the $500 million savings goal Charter management promised investors in the first year after the deals, added Kurn, who believes the real savings could be closer to $800 million after program licensing fee improvements are factored in.
"We think they can reap real savings there," he said.
Charter, in fact, appears to be trying. Last week, Univision filed suit against the MSO, claiming it's improperly using TWC's legacy programming deal — which runs through 2021 — to get out of re-negotiating Charter's expired carriage contracted.
By Moffett's estimate, Charter's program licensing expenses were about $7 a month higher on that average cable bill than TWC's. Charter is already trying to take steps to get TWC's rate.
Univision said it was told by Charter that TWC is managing its cable system. "But everyone knows that is simply not true: the longstanding CEO and the senior executive team of Charter, as well as its pre- existing board of directors, now in fact manage and control all such cable systems, and virtually the entire TWC leadership team has departed," the suit said.
New Charter, Kurn said, "is a larger entity now. They can bend the cost curve."—Daniel