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Challenges lie ahead for Charter after it buys Time Warner Cable

Charter has agreed to buy Time Warner Cable for about $55 billion.
Charter has agreed to buy Time Warner Cable for about $55 billion. BLOOMBERG

Charter Communications, which announced Tuesday that it intends to buy Time Warner Cable for about $55 billion, gets generally higher customer-service marks than the company it’s acquiring, analysts say. But it faces operational challenges in building what would be the nation’s second-largest cable provider.

St. Louis-based Charter, currently the No. 4 provider, will pay $195.71 a share with $100 in cash and the remainder in its own stock, according to a statement Tuesday. Bright House Networks, a smaller, privately held cable company that Charter has previously agreed to buy, will also be merged into the combined entity.

The deal, expected to be approved by year’s end, would nearly quadruple Charter’s subscriber base, giving it about 24 million customers in 41 states.

Time Warner Cable, based in New York, is the Charlotte area’s dominant cable provider, with about 480,000 area customers. Charter serves about 130 markets in North Carolina, including Lincolnton, Hickory and Asheville.

Charter said it expects to achieve $800 million in annual cost savings from the deal. Analysts say this will come through generating more revenue and launching new services, though it could also mean layoffs.

Time Warner Cable has a major Charlotte administrative office and about 3,140 employees in the local market.

“I don’t think this deal is driven by a projection of massive cost cuts, though you can expect some overlap, especially in some back-office functions where some of the synergies may come,” said Tuna Amobi, an equity analyst at S&P Capital IQ.

In an email to the Observer, Scott Pryzwansky, Time Warner Cable’s spokesman, said “there is likely to be overlap in the management ranks,” and the company expects “some impact there.”

‘Significant hiccups’

Time Warner Cable ranks at the bottom of the American Consumer Satisfaction Index’s latest lists of cable and Internet service providers – an industry whose customer satisfaction scores are low across the board. Ranking second from the bottom on both lists is Comcast, which tried to buy Time Warner Cable last year, and just above Comcast is Charter.

(Ranking first among television providers in the group’s list is DirecTV. Atop the Internet providers list is Verizon Communications. The group’s newest rankings come out next week.)

David VanAmburg, managing director of the satisfaction index, said in the short term, mergers of this type sometimes result in “significant hiccups with customer service,” such as double billing. Those issues can take one to two years to resolve, he said.

“Lots of snafus will tend to happen with very large service providers that have to merge all of their account systems, all of their customer management systems, and the customers can get lost in the shuffle in that scenario,” VanAmburg said.

But it’s possible that customers, with time, may get a boost from the merger. Time Warner Cable customers will benefit from Charter CEO Tom Rutledge’s “customer-centric” approach, Amobi, the S&P analyst, said.

“Rutledge has been very successful in implementing the whole new range of repackaging and re-pricing initiatives that … are translating into meaningful improvement in not just customer service and retention but also subscriber growth,” Amobi said.

What’s more, Amobi said, the deal could allow the combined Charter company to introduce new services much more quickly and across a bigger footprint.

Industry analyst Jeff Kagan said that, overall, Charter’s innovation and superior customer service eventually will benefit Time Warner Cable customers, but “it’ll take a few years.”

More mergers

Deal making has been heating up in an industry that faces waning demand for traditional pay-TV packages and rising competition from Netflix, Amazon and other online services.

Charter originally bid for Time Warner Cable in early 2014, but that was rejected. Comcast, the nation’s largest cable company, jumped in with a competing offer. Charter got another shot when regulatory scrutiny caused the Comcast deal to fall apart in April.

Mergers may give cable companies more leverage when negotiating contracts with television networks, which in turn could keep cable TV prices down for consumers.

Kagan said customers may not necessarily experience lower bills as a result of the deal, but rather as a result of increased competition in a changing industry.

Cable providers have been expanding their Internet offerings to help offset the loss of cable subscribers. Time Warner Cable recently said it will roll out faster Internet speeds and improved television services in the Charlotte region this summer. Rivals Google Fiber and AT&T also said they plan to deploy faster speeds soon in Charlotte. Bloomberg News contributed.

Deal could face smoother path

The last time Time Warner Cable was part of a proposed major corporate merger, objections by federal regulators helped scuttle the proposed acquisition of the company by Comcast Corp.

Now, Charter Communications is the suitor, and experts said its $56.7 billion deal for Time Warner Cable, announced Tuesday, stands a better chance of getting regulatory approval for a simple reason: The marriage is smaller.

The new company, which also would include smaller cable provider Bright House Networks, would have about 17.3 million pay-TV customers, compared with the 29 million customers of a combined Comcast/Time Warner Cable.

The new Charter would be the largest pay-TV provider in five of the top 20 markets nationwide. Comcast/Time Warner Cable would have been the largest provider in 17 of the top 20 markets, including both Los Angeles and New York. Los Angeles Times

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