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  2. May 2015

May 2015

For Cable Subscribers, Little Hope to Get Better Satisfaction

Time Warner Cable subscribers anticipating to get better customer service from Charter Communications are in for disappointment.

The 15 million Time Warner Cable users from New York to Los Angeles are probably keenly aware of the low marks their provider gets when it comes to customer service. Charter, which agreed to buy the company Tuesday, doesn’t fare much better. Time Warner Cable subscribers “are going to see a new parent that has its own fairly long history” with lackluster customer service, said David VanAmburg, managing director of the American Customer Satisfaction Index, or ACSI. Time Warner Cable ranks at the bottom of the most recent survey of the ACSI, which measures customer satisfaction for 43 industries. Charter shares the next-to-last position with Comcast.

Charter’s Time Warner Cable Bundle is No Bargain

Liberty Broadband Chairman John Malone’s vision of spearheading cable consolidation through his company’s investment in Charter Communications may finally be coming to fruition.

Charter’s bid for Time Warner Cable represents a 14% premium to May 22’s closing price, valuing Time Warner Cable at $78.7 billion, including debt. That equates to nearly nine times 2016 earnings before interest, taxes, depreciation and amortization. Charter also said it was buying closely held Bright House Networks for $10.4 billion. Charter’s own market capitalization is about $20 billion. Charter’s decision to pay up owes something to the fact that shareholders have bid up its own shares, largely in anticipation of a deal. Charter should benefit when it comes to purchasing programming from media companies. Costs for each of its own subscribers and those of Bright House should fall toward the lower rates paid by Time Warner Cable. Still, even factoring in the $800 million in annual synergies Charter says it can achieve, it is paying 8.3 times Ebitda for Time Warner Cable, according to MoffettNathanson. That is 26% higher than the company’s five-year average. Indeed, excitement about consolidation has pushed up prices across the board for cable assets.

The ‘King of Cable’ Behind a Charter-Time Warner Cable Deal

When Charter Communications announced the acquisitions of Time Warner Cable and Bright House Networks, its news release did not mention John Malone’s name. He was not on the investor call. Yet there is little doubt that Malone is behind the scenes, orchestrating an upheaval of the industry he helped create two decades ago.

Malone shaped the cable television industry in the 1980s and ’90s, selling TCI — which he built into the country’s largest cable operator — to AT&T for $48 billion in 1999. (That is about $68 billion in 2015 dollars.) He walked away from the business that made him a fortune and went on to control a disparate collection of media companies, including the satellite radio provider Sirius XM, the Atlanta Braves baseball team, the QVC home shopping channel and big telecommunications companies in Europe. Though seemingly unrelated, the companies Malone has preferred share some qualities: They tend to have stable, recurring revenues. They are capital intensive, making it hard for new entrants to pose a challenge. And they have allowed him to engage in famous bouts of financial engineering, taking on leverage, spinning off subsidiaries and creating tracking stocks, much to the delight of enriched shareholders.

Deal Reunites Charter Chief With Time Warner Cable

Two years ago, Charter Communications Chief Executive Tom Rutledge predicted that the cable business would soon be down to two big players. Now, he’s in line to run one of them.

Rutledge will be the chairman and CEO of the new US cable giant that results from Charter’s planned $55 billion acquisition of Time Warner Cable Inc. and $10.4 billion merger with Bright House Networks. The 61-year-old will get a huge elevation in responsibilities. Through the deals, Charter’s base of customers will grow from about 6 million to 24 million customers -- making it second only to Comcast in cable TV and broadband access. The Time Warner Cable deal is also a personal triumph for Rutledge. His career started in 1977 at Time Warner Cable’s predecessor, American Television & Communications, and he rose up the ranks to become president of Time Warner Cable. However, in 2001 he left the company during a management realignment and became chief operating officer of Cablevision Systems. He spent almost a decade at Cablevision before clashing with Cablevision CEO James Dolan, and he joined Charter in January of 2012.

Department of Deal-Killing

[Commentary] The Charter-Time Warner Cable deal raises the question of why lawmakers continue to allow the Federal Communications Commission to judge such transactions.

How is it that a Beltway bureaucracy can confidently assert the power to break up a business combination in the absence of any evidence of harm to even a single customer? The FCC was created by the Communications Act of 1934 and was intended to nurture and manage a monopoly telephone system and the broadcasters to which it gave slices of the airwaves. As the years have gone by competition has increased, yet the FCC continues to go about its work as if it is still overseeing monopolies and only the commission’s intervention can protect consumers from all-powerful cable behemoths. How can anyone be bullish about a Beltway regulatory system that still insists on treating 21st-century communications like 1930s telephones?

Washington Makes a Broadband Hash

[Commentary] Charter bid $132 a share for Time Warner Cable in 2014, and was bested by Comcast at $159. On May 26, Charter agreed to pay $195. Indeed, it will pay a multiple over cash flow that appears to be unprecedented in the annals of big cable deals. That’s pretty good price-appreciation considering that Time Warner Cable’s most profitable business is broadband, which in the meantime has come under monopoly regulation by the Obama Administration.

Surprise you? It shouldn’t. Incumbent broadband CEOs had been saying for months they would invest less under Title II. Guess what? Shareholders like the sound of less investment. Investment is a cost. Regulators were also at pains to say there would be no attempt to regulate broadband prices. Guess what? Shareholders like the idea of continuing to charge whatever they want for broadband even as a regulatory shroud descends that will deter new competitors. It was ever thus.

Tech Rivalries Impede Digital Medical Record Sharing

Since President Barack Obama took office, the federal government has poured more than $29 billion into health information technology and told doctors and hospitals to use electronic medical records or face financial penalties. But some tech companies, hospitals and laboratories are intentionally blocking the electronic exchange of health information because they fear that they will lose business if they share information on patients with competing providers, administration officials said.

In addition, officials said, some sellers of health information technology try to “lock in” customers by making it difficult for them to switch to competing vendors. “We have received many complaints of information blocking,” said Dr. Karen B. DeSalvo, the national coordinator for health information technology. “We are becoming increasingly concerned about these practices.” The White House and Congress are looking for ways to ensure a freer flow of information.

Vox Media Adds ReCode to Its Stable of Websites

ReCode, the news website led by the veteran journalists Walt Mossberg and Kara Swisher, is being acquired by Vox Media, a deal that reflects the turmoil among digital organizations focused on covering the tech industry.

The all-stock deal, financial terms of which were not disclosed, will give ReCode access to a wider audience, something it has struggled to build since the site split off from The Wall Street Journal about a year and a half ago. Both plan to stay with ReCode after the merger. ReCode said it had 44 full-time employees and three contract employees. They were expected to join Vox, though Vox would not elaborate on potential staffing changes.

Sen Bennet Asks FCC to Rethink Effective Competition

Add Sen Michael Bennet (D-CO) to the list of Democratic Senators who have registered concern with the Federal Communications Commission's proposal to presume cable operators face local market competition for traditional video unless a franchisee can prove otherwise. FCC Chairman Tom Wheeler has circulated an order reversing the "effective competition" presumption given that the FCC has granted, in whole or in part, every such petition since 2013, primarily due to the presence of two national video competitors, Dish and DirecTV. A finding of effective competition triggers basic cable rate deregulation and removes the requirement that retransmission stations be on that basic tier.

In a letter to FCC Chairman Tom Wheeler, Sen Bennet said that he was concerned that cable opeators could move "less profitable local stations" from the basic tier, leading to less choice and higher prices, especially for rural and low income Coloradans. Other Democratic Senators who have taken aim at the proposal include Sens Al Franken (D-MN), Amy Klobuchar (D-MN), Jeff Merkley (D-OR), Ed Markey (D-MA), Ron Wyden (D-OR), Jack Reed (D-RI), Tom Udall (D-NM), Sheldon Whitehouse (D-RI), Sherrod Brown (D-OH), Tammy Baldwin (D-WI), and Elizabeth Warren (D-MA), and Independent Senator Bernie Sanders (I-VT).

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