Comcast Corp.’s $45.2 billion deal to buy Time Warner Cable Inc., the Triangle’s dominant provider, will create a new cable giant that’s likely to face continued challenges with customer service, industry analysts said.
Comcast, like Time Warner Cable, has been rolling out new digital services in recent years, but both companies remain mired at the bottom of annual rankings by the America Customer Satisfaction Index, trailing other cable companies as well as satellite and telecommunications companies.
Comcast officials said the combination will allow it to more quickly deploy innovative products and services for millions of customers. Industry analysts, however, said the companies are not likely to win over customers already grumbling about high prices and poor reliability anytime soon.
The deal announced Thursday “makes sense from an investor point of view,” said industry analyst Jeff Kagan. “But I don’t expect any change for customers in experience.”
The planned acquisition ends a long-running drama over which competitor would buy New York-based Time Warner Cable. The all-stock deal heads off an unfriendly offer from Charter Communications and is expected to close by year end. The combination will likely face close scrutiny from regulators.
Comcast is expected to save $1.5 billion in annual costs over three years, with half of that realized in the first year. Comcast officials did not detail cost cuts but said there was always duplication across two large, publicly traded companies.
“There will be very little impact on the vast majority of employees,” Time Warner Cable spokesman Scott Pryzwansky said. “Comcast will need talented, motivated employees to operate the cable systems.”
Time Warner Cable will proactively communicate with customers about any changes in services and offerings over the course of the merger, Pryzwansky said.
Comcast plans to divest 3 million pay TV subscribers after the deal closes. With 22 million of its own pay TV customers and Time Warner Cable’s 11.2 million, the combined entity will end up with about 30 million subscribers, a level believed not to trigger the concern of antitrust authorities. A formal cap was dissolved years ago by regulators, but divesting subscribers could help the deal get approved more quickly.
In a conference call for investors on Thursday, Comcast officials said they have not identified markets to divest and would evaluate the possibilities over the next several months.
The price amounts to $158.82 per share for Time Warner Cable’s roughly 285 million outstanding shares and is about 17 percent above that stock’s Wednesday closing price of $135.31. It trumps a proposal by Charter to buy Time Warner for about $132.50 per share, or $38 billion in cash and stock.
Bottom-ranked in industry
Philadelphia-based Comcast is already the biggest cable provider and the owner of NBCUniversal, which operates TV networks, Universal Pictures and Universal Parks and Resorts. The company said it will bring its cable, Internet and phone services, which operate under the “Xfinity” brand, to Time Warner customers, while keeping Time Warner Cable services such as a feature that allows customers to start live TV programs at the beginning.
“The playbook at Comcast and with our Xfinity products is all-digital network with the fastest broadband and fastest in-home Wi-Fi, with the most on-demand offerings and a suite of capabilities on tablets and smartphones that allow consumers to access that content whenever they want, wherever they want it,” Comcast chairman and CEO Brian Roberts said in a conference call with reporters.
Kagan, the industry analyst, said Comcast has been rolling out its all-digital network market by market. But it has faced some complaints, including the fact that the service requires consumers to use a cable box for each TV, he said.
Time Warner is all digital in New York City, but not across the rest of its footprint, including the Carolinas, said Pryzwansky.
In the latest American Customer Service Satisfaction Index survey, Comcast received the second-worst ranking among subscription television service providers, with a 63 out of 100, just ahead of Time Warner’s 60. Both were also at the bottom of the Internet service provider rankings. Verizon Communications was at the top of both lists, with a 73 for TV service and a 71 for Internet service.
Customer service an issue
Overall, Internet service providers and television subscription providers fared the worst among the dozens of industries ranked by the customer satisfaction tracker, said David VanAmburg, managing director of the ACSI. Internet service providers received a 65 overall, compared to a 78 for banks, for example.
“It’s a combination of price and reliability,” VanAmburg said of consumer complaints about the industry. “That’s really sapping customer satisfaction across the board.”
Just like when banks, airlines and other big companies merge, Comcast and Time Warner also risk more complaints as they combine operations, he said.
“We have typically seen that for a service provider, there is going to be some negative impact in the short term when there is a merger of two very large companies,” he said.
The Comcast-Time Warner deal also faces questions over what it will do to competition in the market. Public Knowledge, a Washington-based consumer rights group, said in a statement that regulators must stop the deal, because it would give Comcast “unprecedented gatekeeper power in several important markets.”
Comcast is taking the position that because the two companies don’t serve overlapping markets, their combination won’t reduce competition for consumers. Comcast operates mainly in the northeast including its home base of Philadelphia and places such as Boston, Washington and Chicago. Time Warner Cable has strongholds around its headquarters in New York as well as Los Angeles, Dallas and Milwaukee.
In many of those areas, the combined Comcast/Time Warner Cable will face competition from rivals AT&T and Verizon, which provide both pay TV services and Internet hookups. Both AT&T and Verizon are growing quickly. They ended 2013 with 5.5 million and 5.3 million pay TV subscribers, respectively. The Associated Press contributed.
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