Charter Communications CEO Tom Rutledge predicted the union of Charter and Time Warner Cable will benefit the cable industry overall as the enlarged company will be able to invest in upgraded services and innovative products.
“I think there’s a better industry as a result of this combination,” Rutledge said in a conference call Tuesday morning to discuss details of the $78.7 billion transaction with Wall Streeters. Rutledge specifically referred to the potential for expanding the cooperation among cable giants to offer public wifi networks to subscribers. That model of inter-operable systems can be a template for other products and services, he said.
“In this structure we’ll be able to make those kinds of opportunities work better and easier,” Rutledge said. “There will be less people to coordinate (with) to make those new products work.”
In talking up the benefits of the complex transaction to buy TW Cable and Bright House Networks, Rutledge said he was confident the deal would win regulatory approval and would close by the end of this year.
He emphasized that Charter is a pure cable and broadband company with no programming assets, unlike Comcast, which tabled its $45 bid for TW Cable last month after a 16-month battle against public opposition and regulatory concern about it amassing too much market power as a broadband provider.
The enlarged Charter would account for less than 30% of U.S. broadband customers, and it ranks as the dominant cable operator in only five of the top 20 TV markets, Rutledge said. All told, Charter’s MVPD market share will stand at about 17% of total U.S. subscribers after the transaction.
Charter and TW Cable have agreed to a breakup fee of up to $2 billion if the deal is not completed. At the high per-share price that Charter is offering, it seems unlikely that another suitor is poised to engage in a bidding war with Charter.
Rutledge touted the economies of scale to be achieved by the combination with TW Cable and Bright House, which together bring to Charter 13 million subscribers in desirable markets, notably New York City and Los Angeles.
The benefits of the deal for consumers will include upgraded channel offerings as TW Cable replaces existing analog channels with HD offerings, as well as higher broadband speeds, and Rutledge promised the enlarged Charter will invest in “alternative forms of video delivery” that consumers have embraced.
“As one company we’ll have means to create better products get them to market much faster,” Rutledge said. “The video industry is becoming increasingly competitive (which is) driving us to invest in our product.”
Rutledge cited the major upgrades that Charter is done to its systems during the past two years, which were known as among the industry’s creakiest before the Cablevision alum took over as CEO in late 2011.
When Charter first made its run at Time Warner Cable in 2013, the company hammered TW Cable for its lack of investment and lag among its peers in cutting-edge offerings. But on Tuesday, Rutledge complimented the company for strides made even during the drama of the past year while the Comcast merger effort slogged through the regulatory process amid noisy public opposition. TW Cable surprised analysts with the improvement in its subscriber numbers and customer financials disclosed this month in its first quarter earnings report.
“These assets are in good shape,” Rutledge said of TW Cable. “They’re in better shape than they were previously.” He commended TW Cable CEO Rob Marcus and his team for “keeping their eyes on the prize and managing and running the business through very trying times.”
Rutledge and other Charter execs projected about $800 million in cost savings in the first three years after the deal is completed from elimination of overlapping operations. But he stressed that the focus was not to slash headcount. He noted that Charter has added some 7,000 jobs, mostly in customer service, since 2012. He said the “new Charter” will bring some of TW Cable’s customer call center jobs back to the U.S. from overseas.
Rutledge repeatedly vowed to invest heavily in upgrading TW Cable’s systems. He warned Wall Street analysts on the call that capital expenditures would be high for a few years to get the enlarged company into fighting shape as the nation’s No. 3 MVPD behind AT&T-DirecTV (assuming that merger is completed) and Comcast.
“We are going to have a period of investment for next several years as we go all digital and upgrade the data networks,” Rutledge said.
Rutledge was measured in assessing the leverage that the bigger footprint would allow Charter in negotiating with programmers. That was surely out of caution in an effort to avoid fights with programmers such as Discovery Communications who were vocal in their objections to the union of Comcast and TW Cable.
“The general arc of programming (costs) is not going to be determined by this deal,” he said, but it is likely to offer “marginal opportunity” to cut more advantageous rates down the road.
As far as marketing for the post-transaction Charter, Rutledge said the focus will be on establishing “Spectrum” as the brand-name for its broadband and video services, just as Comcast in recent years has promoted “Xfinity” as its retail moniker.