What Comcast's buyout of Time Warner Cable means for you (FAQ)

The $45 billion deal has the potential to shake up the pay-TV business -- or does it? CNET explains how it affects you.

A Comcast truck parked at one of the company's centers in Florida. Getty Images

Comcast and Time Warner Cable, the country's biggest cable companies, on Thursday agreed to unite in a $45 billion deal that will create a pay-television giant with approximately 30 million subscribers, controlling nearly a third of the pay-TV market and more than half of the market for "triple play" packages combining video, Internet, and voice telecom services.

It's a huge deal, if it survives. It would mean a payday for Time Warner, massive new reach for Comcast, and a shift in the balance of power between distributors and video programmers -- but what does it mean for consumers?

Time Warner Cable subscribers would see the biggest changes, but the implications of the takeover could touch people with no ties to Comcast or TWC. To help readers get a better understanding of what the takeover means and to get a handle on what it means for you, CNET has put together this FAQ.

I'm a Time Warner subscriber, what will this deal mean for me?
At first, nothing. Like any acquisition, the $45 billion all-stock takeover must be approved by not only shareholders but also regulators. Shareholder approval is likely, but a deal of this size, combining what are already the country's biggest cable companies, will doubtlessly bring rigorous scrutiny in Washington. But in the near term, as this process winds its way through, you shouldn't notice any difference in your cable service.

If the companies eventually consummate the combination, Time Warner subscribers will likely benefit from Comcast's network investments and technological innovations, like the X1 video operating system, which integrates apps, simplifies navigation, makes channels accessible on devices, and sports whiz-bang features like voice control through an iPhone app. It's the result of Comcast's proactive tech investments that have outstripped other cable companies, to the point that rivals are licensing the technology from Comcast to deploy in their own customers' households. So Time Warner customers could get higher speeds with more innovative services if they become Comcast customers.

However, there's the possibility some Time Warner customers become Charter Communications customers because of the deal. To allay fears about competition, Comcast has vowed to hand off 3 million of Time Warner's customers to somebody else so that the Comcast share of the video market won't exceed 30 percent. The company hasn't outlined which territories it will offload, but it means more than a quarter of Time Warner's customers will have neither Comcast nor TWC as a provider anymore. The most likely provider to get them is Charter, which had reached a deal with Comcast about splitting Time Warner assets when Charter was the one attempting the TWC takeover.

On the downside, both Comcast and Charter have broadband caps. Should Time Warner Cable cease to be your provider, your unlimited broadband may cease to be too.

I'm a Comcast subscriber, what does this deal mean for me?
It means even less for Comcast customers than those with Time Warner. Certainly, investors of Time Warner are getting a lucrative offer, and Comcast itself is benefiting from huge new geographic reach and strength through greater economies of scale. But the benefits to people who already have Comcast, for now, seem relatively minor.

Why does Comcast want to merge with Time Warner, and vice versa? Wasn't Time Warner Cable fighting off a takeover?
Time Warner Cable had been fending off a takeover attempt by another rival, Charter, for months, but Time Warner's bid differs in several ways to make this pairing more attractive for both companies. For Time Warner, the Comcast bid to buy all its stock with Comcast shares valued at $158.82 each is higher than Charter's offer, which was for $132.50 per share in cash and stock. It will also give Time Warner access to Comcast's strong technological improvements. For Comcast, the addition of Time Warner Cable markets will dramatically expand its footprint, including in major markets like New York and Southern California, and will also hand it regional sports networks in Los Angeles.

Comcast's headquarters. Getty Images

For both the companies, the merger will mean cost savings (their "conservative" estimate is for $1.5 billion by becoming more operationally efficient), better leverage in programmer negotiations, and greater attraction for advertisers. Those corporate benefits can have some dark real-world repercussions -- "operational efficiencies" can be corporate speak for "lost jobs" -- and programmers aren't going to be happy to see their power to exact higher fees wilt. But for Comcast and Time Warner, the combination would be rewarding.

Does this mean my cable bill changes?
It's difficult to find examples of consumer prices falling when two gigantic companies combine to an even bigger one. Typically, the elimination of competition means prices rise, but that argument is rebutted by Comcast and Time Warner Cable's lack of direct competition. The cable industry developed as mini monopolies, each operating without interference in their own territories, so extremely few households have both Comcast and Time Warner cable options. By combining the two, no market is losing a competitive option: The same alternatives like Dish, DirecTV, Verizon Fios, and -- for the cord-cutting set -- Netflix will be available in the same places as they were before.

Theoretically, the combination of Comcast and Time Warner Cable tilts the scales toward pricing relief more so than increases. For one, the companies have said they will be able to save $1.5 billion in operational costs through this deal. What's more, creating a gigantic cable provider will shift the balance of power back to Comcast from the media companies that currently hold most of the cards when it comes to negotiations over programming fees.

A map of Comcast and Time Warner footprints. Mosaik Solutions

Distributors like cable companies must negotiate carriage agreements with media companies, like Disney (owner of ABC and ESPN) and CBS (owner of its broadcast network and Showtime, as well as CNET). The adage "content is king" is true here: For years, media companies have been ratcheting up how much they charge to carry their programming, and distributors have little recourse for these climbing prices other than to find cost savings elsewhere or pass along the higher rates to customers in the form of steeper bills. Time Warner took a hard line with CBS this summer, and the resulting blackout of CBS channels in some markets resulted in a wash of lost subscribers. A Comcast-TWC combination will increase their leverage in these talks, as content providers will be more averse to losing distribution on such a massive video system reaching so many millions of households, though nothing changes the risk of losing subscribers over dropped channels.

That said, watchdog groups have widely denounced the merger, arguing that it will hurt consumers. After all, these companies ultimately are more accountable to their shareholders than they are to their customers. For cable, the name of the game is ARPU -- average revenue per user -- and cutting prices is about as fundamentally hurtful to ARPU as it gets.

Will this deal go through?
It's uncertain, but most watchers are expecting regulators to approve the combination with some thick strings attached. In brief, the lack of direct competition means opposition based on antitrust is difficult, and regulators may find that the deal provides a convenient opportunity to enforce certain policy guidelines on a gigantic provider of pay-TV, broadband, and voice telecommunications service without having to worry about resistance from the courts.

Read: Will Comcast and Time Warner be AT&T and T-Mobile redux?

When will the two companies merge, provided they make it through the necessary approvals?
Again, it's uncertain, but Comcast executives said their aim is to close the transaction by the end of the year, which they call a realistic goal. The Federal Communications Commission has a 180-day shot clock to consider transactions once they're submitted, so we'll be hearing from the commission at least within the next six months.

Does this mean there's a greater chance my Time Warner or Comcast broadband service will throttle back my Internet speed when I'm streaming Netflix?
Much will depend on the conditions regulators place on Comcast and Time Warner Cable to secure their approvals. But for now, assuming the deal is completed, more US broadband subscribers would benefit from strong protections against purposefully degrading service. That's because Comcast agreed to a set of rules that prevents that degradation -- what's known as Net neutrality -- in order to buy out the rest of NBC Universal that it didn't already own. While a D.C. Court of Appeals threw out the FCC's prior Net neutrality prescriptions last month, Comcast is still bound by them. If Time Warner is bought by Comcast, then the former Time Warner business will be bound by them too, the companies have said.

However, those conditions don't last forever. They were set with a seven-year term, so they're slated to expire in 2018. Again, a lot depends on what the FCC or other authorities make Comcast and Time Warner concede, and they're likely to seek stringent protections to compensate for such a large deal.

 

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