By: Jesse Cryderman

Olympic Games

As the Winter Games kicked off in Sochi, a cable deal of Olympic proportions began brewing in the US. Comcast moved to purchase Time Warner Cable (TWC) for more than $45 billion, a move that would significantly consolidate the pay-TV market in the United States. Comcast says it would divest 3 million customers as an olive branch to the FCC, but battle lines are being drawn and the likelihood of this deal receiving the regulator's blessing is far from a sure thing.

The Comcast takeover of Time Warner Cable will allow the new consolidated company to cut costs by taking advantage of scale, none of which is likely to benefit the consumer, according to industry analysts.

“The position taken by the operators, and especially driven by John Malone, is that consolidation will help reduce costs, which will benefit consumers,” according to Jason Blackwell, Director, Service Provider Strategies, Strategy Analytics. “I don’t believe that consumers will see much benefit financially from the consolidation that will continue to take place in the industry. If operators are able to cut costs and negotiate better content pricing, those benefits will likely never be passed along to the customers in lower subscription fees. It is possible that these deals may slow the increases in monthly subscription fees, but only time will tell.”

He adds that Pay TV subscriber numbers have been falling while content is getting exponentially more expensive, particularly for large, live events, which is driving operators to cut costs at every opportunity. But beyond cutting costs, boosting the broadband side of the business sets the stage for future services growth.

“However, on the broadband side of the business, margins are high and subscriber numbers keep growing each quarter,” Blackwell said. “The consolidation in the industry is focusing on trying to reduce the costs on the TV side of the business, but it also increases the scale for the more lucrative broadband business. With a wider footprint and more subscribers, consolidated cable operators may be able to justify and spread the costs of delivering higher bandwidth broadband services which will drive more revenues along with the opportunity to deliver more advanced services into subscriber homes.”

Jeff Heynen from Infonetics adds that broadband customers are already chronically limited by regulation in their choice of broadband provider, by design. He points out that in North Carolina, for example, Time Warner successfully lobbied the state legislature to restrict municipal broadband networks, ostensibly to limit competition, and AT&T did the same thing in South Carolina.