Some See Verizon/Charter Making Better Regulatory Than Business Case
A Verizon buy of Charter Communications might pass regulatory muster, said numerous deal watchers and experts. It's not clear if such a transaction -- which lead to a combined entity of more than 20 million pay-TV customers -- would face the same concerns about creating too big a competitor that scuttled the ill-fated Comcast/Time Warner Cable. Some Wall Street experts are pessimistic that the reported talk of such a deal will go any further. Verizon and Charter didn't comment Thursday.
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If a Verizon/Charter did go ahead, it might face less onerous conditions from an FCC under Chairman Ajit Pai than under former Chairman Tom Wheeler -- especially non transaction-specific conditions, said communications lawyers with deal experience.
Verizon has been vocal about needing more fiber and plants closer to the home, and buying Charter would help fill that gap, said Wells Fargo analyst Jennifer Fritzsche in a note to investors Thursday. But she also said there are cable operators with richer fiber offerings than Charter, and that operator comes with linear TV and consumer broadband -- areas Verizon seemingly was distancing itself from with its sale of properties to Frontier Communications.
News reports that Verizon is in informal talks with Liberty Media aren't surprising since the telco "appears to be getting increasingly outflanked by its wireless competitors," said Pivotal Research analyst Jeffrey Wlodarczak in a note to investors. Charter is an obvious candidate because its lack of content ownership likely means easier deal approval, but its price tag could be prohibitively high, he said. A lawyer with cable and wireless clients also expressed skepticism about the deal, saying word getting out before it's finalized may point to Verizon instead trying to influence talks with another possible takeover target.
T-Mobile CEO John Legere was dismissive. He tweeted that the Charter talk “is like a toupee to cover @Verizon bald spot.” Charter shares closed up 7.4 percent Thursday at $333.15.
Any DOJ regulatory focus is likely going to look at where Charter and Verizon have competitive overlaps in their networks, and some limited divestitures might be necessary, such as in parts of the Northeast, said a lawyer with cable ISP experience. A bigger Justice question might be whether the combined company is large enough that it would hurt competition in broadband and video distribution markets, the lawyer said, saying it still would have a good chance of getting approval, given general trends of less business regulation in a Trump administration.
A Verizon/Charter would also potentially be helped by the fact Pai and fellow GOP Commissioner Mike O’Rielly have been very vocal about meeting the 180-day shot clock and critical of non-transaction-specific conditions (see 1605100050), a lawyer with wireless merger experience said. There could be some horse trading on conditions with Democrats since Pai likely would want to have bipartisan -- if not necessarily unanimous -- approval. That could mean conditions on broadband deployment commitments and adoption incentives -- two areas that have been of particular interest to Commissioner Mignon Clyburn, the lawyer said.
Verizon/Charter may be trying to ride the wave of the proposed AT&T/Time Warner, much like AT&T did when it announced plans to buy DirecTV when regulators already were busy with the ill-fated Comcast/TWC, said the lawyer with wireless transaction experience. That strategy would mean regulators tied up and busy with AT&T/TW -- and that deal taking all the flack from public interest groups -- meaning Verizon/Charter could end up going through relatively more smoothly, the lawyer said. Another communications industry lawyer was skeptical, saying in transaction issues like cash flow and board dynamics take vastly more precedence than trying to game regulatory timing.