America’s two biggest cable companies just struck a deal.
Maybe you've heard: Charter Communications is teaming up with Comcast. The two cable companies are working together to protect their nascent cellphone businesses from huge, national providers — such as Verizon and AT&T — by largely refraining from going after each other. Under the deal, Comcast and Charter have temporarily agreed to cooperate by, for example, figuring out how each company's wireless subscribers can hop onto the other company's WiFi hotspots more easily. The deal also prevents the companies from working against one another by banning independent merger talks with existing cellphone carriers such as Sprint or T-Mobile.
Essentially, it's a deal by cable giants to shield their early investments in an industry they're just beginning to explore. But this detente, while it may seem like a small announcement, has some important implications for cellphone service, television and online media. Here's why it's such a big deal.
Wait, back up. Comcast and Charter are selling cellphone service now?
Yep. Comcast says that its new mobile service, Xfinity Mobile, will debut in a few weeks; Charter has said that it plans to start selling cellphone service next year. In terms of the customer experience, the companies are promising more or less what you can get today on any of the major networks. You'll be able to place calls, send text messages and use mobile data — just on a phone you get from Comcast or Charter, as opposed to AT&T or Verizon. What you won't see: Behind the scenes, Comcast and Charter's services will both run on the network owned by Verizon.
"The efficiencies created are expected to provide more choice, innovative products and competitive prices for customers in each of their respective footprints," the two companies said Monday in a news release.
Doesn't this mean Comcast and Charter will be competing with Verizon on cellphone service, then?
That's technically right. But, being so small, the new services will start off mainly as a way for Comcast and Charter to protect and expand the traditional cable bundle, analysts say, at a time when many consumers are ditching cable altogether. For example, Comcast customers get a discount on Xfinity Mobile if they already subscribe to Premier Double Play or Triple Play. And signing up for Xfinity Mobile in the first place requires a Comcast Internet subscription.
"Adding a high-quality product that deepens the [customer] relationship will be a positive churn factor," Comcast Chief Financial Officer Mike Cavanagh said during his company's product reveal last month. "Churn" is an industry term referring to the number of customers who cancel and leave for another service.
What Cavanagh means is that hooking people on more Comcast services will reduce the likelihood of those people canceling their cable TV, the crown jewel of Comcast's empire. What's more, if the cable companies can use wireless service to get Americans to switch away from, say, AT&T's network, so much the better.
Does the agreement between Comcast and Charter have any other effects?
It indirectly affects the future of media, television and the Internet.
Now, the Comcast-Charter agreement is a new chapter in that story. It says that an acquisition of a cellular company by either cable firm — which could help them expand into cellphone service — is off the table, at least for the moment. Comcast told The Post on Tuesday that the ban is meant to shore up any gains made as a result of the agreement; if either company were to negotiate behind the other's back with another wireless carrier, that would undermine the point of the deal.
The agreement may serve to tamp down some speculation surrounding industry mergers, according to some analysts.
"Hopefully, this puts to rest some of the speculative excess that has dominated discourse for the past few months," said Craig Moffett, an industry analyst at the research firm MoffettNathanson. "Cable has clearly signaled that they're going to stand pat, for now."
What message does this agreement send to the rest of the business world?
Well, other analysts say it may simply shift the merger speculation in a different direction.
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Some policy analysts argue that, having temporarily ruled out a merger between companies in the wireless and cable sectors, the Comcast-Charter agreement will stimulate mergers among firms within the same industries, rather than more genre-breaking, cross-industry acquisitions.
"To me, it signals the next set of moves is likely to be horizontal," said Gene Kimmelman, a former Justice Department antitrust official who now leads the consumer group Public Knowledge. For example, he said, perhaps you could see a joint cable venture between Comcast and Charter, or a merger between wireless providers such as Sprint and T-Mobile.
While Comcast's customer base doesn't overlap with Charter's, meaning a cable merger wouldn't reduce the number of choices for Americans living in their respective footprints, losing a wireless provider could mean losing a competitor or alternative.
Correction: This post has been updated to clarify the terms of the Charter-Comcast agreement. It also corrects the spelling of the name of Comcast CFO Mike Cavanagh.
By: The Washington Post