Charter Communications Inc. CHTR recently made key announcements related to two of its pending deals.
Setting aside all speculations, the company declared that it has reached an agreement to buy Time Warner Cable Inc. TWC – the second largest cable multi service operator (MSO) in the U.S. Charter will also take over Bright House – the sixth largest cable operator in the U.S. – for $10.4 billion.
Following these developments, Charter is now looking forward to significantly expand its footprint in business services and in the wireless arena.
We note that jointly, the merged entity of Charter, Time Warner Cable and Bright House will serve 23.9 million customers across 41 states. This will allow the merged entity to provide faster broadband speeds, enhanced video products and more cost-effective phone services to a broad base of customers.
In particular, Charter intends to spread its fiber optical networks in unexplored territories to serve the large market of small and medium sized businesses (SMB). Notably, the SMB segment represents huge growth prospects for the cable TV industry. Various industry researches estimate that the segment is poised to offer a $20 billion to $30 billion market opportunity, going ahead.
Further, significant improvement in business data and video traffic is expected to be a growth catalyst for the SMB industry. Presently, Comcast Corp. CMCSA is the leader in this space. However, the merged trio of Charter, Time Warner Cable and Bright House, once formed, can pose a significant threat to Comcast.
In the wireless space, the company wishes to extensively invest in public Wi-Fi network, which should considerably expand its customer base.
Time Warner Cable and Bright House together boast around 85,000-90,000 Wi-Fi hotspots in major metropolitan areas. The two companies are also members of the Cable Wi-Fi consortium, which itself possesses in excess of 400,000 hotspots all over the country. Thus, the new merged entity will have a strong base to further build on.
However, the company is set to receive tough competition in this space from Cablevision Systems Corp.’s CVC innovative wireless service on WiFi networks – Freewheel.
Nonetheless, we believe that the Time Warner Cable and Bright House deals are likely to benefit Charter in terms of geographic expansion and operating cost synergies. This, in turn, should boost its bottom line and free cash flow. Charter will also be able to offer enhanced services and more streaming video product options if these deals duly materialize.
However, the Charter-Time Warner Cable deal will possibly face close scrutiny by regulator Federal Communications Commission. It remains to be seen whether the deal crosses this final hurdle successfully or not.
Charter currently has a Zacks Rank #3 (Hold).
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