The announced merger of Comcast and Time Warner Cable is expected to have far-reaching implications for other companies in the video and broadband business, with expectations 2014 could be one of the busiest years in a decade for telecom industry mergers and buyouts.

AT&T + DirecTV = Less Video Competition

Bloomberg News reports an announcement from AT&T that it intends to acquire DirecTV for as much as $50 billion could be forthcoming before Memorial Day. Such a merger would drop one satellite television competitor in AT&T landline service areas and promote nationwide bundling of AT&T wireless service with satellite television.

Historically low-interest rates would help AT&T finance such a deal and would turn DirecTV into a division of AT&T, easing concerns the satellite company has been at a disadvantage because it lacks a broadband and phone package.

“While the Comcast/TWC deal was the trigger, the backdrop of a slow macro economy, new competitors, shifts in technology and consumer habits all come together and force the need for more scale,” Todd Lowenstein, a fund manager at Highmark Capital Management Inc. in Los Angeles told Bloomberg.

Satellite television companies remain technologically disadvantaged to withstand the growing influence of online video and their subscriber numbers have peaked.

If AT&T buys DirecTV, the wireless giant could theoretically bundle its service with DirecTV’s video product, and in some areas of the country its U-verse high-speed broadband to the home, to compete with cable, said Amy Yong, an analyst at Macquarie Group in New York, in a note to clients.

Sprint + T-Mobile = Less Wireless Competition

Dish + T-Mobile = A Draw

In a less likely deal Sprint is still trying to pursue T-Mobile USA for a potential merger and if regulators reject that idea, Charles Ergen’s Dish Network is said to be interested.

To prepare Washington for another telecommunications deal, SoftBank founder Masayoshi Son’s lobbying firm, Carmen Group, has again been meeting with elected officials and regulators to argue the merits of a merger with T-Mobile, according to a person familiar with the matter.

Dish, which failed to buy Sprint last year, would be interested in acquiring T-Mobile if regulators block Sprint’s efforts, Ergen said. That hinges on whether SoftBank Corp. fails to win regulatory approval for its plan to buy T-Mobile, which is controlled by Deutsche Telekom AG, Ergen said last week. The Japanese wireless company owns 80 percent of Sprint.

All three deals carry a combined value of $170 billion in equity and debt and would impact 80 million Americans.

Suitors hope regulators will be in the mood to approve merger deals as they contemplate enlarging Comcast through its purchase of Time Warner Cable.

Even if all the deals don’t pass muster, Wall Street banks will still rake in millions in fees advising players on how to structure the deals. Goldman Sachs and J.P. Morgan would join executives winning considerable sums for reducing the number of competitors providing telecommunications services in the U.S.

Whether customers would benefit is a question open to much debate.

AT&T has usage capped its heavily promoted U-verse GigaPower fiber to the home service at 1TB a month, according to fine print appearing on communications sent to customers.

Any customer that exceeds 1TB of usage per month will be subject to AT&T’s usual overlimit fees: $10 for each additional 50GB of data sent or received. At least AT&T currently caps the maximum overlimit fee at $30 for its fiber customers.

Many Austin GigaPower customers are signing up for the company’s Premier package, which includes a waiver of equipment, installation, and activation fees and provides 36 months of fixed rates and free HBO and HD service along with 300/300Mbps broadband.

Enrolling in a discounted promotional plan does mean you consent to allow AT&T to collect information about your browsing habits through deep packet inspection.

Comcast is 2014’s Golden Poo award winner. (Image: Knight725)

Comcast eked out a narrow victory against Monsanto — the litigious-happy, genetically modified-seed company — to win top honors in the 2014 Consumerist “Worst Company in America” contest.

Comcast is a past recipient of the pro-consumer website’s Golden Poo award given to the company that most alienates its customers, winning first place in 2010 after implementing usage caps on its broadband customers, as well as runner-up status in 2008 and 2009 and third place in 2011 and 2013.

“Comcast’s win makes it only the second company to claim multiple Poos. Last year, video game biggie EA was both the first two-time winner and its first repeat champ,” reports Consumerist.

The nation’s largest cable company, Comcast managed to irritate more than any other with an arbitrary usage cap it now wants to call a “data threshold,” shoddy service, service calls that never happen, incompetent technicians that set customer homes on fire, billing errors, and inventing new profit-padding fees for almost everything.

Getting larger with the acquisition of NBC Universal did little to improve matters for customers, and one high executive cynically delayed a planned low-income discount Internet access offer to use as a carrot with the FCC to win approval of its NBC merger deal. To this day, Comcast goes out of its way to impose a number of qualifications for its Internet Essentials program to protect profits potentially harmed by customers switching to cheaper service to save money.

Now Comcast wants to buy Time Warner Cable, the country’s second largest operator. Despite the fact there is little love from subscribers for Time Warner, many suspect Comcast will prove much worse. A merger brings the threat of a 300GB usage limit on broadband, an even higher modem rental fee, and cable television packages that are often more expensive than those from Time Warner.

Comcast’s greatest defense for its merger is that it doesn’t compete with Time Warner Cable so there are no antitrust concerns. But since the cable industry has borrowed from New York’s Five Families‘ playbook, they almost never compete anywhere in the country, preferring to divide up territories and avoid head-to-head competition.

“By Comcast’s logic, it would then be perfectly okay for Comcast to be the only cable and Internet provider in the country, since there isn’t really any competition among the players in this marketplace to begin with,” writes the Consumerist.

We say don’t give them any ideas.

JPMorgan Chase reports average cable rates reached $88.67 in 2013. (Image: The Oregonian)

Cable TV rates are too low and need to be hiked to boost revenue and offset rising programming costs, even if rate increases further alienate cable subscribers, according to a new report from JPMorgan Chase.

The Wall Street bank concluded customers have few options, noting that after providers raised prices around 5% last year, they lost only 0.1% of subscribers.

“Cable operators are better off raising video prices than eating higher content costs,” said Philip Cusick, a JPMorgan analyst, in the report. “Our analysis indicates that cable companies are better off raising prices and catching customers with broadband if cord cutting becomes widespread, (rather) than eating the programming increase.”

The bank recommends imposing (or raising) broadcast TV and sports programming surcharges as well as general rate hikes on basic cable service.

JPMorgan notes that increased broadband pricing and cable modem rental fees paid off for the industry during the fourth quarter of 2013, when earnings topped estimates. By doing the same for cable television packages, providers can continue to boost revenue with little risk customers will find a suitable competitor that isn’t also increasing prices.

Even if customers get rid of cable television, a practice known as cord-cutting, cable operators can still keep customers by providing broadband service. Some of the lost revenue can be recovered from the services customers have not canceled.

Cusick says the industry is being challenged by a handful of content companies that increasingly dominate the cable package, among them Walt Disney, Time Warner (Entertainment), CBS, and FOX.

“With the majority of content controlled by only six or seven programmers, aggregate prices for content are rising around 10% annually and forecasts in many media models continue that rise for years,” Cusick said.

Normally when one learns they are losing a job after only a few months in management, it is a time for sober reflection and emotional recovery.

Not so for top executives at Time Warner Cable who can expect Golden Parachute packages that rival the Powerball jackpot.

CEO Robert Marcus, who will eventually walk away from Time Warner Cable after becoming its CEO only this year will receive a package worth up to $80 million, according to a document filed with the Securities and Exchange Commission. That is way up from the estimated $56 million severance package he was anticipating.

In addition to more cash and stock options, Time Warner Cable created something called a “supplemental bonus opportunity” that will hand Marcus an extra $2.5 million in walk-around money if he agrees to stick around until the merger is completed. The idea behind the bonus incentive is to keep executives happy during the pendency of the merger. If top employees defect or lose focus on Time Warner Cable’s operating plan over the coming year, it could rattle the value of the company’s stock.

Most regular employees are not invited to the enhanced compensation party and will spend the rest of this year updating their resumes before the combined company finds millions in “cost savings” from anticipated layoffs and call center closures.

Time Warner Cable’s Golden Parachute Compensation

Among the benefits for the top-five executive officers:

• accrued but unpaid bonus for any previously completed fiscal year, based on actual results for the year;
• pro rata bonus for service during the year of termination, based on actual results for the year;
• 36 months of continued salary and bonus payments, paid on TWC’s normal payroll payment dates for salary, where the bonus component is set at target.

Wall Street Bank Money Party

In the all-encompassing merger proposal submitted to the Securities and Exchange Commission, Time Warner Cable noted it sought the advice of several Wall Street investment banks and related institutions. Unsurprisingly, based on the material submitted voluntarily by Time Warner Cable and Comcast, the banks submitted written reports declaring that the merger proposal seemed fair. For that, these advisers were well-compensated. In all, Time Warner Cable and Comcast will pay a combined $135.5 million in fees in return for the positive assessment of the merger’s potential:

• In connection with Allen & Company’s financial advisory services, TWC has agreed to pay Allen & Company an aggregate cash fee of $25 million, a portion of which was payable upon delivery of Allen & Company’s opinion to the TWC board of directors in connection with the merger and $17.5 million of which is contingent upon consummation of the merger;
• In connection with Citi’s services as TWC’s financial advisor, TWC has agreed to pay Citi an aggregate fee of $36 million, of which a part was payable upon delivery of its opinion and $28.5 million is payable contingent upon consummation of the merger. In addition, TWC has agreed to reimburse Citi for certain expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including under federal securities laws, arising from Citi’s engagement;
• TWC has agreed to pay Morgan Stanley for its financial advisory services in connection with the merger an aggregate fee of $36 million, of which a part was payable upon delivery of its opinion and $28.5 million is payable contingent upon the closing of the merger;
• In connection with Centerview Partner’s LLC services as the TWC independent directors’ financial advisor, TWC has agreed to pay Centerview an aggregate fee of $11 million, portions of which were payable upon the rendering of Centerview’s opinion and in connection with its engagement and $3 million of which is payable contingent upon consummation of the merger;
• J.P. Morgan has acted as financial advisor to Comcast with respect to the proposed merger and will receive a fee from Comcast for its services equal to a total of $27.5 million, $25 million of which will become payable only if the proposed merger is consummated.