Charter would have to raise prices — a lot — to make its merger math work

If you find yourself in a hole, they say, stop digging. But in the latest cable-giant merger bid, Charter Communications is preparing to dig itself even deeper into debt.

Charter is already swimming in debt, and to merge with Time Warner Cable and Bright House Networks the company’s committed to taking on as much as $27 billion in new debt. If the merger goes through, the combined company will be saddled with a whopping $66 billion in debt.

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This is absurd. Charter is willing to pay a huge premium over the price Comcast offered for Time Warner Cable in its failed merger bid for many of the same assets and customers. For this sum, Charter could build broadband to millions of homes where it currently doesn’t offer service, tripling the size of its existing service area. It could also use that money to cover the company’s current annual capital expenditures 12 times over. Instead, it’ll use that money to line shareholders’ pockets — a completely unnecessary and excessive expense.

How does Charter plan to pay off this debt? With your money.

Free Press research suggests that the merger wouldn’t result in significant savings on programming fees for the new company, nor would Charter benefit significantly from new economies of scale. As we reported in comments filed at the Federal Communications Commission, the only way for Charter to cover its debt burden is to squeeze customers.

The merged company would have enormous market power, controlling more than a quarter of national broadband customers. Together Charter and Comcast would control nearly two-thirds of existing customers, forming a national broadband duopoly of unprecedented scale. The merger would limit consumer choice by giving people even fewer competitive options for cable and broadband service.

And that’s exactly what Charter wants. With monopoly-style market power, it could raise prices on captive customers and protect its existing cable-TV model by thwarting competition from online video services. There’s hardly any competition in the broadband market as it is. Many customers won’t have the option to take their business elsewhere should Charter start hiking rates and abusing its gatekeeper power.

In fact, this substantial market power is the only significant benefit Charter would receive from the merger, and the only realistic way it could pay off its debt. The new company plans to take on an additional debt burden of $1,142 per customer, and Charter has every incentive to make that money back by raising your rates. With U.S. broadband prices already significantly higher than those in most developed countries, this is a significant burden.

This isn’t mere speculation: Charter has told investors it plans to exercise its expanded market power after the merger. How else could it justify taking on such massive debt?

Charter is busy trying to schmooze the FCC with promises of good corporate citizenship, but the numbers don’t lie. If the merger goes through, Charter customers will see considerable price hikes and anti-competitive plans to crush online video.

For many customers, this money grab wouldn’t just be an inconvenience: It would force them offline. It’s likely the merged company would eliminate Time Warner Cable’s popular lower-cost service tiers, forcing current Time Warner Cable customers to pay more for comparable Charter packages — or lose their service. Many of these families already make impossible sacrifices to afford Internet access. This merger will hit them first, and hit them hard.

The merger’s debt tag tells us loud and clear that it’s a bad deal for the public. The math doesn’t work unless Charter starts raising rates and edging out low-income families — all to pay off a handful of greedy cable executives.

The FCC needs to stand up for the public interest and deny this wasteful, debt-ridden deal.

Floberg is the C. Edwin Baker policy fellow at Free Press.

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