Possible Verizon-Charter Deal May Resonate Politically

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By Lydia Beyoud and Kyle Daly

Verizon Communications Inc. and Charter Communications Inc. could position a potential deal as one that would provide U.S. jobs and new broadband infrastructure at a time when both issues are front and center for President Donald Trump and Congress.

Verizon Chief Executive Officer Lowell McAdam has approached Liberty Media Corp. CEO Greg Maffei about a possible combination with Liberty’s Charter, according to people familiar with the matter.

Verizon is said to be looking at Charter among several other possible deals, but it’s unclear whether the two companies will pursue a formal merger. If they did, Verizon would likely pitch a jobs and infrastructure message through its investment by saying they’d bring broadband to more people, Roger Entner, a telecommunications industry analyst at Recon Analytics, told Bloomberg BNA.

Verizon and Charter, two of the largest players, respectively, in the U.S. telecommunications and cable industries, would also likely be able to enlist the support of some influential Republican lawmakers. Charter’s service footprint falls heavily in Ohio, Tennessee, and Wisconsin—the home states for GOP Reps. Bob Latta (Ohio), chairman of the House Energy and Commerce panel’s Digital Commerce and Consumer Protection Subcommittee; Marsha Blackburn (Tenn.), chairman of the Communications and Technology Subcommittee; and House Speaker Paul Ryan (Wisc.).

Latta is also co-chair of the bipartisan House Rural Broadband Caucus. The possibility of regulatory conditions on a merger deal predicated on expanding broadband access to the nearly 39 percent of rural Americans who lack high-speed internet service could help swell support in Congress and the executive branch.

Some telecom industry analysts are skeptical of the chances for a deal because of the financial risks to Verizon’s balance sheet that a combination might impose, as well as the antitrust hurdles the companies would have to clear in proving a merger wouldn’t hurt competition for edge providers such as Netflix Inc. or Amazon.com Inc.

A combined Verizon and Charter would result in a broadband service footprint of approximately 29 million household subscribers, larger than Comcast Corp., the nation’s leading provider, which has approximately 25 million household subscribers.

The Republican-controlled Department of Justice and Federal Communications Commission may look more favorably on such a deal than Obama administration regulators. If the companies did combine, most consumers would be left with the same number of broadband competitors as they had before, Entner said. The companies’ wireline assets overlap in few markets, primarily in the Northeast region, and may be less likely to face opposition from state attorneys general.

Some analysts are skeptical that even a Justice Department possibly led by free market-leaning officials might back away from a strict competitive market analysis.

“Antitrust enforcement does not simply disappear during Republican administrations,” Craig Moffett, senior research analyst at MoffettNathanson said in a Jan. 26 client brief. “Yes, it is reasonable to assume that antitrust may be more permissive than under Democrat administrations. No, it is not reasonable to assume it won’t exist at all.”

Others said it’s possible a Verizon-Charter business venture could be structured in other ways to avoid the level of regulatory scrutiny that a standard merger would undergo.

“‘Merger’ is a simple term to describe a variety of relationships that might unfold as a result of a deal,” Berge Ayvazian, principal consultant for analyst group Wireless 20/20, told Bloomberg BNA. “There are other ways for them to enter into a relationship that can have much quicker results, that isn’t a straight commercial deal,” such as a spectrum-leasing agreement for Charter to offer wireless service using Verizon’s network, Ayvazian said. Such arrangements might help the companies avoid jumping through so many regulatory approvals, he said.

FCC Outlook

Mark Jamison, a member of the Trump transition team for the FCC, told Bloomberg BNA that he believes new commission chairman Ajit Pai would judge a Verizon-Charter merger on its specific merits rather than ideology.

“They won’t have a preconceived notion—is this good or bad. They will do the analysis,” Jamison, an American Enterprise Institute scholar and director of the Public Utility Research Center at the University of Florida, said.

Pai has favored telecom consolidation. He and fellow Republican FCC Commissioner Michael O’Rielly voted in favor of AT&T Inc.’s acquisition of DirecTV, but partially dissented not because they opposed aspects of the deal but because they said the FCC should have attached fewer conditions to its approval.

Pai and O’Rielly voted against Charter Communications Inc.’s acquisition of Time Warner Cable for much the same reason. Merger conditions including a ban on data caps and network interconnection agreements amounted to “the government micromanaging the internet economy,” Pai said in his dissent.

With assistance from Scott Moritz, Alex Sherman and Gerry Smith.

To contact the reporters on this story: Lydia Beyoud in Washington at lbeyoud@bna.com; Kyle Daly in Washington at kdaly@bna.comkdaly@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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