Comcast has pulled out every stop to win Federal Communications Commission approval of its proposed $45 billion merger with Time Warner Cable .
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In addition to attempting to improve its customer service and relationship with its customers, the cable and Internet giant has also made an effort to publicize what it sees as the positives for the public if the deal goes through. At the time the merger was announced, Comcast issued a press release making it clear that stressing how beneficial the transaction would be to everyone involved was going to be a recurring theme.
Under the headline "Time Warner Cable to Merge With Comcast Corporation to Create a World-Class Cable Company," there were two bolded subheads that started to build the case that the deal should be approved because it would be great for customers, specifically business ones:
Strategic Combination Will Accelerate Delivery of Comcast's Technologically Advanced Products and Services to Time Warner Cable's Customers
Transaction Creates Multiple Pro-Consumer and Pro-Competitive Benefits, Including for Small and Medium-Sized Businesses
Now, with the FCC having placed its review of the deal on hold, Comcast is renewing its efforts to make it clear that allowing the two companies to merge will be good for more than just Comcast and Time Warner Cable.
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Both Comcast and Time Warner Cable court business customers. Source: Comcast,
What is Comcast claiming?
Bill Stemper, President of Comcast Business, recently wrote in a blog post that the merger will bring "many benefits to enterprise customers -- including the ability to link multiple offices spread across major markets like San Francisco, Seattle, Chicago, Houston, Miami, Boston, or Philadelphia." He quantified those benefits, saying, "In total, we expect to generate almost $8 billion in price reductions due to our competitive entry in the enterprise business segment through the TWC transaction."
That claim appears to contradict an early statement made by Comcast EVP David Cohen at the time the deal was announced, Ars Technica reported:
The impact on customer bills is always hard to quantify. We're certainly not promising that customer bills are going to go down or even increase less rapidly. Frankly, most of the factors that go into customer bills are factors beyond our control.
Cohen's comment seemed oddly honest for a cable industry executive. Comcast had always promised benefits to business customers from the merger, but price reduction was not initially one of the ones proposed.
But now that the deal is under fire and in danger of not being approved, Comcast and Time Warner Cable have clearly revisited their initial math.
Where are the savings coming from?
Comcast explained the cost savings in a filing with the FCC, albeit with some of the numbers behind the equation redacted. In the document, the company called its calculations -- the ones that showed $8 billion in savings -- "conservative."
Comcast analyzed cost savings over a 10-year period for enterprise customers, which it defines as "multi-location businesses with at least 500 employees," the filing said. There will be "various cost savings and other benefits" for small businesses too, the filing said.
"With this transaction, our combined networks will also help small businesses take that next step in their growth plans using a combined network footprint and a more seamless experience from a single service provider with 24/7/365 support and unified billing," Stemper argued in the blog post.
Comcast also promised faster Internet speeds, better phone service, and enhanced Wi-Fi. Stemper stopped short of promising whiter teeth and making customers look younger, but his post makes it very clear his company wants to push the notion that small and medium-sized businesses will benefit from the deal.
What to believe?
While the efficiency argument makes sense, it's also a little tough to swallow that a larger, more powerful cable and Internet giant will use its new heft to lower prices. It's also a little dubious that after saying that most of the factors that affect pricing were out of its control, Comcast now believes it has the ability to deliver $8 billion in savings.
For the FCC, this is a clear case where "trust, but verify" is the best policy. Increased scale could make it easier for Comcast and Time Warner Cable to serve customers, but it could also allow the combined giant to raise prices and deliver poor service (perhaps while laughing and twirling a handlebar mustache).
If the FCC approves this deal, it should mandate cost savings -- the ones Comcast says it will deliver anyway -- as a condition of approval. Only if that happens will there be a guaranteed benefit for the businesses Comcast and Time Warner Cable seem so eager to help.
The article Will the Comcast/Time Warner Merger Really Save Businesses $8 Billion? originally appeared on Fool.com.
Daniel Kline has no position in any stocks mentioned. He has never found $8 billion in savings, but he did earn a free cup of coffee recently. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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