Why Charter Buying Time Warner Cable Could Help Investors and Hurt Consumers

By Daniel B. KlineFool.com

Comcast has managed to become more famous for its lousy customer service than its major rivals have.

That led, at least in part, to federal regulators getting in the way of its merger withTime Warner Cable. There was a public outcry against the merger, with many horrified that a company with so many high-profile customer service disasters would be allowed to swallow up its almost equally disliked rival.

Continue Reading Below

On the other hand, there seems to be very little outcry surrounding lesser-known Charter Communications'plan to merge with TWC in a deal that values Time Warner Cable at$78.7 billion. Charter will also purchase most ofBright House Networks for$10.4 billion in a separate deal, making it a cable and broadband behemoth serving23.9 million customers in 41 states, according to a press release. That puts it neck and neck with Comcast atop the list of providers offering Internet and/or pay television service.

Perhaps the public is simply happy that it's not Comcast getting bigger, but that's a pretty short-sighted view, especially when you consider that Charter does not have a dramatically better level of customer satisfaction.

Cable and broadband providers are not well-likedIf customer satisfaction were a deciding factor for the Federal Communications Commission when considering whether to allow mergers, the entire cable and broadband industry would be ineligible.

The American Consumer Satisfaction Index showed just how unloved these companies are in a press release about its most recent survey:

Comcast and Time Warner Cable sit at the bottom of the cable part of the survey, and both had the largest year-to-year drops. Charter is not far behind, coming in third from the bottom and posting the fourth-largest drop.

Source: ACSI (registration required)

The numbers are almost identical when you look at the same chart for Internet service provider customer satisfaction.

Source:ACSI (registration required)

Looking at these numbers, it's hard to see how the public could support a Charter/TWC deal. Comcast might be the greater villain in this scenario, but it's the Joker to Charter's Penguin -- one was clearly a bigger bad guy, but both weresuper-villains.

It's actually possible to argue that Comcast -- which has made a massive public effort to improve its customer service -- might have treated the public better had its merger gone through. Neither Charter nor Time Warner Cable has made any such mea culpa, nor has either announced plans to overhaul their customer experience.

It's probably good for investorsWhile it's hard to argue that consumers will come out ahead should the merger be allowed to go through, the deal should benefit shareholders for all the same reasons a Comcast deal would have helped. The companies, of course, will paint a picture of investments and new services, but the reality is that joining two similar companies with mostly adjacent but not overlapping territories creates cost savings.

Time Warner Cable CEO Robert Marcus said that the deal would "maximize shareholder value." He did not spell out how the combination of the three companies would allow for large back office and management cuts, but clearly they would.

Getting bigger and having more subscribers will lead to more investment, at least where it benefits the company. It will also allow the company to spread out required costs over a larger user base. It's a win for investors even it it's not necessarily one for customers.

The public should be skepticalThe public fervor that helped spike the Comcast deal just isn't there in this case, but perhaps it should be. Before approving this deal the FCC should look long and hard at why Charter and TWC rank so low for customer satisfaction.

That does not mean that the merger and the subsequent Bright House purchase should be rejected out of hand. There should, however, be conditions and assurances built into any approval that guarantee that the company passes on at least some of the cost savings created by its increased size to customers.

This type of consolidation creates real shareholder benefit, and the combined company will be stronger. The FCC just needs to take steps to make sure it's a little nicer.

The article Why Charter Buying Time Warner Cable Could Help Investors and Hurt Consumers originally appeared on Fool.com.

Daniel Kline owns shares of Apple. His first creative experience was producing shows for Time Warner Cable public access when he was in high school. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. 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.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.