John Malone: Charter-Time Warner Cable Deal Won't Face "Material" Regulatory Issues
The Liberty Media chairman says regulators won't want "a Snow White and Seven Dwarves situation" and once again suggests that cable firms could team on a Netflix rival.
Liberty Media chairman John Malone said Tuesday that he sees no "material" regulatory issues for the Charter Communications-Time Warner Cable deal.
"The deal will not have major regulatory" issues, he reiterated later during the annual shareholder meeting of Liberty Broadband, which holds Liberty's stake in Charter. "If I thought we were [facing major hurdles], we wouldn’t have done this deal," Malone said.
Malone said the company has "carefully" looked at all the complaints against the Comcast-Time Warner Cable deal. He emphasized that "in each case Charter is an entirely different situation" than the Comcast-TW Cable deal. He said the Charter transaction will create a company with smaller size and market power than Comcast would have had, and that there are not the same vertical and horizontal consolidation concerns that the Comcast deal included. The vertical integration concerns revolved around Comcast's ownership of entertainment giant NBCUniversal.
Malone said, "It's true I have a few investments on the content side," such as Discovery Communications. "But I don't control either side."
He said that if TW Cable had acquired the smaller Charter, there would "clearly not" be any regulatory concern at all.
Later on in the meeting, he returned to the theme of scale. "I don't believe that the regulatory authorities want to see a Snow White and seven dwarves situation," Malone said. "Even Charter-Time Warner will still be quite small compared to AT&T-DirecTV and Comcast."
And he said Charter CEO Tom Rutledge's strategy was "very pro-consumer," meaning it was "very much supportable" by the government. He also said that Rutledge and his team could "wake up a sleepy cable company that was treading water."
"The end result will be worth it," Malone said about Charter's deal for TW Cable, predicting it would take three years of investment. Some critics will say "he is spending too much capital," Malone predicted. He said he was mainly betting on Rutledge, whom he lauded, to further improve the TW Cable business.
Asked about regulators' appetite for keeping cable operators in check, Malone said that it will depend how well merged companies innovate. "Nobody is yelling to break up Apple right now, even though they are far and away the biggest and most dominant player in the digital space on a global basis," he said. "Why? Because they continuously innovate and please everybody with their new creations."
He added: "If the cable industry is essentially an exploiter of a unique position, it will get regulated and it will deserve to get regulated. If the cable industry uses its technological lead to innovate and to provide new products and services based on its scale and its technology, then I think the industry will be in good shape with the regulators on a global basis."
Malone also said on Tuesday that he hates to call the sector the cable industry, preferring the term "broadband industry," saying the sector is getting more global. He is also chairman of Liberty Global, which owns cable operations across Europe and Latin America.
Malone also once again promoted the idea of a possible nationwide Internet-based service jointly provided by big cable operators that could rival Netflix, which he has mentioned in the past. "I was quite a critic of the U.S. cable industry looking from overseas, and I said [that] TV Everywhere is so far TV Nowhere. That allowed Netflix and Hulu and so on to fill in what was a vacuum that should have been filled, really, by the distributors," he said.
With the TW Cable deal, "Charter will now be of a size where they can have a meaningful VOD offering, perhaps in cooperation with other operators," delivered "on a broad scale and cost effectively," Malone said. "So, whether you call it catch-up TV or competing with Netflix, call it what you want. The ability to see a lot of programming on a random access basis, that the consumer is already paying for, by the way, is a very attractive proposition."
Malone on Tuesday also signaled that Charter could look at a "Wifi optimized connectivity service" or wireless phone service once it owns TW Cable. "My guess is that the government would be greatly pleased if there was a third meaningful alternative to the two dominant wireless companies," he said. "It could well take the form of exploiting Wifi optimized communication.”
Rising broadband demand will create scarcity and increasingly force traffic to be downloaded onto terrestrial networks, "whether it’s done cooperatively or whether it’s done through consolidation," Malone said. "Ultimately, I believe these networks will have to work together, come together to provide a full measure of consumer service."
TWC was part of a consortium that acquired spectrum that was later traded to Verizon. But consortium members Comcast, TW Cable and Cox Communications kept the perpetual right to have a mobile virtual network operator. Malone said such a joint Comcast, Charter and Cox "Wifi optimized connectivity service" was "an interesting concept."
Malone also discussed TV networks businesses. "How are they going to be found" and how can they promote themselves in the future world of TV would be their main challenges as the pay-TV bundle is under pressure, he said. Asked about sports costs, he said Disney could face challenges with its sports-rights deals over the long term. Consumers may well end up not supporting "that kind of a cost structure" in the future, he said.
Malone was also asked about Luxembourg-based Altice Group, led by billionaire Patrick Drahi, who used to work for one of Malone's companies and is often described as a protege. Altice recently agreed to acquire U.S. cable operator Suddenlink and was also in the running for Charter.
"Patrick is a genius," Malone said Tuesday, also calling him "my friend" and a "capitalist entrepreneur." Asked about his move into U.S. cable and other recent Altice deals, Malone said Drahi was "taking advantage of today’s low interest rates." He drives up the cost of assets that Liberty has also looked at with his bids, Malone said.
Analysts have said he will have to cut a lot of costs, including via layoffs, to make the deal work. Malone said that "he has no synergy" between Suddenlink and his other assets, adding that "the jury is still out" on whether he can make things work via cost cuts, and raising doubts he could cut enough personnel.
Malone and Liberty Media CEO Greg Maffei held a number of annual meetings for the various Liberty companies on Tuesday.
In another one of the meetings, they were asked about satellite radio company SiriusXM, which Liberty controls. Malone said that its frequencies could be "quite valuable." Sirius could free up spectrum that "could be quite valuable for us or someone else," he said.
The successive shareholder meetings Tuesday for the various Liberty companies were webcast. After one meeting finished quickly, Malone quipped: "Isn’t democracy wonderful. The government should be so efficient."
Malone also said that some shareholder groups have criticized Liberty Media CEO Greg Maffei and him for sitting on too many corporate boards. "It’s kind of silly," he said. People with a controlling vote in a company should sit on the respective board, he argued. "We do represent the various Liberty groups," Malone said. "To do otherwise, would be silly." He quipped that he didn’t want to call shareholder groups silly, but "if it fits, they should wear it."