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Speaking on a panel at the NCTA convention on Tuesday, Wall Street analysts were quite bullish on the future of cable — especially if Comcast acquires Time Warner Cable — and surprisingly bearish on the prospects for telecoms or tech companies to undercut them.
There was unanimous backing by the analysts for the Comcast deal to acquire Time Warner, which they all but cheered would create a company with greater scale, increased leverage and a national footprint that none of their competitors will be able to match.
“It’s hard to look at this and not be positive,” said Jessica Reif Cohen, managing director, Bank of America/Merrill Lynch, adding, “If I was a satellite operator, I would be really nervous about this combination,” explaining that the technology Comcast has rolled out, especially the Xfinity system, “has changed the game,” and people in New York and elsewhere can’t wait for it to reach them.
Craig Moffett, partner and senior analyst in MoffettNathanson in New York, said he was only sorry that he wasn’t the banker on the sale. “It is rare that a deal is good for both parties, but this is a deal, I think I can say, is good for both parties.”
He said with the recent transaction selling Comcast subs to Charter to clear the path for the deal, it is also good for Charter and “it’s good for the industry.”
Benjamin Swinburne, managing partner of Morgan Stanley, said this is going to give Comcast and Charter more size and clout, explaining it is also going to “make it tougher for Dish and DirecTV and the telecoms (AT&T and Verizon, who both sell video and other services).”
Philip Cusick, managing director, J.P. Morgan, echoed other analysts in raising questions about whether the telecoms will even stay in video in a significant way over the long term. “If you’re a telecom and you’re looking 10 years out as an investment, cable is going to be a monopoly. I think telecoms will have to look at whether they want to be there or not.”
“The advantage the cable operators have in the physical capacity of the plant,” said Moffett, “grows exponentially over the coming years, unless there is real investment by telecoms,” which he doubts will happen.
Moffett and the others were also skeptical that Google is a serious player in wiring America over the top of existing systems as they have already done in Kansas City, Austin and elsewhere.
“I’ve always believed Google has a couple ambitions,” said Moffett. “My sense is they understood probably for at least 10 years the trajectory that cable is in large parts of the country going to be the only high-capacity infrastructure.
“Google ran risk of being the gold mine next to the monopoly railroad, so it didn’t want that to happen,” meaning that Google did the tests in Kansas City and elsewhere to push the telecoms to invest in more expensive infrastructure to create a counter to cable.
“If I had a high-margin, low-capital business like Google, why would I ever become a cable operator? To make sure they (big cable) can’t pull all the money out of me.”
He referred to the test markets Google has wired as “a whip behind guys like AT&T,” adding: “I don’t see Google becoming a real carrier.”
If Google can’t spur a cable competitor, added Cusick, then they want the cable industry to be in a “regulatory environment,” which means greater oversight by the FCC, or a rewrite of the communications act that folds them all under government authority.
All of which would help Google counter the power of its cable competitors.
The panel was moderated by Mark Bowser, executive vp and CFO of Cox Communications, another cable systems operator.
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