Charter Communications and Cox Communications announced in May that they would be merging. The new company, which will keep the name Cox Communications, combines the companies’ broadband network assets along with Charter’s cable television service under Charter’s consumer-facing brand, Spectrum. The new Cox Communications will be the largest cable broadband provider in the United States.
Critics contend mergers and acquisitions like this undermine competition. But that is far from the case in the consumer broadband market. For one thing, the marketplace is converging such that fixed wireline providers like Cox and Charter now face competition not just from each other but also from fiber, satellite, and fixed wireless providers that also deliver high-speed Internet service.
For another thing, deploying broadband infrastructure requires ISPs to incur steep upfront costs that they must recoup over time in consumers’ monthly bills. Mergers create better economies of scale and allow those costs to be spread among more customers, so ISPs can make big investments to upgrade infrastructure without raising prices.
The Cox Communications merger also will be able to combine administrative functions, eliminate duplicative deployment costs, and increase operational efficiency. Charter predicts the merger will cut operating costs by $500 million within the first three years of the transaction’s close. In turn, that reduced cost will then be shared across a larger, combined footprint of 36 million customers. The result is less expensive, high-quality Internet service for those millions of Americans.
But the consumer gains of the merger go beyond service pricing. Another significant benefit of the merger is that reduced costs will allow Cox Communications to invest in infrastructure upgrades. Part of remaining competitive is ensuring cable broadband technology has the same performance capabilities as other broadband technologies in the market. For example, this merger comes at a time when the Data Over Cable Interface Specifications (DOCSIS), an industry standard for cable Internet, is in its fourth generation (DOCSIS 4.0). The technology enables gigabit speeds, low latency, and enhanced security for cable Internet customers, but updating infrastructure to DOCSIS 4.0 is expensive. This merger allows for the money saved through cost-cutting to be allocated towards those network upgrades and innovation, ensuring customers get next-generation, high-speed Internet even while competitive prices persist.
The key point is that consumers don’t benefit from simply adding new ISPs to the market. While the number of competing ISPs is on the rise, we’re also in a period of technological convergence. Cable companies are not just competing with other cable companies, they are competing against all broadband providers, including former telephone networks now turned to fiber, fixed wireless 5G networks, and low-earth-orbit satellite constellations. Reshuffling the market to have fewer, stronger competitors will create a more stable long-term environment for competition to play out. And, while technological convergence is heating up competition, companies like Cox and Charter must find ways to reduce costs or they will lose market share to ISPs who can.
In sum, this merger will be a win for consumers and regulators should not stand in the way, either to appease policymakers and advocates with “big-is-bad” instincts or to introduce unrelated merger conditions for extraneous social-policy purposes.
