LOS ANGELES (AP) — Comcast announced on Monday a series of subscriber swaps designed to help clear the way for regulatory approval of its acquisition of Time Warner Cable. The reorganization of the nation's cable grid will give Comcast a stronghold in major cities like New York, Los Angeles, Chicago, Dallas and Boston.
As part of the deal, the company will sell 1.4 million subscribers to Charter Communications Inc. for $7.3 billion in cash and spin off another 2.5 million subscribers into a company in which Charter will take a one-third stake. Charter is restricted from boosting its stake in the spinoff company for two years, although analysts expect it to increase the stake over time.
The deal is part of Comcast Corp.'s commitment to federal regulators to shed at least 3 million subscribers and serve no more than 30 percent of all the pay TV customers in the U.S. The company hopes the divestiture will help its $45.2 billion acquisition of No. 2-ranked Time Warner Cable gain approval from federal regulators by the end of the year.
Comcast and Charter are also exchanging 1.6 million subscribers each, carving up the country to give Charter a stronghold in Midwestern states where it faces less competition from AT&T and Verizon, including Indiana, Ohio, Kentucky, Wisconsin, Minnesota, and Missouri.
Brian Roberts, Comcast's CEO, told investors on a conference call that service areas in clusters help to save costs and make the company's offerings more competitive. A combined Comcast-Time Warner Cable would service roughly 30 million video customers and 28 million Internet subscribers.
The reshuffling amounts to a hefty consolation prize for Charter, which lost the bidding war for Time Warner Cable Inc. when the Comcast deal was announced in February.
Charter CEO Tom Rutledge told investors the transaction will create a "highly efficient footprint for us in the Midwest and Southeast."
"Today's announcement represents a very good outcome for Charter," he said.
Consumer groups criticized the latest dealings.
Matt Wood, policy director for media consumer advocacy group, Free Press, said the deal does nothing to address the problem that cable companies intentionally don't compete in each other's service areas. That leads to higher prices and worse customer service, he argued.
"It doesn't do enough to address the harms of having even fewer companies," he said.
Charter will form a new holding company that will own 33 percent of the Comcast spinoff, while shareholders of Comcast and the former Time Warner Cable will own the remaining 67 percent of the new company.