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A massive merger would create the nation's second-largest cable company

Charter CEO Thomas Rutledge.
Charter CEO Thomas Rutledge.
Jamie McCarthy/Getty Images

Just weeks after federal regulators rejected Comcast's proposed acquisition of Time Warner Cable, Time Warner has a new suitor, Charter Communications. Charter announced a plan to buy Time Warner Cable on Tuesday. Simultaneously, Charter is also planning to buy another, smaller cable company, Bright House Networks.

The deal could have big implications for customers of the three companies. Greater efficiencies could lead to lower prices and better technology. But the new, larger company could also make the already bad customer service at these companies even worse and might even threaten competition in the media and internet markets.

Here are five things you should know about the deal.

1) The new company will be huge, but not as huge as Comcast

(Spencer Platt/Getty Images)

Right now, Time Warner Cable is the second-largest cable company in the country, after Comcast. Charter is significantly smaller than either of them.

Charter says that once it acquires Time Warner Cable and Bright House, the combined company will have nearly 24 million customers, a bit less than Comcast's 27 million.

2) This merger has a better chance of approval than Comcast's did

Comcast executive  David Cohen testifies in favor of the company's unsuccessful effort to acquire Time Warner Cable. (Drew Angerer/Getty Images)

The Comcast deal died because officials at both the Department of Justice and the Federal Communications Commission told Comcast they would try to block it.

This deal, too, will require regulatory approval. But there are a couple of reasons to think Charter has a better chance of getting signoff from regulators than Comcast did. The Comcast deal involved the nation's two largest cable companies, and the merged firm would have dwarfed other firms in the industry. By contrast, this latest merger will produce a firm that's still a bit smaller than Comcast, making competition concerns less urgent.

Regulators were also concerned about the fact that Comcast owns NBC Universal. There were concerns that Comcast would use its even larger cable footprint to give NBC content an unfair advantage over content from other media companies. In contrast, none of the three companies involved in this deal have significant media holdings (Time Warner Cable was spun off from the Time Warner media company in 2009). So regulators don't need to worry about the newly merged firm favoring its own content over that of competitors.

3) But the merger is not a sure thing

While the new post-merger company won't be quite as big as Comcast, it'll still be enormous. And it's conceivable that regulators could oppose it.

The Obama administration has been highly skeptical of big telecom mergers in recent years. Not only did they block Comcast's acquisition of Time Warner Cable this year, they also blocked AT&T's attempted purchase of T-Mobile in 2011. And the Comcast decision came shortly after the FCC approved tough new network neutrality rules — both decisions were likely influenced by growing public concern about the power of big broadband providers.

On the other hand, the Wall Street Journal reports that regulators are expected to approve AT&T's acquisition of DirecTV.

4) Big cable mergers are about boosting bargaining power with content companies

Cable companies operate in what economists call a two-sided market. On one side, cable companies offer cable and broadband internet service to consumers. On the other side, cable companies must acquire content from — and negotiate interconnection deals with — media companies. And these media companies have a lot of clout.

The best example of this is ESPN. The sports channel has enough loyal fans that most cable companies feel they can't offer cable packages without it. That gives Disney, the channel's corporate parent, a great deal of leverage, and the company used that leverage to gain ever-higher fees from cable providers.

The Charter mergers would give the company more leverage in its negotiations with media giants like Disney. After all, ESPN needs cable companies to distribute its content as much as the companies need content. The larger a cable company is, the more credible its threat to walk away from the table and deprive media companies of revenue and viewers.

5) The consumer benefits from the deal are uncertain

There are two ways that — in principle — the merger could benefit consumers. The merged company could play hardball with content providers, get lower fees, and pass those savings on to consumers. The larger company could also have more resources to devote to research and development and upgrading old infrastructure.

On the other hand, size has some notable disadvantages. It's probably not a coincidence that Comcast and Time Warner Cable are the least popular cable companies — and two of the least popular companies, period — in America. Enormous bureaucracies tend to be bad at customer service, and making Time Warner Cable even bigger is unlikely to improve the situation.

There's also reason for concern that the larger company could undermine the decentralized structure of the internet. In the last couple of years, Comcast has played hardball with large media companies such as Netflix, demanding that they pay tolls to reach their customers. Some consumer advocates view this as a threat to network neutrality. They worry that this kind of pay-to-play scheme could disadvantage smaller online services in the long run, reducing online innovation. Charter's acquisition of Time Warner Cable won't make a huge difference in this debate, but it will increase the dangers of abusive behavior by the merged company.

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