CenturyLink: Comcast/TWC merger poses cost challenges for telco TV providers

CenturyLink (NYSE: CTL) has become the latest service provider to protest against the pending Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) merger, saying that if the deal is approved, it will increase content costs for emerging telco TV players like itself that don't have the same scale and impede competition.

In a regulatory filing, CenturyLink said that large providers like Comcast, which have a much larger audience to provide video service, have more buying power to negotiate deals with content owners.

According to CenturyLink's calculations, Comcast's current cost per subscriber is estimated to be about 20 percent lower than CenturyLink's costs. Likewise, AT&T (NYSE: T) said it expects that its merger with DirecTV will result in a 20 percent reduction in content costs.  

Being a new player in the video services market, CenturyLink said it "has minimal value when negotiating for reasonable content costs" and if the Comcast/Time Warner Cable deal is approved "the combined company's purchasing power threatens to push their margins wider and further from the rest of the industry."

Rising retransmission costs continue to be challenge for all video service players. Retransmission consent fees will climb to $9.3 billion by 2020, up from the projected level of $4.88 billion this year, according to SNL Kagan. 

The entry of new players like CenturyLink that challenge the long-held monopoly that Comcast has enjoyed not only drives new competition but also new services such as whole home DVR. While Comcast could have implemented that service in mid-2000, it wasn't until CenturyLink deployed it that the cable MSO decided to deploy it in markets where the two video providers compete.    

In tandem with deploying IPTV, CenturyLink has hatched plans to deliver fiber-to-the-premises (FTTP) services in select locations in 16 markets, including Denver. However, in order to justify the deployment, the service provider said that it "must be able to offer both high-speed Internet and video to justify the investment" in this new network infrastructure.

One of the common trends that CenturyLink has shared with larger players like AT&T is that 90 percent of consumers that subscribe to IPTV also take the broadband service.

Albeit a relatively new player to the IPTV game, CenturyLink has been seeing decent uptake of its Prism service.

During the third quarter, the service provider added about 14,000 Prism customers, increasing penetration of over 2.2 million addressable homes to 10.3 percent. It also passed over 240,000 homes with the service.

Glen Post, CEO and chairman of CenturyLink, said during the third-quarter 2014 earnings call that the company will be "expanding Prism TV service to additional households and markets during 2015; however, we're not ready to announce specific markets at this time."

For more:
- see this filing (.pdf)

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