Charter's $10B Bright House purchase will increase its Ethernet footprint and wholesale market appeal

Charter Communications (NASDAQ: CHTR) is increasing its stake in the business services market by purchasing Orlando, Fla.-based Bright House Networks for $10.4 billion, a deal that will help it better compete against business rivals Comcast (NASDAQ: CMCSA), Cox and Time Warner Cable (NYSE: TWC).

This deal will give Charter increased scale across a number of key vertical industry segments such as healthcare, hospitality, government and education and a broader Ethernet footprint with 18,000 miles of its own fiber. Charter currently has built out over 210,000 traditional coax cable miles, more than 65,000 fiber route miles and has 12,000 fiber lit buildings on its network.

Under the terms of the agreement, Charter will own 73.7 percent of the company, while Bright House owner Advance/Newhouse will own the remaining 26.3 percent. The companies said that consideration to be paid to Advance/Newhouse by New Charter will include common and convertible preferred units in the partnership, in addition to $2 billion in cash.

"This acquisition enhances our scale, and solidifies New Charter as the second largest cable operator in the U.S," said Charter President and CEO Tom Rutledge in a release announcing the deal.

By acquiring Bright House, Charter will immediately scale its business service customer base. The Orlando-based MSO currently provides services to businesses in several regions including: Tampa and central Florida, as well as Bakersfield, Calif.; Birmingham, Ala.; Detroit and Indianapolis.

"Charter is due to pick up footprint if the Comcast –TWC deal gets approved," said Rosemary Cochran, principal of Vertical Systems Group, in an e-mail to FierceTelecom. "Bright House would boost that footprint for Charter—with new markets in California, Florida, Alabama, Indiana and Michigan."

Bright House currently has more than 135,000 business customers, a figure that it said grew 11 percent in 2014. For the year 2014, Bright House's commercial revenue grew by 19 percent. Given its presence in Florida, Bright House has found a sizeable and growing niche in the hospitality industry segment, securing deals with Westin Lake Mary and Rosen Hotels & Resorts.

Charter itself has been retooling its business services line. During its fourth-quarter earnings call, the MSO announced that it was separating its business services division into two separate units, one which will handle small- and medium-sized clients, and another that will handle larger enterprise customers.

In the fourth quarter of 2014, Charter reported that commercial revenue was $262 million, up 16.1 percent over the fourth quarter of 2013 due to what the MSO said was "higher sales to small and medium business customers and to carrier customers."

Charter's move to acquire Bright House could also have a potential impact on the company's standing in the U.S. Ethernet market.

According to Vertical Systems Group's Cable 2014 U.S. Cable MSO Ethernet Leaderboard, the company currently is in fourth place behind Cox. Similar to Comcast's proposed acquisition of Time Warner Cable, if it is successful in pulling off the deal to acquire Bright House, Charter could become a bigger threat to Cox and the new Comcast in the growing cable Ethernet race.

For more:
- see FierceCable's coverage
- see this release
WSJ has this article

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