Charter's TWC, BrightHouse acquisitions make it a credible ILEC, CLEC business threat

Sean Buckley, FierceTelecom

Charter Communications (NASDAQ: CHTR) made it official this week that it's going forward with its $56.7 billion acquisition of Time Warner Cable (NYSE: TWC) and its $10.4 billion purchase of Bright House Networks, a three-way deal that will make Charter a bigger threat to ILECs and CLECs in the business market segment.

Scale is a major part of these deals. This will come in handy particularly as Charter's Spectrum Business unit looks to advance into larger business accounts that traditionally have been in the hands of large ILECs and competitive carriers like AT&T (NYSE: T), CenturyLink (NYSE: CTL) and Level 3.

During the call announcing these acquisitions, Charter CEO Tom Rutledge said that they plan to expand their existing fiber footprint to pursue more medium and larger business accounts.

"We will invest significantly in building out our optical network beyond our existing footprint to inject much needed competition in the commercial markets," Rutledge said. "There are large unserved areas of the country with not a lot of high-capacity networks. We'll be investing in that area."

Fiber assets are one of the big benefits Charter gets by acquiring Time Warner Cable and Bright House. Charter will immediately bolster its on-net building and route fiber mile footprints, two elements that will enable it to serve more customers with higher speed Ethernet and optical services. 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.

Through the acquisition of Time Warner Cable, Charter will gain 150,000 miles of fiber and 75,000 on-net buildings. In addition to its own network, TWC has established 130 External Network-to-Network Interface (E-NNI) agreements with 25 other service providers. This enhanced reach will allow Charter to potentially reach into larger business accounts in more U.S. markets.

Gaining E-NNI access is another essential element to pursue larger business accounts because these types of clients typically will have offices that could be outside of their operator's own network footprint.

"Charter has a nationwide backbone and you put Time Warner Cable on top of that, Charter picks up the big New York areas and the larger scale areas where that's going to make a huge impact," said Rosemary Cochran, principal of Vertical Systems Group, in an interview with FierceTelecom. "Time Warner Cable has a lot of fiber and a lot of lit buildings."

Likewise, by acquiring BrightHouse, Charter will increase its scale across a number of key vertical industry segments such as healthcare, hospitality, government and education and gains a broader Ethernet footprint with an additional 18,000 miles of fiber. 

Upon completion of these acquisitions, the new Charter will boast more than 1.2 million business customers in 41 states and generate more than $4.5 billion in annual revenues, up from $1 billion in 2014. This means it will become an even bigger business services player than Comcast (NASDAQ: CMCSA), which raked in nearly $4 billion in business revenue in 2014.

The new company would have a large presence in nine of the top 25 U.S. markets, including New York and Los Angeles, Dallas/Fort Worth, Tampa/St. Petersburg, Orlando, Cleveland, St. Louis, Charlotte and Raleigh/Durham. 

But network assets are just part of the equation. Charter's Spectrum Business unit can also enhance its stature as a solutions provider for various market verticals such as hospitality and healthcare.

"Charter has rebranded its business line as Spectrum Business, which is an indication that it's moving into becoming more of a solutions provider," Cochran said. "Time Warner Cable has some of that but Charter has always been a VPN provider as well, which puts them in a different position relative to a lot of other cable companies."

Cochran added that "BrightHouse also has been focused on selling solutions" to specific customer segments such as health care and hospitality. 

Charter can also extend VPN services to existing and the new clients it will gain from Time Warner Cable and Bright House.

Having a VPN capability will be important as Charter looks to gain market share of larger distributed enterprises. What's more, the VPN capability could also bolster its Ethernet play as Ethernet access to VPNs is a fast growing segment, particularly amongst larger carriers that serve multi-site businesses.

"In addition to Ethernet, the VPN story is important and is something they could leverage as they go up market," Cochran said. "Once you start to look at larger networks and networks that span regional boundaries, you are basically in ILEC territory and major CLECs."

Even with all of these assets, the next challenge for Charter as it pursues larger business accounts will lie in its ability to provide a consultative approach that goes beyond just connectivity.

If these deals clear all of the regulatory hurdles and are successful, unlike Comcast's failed attempt, the new Charter will be an even bigger force that large ILECs and CLECs will have to take seriously in the larger business market.--Sean