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Analysis: Time Warner Cable customers may not see quick fix from merger

A cable truck returns to a Time Warner Cable office in San Diego, California December 11, 2013. REUTERS/Mike Blake
A cable truck returns to a Time Warner Cable office in San Diego, California December 11, 2013. REUTERS/Mike Blake

By Liana B. Baker

NEW YORK (Reuters) - Charter Communications Inc, as it campaigns to win over investors in its bid to acquire Time Warner Cable, has suggested that a change in control could be a godsend to the often-disgruntled customers of Time Warner Cable.

But if Charter is successful in its bid, customers of Time Warner Cable, the No. 2 U.S. cable provider, who complain about Internet speeds and video may not see improvements anytime soon. And if they're hoping that their bills will be smaller, they may be disappointed.

Charter's track record has been on the upswing since Chief Executive Officer Tom Rutledge took over in February 2012 after leaving Cablevision. Rutledge, who spent two decades at Time Warner Cable, has vowed to "improve Time Warner Cable customer satisfaction through quality operations, which results in longer average subscriber life."

The problem is that Charter's customer satisfaction scores are not much better than Time Warner Cable's. Charter noted on a conference call with analysts on Tuesday that Time Warner Cable had the lowest customer satisfaction scores, but it neglected to mention that Charter ranks second to last in three of the four regions for video.

Time Warner Cable actually has a better score than Charter in the western United States, according to ratings firm J.D. Power.

Customer service scores aside, it's far from a sure thing that any new owner - Reuters reported on Wednesday that Charter was in talks with Comcast about splitting some assets - might make customers happier, BTIG analyst Richard Greenfield said.

"Cable companies are not exactly known for their customer service no matter what the brand masthead says," Greenfield said.

SNL Kagan analyst Ian Olgeirson said Charter has simplified pricing packages that don't give consumers a laundry list of options, which could help Time Warner Cable. But in terms of Internet speeds or video service, he sees most companies as similar.

Charter said its top tier Internet service is 100 megs in all markets. For Time Warner Cable, this speed is available in some but not all markets, such as Los Angeles and soon New York. Time Warner Cable plans to boost speeds in its top markets to 300 megs this year.

Still, Olgeirson said Charter's pitch has some validity.

"Time Warner Cable is generally perceived to be moving in a downward direction over the last couple of years whereas Charter is generally perceived to be moving in a slightly upward direction," he said.

It's also true that Charter started from a low bar. Emerging from bankruptcy in 2009, Charter's market share is low compared to rivals and it suffered from under-investment for years, according to MoffettNathanson Research analyst Craig Moffett.

NEW INTERNET PRICES?

On the cost side for consumers, a combination of the companies could even accelerate changes that would raise prices.

Executives of Liberty Media, Charter's largest shareholder with a 27 percent stake, have spoken out in favor of usage-based Internet pricing, a practice that could result in higher prices for heavy Internet users.

Such a plan could easily be rolled out across Time Warner Cable's markets after an acquisition, especially given that since 2012 Time Warner Cable has offered an Internet pricing option on a metered basis. Over the long run, Liberty Media Chairman John Malone could pressure the combined company to adopt this model further or raise Internet prices, Moffett said.

"John Malone seems to have a more aggressive strategy to move the industry towards usage-based pricing. Armed with Time Warner Cable, that would happen sooner rather than later," Moffett said.

Charter has said it is committed to upgrading Time Warner Cable's service, something that would be supported by the increased capital investment that Charter said is a top priority. Time Warner Cable has also said it would invest more capital into the business this year.

Charter has said it plans to improve Time Warner Cable's Internet speeds and video service by converting it to an all-digital signal, which allows more advanced features, including faster broadband Internet speeds.

Time Warner Cable has moved slowly to roll out digital technology. It is currently converting its markets and is already digital in New York.

Charter is planning to go all digital by the end of the year.

As for Charter's proposed changes, Moffett said, "It's not clear that Rob Marcus won't do the same thing now that he's the CEO," referring to Time Warner Cable's chief who took over January 1.

If Charter does increase its capital investment, Wunderlich Securities analyst Matthew Harrigan said it could "be very good for the customer in the long term," but in the short term he doesn't foresee much change.

Customers also aren't sure which company would be better.

Charter customer John-Paul Hunt said he pays about $50 a month for Internet service in Woodsville, New Hampshire, which he said is reliable and fast. The 33-year-old IT consultant doesn't pay for TV service because he can't stand commercials. Up until August, he used Time Warner Cable in a neighboring town at his girlfriend's house, which he said also had good service.

"I don't know which is better, but I do like the idea of having more than one cable company floating around," Hunt said.

(Reporting by Liana B. Baker; Editing by Christian Plumb, Peter Henderson, Ron Grover and Leslie Adler)

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