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Nation/World

February 5, 2014

Cable merger future-proofs against Internet's rise

(Continued)

Both companies rely on Internet service providers to transmit data for video and games to consumers. After a federal appeals court ruled last month that cable Internet providers are no longer required to treat all forms of traffic equally, the door has been opened for providers to charge streaming companies for priority access and faster speeds.

“Charter plus Time Warner Cable becomes an entity that is essential from a distribution standpoint for a Netflix or a Sony to exist,” says Susan Crawford, a telecoms industry scholar and author of “Captive Audience: The Telecom Industry & Monopoly Power in the New Gilded Age.” ‘‘It’s about access to subscribers they won’t get anywhere else.”

For cable companies, Internet access services will become even more important if more people drop their TV services in favor of Netflix, Hulu and other video services. Although subscribers can easily drop TV to save money, they still need the Internet pipes for those online video alternatives.

The long-term value of cable operators “will mainly come from their use to provide broadband Internet service, not a video programming service which mainly comprises content that (has) been produced by others and, increasingly, will be available elsewhere on the Web,” writes Andrew Sheehy, chief analyst of U.K.-based research firm Generator Research.

A combined Charter-Time Warner Cable would have a favorable service territory. Although Verizon’s FiOS service offers better download speeds than cable, it would serve only about 10 percent of the combined cable company’s service territory, according to Charter. That means most households would have to turn to the new company for the best Internet service, and the company could charge top dollars.

So far, cable Internet providers have kept fee increases modest. They prefer having the Internet service become the anchor for which to sell bundles with TV and voice services.

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