Comcast sheds nearly 4 million customers to ease regulatory concerns

Comcast Corp on Monday agreed to a three-way deal with Charter Communications Inc as part of Comcast's efforts to win regulatory approvals for its proposed $45 billion purchase of Time Warner Cable Inc.

Under the deal, Charter would pay Comcast $7.3 billion for 1.4 million subscribers. Comcast would divest another 2.5 million subscribers into a new publicly traded company that would be two-thirds owned by Comcast shareholders and one-third owned by Charter. The new company is internally referred to as “SpinCo.”

Charter is also swapping 1.6 million of its customers for 1.6 million of the new Comcast’s customers, which will strengthen Charter’s market share in The Midwest and Southeast.

The transaction would make Charter, which lost out to Comcast in a bid to acquire Time Warner Cable, the second-largest cable provider in the United States.

The agreement would leave Comcast with less than 30 percent of the U.S. residential cable or satellite TV market, a factor seen as a key step to pleasing regulators. Charter would have about 6 percent of the pay-TV market, with an eventual shot to climb to 9 percent.

Charter President and CEO Thomas Rutledge said during a conference call that the Stamford, Conn., company will acquire systems in Ohio, Kentucky, Wisconsin, Indiana and Alabama. It will shed systems in California, New England, Tennessee, Georgia, North Carolina, Texas, Oregon, Washington and Virginia.

The deal is part of a promise Comcast made when it first announced the merger to ease regulatory concerns that the purchase would constitute a monopoly. Because the cable companies do not directly overlap or compete in the same markets, the level of competition between the cable providers remains roughly the same.

Comcast is awaiting approval by the U.S. Justice Department and the U.S. Federal Communications Commission to take over Time Warner Cable, something that likely will take many months. The Charter deal is contingent upon the success of the merger.

SpinCo will own systems adjacent to Charter systems in Michigan, Minnesota, Indiana, Alabama, Eastern Tennessee, Kentucky and Wisconsin.

Comcast said that the new cable provider would have a nine-member board. That will include six independent directors and three appointed by Charter. Comcast itself will have no ownership stake in the company or role in managing it. Charter will manage the new company.

Comcast plans to use proceeds from the transactions to lower its debt. It still anticipates its combination with Time Warner Cable to bring about $1.5 billion in operating savings. The merger is targeted to close by year-end.

The new spin-off company is valued at around $14.3 billion.

Al Jazeera and wire services