Why the Charter-Cox $34.5 Billion Cable Deal Matters
Misery loves company, as they say. Friday’s announcement that two of the three biggest cable-broadband firms, Charter Communications and Cox Communications, are combining is a logical next step in the consolidation of a stagnant but still significant industry. Charter, whose biggest shareholder is controlled by aging cable magnate John Malone, is buying Cox Communications for $34.5 billion in cash, stock and assumption of debt. The resulting company, which will take the Cox name, will be by far the biggest cable-broadband company in the U.S., ahead of Comcast, which is now roughly equal to Charter in subscriber numbers.
Why should you care? Sure, if your focus is growth, then Charter, Cox and Comcast are yesterday’s companies. Malone, a star media dealmaker of the 1990s and early 2000s, is all but retired (the man once called the “Darth Vader” of cable last year gave up his nonvoting director emeritus position on Charter’s board). But the big cable companies are still the primary source of internet access for many, if not most, Americans, which makes them a little like the water company—a service people only think about when it doesn’t work. That makes their financial health important, given that they need to maintain the pipes that carry the internet to people’s homes and businesses.
The backdrop is instructive. Cable’s original business of selling packages of TV channels has shrunk to a shadow of its former self. Selling internet access, which replaced TV as the industry’s growth engine, has peaked. In fact, Charter and Comcast have lately started losing internet customers, as phone companies like Verizon and T-Mobile have ramped up their internet-at-home services. The cable guys’ growth business now is selling mobile phone service, although they’re doing so by renting Verizon’s cellular network—even as they compete with Verizon and others for customers! The end result is that revenue growth in the past couple of years has been anemic for everyone in the industry, including the phone companies.
Charter’s recent financial performance highlights the industry’s challenges. Its free cash flow shrank 30% between 2022 and 2024 as capital expenditures jumped while cash generated from its operations fell. To be sure, before this deal, Charter had forecast that its capex would start declining after this year, as big network upgrades come to an end. But the business is always going to be a capital-intensive one, which isn’t ideal given the lack of growth. Moreover, integrating Cox will eventually require some capital investment, Charter executives acknowledged Friday.
The Cox acquisition creates some opportunities for growth. Cox, a smaller company by customers than Charter, hasn’t made anywhere near the inroads into mobile phone service that Charter has, for instance. Charter can change that. Its management hasn’t given up on rejuvenating sales of TV service, either, a business from which Cox has almost disappeared (it has only 1.7 million TV customers compared with 5.9 million broadband subscribers). Charter stock rose 1.8% in response to the deal. The only question is, how long can Charter eke out the gains from this combination?