Is this finally going to be the year when the largest ISPs gobble up everybody else of size? There was big news in the industry on Friday when Charter announced it is merging with Cox Communications. Cox has over 6.5 million customers and the combined business will be the largest ISP that covers over 70 million passings, exceeding Comcast’s 64 million passings.

The announced value of the merger is $34.5 billion. Cox is a privately held company, and the owners of Cox will receive:

• $4 billion in cash
• $6 billion in convertible preferred equity that holds a 6.875% coupon. These shares can be exchanged for Charter common stock.
• Approximately 33.6 million units of Charter’s existing partnership, with an implied value of $11.9 billion, which can also be exchanged for Charter common stock.
• Charter will absorb Cox’s $12 billion in debt.
• If all of the convertible equity were converted to common stock, the current Cox owners would own 23% of Charter common stock.

Charter announced some interesting benefits of the merger:

• The combined companies will rebrand at the corporate level as Cox Communications within a year after closing. The company will keep the Spectrum brand name.
• Charter expects to realize about $500 million per year in savings upon consolidation. That likely means layoffs.
• Cox broadband prices are higher than Charter’s, so Cox customers will have the opportunity to lower rates.
• The merger will bring Cox customer service back to U.S. call centers from overseas.
• The merger expands the opportunity to grow Charter’s cellular service.
• Advertisers will reach a larger customer base.
• There is more opportunity to leverage the benefits of AI.

Starting in 2022, Cox announced a major emphasis on converting its coaxial networks to 10-gigabit fiber. The company has built fiber in markets like Phoenix, Mesa, Hampton Roads, and other markets. As a privately-held company, Cox never talked about numbers, so we don’t know the extent of its fiber conversions.

The FCC also approved the merger of Verizon and Frontier on Friday, and the number of potential ISP acquisition targets is quickly shrinking. After this transaction, the only remaining ISP merger targets with more than 1 million broadband customers are Altice (4.2 million), Lumen (2.5 million), Mediacom (1.4 million), and Cable One (1 million). The only other ISP that is probably close to a million is GFiber. Earlier this year, there were rumors that Charter was looking at Altice.

The merger announcement comes at a time when Charter has announced losses of 496,000 broadband customers over the last year. All of the big cable companies are losing customers, and its likely that Cox has been doing so as well. It will be interesting to see how Wall Street reacts to the merger. Charter stock quickly rose 4% after the merger as announced but ended up only 1% higher for the day.