Why Time Warner Cable is buying Insight for $3B

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Time Warner Cable (s TWC) plans to buy Insight Communications, the nation’s ninth-largest cable company, in a deal worth $3 billion as the cable industry realizes it needs to streamline. The deal, which was leaked on Sunday night and confirmed on Monday, will offer TWC greater scale as well as about $100 million in annual cost efficiencies. While not earth-shattering, it does hint at consolidation in the cable sector as a variety of factors — from the trend toward cord cutting to the looming dominance of cable as a broadband provider in DSL areas — change the business of providing cable.

Insight serves about 537,000 high-speed data subscribers, 679,000 video subscribers and 297,000 voice subscribers. It’s also providing its customers faster broadband via DOCSIS 3.0, which gives Time Warner Cable a boost in adding so-called wideband services that can deliver speeds of up to 100 Mbps or more on the downlink side. Time Warner has lagged behind Comcast (s cmcsa) and Cablevision (s cvs) when it comes to the relatively inexpensive D3 upgrades, but it’s beginning to offer it in certain markets. This upgrade will become more important to Time Warner Cable as a bludgeon to beat off rival telecommunications providers that offer DSL services. In most markets, cable is beating DSL providers handily; but in providing broadband services, scale can benefit the ISP as it contemplates deals with regulators as well as when it comes to delivering services.

That same scale can also help when negotiating deals with content providers on the pay-TV side of the house and provide more of an audience for ads, apps and whatever else the cable provider wants to use to help boost revenue and keep subscribers happy. With more people cutting the cord, perhaps because of easier availability of over-the-top television or perhaps because cable fees are too high, having a larger customer base to market to is helpful.

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