Regulators Impose Caveats on Charter TWC Merger Approval

Federal regulators on Monday granted approval of Charter Communications’ US$78 billion merger with Time Warner Cable and its $10.4 billion acquisition ofBright House Networks, but with a number of tough conditions.

The Justice Department filed a lawsuit and settlement agreement in U.S. District Court for the District of Columbia that would block the new company, which it calls “New Charter” for legal purposes, from enforcing any deal that makes it harder for online video distributors to get video content from programmers.

TWC has been an industry leader in seeking such restrictions, and New Charter, with its much larger base of subscribers, would have even more to gain by frustrating competition among online video providers, the DoJ’s complaint alleges.

“The merger would have threatened competition by increasing the merged company’s leverage to demand that programmers limit their licensing to these online providers,” said Renata Hesse, principal deputy assistant attorney general in charge of the antitrust division.

FCC, DoJ Conditions

The combined companies would constitute the nation’s second largest cable provider and third largest multichannel video programming distributor, with more than 17 million video subscribers, according to the DoJ complaint.

TWC has been the most aggressive in the industry at imposing alternative distribution means clauses into its contracts to make online video providers less competitive.

FCC Chairman Tom Wheeler this week began circulating the proposal among commissioners.

Conditions would be in place for seven years, creating a more level playing field for consumers by protecting competition in the video marketplace and boosting broadband access, he noted.

If approved, an additional 2 million customer locations would gain access to high-speed connections, and at least 1 million of those connections would be in competition with a rival broadband provider.

New Charter would not be allowed to impose data caps or usage-based prices. The company also would be barred from imposing interconnection fees on online video providers and others that deliver large amounts of traffic to broadband customers.

“We are pleased to reach this critical step in the regulatory review of our merger with Charter and remain optimistic that the transaction will be finalized soon,” said TWC CEO Rob Marcus.

Questions Remain

Despite the conditions imposed by regulators, the merged companies still could threaten competition in the broadband and video content industries, according to New America.

“If approved, the deal would create a new company whose dominance over access to the Internet is rivaled only by Comcast,” said Joshua Stager, policy counsel for New America’sOpen Technology Institute. “The duopoly power of both companies is a threat to consumers, small business and the Internet economy.”

Charter must improve services to low-income consumers, with eligibility and pricing at least matching the FCC’s recent Lifeline order, the group said.

The merged entity will have a huge pricing advantage over smaller cable companies, said Christopher Mitchell, director of the Community Broadband Networks at theInstitute for Local Self-Reliance.

“They’re basically going to win by forcing higher prices on all the smaller cable companies,” he told the E-Commerce Times.

Scale and Leverage

Consumers generally benefit from the increased scale and scope, as is the case here, according to Mike Jude, program manager at Stratecast/Frost & Sullivan.

“Since carriers negotiate content agreements based on their subscriber base, a larger carrier can have more leverage with content providers to increase the selection of content or reduce the cost per subscriber of the content,” he told the E-Commerce Times.

Additional mergers of this size are unlikely, Jude said, as regulators are wary of the concentration of market power. Consumers should expect an increase in over-the-top content services in the TWC-Charter service area, because the removal of data caps means there are fewer barriers to entry.

While the impact on consumers has yet to be determined, the government wants to protect emerging players in the online space, said wireless industry analyst Jeff Kagan.

Companies like Comcast and new, innovative startups have given consumers access to faster Internet speeds and greater choices, while companies like Time Warner Cable have not, he told the E-Commerce Times. “The question is whether the larger Charter will be a more innovative industry leader like Comcast — or not.”