Charter merger conditions not 'unduly onerous,' analyst says

Having had a chance to review the conditions agreed to by Charter Communications (NASDAQ: CHTR) in exchange for FCC approval of its Time Warner Cable (NYSE: TWC) and Bright House Networks purchases, media investment analyst Craig Moffett has deemed them livable. 

"There has been much made of the seven-year life for Charter's commitments to not charge for interconnection or consumer broadband usage," MoffettNathanson's Craig Moffett said in a note to investors this week. "Charter had originally offered three years, opposition groups asked for 10, and the only real question was whether they would settle at five years or seven. Seven is a negative for Charter … maybe. We won't know until the consent decree is published, but we suspect it may read more like 'five with an asterisk.' That is, five years with an extension to seven 'as long as things haven't changed.'"

Summing up these conditions, Moffett concluded, "None of this is to suggest the conditions don't represent real consideration. They do, but none of them, to us, appear unduly onerous."

Charter executives demurred comment on conditions during Thursday's first-quarter earnings call. They expect the transactions to close "a few days" after the California Public Utilities Commission votes on the deal on May 12. 

Outlining the agreed-upon conditions while announcing his approval order for Charter's deals earlier this week, FCC Chairman Tom Wheeler said, "First, New Charter will not be permitted to charge usage-based prices or impose data caps. Second, New Charter will be prohibited from charging interconnection fees, including to online video providers, which deliver large volumes of internet traffic to broadband customers. Additionally, the Department of Justice's settlement with Charter both outlaws video programming terms that could harm OVDs and protects OVDs from retaliation — an outcome fully supported by the order I have circulated today."

Moffett deemed another condition — that Charter build out fiber to 2 million homes — as the most interesting.

"Two million total homes seems down the middle of the fairway," he said. "That's the number that we and almost everyone else expected. At $1,000 per home passed (let's estimate high, as they'll be rural) we're talking about a $2 billion investment in passings. If 50 percent are ultimately connected at $700 each, that's another $700 million, bringing the total to $2.7 billion."

Related articles:
Charter set to close on new company called 'Charter,' full transition will run through 2018
Charter's TWC and Bright House deals get official approval order from FCC's Wheeler
New Charter will be stripped of 'most favored nation' clauses, NYT report says

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