FCC approval order: New Charter is 'harmful' without conditions

The FCC concludes that Charter Communications' (NASDAQ: CHTR) mergers with Time Warner Cable (NYSE: TWC) and Bright House Networks are "harmful to the public interest" without imposed conditions.

In its nearly 500-page order approving the deals, published Tuesday, the agency said the newly combined company is more likely to impose broadband usage caps, interfere with online video, and extort programmers with unfavorable licensing terms.

"Because we find that the transaction will likely cause public interest harms, we impose conditions that ensure New Charter adheres more closely to Charter's prior consumer-friendly approach, and reduce the risk of public interest harms. The conditions also require New Charter to execute a number of its claimed public interest benefits so that the transaction's benefits will clearly outweigh the likely public interest harms."

The agency then spells out its conditions:

First, for seven years, we prohibit New Charter from imposing data caps or charging usage-based pricing for its residential broadband service. This condition ensures that New Charter will continue Charter's past pricing practices and protects subscribers from paying fees designed to make online video consumption more expensive leading subscribers to stick with a traditional pay-TV bundle.

Secondly, the FCC has mandated that Charter adopt a "modified version" of the settlement free interconnection policy the MSO originally proposed, with Charger committing to interconnect with qualifying companies for free.

"Our modifications will ensure that companies may more easily qualify for free interconnection and that they may increase their traffic and expand their services at a greater rate before needing to pay to deliver content to New Charter's subscribers," the FCC said. 

"Third," the agency added, "because New Charter will have an increased incentive to use its greater leverage over programmers to frustrate online video competition, Commission staff worked in close coordination with the Department of Justice Antitrust Division to prohibit, for seven years, New Charter from entering or enforcing contractual terms that prevent or penalize programmers from distributing content online."

Lastly, the agency said, "The proposed transaction will likely result in a number of modest efficiencies and public benefits, including lower overhead and programming costs and increased enterprise competition. We intend the conditions we impose today to permit the transaction's likely efficiencies and benefits to proceed while mitigating the likely harms. We acknowledge, however, that conduct remedies may not eliminate all harms and require close monitoring to prevent evasion in ways that cannot be anticipated. We adopt a monitoring system designed to watch for any attempts by New Charter to avoid the letter and spirit of the conditions. We further require New Charter to undertake a build out program that will deploy high-speed broadband to 2 million more homes and a low-income broadband program for eligible households. Taken together, these guaranteed benefits provide confidence that the transaction's public interest benefits will outweigh any harms."

For its part, the American Cable Association took issue with the "overbuild" condition. "The requirement on Charter to overbuild competitors will harm consumers in two ways," the ACA said in a statement. "First, it will harm Charter's customers by preventing Charter from investing its resources most efficiently, such as by upgrading its networks to higher speeds. Second, it will harm customers of local, small providers when these customers are satisfied with their existing service."

For more:
- read this FCC order
- read this ACA statement

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