New Charter overbuild mandate spurs 'artificial' competition fears, and not just among cable operators

It had to be at least somewhat relieving to smaller MSOs when Charter Communications (NASDAQ: CHTR) President and CEO Tom Rutledge told investors in May that his company wouldn't use the so-called "overbuild" conditions as an excuse to charge into rural markets and compete with much more diminutive cable operators. 

"When I talked to the FCC, I said I can't overbuild another cable company, because then I could never buy it, because you always block those," Rutledge said at last week's MoffettNathanson Media & Communications Summit. "It's really about overbuilding telephone companies."

So how unconcerned was American Cable Association President and CEO Matthew Polka last week, following Rutledge's remarks?

"The overbuild condition imposed by the FCC on Charter is stunningly bad and inexplicable government policy," Polka said, in a statement. "On the one hand, the FCC found that Charter will be too big and therefore it imposed a series of conditions to ensure it does not exercise any additional market power. At the same time, the FCC, out of the blue, is forcing Charter to get even bigger."

Indeed, New Charter's mandate to extend its broadband reach into 2 million rural residences is a competitive problem. But if the ACA doesn't completely buy Rutledge's promise, it must know it's not alone. Telephone companies like Naperville, Illinois-based UniTel, which competed directly with TWC, now face the prospect of going head to head with an expanding Charter. 

"The introduction of interconnected landline VOIP telephone service, in the locations where TWC has cable facilities, would cause undue economic burden to UniTel, and consequently harm the public interest goals of universal service," UniTel said in a petition filed Tuesday, which seeks to have the FCC reconsider its order.

"Rural telephone companies do not have the ability to compete on a parity basis with New Charter, which will have enhanced ability to obtain video programming at substantially lower pricing," UniTel added.

UniTel and its lobbying org, the National Telephone Cooperative Association, have joined small cable companies and their reps, notably the American Cable Association, in asking the FCC to reconsider conditions on Charter's takeovers of TWC and Bright House Networks.

Proponents of the FCC mandate point to Google Fiber and municipal broadband networks, which they say have generated competition and lowered prices wherever they've been deployed.

"Overbuilding in areas served by only one firm providing high-speed [internet] will spur competition, leading to lower prices and greater choice for consumers," the FCC said in its merger approval order.

The ACA was first to react to this language. The group and its member MSOs have been hammered by the usual cable critics, who accuse the insular group of non-competing nation states of once again ducking competition.

But with the recent emergence of companies like Unitel and the NTCA into the overbuild discussion, it's less and less about just cable companies doing the ducking. Indeed, the "artificial competition" -- Unitel's words -- being wrought by the FCC has to go somewhere. And anyone not big operating a network -- not just the cable guys -- is concerned. 

"New Charter will pour additional funds into TWC's efforts to acquire the lower cost customers of the incumbent rural carriers," Unitel said "The increased economic burden will lead to further diminution of UniTel's capacity to sustain universal service, and decreased capacity to invest in telecommunications and broadband network and services. 

Added NTCA CEO Shirley Bloomfield in comments to the FCC last week: "The lack of consideration and coordination with other public policy efforts will lead to duplicative and wasteful efforts to reach certain locations, even as other unserved locations remain ignored altogether in frustration of the commission's stated objectives. The last-minute, unforeseeable imposition of this condition has the unintended potential to harm consumers."—Daniel

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