Feds OK With Charter/TWC

Even so, deal is loaded with broadband-related conditions from FCC and DOJ

FCC chairman Tom Wheeler and the Department of Justice last week gave the green light to a super-size cable and broadband merger, but not before taking several pounds of flesh in the form of broadband over-the-top programming access, and build-out-related conditions.

Perhaps that helps answer the question: Why did the proposed merger between Charter, Time Warner Cable and Bright House, a deal that was reportedly close to being done a month earlier, stretch on? One highly placed source said it had to do with getting all those conditions lined up, with the big ones lasting for seven years, rather than the three years Charter was hoping for.

The new Charter will not be able to employ usage-based pricing or data caps being tested by others.

Charter had already pointed out that that was not currently part of their business model. Now, however, it will be an official deal condition, although there will be a built-in chance after five years to petition the FCC to remove that condition, a sort of “time off for good behavior” proviso. But given that the chairman labeled those business plans “unfair barriers to video competition” in announcing the conditions, the rest of the industry may not have those options long, either.

Also, it doesn’t matter what the D.C. court does with the FCC’s Open Internet rules—a decision on the court challenge that could come down any time. The new Charter, which would be the nation’s second-largest broadband provider and third-largest multichannel video programming distributor, will have to abide by them all, including the general conduct standard that allows the FCC to look at a range of prospective practices. That was another promise Charter had already made as it tried to win favor with government regulators.

What Condition My Condition Was In

But while the deal could hamstring Charter vis-a-vis the competition in some areas, it allows the company to scale up in a market with AT&T/DirecTV and Comcast/NBCU. Clearly, Charter saw those conditions as the price of getting that scale through a commission and Justice Department focused on broadband, and being lobbied by some groups to block the deal entirely.

The Department of Justice filed suit against the merger on antitrust grounds, and at the same time filed a court settlement with the conditions that would make it OK, which is the standard procedure for approving a deal with conditions. Wheeler circulated a conditioned approval proposal to the other commissioners. They had yet to vote it out at presstime, but the chairman would not have circulated it without the votes to approve, which could come at any time, though likely with one or both Republicans citing in either partial dissents or statements their unhappiness with the number of conditions.

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FCC commissioner Michael O’Rielly had already suggested the deal looked like an effort to regulate via deal condition, something Republican commissioners have complained about before.

The DOJ and Wheeler announced their conditional approval on the same day and both signaled through their conditions that the broadband side of the deal was key.

The FCC conditions, in addition to no usage-based billing or data caps and adhering to net neutrality rules, included high-speed broadband build-outs to two million more customers and no interconnection fees, including to online video providers, such as Netflix, another practice the chairman branded as an unfair barrier to video competition. Justice also levied a seven-year condition that Charter cannot strike or enforce a contract that limits a programmers’ ability to offer that programming to an OTT competitor.

There is also a low-income, low-cost broadband initiative for at least four years. Again, Charter had already pledged such an effort, so that is not a heavy lift.

Charter won’t be able to close the deal until at least May 12, when the California Public Utilities Commission is expected to vote on approving the merger.