MCN Guest Blog

How Charter Won Approval of Its Merger

MSO's good intentions, promises paved the way for Time Warner Cable mega-deal 3/28/2016 9:15 AM

"Abandon all hope ye who enter here" is written above the gates of hell in Dante's Inferno.  And for many broadcasters, MVPDs, and telcos, it might as well be inscribed above the Federal Communications CommissionM's Portals.  In The Divine Comedy, there are nine circles of suffering for unrepentant souls -- limbo, lust, gluttony, greed, anger, heresy, violence, fraud and treachery.  Here in Washington, there are just as many layers of suffering.  For any company seeking regulatory redemption, merger review can be a painful and protracted purge. Just ask Comcast.

 

The FCC has all but approved Charter Communications' $56 billion merger with Time Warner Cable (TWC) and Bright House Networks, which will make it the nation's second largest cable company behind Comcast.  This is no small feat.  We all remember that it was Charter's initial bid to buy TWC in 2014 that spawned Comcast's move on TWC for $45 billion.  That deal failed when Comcast abandoned the effort in the face of well-organized opposition.

 

Thus, Charter should be applauded for its adroit ambulation through the Portals to close a very big deal.  So why did it succeed? 

 

There are a few reasons, but none more telling than that it was willing and able to make a deal with the devil. In other words, Charter did anything and everything necessary to keep its merger intact, including co-opting critics, kowtowing to threats, and making promises that will be hard to keep. But then again, facing a $2 billion breakup penalty can bring urgency and creativity to even the stodgiest companies.

 

Nevertheless, Charter came to the table prepared to create new jobs and a special low income, high-speed, broadband offering.  It took on net neutrality commitments it did not have to, and it promised to invest millions in communities and save as much for consumers.  With such good intentions, Charter was unprepared for the ambush by public interest purveyors issuing demands in exchange for support.  Having never faced such a stare down, Charter blinked and the opposition was nullified. Sealed in memoranda of understanding (MOU) are Charter's commitments to philanthropy, endowments, special programs and perennial support for a familiar cabal.  In similar vein, small, independent cable companies seized the moment to renegotiate their carriage deals or else they, too, would cry foul.  Charter made changes to the contracts; the critics became the chorus, and sang its praises to Congress and the Commission.

 

Through it all, Charter learned a few things it did not know before.  For example, the playbook for derailing a communications merger is well established by now, and goes something like this: Oppose the deal in broad public statements.  File antagonistic comments at the FCC.  Question the competitive and public interest benefits. Solicit statements from Congress.  Enlist support from so-called leadership organizations for a price. Conspire with a compliant FCC official. Castigate the company in the media and challenge its corporate practices.  Promote the delay or defeat of the transaction. Negotiate for concessions and conditions.  Extract as much pain and profit as possible.  Deposit the ransom checks. Wait for the next target.  Refine and repeat.  It is nice if the public interest is advanced, but it is not necessary.

 

Encountering one obstacle after another, Charter made whatever concessions necessary to get to the next level.  It survived a body blow from Dish Network and the Stop Mega Cable Coalition, which succeeded in derailing Comcast. It beefed up its rural chops with a deal to carry more country-western programming, and gained plaudits from the Hill.  And it cut deals for new Hispanic, African American and Asian program offerings system-wide. 

 

The FCC expects Charter to make network improvements to give consumers options in other markets.  It wants the company to abolish onerous contract provisions that restrict content producers from alternative distribution methods (ADM), including over-the-top (OTT).  It also wants Charter to change the way it handles the most favored nation (MFN) clauses in its contracts with programmers.  But not so fast.

 

In a deft display of legerdemain, Charter agreed to these terms provided they would apply to every company, industry-wide.  And since the FCC does not admit to regulation through mergers, it hastily adopted a Notice of Inquiry (NOI) on Diverse and Independent Programming as a quid pro quo to deliver on that promise.  Cynicism aside, the NOI establishes a solid predicate for a long overdue rulemaking in this area and could lead to progress.  Separate and apart from the merger, Charter will need to deal with the $10 billion racial discrimination suit filed by TV mogul Byron Allen, who will not go quietly into the night.

 

Assuming the California Public Utilities Commission approves the transaction -- which it should -- the Charter-Time Warner Cable deal will be done. But after the bonus checks and stock warrants have cleared, only time will tell if the promises made by Charter executives to secure approval will be delivered or even enforced. At the end of this saga, Charter deserves considerable credit for surviving a nearly two-year slog through the Portals Inferno.  The company surely has been chastened and will end up in a better place than it started.  And that just might be all the hope any of us should expect from the process.

 

 © 2016. Adonis Hoffman is Chairman of Business in the Public Interest and adjunct professor in Communication, Culture & Technology at Georgetown University.  He served at the FCC from 2013 - 2015, and is the author of Doing Good: the New Rules of Corporate Responsibility, Conscience and Character.