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Red Alert: Charter-TWC Deal Raises Some Flags

5/16/2016 8:00 AM Eastern

WASHINGTON — The Federal Communications Commission’s newly released Charter- Time Warner Cable merger order filled in the details on the deal’s many and lengthy conditions — and that picture is getting panned by small and midsized cable operators, as well as FCC Republicans.


The American Cable Association was not happy with a condition that will require the MSO to overbuild operators, nor were the Republican commissioners.


Another key sore spot was the condition preventing usage-based pricing and data caps, which seemed to condemn the practice beyond the deal to the industry in general.


Beyond building out broadband to unserved households, which Charter had volunteered to do, the FCC will require it to build out Internet service at 60 Megabits per second to 1 million more homes that already get broadband at the minimal speed — 25 Mbps downstream — which the agency has said is table stakes for the digital age.


Forced overbuilding is in keeping with FCC chairman Tom Wheeler’s goal of broadband “competition, competition, competition,” but smaller cable operators said it might put some of them out of business, out of business, out of business.


While one deal watcher tabbed the overbuild condition as a way to try to get New Charter, which will be the country’s second-biggest Internet provider, and Comcast, the No. 1 Internet service provider, to compete head-to-head, American Cable Association president Matt Polka sees his smaller members as attractive overbuild targets.


Charter will choose to overbuild smaller providers because they can “most easily drive them out of the market, leaving Charter as the only provider,” Polka said.


FCC commissioner Michael O’Rielly had smaller operators’ backs. Unlike commissioner Ajit Pai, who voted no on the deal because of all the conditions, O’Rielly said he had a hard time opposing conditions the company was willing to impose on itself. But that did not extend to ones he thought were not transaction-specific and harmed the subscribers of Charter or other operators. The buildout condition was guilty of that on all counts, he said.


O’Rielly said the conditions harmed Charter customers by diverting capital from improving existing service or expanding to unserved households, saying customers were being asked to bankroll a “social experiment in government-ordered competition.”


For those being overbuilt, like the ACA members’ customers, it will mean diverting capital to marketing to try to keep subscribers, O’Rielly said.


Polka said it didn’t make sense for the FCC to have a public-interest condition that resulted in New Charter essentially getting bigger by adding new subscribers.


Pai definitely agreed, saying an example of the order’s incoherence was that the buildout requirements will “have the inevitable effect of making Charter larger than it otherwise would be.”


Pai said he doubts Charter would choose to confine overbuilds to Comcast territories, so he agreed with Polka’s assertion that “Charter’s increased broadband market share will come at the expense of smaller competitors.”


Wheeler said last week that the condition was an effort to prevent “unfair barriers to video competition,” which did not sound deal-specific.


“This order moves the commission one step closer to an across-the-board ban on usage-based pricing,” Pai said.


Wheeler’s office declined comment on the characterizations.

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