FCC chairman backs Charter-Time Warner Cable merger—but conditions rankle agency's critics

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The Daily Dot

The head of the FCC says he's trying to protect consumers. His critics say he's making a power grab.

Earlier this week, the FCC signed off on the proposed merger of Charter Communications, Time Warner Cable, and Bright House Networks, paving the way for the union of the nation's second-, third-, and sixth-largest telecom companies.

In approving the $65.5 billion merger, FCC Chairman Tom Wheeler proposed a number of conditions that the new cable giant will have to meet, rules aimed at mitigating the anti-competitive effects of the increased industry consolidation.

Wheeler's conditions have divided activists and critics across the political spectrum. Some labeled the rules a positive step that would deter unfair practices, while others attacked it as either a regulatory power grab or a weak attempt to offset the merger's negative effect on competition.

The newly formed company would, for a period of seven years, be prohibited from engaging in the following practices:

  • Imposing any kind of usage-based pricing or data caps on consumers.
  • Charging interconnection fees to online video providers, such as Netflix or YouTube.
  • Creating video programming terms that could be harmful to online video providers or retaliating against online video providers.

Wheeler said in a statement that the regulatory order approving the merger—which is currently circulating among the four other commissioners—“outlines a number of conditions in place for seven years that will directly benefit consumers by bringing and protecting competition to the video marketplace and increasing broadband deployment.”

“If the conditions are approved by my colleagues, an additional two million customer locations will have access to a high-speed connection,” Wheeler said. “At least one million of those connections will be in competition with another high-speed broadband provider in the market served, bringing innovation and new choices for consumers, and demonstrate the viability of one broadband provider overbuilding another.”

The Justice Department also approved the merger after an antitrust review, meaning that both federal regulators responsible for merger reviews are onboard with the deal.

While data caps and usage-based pricing schemes are generally unpopular, the FCC likely imposed the first condition to address concerns that the merger will give customers fewer broadband choices, which would make switching providers because of unpopular policies considerably more difficult, if not impossible.

Charter does not use data caps that force users to pay overage fees, but Time Warner Cable does use them on some plans, a practice that would have to end with the merger.

The latter two conditions are aimed at preventing the new firm, which will provide Internet access to more than 19 million customers, from using gatekeeper status to benefit its own video offerings at the expense of competitors that don't also happen to own the pipes connecting them to consumers.

Those conditions, as the New York Times notes, also prevent the firm from using its influence to stop online video streaming services like Amazon Prime from buying the rights to movies or TV shows.

Wheeler's rules are controversial because the FCC normally cannot impose conditions on specific companies outside of an enforcement action. But the agency has considerable latitude to impose them as part of its merger review process, and during Wheeler's term it has repeatedly used conditional approvals to shape the policies of various telecom firms as the industry swiftly consolidates.

Last year, when the FCC approved AT&T's $48.5 billion takeover of DirecTV, Wheeler required AT&T to build out high-speed Internet service to 12.5 million additional customer locations, prohibited it from instituting data caps, and forced it to submit all of its interconnection agreements—in which it charges other firms for access to its pipes—to the commission for approval.

When cable giant Comcast acquired NBCUniversal in 2011, the FCC required the company to comply with the net neutrality principles in the agency's 2010 Open Internet Order, regardless of whether a judge struck it down, which happened three years later.

The FCC eventually reclassified broadband Internet as a "common carrier" service so that it could institute more durable net neutrality rules, but those rules, too, have been challenged in a federal appeals court, which could issue its ruling at any point.

The consumer advocacy group Public Knowledge petitioned the FCC to block the Charter–TWC merger, but after reading Wheeler's conditions, John Bergmayer, the group's senior staff attorney, said they would make a meaningful difference.

“It is hard to cheer for further media and broadband consolidation, regardless of what conditions the FCC or DOJ might adopt," Bergmayer said in a statement. "But there is some solace that, if rigorously enforced, these conditions should eliminate the more egregious harms this merger could cause while creating a baseline for acceptable industry behavior.”

Others are more skeptical, seeing considerably less of a silver lining in the FCC's merger conditions.

In a statement provided to the Daily Dot, Craig Aaron, CEO of the Internet-freedom group Free Press, charged that Wheeler's rules did little to address the goal of ensuring that everyone in the county had high-quality, affordable Internet access.

“Customers of the newly merged entity will be socked with higher prices as Charter attempts to pay off the nearly $27 billion debt load it took on to finance this deal. The wasted expense of this merger is staggering,” Aaron said. “For the money Charter spent to make this happen it could have built new competitive broadband options for tens of millions of people. Now these billions of dollars will do little more than line the pockets of Time Warner Cable’s shareholders and executives. CEO Rob Marcus will walk away with a $100 million golden parachute.”

“Thanks to this merger, both Charter and Comcast now have unprecedented control over our cable and Internet connections,” he added.

Aaron also said that the approval tarnished Wheeler's legacy as head of the FCC.

The new company's “crushing monopoly power will mean fewer choices, higher prices, no accountability and no competition,” he said. “Conditions won’t lower the monthly bills for those who’ll be hit hardest by these rate hikes: low-income households and communities of color.”

Conservative tech-policy groups, meanwhile, bashed Wheeler for using the merger review process as an opportunity to shape Charter's practices.

In a statement, the laissez-faire think tank TechFreedom slammed the move, saying the agency was using the opportunity advance a policy agenda unrelated to the merger.

“Regulation by extortion has long been standard operating procedure at the FCC,” said TechFreedom President Berin Szóka. “The FCC has held yet another merger hostage so it could extort the companies into ‘voluntarily’ agreeing to do things the FCC couldn’t legally require by regulation. Ending this gangster tactic is perhaps the most important reform to be made at the FCC, yet it’s something Democrats have fiercely opposed including in bipartisan FCC reform legislation.”

Republican FCC Commissioner Mike O’Rielly expressed a similar sentiment, though he cloaked it in softer terms.

“At first blush, it appears that the Commission may have operated well outside the four corners of the merger application to pursue unrelated matters and policies,” O'Reilly said in a statement announcing that he had received Wheeler's approval order. “I will carefully consider the item put before me and vote in a timely manner.”

A majority of the five commissioners must vote to approve the deal—with Wheeler's conditions—before it can take effect. That vote could occur as early as the end of this week.

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