Charter Deal Conditions Could Run Gamut From MFN Clauses to Rate Hike Caps

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Communications Daily – August 17 2015

Charter Communications likely has headed off many broadband-related merger conditions by addressing them early on, experts said. But multiple broadband and cable matters likely will be brought up by and before regulators as Charter seeks approval to buy Bright House Networks and Time Warner Cable,they said. Charter agreed “from the get-go” to some of the most obvious potential conditions—net neutrality and discounted broadband offerings to low-income populations—said Barry Orton, telecom professor at the University of Wisconsin-Madison. That, plus that Charter, TWC and BHN don’t share a “bully” reputation with Comcast based on complaints about strong-arm tactics, indicates the deals could have a relatively easy time winning approval, especially compared with Comcast’s aborted attempt to buy TWC, industry officials said.

The timing for applying big, industry-influencing conditions may be over, as such a move would have made more sense earlier this year, when two major deals—Comcast/TWC and AT&T/DirecTV—were pending, said CEO Stan Hubbard of the ReelzChannel, an independent movie network. “If they wanted to have an impact on the whole industry—the FCC, the Justice Department, politicians—and put conditions that have impact industrywide, they had their chance to do it when they had two major mergers before them. [Now] probably is not an opportunity.”

Charter’s assertion in its FCC public interest statement that it is committed to such broadband policies as settlement-free peering and no usage-based broadband pricing or bandwidth capping was seen by many as a move to pre-emptively defuse some potential criticism (see 1506250039). Those policies “are very welcome,” said John Bergmayer, Public Knowledge senior staff attorney. Issues on the cable side of the business that may come up include video bundles—though since much of that is the result of programming
contracts, the FCC might be limited in what it can require, Bergmayer said.

Those broadband policies named by Charter—particularly interconnection—stand in stark contrast to how Comcast was seen when it was trying to buy TWC, said CEO David Schaeffer of Internet backbone provider Cogent. “Comcast should have—and chose not to—said ‘we will abide by the rules of the Internet, we will not create fast lanes,’ and buy interconnectivity or build out a global network,” he said. “Instead they said ‘we demand a free ride
from all the backbones.’” If Comcast had been successful in buying TWC, a legal showdown based on the net neutrality order or the Clayton Antitrust Act was almost sure to follow, Schaeffer said.

Programmers and smaller cable companies likely will bring up video programming costs, which also fits into FCC Chairman Tom Wheeler’s agenda of competition and further build-out of those smaller operators, said a communications attorney who previously represented parties in Comcast/TWC. Most-favored- nation contract provisions likely also will come up, as they did in Comcast/TWC, the lawyer said. Along with programming costs, special access purchasing arrangements also could be raised, a broadband attorney said. Netflix, a major foe of the Comcast deal, was most interested in one particular concession: free peering—which Charter also has committed to, Netflix CEO Reed Hastings said on a conference call last month. “We’re really excited about it and what it does is it frees us up from worrying about getting taxed by an ISP.”

While federal regulators generally have been uncomfortable with price regulation, there has been some push from lawmakers (see 1507100045) that could see exploration of some kind of voluntary concession to cap cable rate increases for a couple of years so the costs of the Charter deal don’t automatically mean higher monthly bills, said Executive Director Tracy Rosenberg of the nonprofit Media Alliance, which opposes or seeks curbs on some mergers and acquisitions. “To get this merger and then prices go sky
high, that’s something everybody has been paying attention to and could be embarrassing for Wheeler.”

The three-year guarantees Charter made on many broadband commitments may have to be stretched out—perhaps to seven years, which was also the length of the Comcast/NBCUniversal Justice Department consent decree—to satisfy regulators, BTIG analyst Richard Greenfield wrote investors last month. “I am
sure Charter would say net neutrality rules will be resolved by 2018,” Rosenberg said. “That may be true, that may not be true.”

Charter/TWC/BHN likely doesn’t carry with it any material regulatory issue, said Liberty Media Chairman John Malone—who has a seat on Charter’s board —- earlier this summer during a shareholder meeting. “We would not have done [Charter/TWC/BHN], honestly” if it appeared otherwise, he said of the deal that Liberty is partly funding. “Charter is an entirely different situation than the Time Warner deal with Comcast” in terms of such key issues as company magnitude or market domination, Malone said.
Charter’s broadband moves stand in contrast to what Charter CEO Tom Rutledge and Malone had expressed about settlement-free peering not being likely forever due to network costs. A Charter spokeswoman declined to comment except to say the company “has a very pro-broadband, pro-customer approach.” BTIG’s Rosenberg said of Malone, “Like any businessman, he looked at what happened [with Comcast]: Don’t do what they did, do something different.” Those past public statements are “part of the Charter team’s challenge, to walk back from some of that,” Bergmayer said. Some of Malone’s talk—about greater use of bandwidth caps, for example, seem more like musings and not particular business plans, Bergmayer said.

For consumers, the big problem is not whatever concessions or promises Charter makes but the follow-through on the government enforcing them, Orton said. “You can promise a lot—do you have to deliver a lot in the real world? And who watches?” he said. “If I’m Charter, I’m going to promise a lot. The real question is who keeps track of whether those are all kept. [Actions like broadband-speed throttling] are are going to be difficult to monitor and prove those conditions have not been met.”

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