In May 2015, the cable company Charter inked a deal to purchase two other cable companies, Bright House Networks and Time Warner Cable. After undergoing months of review conducted by several governmental bodies, the companies cleared their final regulatory hurdle in May 2016 when the Federal Communications Commission approved the transfer of various FCC licenses and authorizations that were essential to the transaction. However, instead of signing off on the transfers and letting the deal go ahead as originally proposed, three of the FCC’s five members voted to impose several additional conditions on the merged company.
Two FCC Commissioners dissented from the conditions: Ajit Pai, who now chairs the agency, and Mike O’Rielly, who wrote a partial dissent. Their statements criticized the wisdom of imposing various burdens and obligations on the new Charter, and questioned whether these conditions would even serve the consumers whom the FCC’s majority was purporting to represent. Pai described the FCC’s merger review process as “badly broken,” “fact-free,” and “politically motivated,” while O’Rielly noted that it is “highly inappropriate for the Commission to include items or conditions that are not part of the transaction itself as a price for approval.”
CEI had previously urged the FCC to refrain from imposing conditions on the merging parties in comments we filed in late 2015 with TechFreedom and the International Center for Law & Economics. One month after the FCC’s approval CEI filed a petition on behalf of ourself and four individual customers of the new Charter. We asked the FCC to reconsider the conditions it imposed on the deal. Our petition explained how these conditions would likely result in most Charter subscribers paying higher prices for inferior service, harming millions of U.S. cable customers—including the four individuals we represented.
We expected to hear back from the FCC within a few months, given that section 405 of the Communications Act requires the agency to evaluate such a petition if it is filed within 30 days of the FCC action complained of. The Act also states that when a petition is filed regarding an “instrument of authorization granted without a hearing,” the agency must take action on the petition within 90 days, and explain the reasons for its decision. Because the FCC never held a public hearing before it approved the Charter applications, the agency had until September 7, 2016 to respond to our petition. When the statutory 90-day deadline came and passed in September, however, the FCC had yet to respond to CEI’s petition—nor had it acted on petitions filed by three other organizations regarding the Charter transaction.
Now, with over 260 days having elapsed since we filed our petition, there’s finally a sign that the FCC will meet its legal duty to address the four petitions asking it to reconsider the Charter order. According to several news reports, FCC Chairman Ajit Pai recently circulated an item among the agency’s commissioners that would grant the American Cable Association’s petition and eliminate the requirement that Charter expand its network to pass at least one million homes that already receive broadband service from another provider. Charter would still be required to expand its cable broadband footprint by two million households—per the FCC’s original conditions—but it could do so by deploying service to households that currently lack access to broadband service. The FCC’s original condition relied on an arbitrarily restrictive definition of “broadband” service, under which millions of U.S. homes are considered “unserved” even if their Internet service enables them to access four high-definition Netflix streams at once.
Relaxing this condition would certainly benefit broadband subscribers. As Commissioner O’Rielly noted in his statement accompanying the May 2016 order, the original build-out requirement would have “artificially introduce[d] competition” in certain markets where entry made no economic sense, forcing existing providers to divert capital from other projects in response to Charter’s expansion. But leaving intact the requirement that Charter expand its footprint by two million households—whether or not they are otherwise unserved—would still put the company’s capital at an unnecessary risk, as Commissioner O’Rielly warned, depriving Charter of resources it might otherwise use to improve service to existing customers.
The build-out requirement is not the only harmful condition the FCC imposed on the transaction. Another condition bans the new Charter from setting “usage-based prices” or imposing data caps on its broadband subscribers for seven years. As then-Commissioner Pai wrote in 2016, this condition is neither “fair” nor “progressive.” Instead, he called this “the paradigmatic case of the 99% subsidizing the 1%,” as it encourages Charter to raise prices on all consumers in response to costs stemming from the activities of a “bandwidth-hungry few.” Other problematic conditions include the ban on Charter charging “edge providers” a price for interconnection and the requirement that the company operate a “low-income broadband program” for customers who meet certain criteria.
Tweaking one of the conditions on the new Charter might offer some relief to consumers, but it will not cure the defects of last year’s Charter order. Hopefully, the FCC’s new leadership will seize this opportunity to take a stand against harmful merger conditions that have nothing to do with the transaction at hand—by granting CEI’s petition.