Senators Including Bernie Sanders Are Worried About the $80B Charter-TWC Merger

Charter Communications' proposed mega-merger with Time Warner Cable is facing increasing static.

Five US Senators including Democratic presidential candidate Bernie Sanders sent a sharply-worded letter to federal regulators on Thursday expressing "significant concerns" about the $80 billion buyout, adding their voices to a growing chorus of critics who say the deal could harm consumers.

If the deal is consummated, the "New Charter"—which would also absorb Bright House Networks—would combine the nation's second, third and sixth largest cable companies to create an industry colossus with 24 million customers in 41 states, according to Charter's press release announcing the merger.

Critics of the deal say the merger would further decrease competition in a cable market already dominated by a small handful of giant corporations—including industry leader Comcast—that exercise effective monopoly power in many regions of the country.

"The proposed 'New Charter' would effectively create a nationwide broadband duopoly, leaving New Charter and Comcast largely in control of the essential wires that connect most Americans," the senators wrote in their letter to Attorney General Loretta Lynch and Federal Communications Commission Chairman Tom Wheeler. "The two companies would control nearly two-thirds of the nation's high-speed broadband homes."

The letter was signed by Sanders, the Vermont independent, along with Sens. Elizabeth Warren and Ed Markey of Massachusetts, Sen. Ron Wyden of Oregon, and Sen. Al Franken of Minnesota, all Democrats.

As with any cable merger of this size, the Justice Department must ensure that the merger doesn't run afoul of antitrust laws, while the FCC has the responsibility of ensuring that the deal serves the public interest. Regulators could reject the merger outright, or require the new company to make concessions such as expanding broadband access in low-income areas.

In their letter, the senators warned that Comcast and New Charter's "dual dominance of the market could lead to a number of concrete harms to consumers, including higher prices and fewer innovative services."

Charter's pursuit of Time Warner Cable is just the latest example of a decades-long trend toward consolidation in the cable and telecom industries, driven in part by Wall Street's insatiable demand for cost-cutting and growth. Last year, federal regulators approved AT&T's $50 billion buyout of DirecTV.

The financial giants advising Charter, Time Warner Cable, and Bright House on the latest deal include Goldman Sachs, Morgan Stanley, Citigroup, and UBS.

Led by its ambitious CEO Tom Rutledge, Charter has been eyeing Time Warner Cable for years. Last year, Rutledge swooped in with an offer after Comcast's bid for Time Warner Cable was scuttled by federal regulators who concluded that the deal "would have posed an unacceptable risk to competition and innovation."

Rutledge, who is considered to be one of the savviest operators in the cable industry, has argued that the deal "will create real benefits and great long-term value for the customers, shareholders and employees of all three companies." According to Rutledge, the deal will "accelerate the deployment of faster Internet speeds, state-of-the-art video experiences, and fully–featured voice products, at highly competitive prices."

Public interest advocates have pointed out that Charter's bid for Time Warner Cable raises many of the same red flags as the failed Comcast deal. Last week, a coalition of groups including Free Press, Public Knowledge and Common Cause delivered more than 300,000 comments to the FCC opposing the merger.

"It's the same old story of Big Cable wanting to get bigger at the expense of consumers, content creators and innovators," former FCC Commissioner and Common Cause Special Adviser Michael Copps said in a statement. "We need regulators to see this for what it is and reject the merger as inimical to the public interest."

David Segal, executive director of the liberal advocacy group Demand Progress described the proposed deal as a "noxious corporate takeover," and added that "when it comes to the Big Cable industry and its sordid track record, consumers want greater competition in the marketplace, not more mergers."

In their letter, the senators echoed the concern of public interest advocates who have warned that the proposed deal will result in a new company with a massive amount of debt, which is not surprising given that Charter wants to acquire a much larger company in Time Warner Cable.

The merger calls for the new company to take on as much as $27 billion in new debt—or $1,142 per customer—depending on the mix of cash and stock that Time Warner Cable shareholders choose to receive, which would make the deal one of the largest debt-financed telecom transactions in US history, according to S. Derek Turner, research director at Free Press.

"This deal is particularly troublesome because the new company's customers will be captured, without anywhere else to go," Turner told Motherboard. "Charter has committed to its investors that it will pay down its debt, and the way it will accomplish that is through price increases. This is essentially a check for as much as $27 billion that's being written on the back of Charter customers that will go into the pocket of Time Warner Cable shareholders."

The FCC typically tries to complete merger reviews in 180 days, and the agency's unofficial 180-day "shot clock" expires on March 24. A FCC spokesperson said the agency has received the senators' letter and is reviewing it.