Feds Approve $78B Charter-TWC Merger, Creating Broadband Colossus

Critics say the deal is anticompetitive and against the public interest.

Apr 25 2016, 8:30pm

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Federal regulators gave the green light to Charter Communications' proposed $78 billion mega-merger with Time Warner Cable on Monday, paving the way for a new broadband industry giant with 24 million customers in 41 states.

The deal, in which Charter would also absorb smaller rival Brighthouse Networks for $10.4 billion, has been fiercely opposed by public interest groups that call it just the latest example of a decades-long pattern of runaway consolidation in the telecommunications industry. Together, the new Charter and industry leader Comcast would become the nation's two dominant broadband providers, controlling nearly two-thirds of the high-speed broadband market.

In a two-step move, the Justice Department's Antitrust Division on Monday filed a civil lawsuit in federal court to block the merger, and simultaneously proposed a settlement that regulators say would resolve the issues raised by the lawsuit.

The settlement, which must be approved by a federal judge, forbids the new company from using its market power to muscle programmers into withholding their content from online video providers like Netflix and Hulu.

Federal Communications Chairman Tom Wheeler, whose agency must ensure that the deal serves the public interest, separately announced that he has circulated an order to his colleagues recommending that the deal be approved. Wheeler said the FCC has imposed its own conditions on the deal, including a seven-year prohibition on usage-based pricing and data caps. The new company will also not be permitted to charge interconnection fees over that time.

"There's nothing about this massive merger that serves the public interest."

"This merger would have threatened competition by increasing the merged company's leverage to demand that programmers limit their licensing to these online providers," Principal Deputy Assistant Attorney General Renata B. Hesse, head of the Antitrust Division, said in a statement.

"Together with our counterparts at the FCC, we have secured comprehensive relief and we will work together to closely monitor compliance to ensure that New Charter will not have the power to choke off this important source of disruptive competition and deny consumers the benefits of innovation and new services," Hesse said.

In his own statement, Wheeler said that the FCC and Justice Department conditions "will directly benefit consumers by bringing and protecting competition to the video marketplace and increasing broadband deployment." He added: "The cumulative impact of these conditions will be to provide additional protection for new forms of video programming services offered over the internet."

But the proposed conditions were not enough to satisfy critics of the deal, including a coalition of public interest groups that delivered 300,000 public comments opposing the merger to the FCC in February. Critics say the deal would further decrease competition in a market already dominated by a small handful of giant companies that exercise effective monopoly power in many regions of the country.

"There's nothing about this massive merger that serves the public interest," Craig Aaron, president and CEO of DC-based public interest group Free Press, said in a statement. "There's nothing about it that helps make the market for cable TV and internet services more affordable and competitive for Americans."

Aaron said that by approving the deal, Wheeler has "tarnished his legacy as head of the FCC."

"Thanks to this merger both Charter and Comcast now have unprecedented control over our cable and internet connections," Aaron said. "Their crushing monopoly power will mean fewer choices, higher prices, no accountability and no competition. 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."

Federal approval of the deal amounts to a major victory for Tom Rutledge, Charter's ambitious CEO, who last year swooped in with an offer for Time Warner Cable after Comcast's bid for its smaller rival was scuttled by federal regulators who concluded that the deal "would have posed an unacceptable risk to competition and innovation."

If the FCC's five commissioners adopt Wheeler's order approving the deal—which they are expected to do—the Justice Department will launch a final 60-day public comment period. At the conclusion of that comment period, the US District Court for the District of Columbia may approve the settlement. It will then likely be several more months before the three companies are integrated.