Wading through the 348-page FCC decision document on the Charter TWC BrightHouse merger makes interesting reading and it gives some clues to where CEO Tom Rutledge will take this merger – much of it we have mentioned in the past over these pages. Add to that the promise this week that Charter would use TWC’s pledge from Verizon to work with it on an MVNO, and you start to see the direction that New Charter is heading in.
But the first noises to greet the completed deal were those of continued complaint from the deals’ detractors with warnings that Charter Communications’ $66 billion acquisition of Time Warner Cable and Bright House Networks could result in a combined entity which will seek to harm the operations of OTT video services such as Netflix, Hulu and Sling TV, according to a recent filing from US regulator the Federal Communications Commission (FCC).
Dish Network chipped in last week with its own argument, stating that New Charter’s larger footprint will negatively impact online video services which also offer linear programming and therefore compete directly with pay TV – most notably its own Sling TV offering. Several unnamed commenters reportedly agree with Dish’s concerns.
In response, Charter has openly acknowledged that its existing subscribers may view the likes of Sling TV as “differentiated substitutes for traditional video.” However, the FCC believes that previously Charter had no reason to take action to protect its video operations as its VoD offering was comparatively limited, but that the New Charter may seek to harm these services as the company’s more extensive VoD offerings post-transaction will make them less complementary and more competitive.
The FCC has concluded that because of the much larger broadband footprint that New Charter possesses, the merged cable giant will seek to protect its video profits by implementing unfair broadband fee changes to drive up the cost of watching online content to a level that exceeds its own pay TV bundle.
Which is why, as we pointed out in April, in order to protect the public interest, the FCC was wise to enforce a seven-year block on New Charter from imposing any data caps or charging usage-based pricing for its residential broadband service. The regulator reasons that this will protect subscribers from paying fees designed to make online video consumption more expensive in an attempt to convince them to stick with traditional pay TV subscriptions.
While this may be true, it’s worth remembering that this deal will likely have a better outcome than if a Comcast-TWC merger was allowed to happen – which would have created huge changes in the value of content and the ability of some smaller content players to survive.
If OTT video is embraced and promoted in the US, this will allow various providers to enter the market and force AT&T and Verizon to become competitive in broadband – which requires strict net neutrality rules. As part of the DirecTV deal, conditions say that AT&T must offer speeds of at least 45 Mbps to 12.5 million additional homes over the next few years. While New Charter must provide broadband of at least 60 Mbps to 1 million homes and businesses where speeds of 25 Mbps are already accessible.
Charter, TWC and Bright House have argued that a monopsony model (like a monopoly but controlled by a buyer not seller) doesn’t fit in the programming market, and that New Charter’s estimated 17% national share of video subs is not large enough to raise any concerns. The trio also note that New Charter would be the third largest MVPD (multichannel video programming distributor) in the US – behind a combined AT&T-DirecTV with a 26% share, and Comcast with 22%. Monopoly effects only cut in when one company has around a third of the total market – prior to that markets are generally accepted as being healthy.
The filing states that while AT&T, Verizon and Dish do compete directly with New Charter as well as Comcast, they do so in different locations using different technologies and strategies. Only AT&T and Verizon offer mobile phone services, and AT&T has a considerably larger MVP (mobile video provider) subscriber base than that of Verizon, but Verizon has a higher proportion of FTTH compared to AT&T, Comcast, or New Charter – and with it larger capacity on both its fixed and cellular network. Dish is a pure satellite operator with almost no wireline operations and very little broadband. Therefore, the FCC states that this makes “coordinated action between Comcast and New Charter more difficult against each of these different rival providers.”
The 348-page FCC decision document on the Charter TWC BrightHouse merger also outlined how WiFi could be used by New Charter to create challenges for the MNOs. Charter, TWC and Bright House “contend that the transaction would enable New Charter to be a new entrant in the mobile wireless market by offering mobile products through increased WiFi deployment, the deployment of licensed spectrum or a mobile virtual network operator (MVNO) arrangement – and likely through some combination of these,” the FCC wrote.
As part of the acquisition proposal it filed last year, Charter pledged to build 300,000 public Wi-Fi hotspots within four years of the closing of the transaction. Bright House has deployed 53,000 publicly available WiFi access points “mounted either at outdoor locations or indoors at the premises of small-to-medium businesses,” the FCC said. Comcast has reached 13 million hotspots by using home gateways to provide a second SSID, and at least 1 million of these were at small businesses, so Charter has a proven model to follow.
FCC Commissioner Ajit Pai, who voted against the merger, said, “This order spends over 100 pages detailing the harms that would allegedly result from the transaction, and when the discussion turns to the merger’s purported benefits, the words ‘modest’ and ‘minimal’ are used over and over again.”
Following FCC approval, Charter CEO Tom Rutledge said, “Charter will be a stronger competitor in the broadband and video markets, well positioned to deliver these benefits and more to consumers.”