UPDATED with WGA West statement: The FCC and Justice Department are poised to approve Charter Communications’ acquisition of Time Warner Cable with conditions that FCC Chairman Tom Wheeler says “will directly benefit consumers by bringing and protecting competition to the video marketplace and increasing broadband deployment.”
He has circulated an order for an FCC vote to support the deal. Terms that Charter accepted will last seven years, longer than usual when companies make deals with the government to win regulatory approval.
As is typical in situations like this one, the Justice Department’s Antitrust Division filed a suit at the U.S. District Court in D.C. to block the deal — but with the proposed settlement for the court to approve.
If there’s no hitch at the federal level, then Charter will be able to close the TWC transaction after the California PUC approves. That’s expected in May.
The WGA West is frowning on the deal. “The WGAW does not believe the merger of Charter, Time Warner Cable and Bright House Networks is in the public interest,” the union said today. (Reald the full statement below.)
The Justice Department put a $78 billion value on the TWC deal, with an additional $10.4 billion for a related acquisition of Bright House Networks.
With more than 17 million video subscribers, a combined Charter-TWC “would have threatened competition” from online streaming rivals such as Netflix or Amazon Prime, Justice’s Antitrust Division head Renata Hesse says. For example, it might have been able to “demand that programmers limit their licensing to these online providers.”
The conditions that DOJ and the FCC required, she adds, ensure that 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”
One of the terms would bar Charter from doing anything to deter a programmer from licensing content to an online service, including imposing so-called Most Favored Nations terms that might be “inconsistent” with the DOJ deal.
Charter and TWC shares are both up 3.6% in afternoon trading.
Wheeler says that the compromises Charter accepted will boost by 2 million the number of “customer locations” with high speed connections. At least half will compete with another high speed provider.
Charter agreed to not impose data caps or tie internet rates to usage, which BTIG’s Rich Greenfield calls “a major policy win for Netflix.” The cable and broadband company also can’t charge an interconnection fee to video providers that “deliver large volumes of internet traffic.”
“The cumulative impact of these conditions will be to provide additional protection for new forms of video programming services offered over the Internet,” Wheeler adds.
An independent monitor will be appointed to ensure that Charter complies with the agreements.
Charter says it’s “pleased” by the developments. “We are confident New Charter will be a leading competitor in the broadband and video markets and are optimistic that we will soon receive final approval from federal regulators as well as the California PUC.”
But consumer advocate groups say they’re disappointed. The FCC draft order to approve the deal “still falls short of addressing all of the threats to competition and consumers posed by this transaction,” says the Stop Mega Cable Coalition, whose supporters include Dish Network, Consumers Union, Common Cause, Public Knowledge, and the Writers Guild of America. The group wants the FCC to require Charter to offer “a stand-alone broadband service that would enable consumers wishing to ‘cut the cord’ to have that option.”
Free Press CEO Craig Aaron says that subscribers “will be socked with higher prices as Charter attempts to pay off the nearly $27 billion debt load it took on to finance this deal….For the money Charter spent to make this happen it could have built new competitive broadband options for tens of millions of people. Now these billions of dollars will do little more than line the pockets of Time Warner Cable’s shareholders and executives. CEO Rob Marcus will walk away with a $100 million golden parachute.”
Here is the WGAW’s full statement on today’s news:
The WGAW does not believe the merger of Charter, Time Warner Cable and Bright House Networks is in the public interest. However, we commend the Department of Justice and Federal Communications Commission for recognizing the harm to video competition presented by the merger and for imposing conditions to limit anticompetitive behavior.
One of the WGAW’s key concerns has been that the merger would significantly increase both the ability and incentive of the merged firm (New Charter) to use its market power to limit online video competition. In this case, the DOJ’s proposed conditions will limit New Charter’s ability to restrain programmers from licensing content to online video distributors (OVDs). Further, the FCC conditions prohibiting data caps and interconnection fees for seven years will help protect both content creators and consumers in this growing online market.
But the question remains why these types of conditions should not be industry standard regulations. If the goal is to promote competition and innovation in this consolidated market, the rules must be applied equally to all pay TV operators and Internet service providers.