Regulators are paving the way for a merger that could create a new Internet giant.
The Federal Communications Commission and the Department of Justice are set to approve Charter's proposed takeover of Time Warner Cable and Bright House Networks, so long as the newly formed company agrees not to impose data caps for seven years. Tom Wheeler, the FCC's chairman, confirmed today that he circulated an order recommending that the merger be approved.
Last year, Comcast withdrew its $45 billion bid to acquire Time Warner Cable when it became clear that regulators were unlikely to approve the deal. Comcast is already the largest broadband provider in the country; the acquisition would only have made it larger and more powerful.
Charter's $78 billion bid, on the other hand, has always been seen as more likely to clear regulatory hurdles. Last year, research firm Leichtman Research Group estimated that Charter would end up with 18 million subscribers if the merger were approved, placing it ahead of AT&T's 16 million subscribers but behind Comcast's 22 million. In other words, it would make Charter considerably more powerful in the market, but it would still have large rivals to keep it in check.
Under the conditions imposed by the FCC and the Justice Department, Charter would "not be permitted to charge usage-based prices or impose data caps" for seven years. Nor would the company be allowed to charge other Internet providers for bandwidth-swapping arrangements called interconnection deals, an esoteric but ongoing issue in recent years that has raised questions about fairness and access to the internet's "last mile" to users' homes.
The Justice Department released a separate statement outlining rules designed to protect online video distributors by preventing Charter from creating contracts that bar networks from posting their shows online. Time Warner Cable has been one of the worst offenders in this area, according to the Justice Department.
Those are significantly more stringent requirements than the regulations imposed by the FCC's net neutrality order last year. That's good news for net neutrality advocates who worry that the regulations could be overturned if the Republicans win the White House this year, or if congressional Republicans succeed in passing legislation that would curb the FCC's authority. Instead, the Charter-Time Warner deal would be subject to binding terms much as Comcast was when the FCC approved its acquisition of NBC Universal in 2011.
Although Charter's plan didn't face the same level of opposition that Comcast's, net neutrality advocates have generally opposed the deal, and a coalition of progressive groups gathered 300,000 signatures opposing the merger last February. "Broadband and cable customers are already saddled with limited choices and unaffordable prices," a spokesperson for one of the groups, FreePress, wrote in a blog post. "This merger would only exacerbate these problems, making it harder for folks to connect and communicate."
Still, advocates are grudgingly accepting the FCC and Justice Department's plan as good news. "It is hard to cheer for further media and broadband consolidation, regardless of what conditions the FCC or DOJ might adopt," John Bergmayer of the advocacy group Public Knowledge said. "However, there is some solace that, if rigorously enforced, these conditions should eliminate the more egregious harms this merger could cause while creating a baseline for acceptable industry behavior."
Meanwhile, the Free State Foundation, which is generally skeptical of government regulation in the broadband industry, has criticized the use of the merger approval conditions to impose rules. "It is unfair for merging parties to be singled out by the Commission for special regulatory burdens based on market-wide concerns," said Seth L. Cooper, a senior fellow at the foundation.
But those in favor of the merger can't complain too much: Charter has already gotten much further than Comcast did.
