The Federal Communications Commission chairman and the Department of Justice approved the merger of Time Warner Cable and Charter Communications on Monday, but as is usually the case there were strings attached — what one free market advocate calls “regulation by extortion.”
Charter will pay $78 billion to take over Time Warner Cable and $10.4 billion for Bright House Networks, making the expanded Charter the nation’s second largest cable company.
Charter will serve one-fifth of wireline broadband customers, and 30 percent of those with download speeds of 25 megabits per second or faster. Only Comcast will have more broadband customers.
The full commission must still vote for the merger, but with the approval Monday of FCC Chairman Tom Wheeler that tally is likely a formality among the Democrat-controlled board. The California Public Utilities Commission must also sign off, and a vote is scheduled for May 12.
Wheeler and the DOJ’s approval came at a cost. Charter can’t implement data caps or charge customers based on usage.
Berin Szoka, president of TechFreedom, said “regulation by extortion has long been standard operating procedure at the FCC.”
“The FCC has held yet another merger hostage so it could extort the companies into ‘voluntarily’ agreeing to do things the FCC couldn’t legally require by regulation,” he said. “Ending this gangster tactic is perhaps the most important reform to be made at the FCC, yet it’s something Democrats have fiercely opposed including in bipartisan FCC reform legislation.”
While Comcast will be allowed to continue “usage-based pricing,” which it is testing in several states and cities including Atlanta, Miami and Nashville, Charter will be prohibited from doing so.
In those locations, Comcast charges $10 for each 50GB block above an allotted 300GB of data usage each month. Comcast offers unlimited data for an extra $30 or so per month in some markets.
Such pricing reflects the growth of Netflix, whose customers use large amounts of data streaming high-definition video. The FCC stipulations also prevent Charter from charging internet content providers fees for connecting them with customers.
Szoka called the restrictions “reverse-Robin Hood” broadband price control, and believes heavy users should bear more costs for the networks.
He noted the FCC’s 2010 Open Internet Order recognized that prohibiting tiered pricing would force lighter users to subsidize heavier users.
“Requiring Charter to give Netflix free interconnection means basically the same thing: those who hardly stream video will have to bear the cost of the infrastructure required to deliver it,” Szoka said.”
The FCC and DOJ conditions will apply for seven years and help remove “unfair barriers to video competition,” a joint FCC-DOJ statement said.
The purchase has been in the works for a year and had to overcome initial opposition.
“We are pleased that Chairman Wheeler has submitted the proposed conditions for consideration by the full Commission and that the DOJ has submitted its agreement for approval by the court,” Charter CEO Tom Rutledge said in a statement.
“The conditions that will be imposed ensure Charter’s current consumer-friendly and pro-broadband businesses practices will be maintained by New Charter,” he said.
Szoka said the merger will benefit consumers more than harm them. He said the move should accelerate network upgrades, arguing that Time Warner Cable has lagged behind its competitors in innovation.
Szoka noted that competitors such as Google Fiber are growing across the country to help keep broadband rates in check.
In Provo, Utah, where Google Fiber bought a failed municipal broadband network for $1, the city’s chief administrative officer, Wayne Parker, recently told Bloomberg that customers have used the leverage of switching from Comcast to Google to get better deals.
Google Fiber offers download speeds of 1 gigabit per second for $70 a month in Provo and in other markets.
Roger Entner, an analyst with Recon Analytics LLC, told Bloomberg that markets Google Fiber has entered have seen average broadband price drops of $20 a month.