FCC Documents Show Why Charter-Time Warner Merger Might Be Bad for Consumers

If you're wondering why there's been so much concern about Charter Communications' upcoming takeover of Time Warner Cable and Bright House Networks, you can find the answer in a seemingly unlikely place: the Federal Communications Commission's order approving the deal.

The merger is likely to close any day now, having cleared its last regulatory hurdle, approval by the California Public Utilities Commission last week. But, ironically, the FCC's recently released 348-page approval order reveals how regulators worry the deal could harm consumers.

In particular, the FCC document cites the negative impact the combined company could have on the growth of popular streaming video services, since consumers get access to Hulu and Netflix through Charter’s Internet service. Some cable companies view these new video services as threats to their traditional pay TV businesses.

"We conclude that the transaction will materially alter [Charter's] incentives and abilities in ways that are potentially harmful to the public interest," the FCC document states.

The order says the company's increased broadband footprint and a desire to protect its video profits "will increase incentives to impose data caps and usage-based prices in order to make watching online video more expensive, and in particular more expensive than subscribing to a traditional pay-TV bundle."

Data caps are monthly limits on the amount of data that you can use without your Internet service provider imposing overage fees, throttling (or reducing the speed of) your connection, or even cutting off your service. Usage-based plans charge by the amount of data you consume rather than the speed of your Internet connection.

The document also notes that having more broadband subscribers will similarly increase Charter's "incentive and ability" to raise prices on Internet-based services.

The combined company will have increased leverage with programmers, which could be used to keep streaming services from getting access to some content. The Department of Justice, which approved the deal in late April, has called out Time Warner Cable for aggressively seeking deals that limit programmers from distributing content to streaming and online services.

And the new company will have enormous muscle in business negotiations. It will be the country's third-largest pay TV company, trailing only Comcast and AT&T/DirecTV. According to some analysts, the new Charter will have 15 percent of the nation's pay TV subscribers and 22 percent of its broadband Internet subscribers. Comcast and Charter together will control 70 percent to 90 percent of U.S. high-speed broadband service (defined by the FCC as 25Mbps or higher).

The seeming contradiction between the FCC analysis of the merger's implications for consumers and its decision to approve the deal was pointed out by an FCC member who voted no, Commissioner Ajit Pai.

"This order spends over 100 pages detailing the harms that would allegedly result from the transaction," Pai writes in a dissenting statement. "And when the discussion turns to the merger’s purported benefits, the words 'modest' and 'minimal' are used over and over again."

As we've previously reported, the FCC imposed several conditions on the Charter-Time Warner Cable merger to try to protect consumers. With the merger now all but completed, Consumer Reports and other groups believe that vigilant monitoring and enforcement of the agreed-upon conditions are needed to safeguard consumers' interests.

The FCC, in its approval order, apparently agrees. "We acknowledge ... that conduct remedies may not eliminate all harms and require close monitoring to prevent evasion in ways that cannot be anticipated."

Charter says the deal wil ultimately be good for consumers.

In a statement released just after the FCC's approval, Charter CEO Tom Rutledge says the deal will create jobs and provide broader access to affordable broadband. It'll also result in "more consumer and OTT friendly broadband policies," he says, referring to so-called over-the-top services such as Netflix.

Based on the conditions the company agreed to during the evaluation process, he says, "Charter will be a stronger competitor in the broadband and video markets, well positioned to deliver these benefits and more to consumers."

No matter how strict the enforcement, Charter is bound to these conditions only for seven years.