Charter Communications shook up the cable industry on Tuesday when the company announced a $55 billion mega-merger with Time Warner Cable, already the nation’s second largest cable provider. But before the deal can be finalized, it will have to win the approval of federal regulators.
This go-ahead is far from guaranteed. Just last month, Comcast scrapped its bid to takeover Time Warner Cable after facing intense scrutiny from the Federal Communications Commission. The FCC was wary of the two companies, both large stakeholders in the broadband Internet market, merging and giving the new company a considerable amount of control over America’s communications.
The combined Charter-Time Warner Cable company, to be temporarily known as New Charter, would have 23 million subscribers, making it a close second to Comcast’s 27 million users. Experts say that the Charter deal has better odds of gaining regulatory approval because the merger would not give the new company nearly as much dominance in the market. The merger would give New Charter a 30 percent market share of broadband Internet, less than half of the 66 percent share Comcast would have gained through a merger.
“There is a much greater likelihood of it being approved,” one telecommunications expert told the Washington Examiner. “You don’t have the content-related concerns. You also don’t have the vast reach and expanded coverage area.”
Tom Wheeler, chairman of the FCC, called both Charter CEO Tom Rutledge and Time Warner Cable CEO Rob Marcus to inform them that even though the previous merger was denied, the agency wasn’t opposed to all cable deals and was open to the merger.
“In applying the public interest test, an absence of harm is not sufficient. The Commission will look to see how American consumers would benefit if the deal were to be approved,” Wheeler said in a statement, reiterating the FCC’s transaction standard, which regulators look to when examining possible mergers.
Marcus said that he had “every confidence” the deal can be approved by the close of 2015.
This timeframe would be quick considering that the FCC had spent 18 months on the aborted Comcast merger with Time Warner Cable.
There is still an outside chance that the FCC will reject the merger.
Detractors of the Comcast merger believed that a merger between such large cable companies would have inevitably pushed online video streaming companies out of the market, effectively strangling competition.
“The issue of the cable industry’s power to harm online video competition, which is what ultimately sank Comcast’s consolidation plans, are very much at play in this deal,” said the public interest group Free Press, which opposed Comcast’s bid last year.
These same concerns are sure to be seen again in opposition to the Charter-Time Warner Cable merger, but it is not clear that they will carry the same weight. Because New Charter would occupy a much smaller share of the broadband market than Comcast-Time Warner would have, past arguments that are based on the size of the consolidated company are no longer as applicable.
“Charter isn’t vertically integrated, so it’s hard to see what difference [the size] would make,” Berin Szoka, President of TechFreedom, a free market advocacy group, said. In other words, Comcast owns NBC and Universal, and if the Comcast-Time Warner deal had been approved by the regulators, the company would have owned both the distributors and programmers, making it a large threat to online video providers like Hulu. This immense coverage does not occur in the Charter-Time Warner Cable transaction, improving its chances for regulator go-ahead.
“You’ll still see dialogue and some concerns, but it won’t be the same level of intensity of opposition,” Szoka predicted.
To others, the confusion and uncertainty surrounding these telecommunication mergers says less about each company and more about the arbitrary power of the FCC and its regulators.
Both Charter and Time Warner Cable must file descriptions and summaries that detail how their merger will decisively benefit the public. These applications are reviewed by the FCC and the merger will then be either approved or denied based on the regulators’ findings.
“The thing with these mergers…it’s full of extortion. It kind of depends how much of a game of hardball the agency wants. And how much the companies are willing to give. It’s really a lawless process,” Szoka said.
While New Charter already has plans to increase investment, upgrade speed and effectively create a larger “wireless footprint” through routers, all practices that should benefit the public, there is no guarantee that the merger will receive the okay.
“[Mergers are] really about bringing in a new management team and making things run better…The management at Time Warner Cable could probably do better. The FCC is really saying that they are not allowing one management to take over another,” said Szoka.
While Szoka believes that the Charter-Time Warner Cable deal, due to its smaller size and clear goals, will hold up much better under fierce regulator review than Comcast did, he makes clear that that is only half the battle that New Charter must fight to gain approval.
“Ultimately this is political and at the end of the day the FCC doesn’t have to push any mergers through. It comes down to a political calculation: Does the administration feel that they need to keep sticking it to cable companies?” he added.
