Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: USTelecom Association proposes conditions for Charter-TWC-BHN merger, (Nov 13, 2015)

By Lynn Stanton,TR Daily

The U.S. Telecom Association has urged the Federal Communications Commission (FCC) to impose conditions on the proposed merger of Charter Communications, Inc., Time Warner Cable, Inc. (TWC), and Bright House Networks LLC (BHN) to prevent the resulting company from favoring other cable companies over non-cable programming distributors and broadband service providers, and to prevent major stockholder John Malone from exercising any control over New Charter’s operations.

Charter announced its intention to purchase TWC in a transaction valued at $78.7 billion including assumption of $22 billion of debt in May, along with a related plan to boost Charter’s stake in its BHN partnership with Advance/Newhouse Partnership to 86 percent. The companies filed their public interest statement in June, pledging to abide by the FCC’s prohibitions against blocking, throttling, and paid prioritization for three years, regardless of the outcome of pending court challenges. The FCC started the time clock on the merger in September.

Responses to comments on the merger application and responses to oppositions to petitions to deny the application were due today.

In its filing, USTelecom said that further consolidation in the cable TV sector “is likely to detrimentally impact broadband competition from ILECs [incumbent local exchange carriers] and other emerging competitors given the powerful tools at cable’s disposal.”

“In its analysis of the proposed acquisition, the Commission must also account for the asymmetrical regulatory burdens that, as Chairman Wheeler has noted [in a February 2014 speech at the University of Colorado Law School], direct ILEC resources and investments into legacy networks and away from broadband, hampering competition with increasingly dominant cable competitors,” USTelecom said.

In addition to increased risk of coordination from increased consolidation, USTelecom pointed to “cable-only venues” such as the WiFi consortium, CableLabs, and the Cable & Telecommunications Association for Marketing; the cable industry’s “control of video programming”; the overlapping content and distribution interests of John Malone implicated by the Charter proposal; the cable sector’s growing role in the must-have programming of regional sports networks; and the cable sector’s “increasing dominance” of broadband markets while free from the “multiple layers of regulatory oversight” that ILEC broadband providers face.

To address these concerns USTelecom proposed two conditions.

“First, the Commission should adopt a condition that would effectively prohibit the Applicants from giving to or receiving from other incumbent cable providers any undue preferences,” USTelecom said.

“As part of this prohibition, New Charter and its affiliates may not give to or receive from other MSOs [multiple system operators] or their affiliates rates, terms, and conditions related to programming, advertising, Wi-Fi roaming, or resale of fiber-optic cable facilities for service to enterprise customers that are more favorable or advantageous than those offered to other MVPDs, Broadband Internet Access Service, OVDs, or their affiliates,” it said.

“Second, the Commission should adopt a condition that would limit Dr. Malone’s ability to influence New Charter and to prohibit New Charter and Dr. Malone’s programming interests from engaging in anticompetitive self-dealing by precluding him from exercising any right to influence the operation of New Charter,” USTelecom added.

Specifically, it proposed that “John Malone shall not exercise any right to influence the conduct or operation of New Charter or its affiliates, including those arising from agreements, arrangements, or operation of his equity interest (e.g., Dr. Malone and his representatives shall not fill any board seats, vote for directors or on other shareholder matters, exercise any management and veto rights, etc.) and shall hold his interest in New Charter and its affiliates solely as a passive economic interest. This prohibition shall extend to typical minority investor protections that Commission precedent treats as non-controlling. Furthermore, New Charter and its affiliates shall not provide Dr. Malone or his representatives or other affiliates any nonpublic information about its operations, finances, and plans.

“Malone-affiliated companies must make programming available to competing MVPDs [multichannel video programming distributors] and OVDs [online video distributors] at the same rates, terms, and conditions on which that programming is made available to New Charter or its affiliates,” it added.

In its filing, the National Association of Broadcasters repeated its request from the initial comment round that the FCC place its consideration of the proposed merger in abeyance until it addresses restrictions on broadcast ownership “that hamper effective competition with concentrated pay TV providers and reduce consumer welfare.”

The Greenlining Institute reiterated its earlier call for the Commission to deny the application, “or, in the alternative, further investigate the public interest impacts of the proposed transaction.” It said that the applicants have not provided sufficient information to show “that claimed efficiencies are verifiable,” to show “that New Charter’s proposed low-cost broadband offering will benefit low-income consumers,” or to show “that New Charter’s proposed diversity programs will serve the public interest.”

There were also a number of commenters supporting the merger, including the Berea Kentucky Chamber of Commerce, the Northern Kentucky Chamber of Commerce, Greater Louisville, Inc., Metro Chamber of Commerce, and Commerce Lexington, Inc.

Companies: Charter Communications, Inc.; Time Warner Cable, Inc.; Bright House Networks LLC

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