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FCC Approves Charter Acquisition of Time Warner Cable, Bright House Networks

Paving the way for the rise of a new No. 2 in the cable TV arena, the FCC has formally approved the acquisition of Time Warner Cable and Bright House Networks by Charter Communications.

The FCC said Friday that the three-way $66 billion merger had been approved with certain conditions on Charter’s activities that were outlined by FCC chairman Tom Wheeler last month.

With the FCC’s approval, the deal is sure to close within the next week or so. A final hurdle remains the vote of the California Public Utilities Commission on the transfer of Time Warner Cable’s licenses in the state to Charter. That vote is set for May 12. Charter is expected to formally complete the $55 billion transaction with Time Warner Cable and $10.4 billion transaction with Bright House Networks within a few days after the California PUC vote.

The long-awaited deal makes Charter the nation’s second-largest cable operator behind Comcast Corp. with about 24 million subscribers, including about 17.4 million video subscribers. The five FCC commissioners voted on the transaction on Thursday, in a vote that was believed to be 4-1. A rep for Commissioner Ajit Pai confirmed that he cast the nay vote.

The FCC said the full order outlining the commission’s reasoning would be released next week. In a statement, Pai was critical of the review process and the conditions placed on the deal.

“The FCC’s merger review process is badly broken. Chairman Wheeler’s order isn’t about competition, competition, competition; it’s about regulation, regulation, regulation‎,” a spokesman for Pai said. “It’s about imposing conditions that have nothing to do with the merits of this transaction. It’s about the government micromanaging the Internet economy.”

Charter CEO Tom Rutledge said in a statement that the enlarged Charter will be able to be more competitive and offer better rates on broadband and video service to consumer. “The significant benefits of these transactions are clear; greater competition, more consumer and OTT-friendly broadband policies, broader access to affordable broadband, and added U.S. jobs,” Rutledge said. “The conditions are largely extensions of the longstanding consumer friendly values and practices of our company, and based on the commitments we put forward during the review process. Charter will be a stronger competitor in the broadband and video markets, well positioned to deliver these benefits and more to consumers.”

The closing of the Charter merger also promises to vault cable industry icon John Malone back into the big leagues of the cable MSO business. Malone’s Liberty Broadband invested in Charter in early 2013 and is helping to finance the takeover of TW Cable and Bright House. When the deal is done, Liberty Broadband will control about 25% of the voting shares in Charter. Malone and Liberty Media CEO Greg Maffei are on Charter’s board of directors.

Charter’s deal to enlarge its cable holdings comes 13 months after Comcast was forced to drop its bid to acquire Time Warner Cable in the face of rising opposition from regulators and media watchdog orgs. Charter’s deal did not spark the same level of coordinated efforts to defeat the deal among policy groups and industry forces. But the consolidation of the nation’s No. 2 and No. 4 cable operators still has its opponents.

“It hands far too much control over the Internet’s future to a cable giant with the incentive and capability to gouge its customers with higher and higher prices,” said Craig Aaron, president-CEO of the Free Press nonprofit org on the heels of the FCC’s statement. “It gives cable monopolists like Charter and Comcast the power to throttle the nation’s burgeoning video market and stifle innovation at the edges of the network.”

The conditions placed by the FCC on the merger prohibit Charter from offering usage-based pricing for broadband service for seven years after the closing of the merger. The company is also prevented charging fees to companies that are heavy bandwidth users such as Netflix and Amazon. And there are provisions to prevent Charter from blocking the development of rival OTT channel bundling services from digital players. Those efforts have been gaining steam in recent weeks with Hulu and YouTube among the major players developing plans to market skinny bundles.

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