Will Merger Critics Wage War Against Charter-Time Warner Cable Deal?

Tom Rutledge Charter Communications
Brendan Smialowski/Getty Images

Charter Communications is facing skepticism from some public interest groups over its proposed merger with Time Warner Cable, but it remains to be seen whether critics will wage anything close to the campaign that helped defeat Comcast’s effort to acquire the nation’s No. 2 cable operator.

In fact, some groups acknowledged that Charter may face fewer regulatory hurdles than Comcast, in part because the latter not only was the No. 1 cable operator and broadband provider but also owned NBCUniversal. There’s also a question as to whether any powerful content or Internet company will step up to oppose the deal. Netflix and Discovery were among those companies publicly opposing the Comcast transaction.

“We are still in the process of reviewing this proposed merger,” said John Bergmayer, senior staff attorney at Public Knowledge, a public interest group, said of the Charter plans. “At this point, we do not believe this deal raises as severe competition concerns as the recent Comcast/Time Warner Cable transaction. However, it is not at all clear that it serves the public interest.”

Todd O’Boyle, program director of Common Cause, said that “nothing about this proposal will advance the interests of consumers or creators. A modest proposal: If Charter wants to spend billions, it should invest in delivering light-speed broadband and reliable customer service at affordable prices.”

The most vocal opponent in Hollywood to the Comcast deal was the Writers Guild of America, West, which said that it was now “extremely concerned” over what the latest proposed Charter deal “will mean for content creators, consumers and competition.”

“Mergers and consolidation rarely serve the public interest as distributors use their increased power to squeeze programmers and raise prices for consumers,” the WGAW said.

The Writers Guild of America, East echoed their concern over consolidation, and also expressed worry that because Charter and Liberty Media are linked with Discovery Communications (through Liberty mogul John Malone’s equity stake in Discovery), the newly merged company could use its leverage to favor Discovery content.

“In other words, this merger is not a pure ‘distribution’ play,” the WGAE said in a statement.

One of the central arguments that the writers guilds had against the Comcast-TW Cable combination was over the potential power that the company would have over broadband pipes at the very moment that their members were enjoying new opportunities from the growth of video streaming services. That also was a chief concern of federal regulators, with Netflix joining opponents in sounding the alarm over a more powerful gatekeeper over the flourishing alternative to cable TV bundles.

On Tuesday, Netflix had no comment on Charter’s proposed merger with TW Cable.

Charter’s command of the broadband market is again likely to weigh heavily in a regulatory review. Along with its acquisition of Bright House, Charter will have a smaller share of the broadband market, about 30% at 25 Mbps, compared to roughly 57% had Comcast’s deal gone through.

In contrast to the February 2014, announcement of Comcast’s proposal to acquire TW Cable, in which the merger seemed to be greeted on Wall Street as inevitable, analysts were more cautious about Charter’s bid.

“Regulatory approval is no longer a given but we expect this is highly probable and greater than Comcast-Time Warner,” wrote Amy Yong of Macquarie Research. She noted that the merger could still be subject to conditions.

Charter is probably wise not to take anything for granted — including the potential for customer service issues to ignite opposition.

Such complaints are not central to an antitrust review by the Department of Justice (which has analyzed recent cable industry mergers), but the FCC has a wider scope as it assesses whether a transaction is in the public interest.

According to the Wall Street Journal, FCC chairman Tom Wheeler recently reached out to cable industry chieftans to assure them that the agency is not opposed to all mergers, despite its opposition to Comcast-TW Cable.

On Tuesday, however, his message seemed to be that Charter would have to prove the deal will be a win for consumers.

“The FCC reviews every merger on its merits ad determines whether it would be in the public interest,” he said. “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.”

As its merger was under review, Comcast was dogged by embarrassing stories of harassing customer service agents, while TW Cable stoked anger in Los Angeles as it failed to reach agreement with other multichannel operators to carry its Dodgers channel, leaving about 70% of the market without access to the games.

On Tuesday, Charter announced that its Los Angeles subscribers will begin to get access to the Dodgers games, perhaps diffusing at least one consumer issue that it will face in acquiring TW Cable. It also has pitched the merger as offering TW Cable customers improved broadband service and more WiFi hotspots, and even the potential for lower prices.

Charter lacks the same kind of lobbying strength of Comcast. The latter spent $17 million on lobbying last year, according to the Center for Responsive Politics, placing it among the highest of all companies. Charter spent $2.7 million.

But as the collapse of the Comcast-TW Cable deal showed, D.C. might doesn’t always translate into the government’s greenlight. Other industry lobbyists privately wondered if Comcast’s strategy, which included hiring dozens of top lobbyists and advertising in D.C. papers and websites, began to backfire, calling attention to its scale and also making federal regulators even more sensitive to the idea that they are easily influenced.

Although lawmakers on Capitol Hill do not get a say on the merger, their opposition can create problems for a transaction. One of the most visible opponents of Comcast’s plans to merge with NBC Universal and later Time Warner Cable was Sen. Al Franken (D-Minn.) Like some other opponents of the Comcast deal, he also was reserving judgment about Charter’s plans, urging regulators to give it careful scrutiny.

“To protect the American people, it is essential that regulators thoroughly examine the proposed deal and, if allowed to proceed, consider the need for strong and enforceable consumer protections to guard against any anti-competitive effects and to promote the public interest,” he said in a statement.

Pictured: Tom Rutledge, CEO of Charter Communications.