Charter-Time Warner Cable Merger Faces Fierce Opposition From New Coalition

Time Warner Charter
Courtesy of Time Warner/Charter

The conventional wisdom has been that Charter Communications faces a smoother regulatory approval process in merging with Time Warner Cable than Comcast did.

A Charter-TW Cable combination would not be as mammoth, New York regulators have already signed off on the merger and Netflix CEO Reed Hastings, a vocal opponent of the Comcast deal, supports this one.

But some opponents are raising the volume on their opposition, particularly when it comes to what the potential combination would mean for the growth of online video services.

On Thursday, Dish Network, USTelecom, Public Knowledge and a number of other groups launched the Stop Mega Cable Coalition, with members sharing criticisms of the transaction, but differing on whether they would like to see the deal blocked outright or subject to stringent conditions.

“Comcast was a category 5 hurricane; Charter is a category 4. It is still really bad,” said Jeff Blum, senior vice president and deputy general counsel of Dish Network, which believes the merger should be blocked. He noted that Charter would have the incentive to try to restrict programmers from offering content to Dish’s online service Sling TV, a cheaper alternative to cable bundles.

Gene Kimmelman, the president of Public Knowledge, said that the merger would create a cable giant that would control the “overwhelming majority” of high-speed broadband homes in the country. From an antitrust perspective, he warns of two dominant players, Comcast and Charter, that could coordinate the way that they treat video programmers and the emerging market of online video, also called “over-the-top” services. Public Knowledge is asking regulators to address the potential duopoly and other issues.

Other members of the coalition also include the Writers Guild of America, which opposed the Comcast merger as well.

They contend that the newly merged company would control 35% of the market for cable pay TV and 36% for cable broadband, with a dominant position in markets like Los Angeles and New York.

In a statement, Charter said that it “should come as no surprise that Dish and other parties seeking to use the regulatory review process to extract concessions are also engaging in tired PR tactics to further their self interests. Their arguments against the pending transactions are baseless.” Charter has said that it would impose no data caps, which pose a potential limitation to online video.

Charter noted its support not just from Netflix, but independent channels like Fuse Media and RFD-TV, as well as groups like the National Urban League and the National Action Network.

“These parties have taken a close and honest look at the benefits of these transactions and have all come to the same conclusion: they are in the public interest.”

Last week, representatives from Time Warner (the former parent of Time Warner Cable and not a member of the coalition) and HBO met with FCC officials to raise concerns that the Charter-TW Cable merger would “be inclined to take action directed at programmers in response to the development of” online video services. HBO has launched HBONow, which offers the ability to subscribe to the premium service on platforms like Apple TV. The meeting was at the invitation from FCC staff.

Critics of the merger have cited comments made by Charter CEO Tom Rutledge, who told CNBC in 2014, “Anybody who sells their content over-the-top and also expects to continue to exist within a bundle sold to cable or satellite providers is really deluding themselves.” That comment came before Charter had proposed to acquire TW Cable.

Late last week, Charter posted a blog entry in which it said that it was the “most friendly” operator to online video distributors, along with more recent comments from Rutledge on CNBC.

“We like over-the-top television because it makes our broadband product look better,” he said in November. “We like it because it pressures the price of video. Obviously, if consumers are unwilling to pay for video at a certain price, we’re unwilling to pay for that as well. So our cost structure is positively impacted by over-the-top.”

In its filings with the FCC, Dish has charged that the merger would only increase the incentive for Charter to limit the growth of online video services because they pose a threat to the more lucrative cable bundle. Dish said that Rutledge’s 2014 comments were “outright threatening behavior” to discourage content providers from granting rights to online video services.

Dish’s Blum was asked at a press conference why Netflix, the online video giant, would support the Charter merger after opposing the Comcast deal. Hastings praised it in the Netflix earnings call as a “tremendous positive for the [over-the-top video] industry.”

“I don’t know what deal Netflix and Charter entered into,” Blum said.

Another issue raised has been the role of John Malone, and whether he would withhold Discovery Communications programming from competitors. Malone is chairman of Liberty Broadband, an investor in Charter and its biggest shareholder, and the largest shareholder in Discovery Communications.

In an FCC filing, Discovery said that they would not have an incentive to favor Charter, “because doing so would cause each economic harm.”

“Despite having had a common owner in John Malone for a number of years, Charter and Discovery are both structurally and operationally independent of each other,” Discovery said in the filing.