Monday, April 25, 2016

Charter-Time Warner Merger & Data Usage: How a Ruling Could Impact Consumers

By: Professor Karl Manheim

The Federal Communications Commission has recommended approval of Charter Communications’ merger with Time Warner Cable, making the combined company the nation’s second largest broadband provider. As a condition for FCC approval, Charter/TWC will not be able to impose usage-based charges or data caps on its broadband subscribers for seven years. Can the FCC impose such a condition? Maybe, but ultimately it may not matter.

In 2002, under a Republican administration, the FCC ruled that cable broadband was an “information service,” and thus mostly unregulated under the Federal Communications Act of 1934 and the Telecommunications Act of 1996. The Supreme Courtt upheld that determination in NCTA v. Brand X (2005). In 2010, the FCC began regulating cable broadband to achieve Net Neutrality, but in Verizon v. FCC (2014) the Court of Appeals for the DC Circuit invalidated the FCC order because the agency had earlier deemed cable broadband to be an information service, hence not subject to FCC regulatory jurisdiction. Last year, under a Democratic administration the FCC reversed its 2002 Order and ruled that cable broadband was a “telecommunications service,” and thus within the agency’s Title II jurisdiction (as a public utility). 2015 Report and Order on the Open Internet aka "net neutrality"). It is this ruling that allows the FCC to impose a no-cap policy (as a condition for merger). Verizon has once again appealed the FCC Order; that case is pending.

If the DC Circuit upholds the 2015 Order, then the no-cap condition will stand. If it invalidates the Order, then cable companies may have wide berth to do as they wish.

Keep in mind that the FCC is only 1 of 3 federal agencies who have to pass on the competitive effects of telecom mergers; the other 2 being the FTC and the DoJ. In the case of cable companies, state regulators may have to approve as well. Also keep in mind that cable companies will increasingly rely on broadband revenue as more customers cut the cord on cable video service. That’s why it is so expensive (roughly $50/mo for a service that costs the company far less than that). But even though cable companies have a license to print money, I still wouldn’t put my marbles there. That’s because customers will soon be able to cut the cable broadband cord too. We are in the middle of an FCC auction that will repurpose TV frequencies (channels 46-51) from broadcast TV to mobile Internet (ch. 52-69 have already been reclaimed). Once that happens, the speed of your Internet connection on your cell phone will rival that on cable (or DSL). Then we can kiss the cable companies and their monopoly prices goodbye.

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