Why Consumer Groups Are Fighting the Charter-Time Warner Cable Merger

When it comes to cable companies, bigger definitely isn't better for consumers.

That was the message last week, when a group calling itself the Stop Mega Cable Coalition ratcheted up its opposition to a proposed merger of Charter and Time Warner Cable, which would also include the acquisition of smaller cable operator Bright House Networks. If the merger goes through, it will create the country's second-largest broadband provider and its third-largest pay TV company.

During a conference call with reporters, the advocacy group—which includes Consumers Union, the policy and advocacy arm of Consumer Reports, Public Knowledge, Common Cause, Dish Networks, and US Telcom-The Broadband Association, and other organizations—called on the Federal Communications Commission (FCC) and the Department of Justice to intervene to either block the deal outright, or impose strong restrictions on how the combined company can do business.

The coalition argues that the new company could have the power to stifle innovation and reduce competition, especially when it comes to new Internet-based video services. It could also raise rates for consumers, and offer even poorer customer service than Charter and Time Warner already do, since there would be little incentive to invest in new technologies and staffing.

These two have typically been among the lowest-ranked companies for customer service in Consumer Reports annual surveys. Of the 24 companies listed for TV service, Charter was ranked 20th, while Time Warner Cable was 23rd. The results were similar for their broadband services.

The proposed Charter-Time Warner Cable merger is playing out against the landscape of a rapidly consolidating industry. While a planned merger between Comcast, the nation's largest cable operator, and Time Warner was called off last year, AT&T recently acquired satellite TV company DirecTV, making it the nation's second-largest pay TV provider. And French telcom company Altice is in the midst of a bid to acquire Cablevision after completing its purchase of Suddenlink Communications, a smaller company, in December. If Altice's Cablevision deal goes through, the combined company would become the fourth largest cable company in the U.S.

Broadband Domination

Chief among the coalition's concerns is that a merged Charter/Time Warner Cable would become the second largest broadband provider in the U.S., trailing only—you guessed it—Comcast. Together, the coalition said, the two companies would control access to about 90 percent of the high-speed broadband connections in the country, including some of the biggest markets, including Los Angeles and New York City. (The tech website Ars Technica, however, argues the group relied on out-of-date FCC data, and that the two companies' reach is actually closer to 70 percent.) Either way, alternatives to traditional pay TV—so-called "over-the-top" (OTT) online video services—rely on consumers having access high-speed broadband Internet connections, which are dominated by cable companies.

Calling the two companies a "dangerous duopoly," the coalition worries that a bigger Charter and Comcast could work together and leverage their market power to curb or suppress emerging OTT alternatives, since they'd essentially control the pipes into people's homes. The companies could push customers to their own bundled TV/broadband packages by raising prices for standalone broadband service, the group says, or they could exert pressure on programmers to keep top shows from appearing on online video services trying to compete with them.

Netflix Likes the Deal

The merger, though, is getting thumbs up from some seemingly unlikely allies. Perhaps the most notable supporter is streaming video service Netflix, which was a vocal opponent of the Comcast-Time Warner Cable merger. Netflix CEO Reed Hastings has publicly pushed for the deal, calling the it "tremendously positive" for streaming services such as Amazon, Hulu, and Netflix, because Charter is publicly supporting net neutrality, which bans Internet service providers from blocking or slowing down traffic from content providers unable or unwilling to pay more for better or faster access.

Netflix's support for the deal, though, is easier to understand within the context of the interconnection agreements the service has struck with cable and other companies to ensure that its video is delivered to subscribers' homes without buffering. Comcast and some other companies charge Netflix fees for those interconnections. Charter, most likely anticipating regulatory scrutiny of its policies during the review of its merger, has pledged to support free interconnections, at least until the end of 2018. So basically Netflix is getting free access to Charter's broadband customers for almost three years.

In a statement issued in response to the Stop Mega Cable campaign Charter cited the "significant and broad support" it has received, not just from Netflix but also from independent programmers and multicultural organizations such as National Urban League, National Action Network, and the League of United Latin American Citizens, due to its "commitment to diversity and inclusion." Comcast made similar arguments, and rounded up similar allies, in an effort to bolster its proposed merger.

Charter has also argued that unlike the canceled Comcast deal, its merger with Time Warner Cable would benefit consumers and businesses by creating new jobs and providing it with an incentive to increase Internet speeds. The company also said it doesn't impose data caps or modem fees for its customers.

While all the members of the Stop Mega Cable Coalition agree that the Comcast-Time Warner Cable deal is bad for consumers, they disagree about exactly what should be done. Some groups are calling for the deal to be blocked outright, while others are pushing for restrictions. Consumers Union's position is that the merger should be blocked unless federal regulators can impose a set of sufficiently strong conditions to prevent anti-competitive behavior.

Based on recent comments by the FCC, it appears that the agency is weighing the impact that such mergers would have on the development of new streaming options. That factor evidently played a key role in the FCC's decision to block the Comcast-Time Warner merger last year.

Although Charter expected the deal to be completed by the end of 2015, the FCC is still reviewing the proposal. A decision could come in the spring.

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