Monday, April 3, 2017

Charter Does Not Have to Overbuild, FCC Says

Charter Communications will not be required to overbuild (compete with an existing cable operator) as part of its acquisition of Time Warner Cable, the U.S. Federal Communications Commission has ruled.

That preserves the collegial structure of the U.S. cable TV industry, which historically has held to a practice of not competing with other cable operators, even if such competition is lawful. Basically, as industry execs have privately said, that “no competition” behavior has meant cable had the “best of all possible worlds, able to operate an an unregulated monopoly.”

That remains only partly true now that U.S. telcos and cable operators compete head to head, with the same key product lines, virtually everywhere. But the historic restraint (no competing with another cable company) remains largely intact.

The big changes will come as Comcast and Charter Communications enter the mobile and OTT streaming businesses, which require national scale. In such areas, Comcast and Charter will “compete” with other cable operators at least in the OTT video area. In that sense, the “competition” will be indirect, similar to the notion of a cable operator competing with Netflix.

Even so, the competition will more theoretical than practical, as smaller cable operators will not have the scale to compete in the OTT streaming services market. It is virtually certain neither Comcast nor Charter would directly challenge other cable operators in the core fixed networks business.

In the mobile business, it is possible local cable partners might, in many cases, also act as marketing and infrastructure partners with either Comcast or Charter or both. Despite that, Comcast and Charter will be trying to market services to customers served by other cable operators. No doubt both firms will do everything possible to minimize the perceived degree of competition and revenue threat.

As a condition of FCC approval of the acquisition, the FCC under the Obama administration had required that Charter build internet access facilities to about a million households that currently have service from other cable operators.

As you would expect, the smaller rural cable operators that would have faced new competition from Charter opposed the provision.

As a condition of approval for its acquisition of two cable companies, Charter in May 2016 agreed to extend high-speed internet access to two million potential customers within five years, with one million served by an existing cable competitor. That would have created new cable operator competition in those overbuilt areas for the first time.

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