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Following two meetings held with the Federal Communications Commission on February 5th, the Stop Mega Cable Coalition – a diverse group of public interest groups, media and telecommunications businesses, programmers, labour and other concerned parties united in the belief that the merger of Charter Communications, Time Warner Cable and Bright House Networks presents significant harms for consumers, competition and innovation – has filed an ex-parte submission regarding the merger.
According to the ex parte – a communication, written or oral, directed to the merits or outcome of a proceeding that, if written, is not served on all the parties to a proceeding, and if oral, is made without giving all the parties to the proceeding advance notice and an opportunity for them to be present – during the meetings, the Coalition members outlined the many competitive threats posed by the merger, with emphasis on the markets for broadband, streaming services, programming and broadband modems.
In the letter, the Coalition argues that the proposed transaction will produce a new cable and broadband giant – Mega Cable – that threatens the future of video distribution services provided by over-the-top (OTT) distributors, and smaller and new entrant MVPDs. During the meetings, members of the Coalition discussed the many harms that would result from this merger, including in the following key market segments:
Broadband. Mega Cable would be the dominant broadband provider in many of the country’s largest and most important geographic markets, including New York City, Los Angeles and Dallas-Ft Worth, among many others. In addition, Mega Cable and Comcast would control broadband access to the vast majority of American homes at speeds of 25 Mbps and above – at least 70 per cent and possibly as high as 90 per cent. Mega Cable and Comcast’s massive control of the high-speed broadband market would allow the companies to coordinate efforts to reduce competition from other streaming services, while raising prices for consumers. This concentration of the broadband market will allow two companies to control the fate of OTT services that rely on a robust high-speed broadband connection. Mega Cable and Comcast could coordinate their actions by simply responding to the other’s behaviour. This could take the form of parallel action or even express agreements. These harms would be particularly acute for Mega Cable subscribers, given that approximately two-thirds of customers in the Mega Cable footprint will not have access to a competing broadband alternative at 25 Mbps and above.
Streaming Services. Mega Cable would have the means and incentive to harm established and emerging streaming services, to the benefit of its own service offerings. Mega Cable could limit consumer access to a stand-alone broadband service, or raise the price of standalone broadband in a way that favours its own bundle of services. Mega Cable could also discriminate against competing streaming services while treating its own content favourably.
Programming. Mega Cable will have the incentive and ability to coordinate efforts to starve out independent programmers. This could allow the entity to force independent, local and diverse voices to accept below-market terms, thus jeopardising their viability. Or, Mega Cable could restrict the ability of third-party programmers to distribute their content on competing OTT platforms.
Mega Cable would also be able to leverage its dominance to prevent streaming or MVPD competitors from acquiring affiliated and unaffiliated must have programming, including RSNs, or ensure it acquires programming on more favourable rates and terms than competitors. Due to its enlarged size post-transaction, Mega Cable would be able to enjoy discounts for programming and ensure that rivals get less favourable rates, terms and conditions for programming.
Broadband Modem Marketplace. Mega Cable would have the power to severely damage competing modem manufacturers and dramatically limit the equipment options available to consumers. Charter is one of the only cable providers that does not give customers the option of saving money by purchasing their own modem. Charter addresses this anticompetitive approach by claiming that it charges no ‘modem fees’ when, in fact, the cost of the modem is bundled into a consumer’s bill. This practice inhibits Charter consumers from purchasing their own equipment. Charter has promised to extend this same anticompetitive practice from its own relatively small subscriber base to millions of Time Warner Cable and Bright House customers, potentially crippling the market for retail modem manufacturers and along with it, consumer choice.
Consumers. Mega Cable would compound ongoing price hikes, poor customer service and the lack of choice in the cable and broadband marketplaces. Charter, Time Warner Cable and Bright House Networks boast some of the lowest customer satisfaction scores – not just in the cable industry, but any industry. In order to merge, Mega Cable would take on $27 billion in new debt – about $1,142 in debt for each customer – which could be reconciled by passing along these costs to consumers. Mega Cable will have every incentive to cut costs by further degrading customer service, limiting investment in new innovations and raising prices. Members explained that all of the harms enumerated above would be exacerbated by coordinated action by Mega Cable and Comcast.
The Coalition also provided documents, which it said illustrated some of the many ways that Mega Cable could threaten competing OVD and MVPD services.
In conclusion, the Coalition reiterates that Charter’s proposed acquisition of Time Warner Cable and Bright House Networks threatens serious harms for consumers, competition and innovation. “The Stop Mega Cable Coalition urges the Commission to solve or prevent the harms presented by this transaction,” it says.