Bizarre Court Ruling Helps Cable Broadband Monopoly Charter Tap Dance Around Merger Conditions

from the our-courts-might-be-broken dept

Eager to impose higher rates on its mostly captive customers, Charter Communications (Spectrum) has been lobbying the FCC to kill merger conditions affixed to its 2015 merger with Time Warner Cable. The conditions, among other things, prohibited Charter from imposing nonsensical broadband caps and overage fees, or engaging in the kind of interconnection shenanigans you might recall caused Verizon customers' Netflix streams to slow to a crawl back in 2015. The conditions also involved some fairly modest broadband expansion requirements Charter initially tried to lie their way out of.

But with the GOP having neutered FCC authority over broadband providers (including the axing of net neutrality rules), Charter obviously is eager to take full advantage. So on one hand, they've been engaged in some fairly dodgy lobbying of the FCC to scuttle the conditions, which already had a seven year sunset provision (they expire in 2 years anyway). On the other hand, the telecom-backed Competitive Enterprise Institute (CEI) took a different tack, and filed suit against the conditions, somehow convincing four Charter customers to sue under the argument the conditions (not the merger) raised consumer prices.

This being America, the telecom-backed think tank last week scored a favorable ruling thanks to the US Court of Appeals for the District of Columbia Circuit. In its ruling (pdf), the court completely bought into the CEI's arguments that conditions crafted by consumer advocates, aimed at protecting consumers, somehow hurt consumers. As such, the court vacated two of the conditions -- one banning Charter from having to offer lower-cost broadband plans, and one prohibiting ISPs from engaging in dodgy behavior out at the edge of the network (interconnection).

In its ruling, the court proclaims that the restrictions on interconnection drove up consumer prices:

"To begin, the condition plainly caused New Charter to forgo revenue from edge providers. Before the merger, Time Warner, the largest broadband provider among the merging companies, raised substantial revenue from paid interconnection agreements. So did Bright House. But the merger condition prohibits New Charter from using those same revenue sources."

But that's a misrepresentation of what the conditions did. If you'll recall, networks of all kinds for years engaged in settlement free peering. As incumbent ISPs faced more competition from the likes of Netflix in the TV space, transit and streaming video companies alike accused ISPs like Verizon and Charter of intentionally letting their peering points get congested to force companies to pay significantly higher rates if they wanted their traffic to reach an incumbent ISP's customers. The FCC's net neutrality rules and the merger conditions were fairly mild restrictions designed to prevent ISPs from using interconnection as a way to drive up costs for their competitors.

Whether you like the rules or their implementation, the argument that they harmed consumers is nonsensical, and it's not being made in good faith. Telecom mergers as a whole generally drive up costs. History is very clear on this point. Yet here we have the telecom sector and its think tank allies trying to claim it was the attempts to mitigate merger harms...not the damn merger itself that was the problem.

One of the other major conditions, a seven year ban on bullshit usage caps, was also singled out by CEI as some bizarre affront to consumer welfare. But the court refused standing on caps under the bizarre claim that Charter has purportedly no interest in imposing such profitable restrictions:

"Nonetheless, the consumers have failed to prove causation because there is scant evidence that New Charter would offer usage-based pricing if allowed to do so. Before the merger, its predecessor companies rarely offered it. Charter had specifically rejected it. Time Warner offered one plan with usage-based pricing, but abandoned efforts to expand the practice after “significant public backlash.” Id. at 6363. Bright House never offered it. Given the lack of evidence that New Charter’s predecessor companies had offered usage-based pricing before the condition was imposed, or that New Charter would offer usage-based pricing if allowed to do so, the appellants have failed to show traceability or redressability.

For one, the company's name is "Time Warner Cable," not Time Warner. And while it's good the court rejected the CEI's attempts to scuttle the ban on broadband caps (which again expire in two years anyway), the logic here doesn't make much sense either. It's abundantly clear that Charter is lobbying to kill these conditions in large part because not having them would allow the monopoly to raise prices. That this is something that's even debated by the court shows they don't really even understand the motivations of the players here. The only reason Time Warner Cable didn't succeed in capping usage previously was historic public backlash.

In short, a telecom monopoly-linked think tank filed a lawsuit claiming that post-merger prices went up because of some pretty modest conditions specifically designed to try and prevent that. And the courts, which routinely reject consumer group lawsuits built on far-more concrete logic, bought into that reasoning entirely (in large part because the Trump FCC refused to defend them). Nowhere does the court even faintly recognize the lawsuit is in bad faith. Nor does the court recognize that Charter lied so frequently about its adherence to the merger conditions it was almost kicked out of New York State.

It's another example of why it's often far easier to just ban problematic mergers, instead of trying to rely on a bunch of conditions that are difficult to enforce, don't fix what they profess to, aren't permanent, or can't be enforced due to regulatory capture and a slow but steady erosion of the U.S. court system.

Filed Under: broadband, broadband caps, competition, data caps, fcc, interconnection, merger conditions, net neutrality, overage fees
Companies: charter spectrum, chater, time warner cable