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Charter’s $67 Billion Cable Merger Hinges on the Cord Cutters

If Charter is selling traditional cable service, why would it want to ease the way for a new set of competitors? Both Dish and Time Warner, the parent company of HBO, have warned regulators that Charter’s takeover could alter the future of streaming.

How do you expect regulators to address that concern?

CECILIA KANG: As a condition of approval, the F.C.C. persuaded Charter to agree to a number of public interest commitments, including a promise that it will treat streaming services fairly. It’s possible that Charter will promise not to pressure programmers like Viacom and Disney to withhold shows from companies like Hulu and Netflix, which could siphon viewers away from Charter’s offerings. Arrangements to withhold programming, known as “most favored nation” clauses, are common but secret. But the F.C.C. and Department of Justice, which is also reviewing the deal, have made more noise about them in various speeches because they think such deals stifle streaming services by keeping the most popular shows exclusively in the cable bundle.

Tom Wheeler, chairman of the F.C.C., has talked a lot about his mission to ensure that nascent media and telecom services blossom during his tenure. After the agency rejected Comcast’s bid for Time Warner Cable last April, the F.C.C.’s top lawyer said that particular deal would have threatened streaming companies that competed with Comcast’s video service.

Which raises a question: Why would regulators say yes to Charter but no to Comcast?

EMILY STEEL: For one, this deal is not as big. The Comcast-Time Warner Cable merger would have united the country’s two largest cable companies into an entity that controlled as much as 57 percent of the nation’s broadband market and just under 30 percent of pay television. That would have put a lot of power in the hands of one company that several TV executives already described as a major bully. And while Charter’s deal has generated its share of critics, the opposition to the Comcast deal was much louder and came from a wider base of lawmakers, public interest groups and big companies like Netflix, Dish and Discovery Communications.

Comcast lashed out against its critics, calling some extortionists. Charter, on the other hand, has taken a more conciliatory approach, striking deals with potential opponents, like one in which it promised not to charge access fees to online content companies such as Netflix no matter how much traffic they create. (Charter has a major financial incentive to make the concessions necessary for approval: Time Warner Cable will receive a breakup fee of up to $ 2 billion if the deal falls apart.)

One other interesting point, I think, is the idea that regulators could be using the Charter deal to drive the industry to adopt new business models. Cecilia, what do you think the F.C.C. is hoping to achieve through the merger?

CECILIA KANG: This F.C.C. clearly wants to support streaming video services, and that push is seen in so many of its regulatory decisions. Its net neutrality rules — a condition of this deal that will be upheld even if the agency’s rules are overturned in federal court — would ensure that Netflix and Hulu are never slowed or blocked by Charter. The F.C.C. hopes that opening up the set-top-box market will allow companies like Google and Amazon to sell devices that blend cable programming with Hulu, YouTube and online video services.

Mergers are also used to spur broadband providers to extend service to more customers and offer cheaper plans for low-income households, a provision Charter has already volunteered to adopt. Other commitments could include the promise not to impose data caps or usage-based pricing for broadband customers.

And even if the deal gains approval from federal regulators, it has one more hurdle: Regulators in California are also reviewing the merger. But there is little indication it will be blocked by state commissioners.

The completion of one merger is near, Emily, but I’m sure another big cable, wireless or media merger will have us back here talking again very soon. Until then.

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