When the FCC approved the three-way merger of Charter, Time Warner Cable, and Bright House, it did so under the condition that Charter would have to bring broadband competition to 1 million people in markets where consumers only have one choice. Today, the FCC voted to scrap that requirement, instead asking Charter to build its network elsewhere.
Among the conditions placed on the Charter mega-merger was a requirement for the company to build out internet access to 2 million additional households over the next five years. Charter didn’t need to sign up 2 million customers, just provide the ability for that many people to sign up for service if they want it.
Half of those households were to be in areas that are currently unserved, where you can’t actually buy broadband at any price because it’s just not present. And the other million had to be something referred to as “overbuild,” meaning Charter would provide service in an area already served by another provider.
The point of overbuild is not to reinvent the wheel but rather, to force competition into a marketplace where it’s currently lacking. And when it comes to broadband, boy is it.
In 2014, an FCC report found that about 75% of consumers in the country have, at most, one provider to choose from for actual high-speed broadband service. A few months later another government report came to a similar conclusion, finding that for the same connection speed, 63% of Americans had access to one or no providers.
However, the American Cable Association, a trade group representing cable networks and distributors large and small, petitioned the FCC in 2016 [PDF] to reconsider the overbuild requirement.
“The overbuild condition is unlawful,” the petition read. “The Order nowhere finds that the overbuild condition would remedy harms created by the merger, or confirm merger benefits that might otherwise fail to materialize.”
“Far from mitigating any problems of market power or leverage identified as consequences of the merger,” it continues, “the overbuild condition exacerbates them by increasing New Charter’s footprint and market concentration.”
A group of 38 small- and medium-sized broadband providers sent a similarly-themed letter to the FCC in March of this year [PDF] supporting the ACA’s petition.
“Unfortunately, the merger condition requiring Charter to overbuild other providers has undermined plans to provide improved services and reach new customers,” they wrote.
“For small providers like ourselves, the mere threat of government-mandated, uneconomic entry undermines our ability to make investments that would benefit existing subscribers. … The business case for [upgrades] will be jeopardized if the operator is overbuilt where it is not economic to do so. Should the threat of uneconomic overbuilding pass, however, we will be able to resume our normal, market-driven investment in network upgrades and operations.”
This threat — don’t bring a competitor to our place, or we will pick up our ball and go home — evidently worked, and the overbuild requirement is now toast.
Never one to miss a chance for a simile, FCC chair Ajit Pai likened the Charter overbuilding requirement to “telling two people you will buy them lunch, ordering two entrées, and then sending both to just one of your companions.”
Except no one is giving anyone anything, so Pai’s reasoning falls flat. Today’s decision undoubtedly benefits Charter as it will only have to build out its network in places where people have no other options. If Charter had to overbuild, it would have to actually compete for customers.
Gigi Sohn, one of former FCC chair Tom Wheeler’s top staffers before departing the Commission in Jan. 2017, expressed displeasure with the move on Twitter.
“Once again, the Trump FCC puts incumbents first and consumers last by revising Charter merger requirement to compete,” Sohn said, adding that when it comes to this move, the glass is, “entirely empty. Incumbent cable companies don’t have to compete. Competition lowers prices and improves service and closes #digitaldivide.”
Charter has quickly become a favorite of Pai and the new administration. Last month, Charter CEO paid a visit to the White House, where he got an Oval Office photo op by pledging $25 billion in investment over the next four years. However, as Ars Technica pointed out, that amount of spending is really no change for the company, and that amount doesn’t include adding any new customers.
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