Charter's Online Video Strategy Increasingly Under Scrutiny
As analysts question how much CEO Tom Rutledge's comments about the online video distribution market could create problems for Charter Communications' bids to buy Bright House Networks and Time Warner Cable, Charter is adding to its public interest commitments. This time, it's pledges on board and employee diversity. An industry official said the company began work on its memorandum of understanding with various civil rights organizations in July, shortly after Charter/TWC/BHN was announced, and the MOU doesn't reflect any concerns about regulatory approval.
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The red flags raised about public statements by Rutledge in an FCC ex parte filing by Time Warner and HBO Thursday (see 1601140033) "has us wondering if we should be less confident in deal approval than we currently are," BTIG analyst Richard Greenfield wrote investors Friday. In a series of interviews and comments in 2014 and 2015, Greenfield said, Rutledge indicated Charter could take competitive action against programmers who sell content to subscription VOD platforms or launch their own direct-to-consumer over-the-top offerings. Because the FCC, Justice Department and White House have been vocal about wanting a flourishing OTT market, Greenfield said, it raises questions about whether allowing New Charter to control of 25-30 percent of the U.S. broadband market would be "in the government's best interests. Can Rutledge really be trusted and if not, what conditions would protect the future of OTT video for consumers?"
But the ex parte "is pretty weak" because New Charter would lack the tools to stifle OTT, especially given its pledges on such activity as interconnection pricing and usage-based billing, New Street Research analyst Jonathan Chaplin wrote investors Friday. "While we think the deal will be approved, we think the real debate will be over conditions, a debate we expect to kick into high gear next month." One communications lawyer familiar with the transaction said it likely will gain FCC approval, and the commissioners probably want to get it completed relatively soon. The now-stopped shot clock stands at 115 days, and is scheduled to resume ticking Jan. 20.
Charter went on the offensive against Time Warner/HBO, in a Friday blog post. "There are some who seek to use the regulatory review process to extract concessions or conditions that further their business goals. Following the well-worn play book to achieve that goal they must first try to discredit the merger, but their allegations are often not based on the facts. For example, charges by Dish and Time Warner’s HBO that New Charter will harm Online Video Distributors simply do not make sense. As we have demonstrated, there is no more OVD-friendly provider than Charter, with our slowest speed at 60 Mbps, no data caps, no usage-based billing, no annual contracts and no modem fees. Additionally, we’ve committed that New Charter will offering [sic] settlement-free peering to Internet companies, which means we will continue to invest in interconnection to avoid congestion. Netflix CEO Reed Hastings, a supporter of the transaction, stated 'the key thing about the Charter deal is it’s all Internet companies that benefit -- us, Hulu, Amazon, HBO Now -- so that we can all compete for consumers’ affection.'” Charter also quoted recent statements by Rutledge tying the value of the company's broadband service to "a rich over-the-top environment." Thus, he said, OTT "makes our broadband superiority more clear in the eyes of the consumers.”
Dish Network, one of the lead opponents of the Charter deals, has focused much of its criticism on OTT-related issues and is seen as trying to secure conditions that would protect Sling TV (see 1601050039). In highly redacted comments posted Friday in docket 15-149, Charter responded to multiple Dish filings, calling them "meritless." Dish's claims "rely on the public's lack of access to the unredacted version of documents, mischaracterizations of out-of-context quotes, and disregard of other record documents," Charter said. The full documents "show Charter's recognition that OVDs are overwhelmingly positive for the company because they drive growth of its higher-margin broadband business" and demonstrate why the company has never used data caps, interconnection charges or usage-based billing, it said. Dish didn't comment.
Zoom Telephonics, which also has criticized the Charter deals (see 1511240028), said in an ex parte filing posted Friday that absent conditions, New Charter could end up reducing the retail set-top box market by 30 percent or more, due to Charter's "highly restrictive policy" for certifying cable modems allowed to attach to its network. The set-top company also criticized Charter's bundled price for leasing cable modems and Internet service, which ends up subsidizing the cable modem price. Charter didn't comment. The ex parte filing recapped meetings between Zoom CEO Frank Manning and representatives of Chairman Tom Wheeler and Commissioners Michael O'Rielly, Ajit Pai and Jessica Rosenworcel.
Within two years of closing on BHN and TWC, Charter said in a news release, it plans to appoint one African-American, one Asian-American/Pacific-Islander, and one Latino-American board member. It also said plans to appoint a company chief diversity officer and take a variety of steps to increase diversity among its workforce and suppliers. The MOU was signed with a variety of organizations ranging from the National Urban League and National Council of La Raza to the League of United Latin American Citizens and Asian Americans Advancing Justice.