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ACA Urges FCC To Repeal Harmful Charter Overbuild Merger Condition

Condition Will Only Increase Concentration To The Detriment Of Consumers, Online Video Distributors, Content Providers And Overbuilt Local ISPs

PITTSBURGH, June 9, 2016 -  The American Cable Association called on the Federal Communications Commission to repeal the harmful Charter Communications broadband overbuild condition that will lead to greater market concentration, harming consumers, Online Video Distributors (OVDs), content providers, and those competitors, particularly smaller providers, that have the misfortune of being overbuilt pursuant to a misplaced government mandate.

"The overbuild condition imposed by the FCC on Charter is stunningly bad and inexplicable government policy.  On the one hand, the FCC found that Charter will be too big and therefore it imposed a series of conditions to ensure it does not exercise any additional market power.  At the same time, the FCC, out of the blue, is forcing Charter to get even bigger," ACA President and CEO Matthew M. Polka said.

The increased concentration resulting from the overbuild requirement will harm consumers, OVDs, and content providers.  Further, the condition will have devastating effects on the smaller broadband providers Charter will overbuild.  While those providers are ready to compete in the market, they are not prepared to deal with uneconomic, government mandated entry.  As a result, Charter's overbuild targets will curtail services or be forced out of business entirely, further concentrating control of the market in a few, large providers. In sum, the overbuild condition exacerbates rather than remedies merger harms and inflicts new harms in the markets served by smaller providers.

"The FCC's overbuild condition will also cause Charter's current subscribers to suffer as investment is diverted from upgrading existing services to uneconomic new market entry.  The FCC needs to admit it overstepped and promptly reverse course before real harm is done," ACA's Polka added. "The FCC can impose conditions to remedy "genuine merger-related harms," he observed, but it cannot impose conditions that are ‘divorced from those harms or that exacerbate them' - which is exactly what the FCC did here." 

On May 5, the FCC approved Charter's twin mergers with Time Warner Cable and Bright House Networks with a host of conditions, including one requiring Charter to deploy broadband Internet access service (BIAS) of 60 Mbps or more to at least 1 million locations in areas already served by BIAS providers offering speeds of at least 25 Mbps.

In a petition filed Thursday, ACA said the FCC failed to identify a merger-specific harm or benefit to justify the overbuild condition. As a result, ACA believes the overbuild condition is unlawful in that FCC precedent precludes the agency from imposing conditions - "voluntary" or otherwise - except to address merger-related harms or confirm merger-related benefits. 

ACA said the overbuild condition will damage the long-term investment incentives for the smaller providers that will be overbuilt.  ACA estimates overbuilding could decrease the lifetime value of an ACA member's triple-play customer by as much as 85%.  Overbuilding will cut returns and force many operators to forgo investments that would otherwise have spent improving consumers' experiences. And once Charter fulfills the overbuild condition and harms the competition, it will have little incentive to upgrade those areas later given its entry was uneconomic.

In approving the Charter transaction, the FCC nowhere explained how the overbuild condition would remedy merger-specific harms created by the merger or confirm merger-specific benefits that might otherwise evaporate.  The FCC wholly ignored the harms the overbuild condition will impose. Instead of mitigating any problems of market-power or leverage identified as consequences of the merger, the FCC's buildout condition exacerbates them by increasing Charter's footprint and market concentration.

For example, the FCC approved the Charter transactions with conditions intended to protect OVDs from discrimination. The FCC said the condition responded to findings that harm to OVDs would grow in proportion to the increasing size of Charter's network footprint and enhanced market dominance. Yet, as ACA underscored in the petition, the FCC's overbuild condition - which requires Charter to expand its footprint and market power - is directly at odds with the findings in support of the conditions to protect OVDs.

About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 750 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America.  Through active participation in the regulatory and legislative process in Washington, D.C., ACA's members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business.  For more information, visit http://www.americancable.org/

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