Charter/Time Warner Merger: Let's Talk Remedies

Charter has emerged as a likely acquirer of Time Warner Cable ("TWC") after Comcast's failed bid earlier this year. I believed that the Comcast deal was workable from a competition standpoint, which makes the Charter deal even more so. What this means in a practical sense is that the most important conversation we should be having in regards to the deal is what remedies will be adequate to address any concerns.

Regulators like the FCC and competition enforcement agencies like the DOJ have broad powers and discretion to negotiate a remedy in order to allow a merger to proceed without legal challenge. A well-crafted remedy will prevent competition from being diminished as well as preserve future competition. This could mean preventing currently existing competition problems from getting worse due to the effects of the merger.

Any remedy must take into account the importance of future competition from non-cable competitors. As we've learned, cable companies do not compete with each other in any market. However, they do face important competition in internet service and video from a number of non-cable sources, including Netfix, Google, AT&T, and Verizon. One of the real dangers of this deal is that a merged Charter/TWC will be more likely to participate in an "old boys' club" where cable operators bestow upon each other advantages that are not shared with their rivals.

We may already be seeing this in industry initiatives like CableLabs, which develops technology standards, and Cable WiFi, which allows cable customers to use other cable companies WiFi hotspots. Verizon has criticized CableLabs, calling it "an exclusionary body beholden to incumbent providers [with] every incentive to develop a standard that works only with the technology used by its members." These activities may not necessarily be anti-competitive, but they do show a willingness to work with each other that is not shared with companies outside of the cable industry.

A key area of concern is affiliated programming. Many cable companies are vertically integrated with owned or partially owned content. This is not a problem in and of itself, but could become a problem if cable operators offer each other better deals on content than they do to competitors that need that content. This problem can be easily solved through properly crafted remedies. For example, a simple prohibition on most favored nation clauses would prevent cable companies from promising each other the best deals.

The proposed Charter/Time Warner merger does not have a big impact on current competition because cable companies do not compete. However, future competition from internet and video alternatives could be greatly impacted if we get the remedies wrong. The FCC and DOJ should make sure that any remedy prevents a cable "old boys network" that makes cable alternatives less competitive.