On May 10, 2016, the Federal Communications Commission (“FCC”) released its Memorandum Opinion and Order approving Charter Communications Inc.’s (“Charter”) acquisition of Time Warner Cable Inc. The merged entity, called “New Charter,” will be the second-largest broadband provider with 19.4 million users, and the third-largest cable television provider with 17.4 million customers. The approval of the merger, however, did not come without restrictions. In its over 300-page order, the FCC imposes several behavioral conditions on New Charter, including:

  1. Requiring New Charter to interconnect with qualifying companies on a settlement-free basis;
  2. Preventing New Charter for seven years from imposing data caps or charging usage-based pricing for its residential broadband service; and
  3. Prohibiting, for seven years, New Charter from entering into or enforcing contractual terms that prevent or penalize video programmers from distributing content online.

In the wake of the FCC’s 2015 Open Internet Order, which currently is being challenged in the courts, some wondered whether any conditions imposed in transactions would track the provisions of the Order. The FCC’s order approving the Charter merger, however, goes beyond the Open Internet Order in at least two respects.

First, with respect to interconnection, the Open Internet Order specifically did not apply its open Internet rules to interconnection; instead, the FCC merely expressed its willingness to hear disputes over interconnection arrangements. In the Charter transaction, however, the FCC not only accepted Charter’s proposed interconnection policy as a condition to approval, it expanded the criteria for qualification for the policy. This shift indicates the FCC’s attentiveness to interconnection as it focuses on preserving competition in the broadband ecosystem.

Second, with respect to usage-based pricing and data caps, the Open Internet Order declined to make any blanket findings about such practices, and instead stated that the FCC would take a case-by-case approach. Yet, in the Charter order, the FCC prohibited such practices for seven years, even in the absence of any concrete circumstances to evaluate (Charter did not employ such practices at all, and Time Warner Cable had only a very limited voluntary data-restricted offering). By basing its condition on forward-looking predictions about incentives to discriminate, the FCC took a more activist approach than it previously had done.

These developments bear watching, as the FCC continues to grapple with the aftermath of its Open Internet Order, and a rapidly evolving broadband marketplace.