New Charter Overbuild Conditions Seen Facing Possible Legal Challenge

The commission is unlikely to act on the petitions, multiple attorneys with transaction experience told us. While it's not common practice for the agency to revisit a deal order, "it happens on occasion." said Jill Canfield, vice president-legal and industry at NTCA, which also filed a petition for reconsideration. She said the group has made no decisions on its next steps because it hopes the FCC adjusts its conditions.

ACA called the overbuild condition -- which would see New Charter extend its broadband footprint to at least 2 million additional mass-market customer locations within five years of the deals' close, and 1 million of those must be in areas outside its footprint and where another provider offers 25 Mbps broadband (see 1605100050) -- unlawful since it doesn't target a deal-specific harm. The group also said in its petition the tie between license conditions and transaction-specific harms "has constitutional dimensions," with the Supreme Court raising red flags in the past about approval conditions unconstrained by transaction-specific limits. In an analysis accompanying its filing, ACA said Charter will likely target smaller ISPs, including some of its cable and telco members, for overbuilding. The small-cable association said that is especially since cable has seen scant competition between Tier 1 operators, and Tier 1 firms "have not hesitated to overbuild smaller Tier 2 ISPs."

The buildout requirement wasn't fully publicly vetted and will adversely affect NTCA members' interests, that group said in its petition. There wasn't adequate time to comment on the FCC's buildout requirement, and that lack of input may have resulted in it adopting a condition that substantially increases the combination's competitive harm and could undermine other FCC policy goals, it said. "Artificial attempts to impose competition in areas where none had previously existed will not provide the same benefits as realized where competition arose on its own, the end result likely being wasted resources and little or no appreciable benefit to the customer." NTCA said forced competition in difficult-to-serve markets with slim profit margins could see some companies pulling back service or going out of business.

"Nearly all of the conditions imposed ... on New Charter related not to the firm's cable television or voice services but to its broadband Internet access services," though the station licenses and voice service authorizations subject to the Communications Act have nothing to do with broadband, Competitive Enterprise Institute (CEI) said in its petition. The overbuild condition forces New Charter to veer from a "commonsense business practice" of building out its residential network in response to market demand, CEI said in its petition filed with two BHN individual subscribers and two TWC individual subscribers, one of them a CEI board member. CEI also criticized the New Charter condition of offering a low-income broadband program, saying it "will undermine New Charter's ability to price its services in an economically rational manner," resulting in higher prices and lower service quality for customers not in the low-income program. It said the low-income broadband program and overbuild conditions aren't transaction-specific benefits.

Also petitioning the FCC is Zoom Telephonics. Its filing said the agency should reconsider its deferring consideration of Charter's cable modem billing practices and its unconditional approval of the transactions because it didn't include an assessment of whether those billing practices violate the Communications and Telecommunications acts. During the deals' consideration, Zoom was a frequent critic of Charter's cable modem policies (see 1511040045 and 1601150017).