Enlarge /. A charter Spectrum Van in West Lake Hills, Texas in April 2019.
Charter may bill Netflix and other online video streaming services for network connection, despite a merger condition prohibiting the practice, a federal appeals court ruled today.
The District of Columbia Circuit's Court of Appeal ruling removes two terms of a merger that the Obama administration placed on the charter when it bought Time Warner Cable and Bright House Networks in 2016. The FCC, chaired by Ajit Pai, defended the merits of failing to court the terms of the merger that pave the way for today's decision. The case was decided in a 2: 1 vote by a jury of three judges from the DC Circuit.
The lawsuit against the FCC to lift the terms of the merger of charters was brought by the Competitive Enterprise Institute (CEI), a think tank for the free market, and four charter users who claim they have been harmed by the terms. The FCC has unsuccessfully challenged the sued parties' legal standing and failed to legally defend the terms themselves.
Although Charter did not file that lawsuit, the ISP has separately asked the FCC to expire the network connectivity condition and a data restriction ban condition on May 18, 2021, two years ahead of schedule. Today's court ruling appears to challenge the charter's petition on the connectivity condition, but the court ruling has not lifted the data restriction ban.
Charter is the second largest cable company in the United States after Comcast and offers service in 41 states under the Spectrum brand.
ISPs extract payments from online videos
The Obama-era FCC required the charter to give major online providers a free connection by 2023. The condition was designed to prevent business disputes that have historically impacted consumer broadband performance when businesses refuse to pay fees requested by ISPs.
"There are many interconnection agreements in place between broadband ISPs and 'edge providers' like Netflix, those who deliver content to consumers over the internet," said today's ruling. "Because broadband providers allow edge providers to reach their subscribers, broadband providers can often extract payments from edge providers. The controversial condition prohibits New Charter (the post-merger company) from doing so."
The CEI lawsuit argued that the Charter's obligation to forego income from interconnection agreements resulted in the Charter increasing broadband prices after the merger. Of course, Charter could have simply pocketed additional income from the interconnection and still increased internet prices, as there is little competition from other high-speed broadband providers in its cable area. DC Circuit judges agreed with plaintiffs' argument:
At the outset, the condition clearly led New Charter to forego revenue from edge providers. Prior to the merger, Time Warner, the largest broadband provider among the merging companies, generated significant revenues from paid interconnection agreements. Bright House too. However, the terms of the merger prohibit New Charter from using the same sources of income.
It's also clear that consumer bills went up shortly after the merger. Prior to the merger, France and Haywood (two of the petitioners) subscribed to Bright House and Frank Time Warner's broadband service. Shortly thereafter, New Charter increased its monthly bills: France's bill rose about 20 percent from $ 84 to $ 101; Haywood rose about 40 percent from $ 51 to $ 71; and Frank is about 5 percent, from $ 75.99 to $ 79.99.
"Minor financial injury" enough to show its reputation
The case mainly centered around the question of whether the sued consumers were entitled to question the terms. Even if other factors besides interconnection contributed to the price increases, "the subscribers do not have to prove that the prohibition of paid interconnection agreements caused all of the price increases or even caused price increases of a certain amount," the judges wrote. "Even a small amount of financial damage is enough for permanent purposes and consumers have shown a significant likelihood that their bills will be higher due to the prohibition on paid interconnection agreements."
The lawsuit related to four terms of the merger, and the judges ruled that plaintiffs had to contest two of them: the interconnection ban and a condition that charter must offer discounted internet service to people on low incomes. The litigants have the option to challenge the discount service condition by arguing that a low-income service causes higher prices for other consumers, the judges found.
With consumers entitled to question both of these terms, the FCC's refusal to defend the terms on its merit made the judges' decision easier. The judges wrote that they do not have to "resolve" all of the thorny issues in the case because "there is an easier ground for a decision. The legality of the interconnection and discounted services terms has been duly received, but the FCC declined to include them in." to defend the case. " Merits. The agency's only explanation for this was their view that we cannot match the merits. After losing on this issue, the FCC has no further line of defense. "The two conditions are" free (d) given the FCC's refusal to defend itself on the matter, "the judges wrote.
Due to the low-income conditions, Charter had to offer 30Mbps broadband service for no more than $ 14.99 in service fees and no more than $ 5 in router rental fees per month and enroll at least 525,000 qualified low-income households by May 2020 Condition with its Spectrum Internet Assist program, which is similar to a low-income program that Time Warner Cable offered prior to the merger. Under the terms of the merger, Charter was allowed to increase the base price to USD 17.99 per month last year. Charter has not announced any plans to stop offering the service to low income users.
The judges dismissed the lawsuit's challenge to the data cap, stating that "there is little evidence that New Charter would offer usage-based pricing if it were allowed". The judges also declined to contest the demand that the charter expand its network to 2 million additional households and businesses, saying that "the new charter already has much of the necessary infrastructure in place and the resulting cost savings cannot be reimbursed ". The litigants "offer no reason to believe that the New Charter will abandon the project if it is allowed to do so now" and "no reason to believe that the New Charter would abandon the project at this late stage for a wasted time Investment to ensure the decision to do so would somehow lower prices for its broadband customers, "the judges wrote.
"Prices rise due to mergers"
Charter announced to the FCC that it "currently" has no plans to impose data restrictions or charge video providers for interconnection, but the company would like the bans to be lifted because they "put Charter at a competitive disadvantage" and "forc ( e) "Charter for the operation of its network on the basis of arbitrary merger terms rather than market terms. "
We contacted Charter today regarding the court ruling and will update this article when we receive a response.
Matt Wood, vice president of policy for consumer group Free Press, responded to the court ruling that "prices rise because of mergers, not the tame conditions imposed on them. That is the whole point of eliminating competitors and concentrating power." ""
Wood pointed to a free press filed with the FCC in which he said that "Charter provides better value and better financial results for itself than any other large wired ISP. The notion that either Charter or its customers are among the Having suffered conditions is a joke, like any claim by the litigants, that unconditional mergers and monopolies are somehow better for the people. "
Disclosure: The Advance / Newhouse partnership, which owns 13 percent of the charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.