Take that, ISPs: FCC declares war on data caps

Charter's merger with Time Warner is headed for approval -- but with a 7-year ban on usage-based pricing, interconnect fees, and antistreaming contract provisions

Take that, ISPs: FCC declares war on data caps
flickr/Daniel Spiess (Creative Commons BY or BY-SA)

The FCC is about to let the third-largest cable company in the United States buy the second-largest -- and there's actually a silver lining in that news for consumers.

Charter will become the second-largest broadband provider, behind Comcast, once its merger with Time Warner and a related purchase of Bright House Networks are complete.

While it's hard to cheer further consolidation in the cable industry -- some reports claim that New Charter and Comcast together will control access to 70 to 90 percent of the high-speed broadband connections in the country -- the conditions applied to the deal are the next best thing to the FCC actually writing new rules.  

When approving last year's merger of AT&T and DirecTV, the FCC focused on the build-out of broadband services. This time around, its conditions emphasize the growth of streaming services.

No data caps

A ban on usage caps is probably the biggest condition placed on the merger. Charter has agreed not to impose data caps or usage-based billing on customers for at least seven years. This is a win for the FCC and consumers as Charter originally offered to abstain for only three years. While the company does not currently use caps -- Time Warner offers lower-price optional plans with data limits of 5GB or 30GB a month -- the practice is catching on in a big way.

"Companies like Comcast have used the same approach seen in the boiling frog metaphor to slowly expand its usage cap 'trials' and hope nobody notices," TechDirt writes. "But people are definitely noticing the rising temperatures," An FOIA request filed with the FCC found consumer complaints about caps skyrocketed last year, going from 863 in the first half of 2015 to 7,904 in the second half.

Data caps are yet another example of profit padding in an industry that lacks real competition. The FCC agreed to forebear from rate regulation when it reclassified broadband as a utility, but by forcing New Charter to forgo this revenue stream, the agency has signaled that "it recognizes the growing threat usage caps are posing to the future of innovative services," TechDirt writes.

Comcast seems to have gotten the message about the FCC looking askance at ISPs erecting roadblocks to streaming. Days after the merger conditions were revealed, Comcast announced it was raising its cap to a terabyte's worth of data per month. The bad news is Comcast will soon be extending data caps nationwide.

No antistreaming shenanigans

In addition to vetoing profiteering on consumers' streaming habits, the FCC signaled it doesn't want cable companies bullying TV networks into withholding content from streaming providers like Netflix, Hulu, and Amazon Prime Video.

The merger condition banning antistreaming provisions in contracts is important: Dish in December complained that Charter was trying to derail Sling TV by discouraging TV networks from licensing content to the streaming service. New Charter will not be allowed to retaliate against programmers that license video to online services.

There are many who say a temporary ban on data caps and antistreaming provisions is not enough. But TechHive observes:

While the government's merger conditions aren't permanent, seven years is a long time in the tech world. Netflix, for reference, had only just started streaming video seven years ago, Hulu was barely a year old, and Amazon Prime video didn't even exist.... The hope is that in seven years, streaming video will be the norm, and a company like Charter will have a hard time turning on the meter.

No interconnect fees

Streaming services -- and their viewers -- scored another victory with the ban on interconnect fees. Content providers like Netflix previously had to pay Time Warner for better access to its networks. This merger condition guarantees free interconnection for providers that deliver large volumes of Internet traffic to broadband customers.

Expanded broadband

The FCC also carved out the merest sliver of a victory for increased broadband competition. Not only did the agency stipulate that Charter must expand its services to 2 million new households, half of that build-out must be in regions where Charter currently doesn't offer service and where there's already at least one broadband provider.

This merger condition dangles the prospect of new competition in an industry that has avoided head-to-head competition by carving up territories. One million fewer consumers will be locked in to a single carrier -- a fraction of the population, but progress nonetheless.

Is it enough?

Advocacy group Public Knowledge grudgingly acknowledged the FCC's efforts to police the New Charter behemoth. "It is hard to cheer for further media and broadband consolidation, regardless of what conditions the FCC or DOJ might adopt," said John Bergmayer, senior staff attorney at Public Knowledge. "However, there is some solace that, if rigorously enforced, these conditions should eliminate the more egregious harms this merger could cause while creating a baseline for acceptable industry behavior."

But consumer group Free Press argues that in uncompetitive markets, the debt Charter has incurred with the merger will be passed on to customers:

The wasted expense of this merger is staggering. For the money Charter spent to make this happen [$27 billion debt load] it could have built new competitive broadband options for tens of millions of people. Now these billions of dollars will do little more than line the pockets of Time Warner Cable's shareholders and executives. CEO Rob Marcus will walk away with a $100 million golden parachute.

Others chided Chairman Tom Wheeler for being too far-reaching. "At first blush, it appears that the Commission may have operated well outside the four corners of the merger application to pursue unrelated matters and policies," Republican FCC Commissioner Michael O'Rielly said in a statement

Indeed, Chairman Wheeler has shown more backbone than his predecessors in dealing with an anticompetitive industry. "The FCC doesn't have the clear authority to act on those concerns -- not unless cable operators tee up a merger like Charter-Time Warner Cable," the Los Angeles Times writes. "As much as consumer activists complain about consolidation in the media industry, here's one case where it seems to be working in their favor."

Applying conditions to proposed mergers receives far less scrutiny than producing actual FCC rules that apply to the whole industry -- particularly when a hostile Congress, urged on by heavy lobbying from telecoms, opposes new rules that would affect the industry as a whole.

"The Charter deal is proof that the agency has to make some uncomfortable deals to get what it wants," The Verge writes.

Copyright © 2016 IDG Communications, Inc.

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