FCC removes competition requirement from Charter-TWC merger conditions

The FCC has reworked one of the key requirements it put on Charter’s 2016 merger with Time Warner Cable and Bright House, governing where the massive cable company expands to in the coming years.

Under the original requirement, Charter had to expand its service to 2 million additional households within five years. But half of those households had to already be served by another broadband internet provider, forcing the cable giant to compete.

The commission has now voted to change that qualification. Charter will still have to reach 2 million more households within the next five years, but all 2 million will have to be households getting wired for the first time. Charter actually won’t be allowed to count areas where it’s competing.

Bad for competition, good for rural buildout

Reuters first reported that the change had been approved, and an FCC spokesperson confirmed the measure’s adoption in an email to The Verge. Charter did not respond to a request for comment.

While the change is bad for competition, it isn’t bad on the whole. One of FCC chairman Ajit Pai’s core goals is to expand broadband access to rural areas that still don’t have it; and viewed in that light, changing this requirement makes a lot of sense. Instead of serving a million homes that already have broadband, Charter will end up wiring a million homes that had no high-speed options before.

The downside is that competition in the wired cable market is still embarrassingly poor in the US. Most households only have one option for wired internet provider, which gives cable companies the leeway to charge high prices for speeds slower than what are offered in other countries.

To see how far a little bit of competition can go, you can just look to the rollout of Google Fiber. Even the threat of Fiber’s expansion got AT&T and Comcast to start deploying gigabit internet. That’s likely the reason the commission, during the Obama administration, decided to force Charter into competing.

Cable companies tend to avoid competing with each other whenever possible, which is what’s caused this problem. In fact, it wasn’t strictly Charter pushing to end this requirement — Charter seemed to be trying to find a way to squirm around it. It was smaller cable companies, which complained that Charter would likely end up competing with them and possibly putting them out of business.

Pai says the competition requirement was like “ordering two entrées” for one person

In a statement, Pai said the original merger requirement “was not and is not in the public interest” and that “it runs directly against the goal of promoting greater internet access for all Americans.”

Pai also made this puzzling analogy to help people understand why he was against it: “This is like telling two people you will buy them dinner, ordering two entrées, and then sending both to just one of your companions.”

The FCC’s lone Democratic commissioner, Mignon Clyburn, was generally accepting of the change but said that she wished the commission had gone harder of Charter in the first place. “It is unfortunate that because we did not push New Charter to go further, in this order we must decide either that competition must suffer or unserved Americans should go without broadband,” Clyburn writes.

Clyburn largely seems to think the change is a good one, though. Even though she would like to see additional broadband competition, she fears the commission’s requirements would just lead to Charter knocking out smaller broadband providers, as those companies fear. “It has become clear that forcing New Charter into competing with another carrier incentivizes the company to overbuild where the weakest potential competition currently exists,” she writes.

By requiring Charter to build out to entirely unserved areas, Clyburn says, the expansion could provide high-speed internet to “almost three percent” of households that currently don’t have a broadband option.

Update April 3rd, 6:22PM ET: This story has been updated with comments from Pai and Clyburn.