Charter Seeks FCC Permission to Impose Data Caps and Charge Fees to Video Services

Charter: Data caps ensure “efficient allocation of resources”

Charter’s petition said that “the online video distribution marketplace is almost unrecognizable compared to what existed in 2016,” and that “the reason for imposing the [data-cap] condition no longer exists.”

“Today, video consumers reign supreme, demonstrating seemingly insatiable interest in video options, mixing, matching, and switching content and providers and platforms, to curate a video experience tailored to their individual needs,” Charter said. Other large ISPs such as Comcast, AT&T, Cox, and Altice “have incorporated data caps or some form of data usage policy in their offerings” in order “to ensure an efficient allocation of resources to accommodate the explosive growth in broadband usage,” Charter said.

“Yet the use of data caps by these companies has not stifled the growth of OVD [online video distribution] services,” Charter wrote. “In fact, the opposite is true: OVD services are thriving and growing at an unprecedented rate. In other words, the market is working.”

Charter made the same argument on interconnection. “The flourishing OVD marketplace also justifies allowing the interconnection condition to sunset in 2021,” Charter wrote. “With no such interconnection condition imposed upon them, broadband providers other than Charter have voluntarily entered into interconnection agreements with OVDs in ways that have not inhibited OVD growth in any way; quite the opposite.”

Interconnection disputes that caused poor video quality for consumers contributed to the Wheeler FCC’s decision to impose net neutrality rules in 2015. The rules didn’t prohibit interconnection payments but allowed companies to file complaints against ISPs to determine whether they were making unreasonable demands and harming consumers by not upgrading infrastructure. The threat of the complaint process pushed ISPs to strike more favorable deals and thus helped solve the interconnection-dispute problem, but the FCC under Pai eliminated the net neutrality rules entirely.

Charter’s petition argued that the free-interconnection merger condition “impedes Charter from operating its network efficiently,” “results in the burdensome and inefficient allocation of resources, and is thus contrary to the public interest.” This isn’t just because of the restriction on payments, Charter wrote:

The interconnection condition imposes requirements untied to engineering or economic realities. For instance, the condition requires Charter to maintain ten points of presence regardless of changes in traffic patterns or demand. But rigid requirements such as these are not necessary as Charter has a natural incentive to maintain optimal network architecture and capacity—including interconnect capacity—in order to deliver competitive quality of service to its customers. Consequently, these network requirements and restrictions interfere with Charter’s efficient management of its evolving broadband network without providing any benefit.

Charter’s petition also touts investments it made in its network since the merger was approved. “Over the last five years, Charter invested nearly $40 billion in new technology, training, tools, trucks, new call centers, network upgrades, buildings, labs, product development, set-top boxes, Wi-Fi routers, and modems,” the company said.

But Charter missed broadband-deployment deadlines on buildout conditions imposed on the merger by state regulators in New York. In that case, Charter agreed to pay $12 million toward new broadband deployments in a deal that gave Charter an extra year to comply with the original requirements. In April this year, Charter asked the FCC to block rural-broadband funding for ISPs that want to build networks in parts of New York where Charter is required to offer broadband. Charter lowered its cable capital expenditures from $8.9 billion in 2018 to $6.8 billion in 2019.

FCC already dropped one merger condition

We contacted the FCC commissioners’ offices about Charter’s petition yesterday. Democratic Commissioner Jessica Rosenworcel said the petition “doesn’t look good” but did not provide further comment, a spokesperson told us. Democratic Commissioner Geoffrey Starks didn’t provide a comment, as he “is still reviewing the Charter proposal,” a spokesperson said. We haven’t heard back from spokespeople for Republican Commissioners O’Rielly and Brendan Carr.

In April 2017, Pai’s Republican majority voted to eliminate a merger requirement that would have forced Charter to expand its network into the territory of other high-speed broadband providers. Charter was still required to deploy broadband to at least two million residential and small business locations, but Pai’s decision allowed Charter to do that entirely in unserved areas and avoid competition. The Wheeler FCC’s ruling, if it hadn’t been overturned by Pai, would have required Charter to do at least half of the new deployments in areas served by at least one other high-speed provider.

“A terrible precedent”

Public Knowledge Legal Director John Bergmayer told Ars that “it would be terrible precedent for the FCC to eliminate existing merger conditions. When a merger is granted subject to conditions, the premise is that without those conditions, the merger would harm consumers. Companies should not get a merger do-over any time they think a more receptive set of officials is in power.”

Bergmayer also said that “data caps don’t serve a network management purpose, so if Charter wants to institute them, that means it’s looking to charge its customers more. Of course, companies raising their prices after a merger is exactly what merger critics warn will happen.”

If Charter charges interconnection fees to online streaming providers, it would be “charg[ing] a toll to edge services to reach its customer base,” Bergmayer said. “This is a complete repudiation of net neutrality—Charter’s customers are already paying it for an Internet connection, and Charter should have no right to double dip and try to extract fees from the thriving online video marketplace to make up for declining cable TV revenue. It should try competing, instead of rent-seeking.”

Wood similarly called interconnection fees an example of “double charging.”

“The economics and the technical aspects of interconnection can be made to sound complicated sometimes, but here’s what they boil down to: Cable companies have long lamented that if some other big company is making money on the Internet, then the cable company ought to get a cut of that too,” Wood told Ars. “What that conveniently ignores is that these broadband providers already have a license to print money, thanks to the essential nature of Internet service and the minimal competition that broadband providers face. So Charter and other ISPs already charge their customers handsomely and make a terrific return, and in exchange those paying customers ought to be able to use their Internet connections for whatever content they like.”

The fact that the streaming video market has grown “does nothing to justify the claim that these companies ought to pay again, simply so that Charter will transmit the content that its own broadband customers have already paid Charter to access,” Wood continued. “And it does nothing to address the fact that smaller edge providers won’t have the same ability to pay ISPs’ new tolls, or that all of these fee increases eventually come home to roost with the same customer base of people paying ISPs for their Internet connections and paying streaming video providers for their monthly services, too.”

Disclosure: The Advance/Newhouse Partnership, which owns 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.