By Jon Brodkin
June 23, 2020
Charter Communications has asked federal regulators for permission to impose data caps on broadband users and to seek interconnection payments from large online video providers, starting next year.
Charter, unlike other ISPs, isn’t allowed to impose data caps and faces limits on charges for interconnection payments because of conditions applied to its 2016 purchase of Time Warner Cable. The conditions were imposed by the Federal Communications Commission for seven years and are scheduled to elapse in May 2023. Last week, Charter submitted a petition asking the FCC to let the conditions run out on May 18, 2021 instead. The FCC is seeking public comment on the petition.
Charter, which offers Internet, TV, and phone service under the Spectrum brand name, has frequently pointed to its lack of data caps as an example of a customer-friendly policy. When it sought FCC permission for the merger, it told the FCC that it provides service “without any data caps, usage-based pricing, or modem fees” and that it “has been involved in no notable disputes over traffic management and has long practiced network neutrality.”
When contacted by Ars yesterday, Charter said it doesn’t “currently” plan to impose data caps or change its interconnection policy, but it wants the option to do so:
Once the conditions expire, Charter will weigh the options as we would any business decision, but is currently not even considering implementing data caps or charging for interconnection and has no plan to do so. What Charter seeks is a level playing field so that we can continue to grow and provide superior service to our customers across the country.
Charter argued in its FCC petition that the conditions are no longer necessary to promote competition between online streaming video and cable TV because online video providers have flourished over the past four years.
Charter’s statement to Ars pointed to the company’s gigabit speeds, network investments, and deployment of broadband in rural areas. “Charter’s top priority is delivering a superior product to our customers and this result [the FCC approving Charter’s petition] will give us the flexibility to do just that in an ever-changing market,” Charter said.
FCC Republicans opposed conditions
Charter’s petition is likely to see a favorable response from FCC Chairman Ajit Pai’s 3-2 Republican majority. Pai voted against the conditions when they were imposed under then-FCC Chairman Tom Wheeler, an Obama nominee. Pai, who called the merger conditions an attempt to “micromanage the Internet economy,” was promoted from commissioner to chairman by President Trump in January 2017. Republican Michael O’Rielly, who is also still on the FCC, approved the merger order in part but objected to the data-cap and interconnection conditions.
Despite imposing the conditions for seven years, the Wheeler FCC’s 2016 merger order said Charter could petition for the conditions to be lifted after five years. That’s why Charter’s request is pegged to May 2021.
“Recognizing that the market was changing rapidly and in ways that could render the conditions unnecessary, the commission provided a mechanism for these conditions to be in place for five instead of seven years,” Charter’s petition said. “The market has, in fact, changed quickly and dramatically since the conditions were imposed.”
Instead of trying to harm online video providers, Charter said it is “actively working to increase its subscribers’ access to online video services.” Eliminating the conditions “will therefore advance, rather than thwart the competitive gains that have been made, giving Charter the flexibility it needs to best meet the data usage needs of all of its subscribers and to configure its network to deliver data in the most efficient way possible,” the company said.
Consumer-advocacy groups are certain to urge the FCC to reject Charter’s petition. “Charter’s suggestion that it should get time off for mediocre behavior speaks volumes about the company’s intent and the sincerity of its claims—both at the time of the merger and today,” Free Press VP of Policy and General Counsel Matt Wood told Ars. Wood also said that “unjustified data caps are clearly a competitive advantage for a cable company that wants to keep its legacy TV customers from cutting the cord, or at the very least wants to make sure its Internet customers pay extra if they have the audacity to actually use their broadband connections for streaming content.”
Charter’s purchase of the giant Time Warner Cable and the smaller Bright House Networks made Charter the second largest cable company in the US, after Comcast. The FCC conditions were aimed at preventing Charter from hindering online video providers that compete against Charter’s cable TV service.
The seven-year ban on data caps lets Charter customers use Netflix and other online video services without the possibility of huge overage fees. The ban on certain interconnection payments prevents Charter from imposing a big cost on video providers that connect directly to Charter’s broadband network. Time Warner Cable had previously demanded fees from Netflix for interconnection.
The merger condition isn’t a complete ban on interconnection payments. Instead, the condition requires Charter to provide free interconnection to companies that deliver a certain amount of data traffic to Charter customers.
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.
* This article was automatically syndicated and expanded from Ars Technica.