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From Antitrust Law Daily, April 25, 2016

U.S. conditionally approves Charter’s acquisition of Time Warner Cable, Bright House Networks

By Jeffrey May, J.D.

Charter Communications Inc.’s proposed $78 billion acquisition of Time Warner Cable Inc. (TWC) and its related $10.4 billion acquisition of Bright House Networks LLC (BHN) from Advance/Newhouse Partnership have been conditionally approved by the U.S. Department of Justice. A proposed final judgment imposing certain behavioral remedies has been filed in the federal district court in Washington, D.C. to resolve the Justice Department’s antitrust concerns. Separately, Federal Communications Commission Chairman Tom Wheeler has circulated to his fellow commissioners an order recommending that the deal to go forward, subject to conditions (U.S. v. Charter Communications Inc., Case 1:16-cv-00759).

The Justice Department’s conditional approval comes 11 months after the parties announced the transaction and a year after Comcast Corporation dropped its bid for TWC in the face of antitrust opposition. When Charter went public with the deal in May 2015, it said that the “combination of Charter, Time Warner Cable and Bright House will create a leading broadband services and technology company serving 23.9 million customers in 41 states.”

U.S. complaint. In its complaint, filed along with the proposed settlement, the Justice Department alleged that the proposed transactions would likely lessen competition substantially in the market for “video programming distribution” to residential customers in violation of Section 7 of the Clayton Act. The combination would create the second-largest cable company and the third-largest multi-channel video distributor (MVPD) in the United States, according to the government. TWC has purportedly been the most aggressive MVPD in the industry in securing Alternative Distribution Means (ADM) clauses in its contracts with programmers that either prevent the programmer from distributing its content to online video distributors (OVDs) or place certain restrictions on such online distribution. The complaint alleges that the merged entity, with even more subscribers than TWC standing alone, would have even more to gain from imposing ADMs and other contractual provisions that make OVDs less competitive.

Proposed settlement. The proposed final judgment would prohibit the merged company from entering into or enforcing agreements that could make it more difficult for OVDs to obtain video content from programmers, such as Disney or Twentieth Century Fox. In addition, the merged entity will not be permitted to avail itself of other distributors’ most favored nation (MFN) provisions if they are inconsistent with this prohibition. The settlement also prohibits retaliation against programmers for licensing to OVDs.

The final judgment will expire seven years from the date of entry. However, the Justice Department can recommend termination of the settlement after five years, if competitive conditions warrant it. The Justice Department pledged to keep monitoring developments in the industry and to vigorously enforce compliance with the proposed settlement.

FCC action. FCC Chairman Wheeler issued a statement today, saying that “[i]n conjunction with the Department of Justice, specific FCC conditions [on the transaction] will focus on removing unfair barriers to video competition.” For instance, the merged company will be prohibited from charging usage-based prices or impose data caps, as well as charging interconnection fees, including to online video providers, which deliver large volumes of Internet traffic to broadband customers.

Charter statement. “We are pleased that [FCC] Chairman Wheeler has submitted the proposed conditions for consideration by the full Commission and that the DOJ has submitted its agreement for approval by the court,” Charter said in a press release. “The conditions that will be imposed ensure Charter’s current consumer-friendly and pro-broadband businesses practices will be maintained by New Charter. We are confident New Charter will be a leading competitor in the broadband and video markets and are optimistic that we will soon receive final approval from federal regulators as well as the California PUC.”

Attorneys: Robert A. Lepore for U.S. Department of Justice. Ilene Knable Gotts (Wachtell, Lipton, Rosen & Katz) for Charter Communications Inc.

Companies: Charter Communications Inc.; Bright House Networks LLC; Time Warner Cable Inc.

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