WC Docket No. 16-197, Conditions Imposed in the Charter Communications-Time Warner Cable Bright House Networks Order

July 22, 2020

Marlene H. Dortch, Secretary Federal Communications Commission Office of the Secretary 445 12th Street, SW Washington, DC 20554

Re: WC Docket No. 16-197, Conditions Imposed in the Charter Communications-Time Warner Cable Bright House Networks Order

Ms. Dortch:

New America’s Open Technology Institute (“OTI”) urges the Commission to deny Charter’s petition to prematurely rescind two conditions associated with the company’s 2016 acquisition of Time Warner Cable and Bright House Networks.1 The Commission wisely created the conditions in response to clear evidence of harm, presented by OTI and others, and market reality. That reality has not changed and, indeed, Charter has presented no evidence to justify its petition.

I. Charter Fundamentally Misunderstands the Interconnection Condition and Ignores the Millions of Consumers it is Designed to Protect

Charter’s petition fundamentally misunderstands the basis for the interconnection condition and ignores the markets and consumer interests it was designed to protect. The petition focuses inordinately on a handful of fatuous anecdotes about online video distributors such as Netflix—which misses the point entirely. As the Commission explained in its 2016 order approving the Charter merger, “We find that the transaction will enable New Charter to impose higher costs on edge providers, transit services, and CDNs due to its increased market power … We

1 Petition of Charter Communications, Inc., WC Docket No. 16-197 (June 17, 2020) (“Charter Petition”).

1 conclude that increased interconnection costs can disrupt the virtuous cycle of innovation by diverting funds towards interconnection fees that could have otherwise been used for further innovation or price reductions for consumers.”2

The interconnection condition was not designed merely to ensure that Netflix could operate. The condition was designed to ensure that all edge providers, as well as transit networks and internet users, would be protected from ISP abuse at the point of interconnection. The fact that Netflix has reached interconnection agreements with other large ISPs proves nothing. Agreements about traffic exchange happen routinely; the question is whether the terms of Netflix’s interconnection deals were fair, derived from an abuse of the ISPs’ market power, or resulted in increased costs for consumers. Nothing in Charter’s petition answers these questions.

Charter’s petition also fails to provide any evidence of how transit providers, which were victims of substantial interconnection abuse in 2014, are faring. This is likely because Charter knows that the Commission has no visibility into the health of the transit market. The Commission repealed its limited authority over interconnection deals in 2017, leaving it no tools to police this market. Moreover, interconnection deals are often subject to NDAs, resulting in a deeply opaque market with no pricing transparency and no awareness if smaller players are being abused. The 2016 condition was designed to protect the transit market, yet Charter offers no compelling argument for why this market no longer needs protection. The petition’s total absence of evidence on this point is reason enough for the Commission to deny it.

Perhaps most distressingly for OTI, Charter’s petition completely ignores the consumer interests that the interconnection condition is designed to address. In 2014, OTI presented the Commission with evidence of multiple episodes of prolonged network congestion on the nation’s largest ISPs—including Time Warner Cable (now Charter).3 These episodes indicated that interconnection points were being strategically manipulated to extract access fees from transit companies and edge providers. The consumer impact of these interconnection disputes was devastating: millions of people experienced degradation so severe that their internet service was effectively unusable for several months. For the millions of people who suffered

2 Applications of Charter Communications, Inc., Time Warner Cable, Inc., and Advance/Newhouse Partnership for Consent to Assign or Transfer Control of Licenses and Authorizations, MB Docket No. 15-149, Memorandum Opinion and Order, 31 FCC Rcd. 6327 (2016) (“Charter Merger Order”). 3 Beyond Frustrated: The Sweeping Consumer Harms as a Result of ISP Disputes, New America (Nov. 2014), https://na-production.s3.amazonaws.com/documents/Beyond_Frustrated.pdf.

2 through the 2013-14 interconnection disputes, the internet was effectively broken. They were paying for a service that was not delivered, and they had no recourse or sense of why it was happening. In the wake of this widespread consumer harm, the Commission recognized that interconnection disputes were a real problem and that the opaque market for interconnection services needed oversight. This is why the Commission imposed interconnection conditions in both the AT&T/DirecTV transaction in 2015 and the Charter/Time Warner Cable/Bright House Networks transaction in 2016.

Indeed, since then, further evidence has emerged that justified the Commission’s action. In 2017, the Attorney General of New York submitted bombshell evidence to the Commission revealing that Time Warner Cable used its dominant bargaining position to extract new fees from interconnecting partners in 2014. New York filed internal documents detailing a “deliberate business strategy” to allow interconnection ports to congest until the other party agreed to pay new fees. Time Warner Cable described this strategy as “a game of chicken.”4 This evidence is consistent with OTI’s data and tells a consistent, persuasive story: Time Warner Cable manufactured a congestion crisis, at great harm to their customers, in order to extract new monopoly rents from interconnecting partners.

If the Commission were to repeal the interconnection condition today, Charter would be free to resume its Time Warner Cable predecessor’s “game of chicken.” Interconnection congestion is a blunt ransom tactic that puts millions of Charter customers at risk of radically degraded service. In 2014, this radical degradation harmed millions of consumers; in 2020, it would be a public health crisis. Service degradation would wreak havoc on people who are relying on home connectivity to comply with shelter-in-place orders and accessing telemedicine during the COVID-19 pandemic. Charter’s petition does not provide any compelling justification for the Commission to take such an enormous risk with the public interest or public health.

II. Charter Provides No Justification for Rescinding the Data Caps Condition or Exposing Consumers to Price Increases

Charter’s petition similarly misrepresents the Commission’s condition to restrict data caps. This condition was designed to eliminate Charter’s ability “to discriminate against online video distributors … [or] use its BIAS to engage in practices

4 Comments of the People of the State of New York, WC Docket No. 17-108 (July 17, 2017).

3 that favor its own or affiliated video content.”5 These concerns are still valid today—perhaps even more than they were four years ago—and the 2016 condition remains necessary.

Charter argues that these data cap restrictions are no longer necessary because the online video distributor (OVD) market and subscribership is thriving with competition.6 OTI urges the Commission to consider that, even with the emergence of new OVDs such as Disney+ and the strength of recent giants such as Netflix or HBO, the real issue here is not that of the OVD market but that of the broadband internet access services (BIAS) market. Charter’s ability to distort the OVD market is more closely linked to its status as an oligopoly BIAS provider. A consumer could have access to dozens of OVDs, and that competition would not matter if their only option was Charter and the company imposed data caps to restrict that consumer’s ability to use any competing services.

Charter’s market dominance is not merely hypothetical; millions of consumers are completely reliant on Charter for broadband services. According to the Institute for Local Self-Reliance, Charter is the sole provider for 38 million people in the United States.7 For these people, Charter has the ability and incentive to use data caps to harm OVD competitors. The Commission should not accept Charter’s arguments that the OVD market is thriving as a basis for terminating the data cap condition, as it is clear they are still absolutely necessary to address broader market issues.

Charter similarly argues that it has helped OVDs by increasing investments in its broadband network and speeds.8 Even assuming these statements are both correct, these points are completely immaterial to the issue of competition and whether the data cap restrictions are still necessary. A consumer could have a gigabit symmetrical broadband speed and dozens of OVDs to choose from, but if Charter is their only BIAS provider, then Charter remains in a very strong position to distort the market with data caps. Charter’s claim that the integration of Netflix into its Spectrum Guide interface somehow suggests they can and should be trusted similarly distracts from the point: Charter’s undeniable market power over millions of U.S. consumers.9

5 Charter Merger Order App. B. IV. 6 Charter Petition at 9-21. 7 H. Trostle and Christopher Mitchell, “Profiles of Monopoly: Big Cable and Telecom,” Institute for Local Self-Reliance (July 2018), https://ilsr.org/wp-content/uploads/2018/07/profiles-of-monopoly-2018.pdf at 7-9. 8 Charter Petition at 19-21. 9 Id. at 20.

Finally, Charter’s position that data caps imposed by other broadband providers have not harmed the OVD market contradicts the company’s previous arguments to the Commission and ignores the harms that data caps present to both the market and for consumers.10 This is a far cry from what Charter was arguing in its last data caps and usage-based pricing merger condition compliance report to the Commission when it stated: “As Charter has previously explained, imposing data caps and/or usage-based pricing for fixed broadband is inconsistent with our business model, which is premised on simple, uniform pricing and driving demand for fixed broadband.”11 Although Charter has previously argued that data caps contradict its business model, the company is now lamenting the fact that it is one of the only large providers that does not have the power to do so.12

The Commission should not be swayed by Charter’s argument that “other providers get to do it, so we should, too” is a poor justification for exposing consumers to the harms that are associated with data caps. Data caps are anticompetitive and create higher prices for consumers. Foremost, they create the risk of overage fees that add unpredictable costs to consumer bills. Furthermore, data caps can amount to price increases if they are manipulated to preference certain services. This happened recently when AT&T exempted HBO Max, a streaming service that it owns, from its data caps. For AT&T customers, this effectively increased the price of Netflix and Hulu, which were not given preferential treatment. Moreover, as OTI detailed last week in a new study on the cost of connectivity, the U.S. internet services market is already in the midst of an affordability crisis.13 Repealing Charter’s data cap condition would only exacerbate this affordability crisis at a time when many Americans are struggling to pay for essential utilities such as internet service.

10 Id. at 21-23 (“Critically, the use of data caps by these major broadband providers has not hindered the OVD marketplace. As demonstrated above, OVDs are thriving and consumers have never had more online video choices.”). 11 Charter Communications, Inc. Semi-Annual Data Caps and Usage-Based Pricing Report, WC Docket No. 16-197 (May 18, 2020) at 1-2. 12 Charter Petition at 21 (“Today, of the six largest broadband providers that together serve approximately 83% of the market, all but one that is free to do so has adopted some type of data cap or similar data usage policies to help manage their networks. They are able to do so because, unlike Charter, they are not subject to a condition that artificially and unilaterally restricts the packages available to their customers.”). 13 Becky Chao and Claire Park, “The Cost of Connectivity 2020,” New America’s Open Technology Institute (July 2020), https://d1y8sb8igg2f8e.cloudfront.net/documents/The_Cost_of_Connectivity_2020__XatkXnf. pdf

5 III. Charter’s Petition is Premature and Jeopardizes the Commission’s Credibility

What Charter proposes is a radical step. The Commission spent considerable time crafting its consent decree in 2016, and the duration of the conditions was a subject of significant debate. Changing the terms of that agreement—and terminating critical aspects of it prematurely—puts the Commission’s credibility at stake. Rescinding conditions prematurely would create uncertainty around the Commission’s commitment to its agreements. Uncertainty is anathema to businesses and could undermine the Commission’s position in future proceedings. Accordingly, the Commission should only take such a radical step in the presence of a robust and compelling record—and, ideally, precedent. Charter provides no such precedent for what it proposes, and offers evidence that is, at best, threadbare.

Moreover, the Commission has acted prematurely and failed to provide sufficient time to develop a record. OTI agrees with Newsmax that the Commission “placed Charter’s Petition on public notice too early” and that the Wireline Competition Bureau should hold this proceeding in abeyance until August 18, 2020, to remain consistent with the Commission’s Merger Order.14 The Commission’s 2016 Order created specific parameters for challenging conditions, specifying that if Charter wishes to argue for a reduction in the conditions’ duration, “the Wireline Competition Bureau shall, nine (9) months prior to the fifth anniversary of the Closing Date, seek public comment on whether the Company has demonstrated that those Conditions are no longer in the public interest and will rule on the Company’s petition on or before the fifth anniversary of the Closing Date.”15 Charter closed the deal acquiring Time Warner Cable and Bright House Networks on May 18, 2016, meaning its five-year anniversary is on May 18, 2021.16 That makes August 18, 2020, the earliest date at which the Bureau could seek comment on the merits of sunsetting these conditions. The Commission’s Order is very clear and provides no flexibility for the Bureau to issue a Public Notice any earlier than August 18, 2020. OTI agrees with Newsmax: “The Bureau failed to faithfully execute a clear and explicit directive from the full Commission. The Bureau patently lacks authority to deviate from the Commission’s command in this way.”17 The Commission should hold this proceeding in abeyance until the appropriate date, as stipulated by its own 2016 Order, to uphold the integrity of its own rulings in this proceeding.

14 Ex Parte Letter of Newsmax, WC Docket No. 16-197 (July 8, 2020) at 1-2 (“Newsmax Ex Parte”). 15 Id., App. B. XII. 16 David Shepardson, “Charter Communications completes purchase of Time Warner Cable,” Reuters (May 18, 2016). 17 Newsmax Ex Parte at 2.

Given the remarkably thin record presented by Charter, the dubious timing of the petition, and the significant risks to the public interest and public health, the Commission should deny the petition. These conditions are helping millions of Charter customers access critical online services during a pandemic. The Commission should have confidence in its 2016 order and reject this unnecessary petition.

Sincerely,

/s/

Joshua Stager Amir Nasr

New America’s Open Technology Institute 740 15th Street NW, Suite 900 Washington, D.C. 20005