Reducing ‘public interest harms’

Should the Vodafone and SkyTV merger be given the green light by the Commerce Commission it will profoundly alter the New Zealand telco and broadcasting landscape.  A merger of this size has the potential to seriously alter what is, in my view, the fragile competition that exists in both markets (Vodafone and SkyTV would argue differently – see earlier blog post here).

But it is not the first merger of its kind in the world and it’s instructive to look overseas for precedents that could be useful. In May this year the Federal Communications Commission (FCC) in the US approved  Charter Communications’ (broadband provider) application to acquire Time Warner Cable (cable provider) and Advance/Newhouse Partnership (media company) and form New Charter (the merged company will be branded Spectrum)– but with conditions.

In its application Charter claimed it focused on delivering higher broadband speeds, didn’t impose data caps and didn’t charge extra for cable modem fees or levy early termination fees if subscribers switched providers. But, the FCC notes, while Charter is a medium-sized cable company, New Charter is a much larger one “with different incentives and possessing different abilities that could lead it to hamper or prevent its current and future online rivals from expanding, becoming more competitive, or starting-up in the first place.”

In fact the FCC concluded that “the transaction will likely causes public interest harms”, and has only approved the application after imposing the following four conditions:

  • New Charter is prohibited from imposing data caps or charging usage-based pricing for its residential broadband service for seven years.
  • New Charter must provide free interconnection with qualifying companies that deliver internet traffic – including online video traffic – requested by its broadband subscribers. (Charter had undertaken to do this, but the FCC has widened the criteria to make it easier for companies to qualify for free interconnection).
  • New Charter is prohibited from entering or enforcing contractual terms that prevent or penalize programmers from distributing content online for seven years.
  • New Charter is required to deploy high-speed broadband to 2 million more homes and a low-income broadband program for eligible households.

The FCC clearly believes it is not enough for applicants in mergers of large companies with significant market power to make vague promises about upholding the principles of net neutrality – you have to impose conditions. And then you have to make sure these conditions are complied with:  “We acknowledge, however, that conduct remedies may not eliminate all harms and require close monitoring to prevent evasion in ways that cannot be anticipated,” writes the FCC in the decision.

It seems to me that the FCC has a very clear-eyed view of the telecommunications industry – let’s hope that our Commerce Commission does too.

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