DC Circuit Vacates Some Charter/TWC/BHN Curbs

The U.S. Court of Appeals for the D.C. Circuit's 2-1 ruling Friday knocking down two FCC conditions on Charter Communications' buying Time Warner Cable and Bright House Networks didn’t get to the merits (see 2008140018). It nonetheless could have implications for future consumer challenges of regulations, said cable attorneys and appellant the Competitive Enterprise Institute in interviews. Industry and public interest lawyers disagree how the ruling will affect a parallel FCC proceeding on sunsetting Charter/TWC/BHN conditions (see 2007230015).

The court said CEI and some individual consumers only had standing to dispute some of the transaction. CEI General Counsel Sam Kazman regardless called the 2-1 ruling “a substantial win.”

The majority opinion by Judge Gregory Katsas stuck down curbs that barred Charter from charging programmers and edge providers for access to subscribers, and requirements that it provide broadband at a discount to low-income households. The FCC declined to comment now. The cable ISP had no comment.

On those two now-vacated curbs, there’s evidence the rules caused Charter to charge subscribers higher internet fees, and that Charter would change that if the requirements didn’t exist, said the opinion. That’s not the case for CEI’s challenges to conditions barring Charter from usage-based pricing and mandating increased infrastructure buildout, Katsas wrote. Competitors unbound by conditions also don’t offer usage-based pricing, and Charter is building the infrastructure and is unlikely to abandon it even if the court struck the deal requirement, Katsas said. Judge Karen LeCraft Henderson joined Katsas in the majority. David Sentelle dissented, arguing CEI didn’t have standing to challenge any conditions

The D.C. Circuit's stance CEI didn’t have to prove that eliminating the conditions would cause Charter to change its behavior will have repercussions for future regulatory challenges, Kazman said. Consumer challenges have been hampered in previous decisions by the requirement of proof, but the court ruled the evidence must only show there’s a good chance, Kazman said. “All we require is proof of a substantial likelihood,” said the majority.

Lawyers said that view is something of a departure from previous rulings. “Hopefully, other courts will build on the foundation the opinion has laid for challenging these voluntary commitments often having nothing to do" with a particular corporate combination, emailed Free State Foundation President Randolph May.

The court’s decision didn’t consider the merits of the case because the FCC chose not to defend the merits of the conditions, the opinion said. The agency argued CEI didn’t have standing, and the court couldn’t rule on the merits of the case. “Having lost on that question, the FCC has no further line of defense,” Katsas wrote.

The ruling could provide some ammunition for Charter’s petition at the FCC to sunset conditions, a boost that could be limited because the opinion didn’t touch the substance, a cable attorney said. "It seems to change the ground on which Charter is fighting at the FCC,” said Free Press Vice President-Policy Matt Wood. “The notion that either Charter or its customers have suffered from the conditions is a joke.” The court’s opinion “puts the nail in the coffin of the merger order’s interconnection condition,” said May. “I think the FCC was going to grant Charter’s request to sunset the condition in any event on the merits.”

"This stealthy court case simply underscores the need for bolder interconnection clarity and protections from policy makers," said Incompas CEO Chip Pickering. "To keep the streaming market competitive, creative and affordable we must prevent cable gatekeepers from inflating prices at the point of interconnection.” The group is among those concerned about Charter's request to end some deal conditions (see 2008120043). Pickering said that "cable giants" seek "to block streaming and raise prices."

Though the D.C. Circuit didn’t rule on whether the FCC can impose such conditions, the majority opinion was openly skeptical the agency can do so, especially conditions that aren’t transaction specific. “To insinuate itself into that cable market, the FCC imposed conditions on the transfer of all licenses held by the appellants, including wireless licenses with no conceivable relevance to it,” Katsas wrote. The majority repeatedly quoted a statement from Commissioner Mike O’Rielly referring to the conditions as corrupt, and described the FCC as having an “expansive” view of its power.

CEI is weighing whether it wants to appeal any aspects of the new ruling, Kazman said. The FCC lost the case, but the majority opinion quoted extensively from arguments raised by then-Commissioner and now-Chairman Ajit Pai and fellow Republican O’Rielly when Charter/TWC/BHN. So those we interviewed said it's unclear if the agency will try to get a new ruling, given members of the commission majority didn't agree with the original order on the takeover.