Court Vacates FCC Order Banning Charter From Charging Interconnecton Fees

In a move that took industry watchers by surprise, a divided federal appeals panel Friday vacated a Federal Communications Commission decision to prohibit Charter from charging online video providers fees to interconnect directly with its servers.

That prohibition, which was supposed to last for seven years, was one of the conditions imposed on Charter by the FCC in 2016, when the agency approved Charter's $67 billion merger with Time Warner Cable and Bright House Networks.

Other conditions included a ban on data caps and a mandate to offer discounted broadband service to at least 525,000 low-income households.

The advocacy group Competitive Enterprise Institute and some Charter customers challenged the merger conditions in court, arguing that the conditions resulted in higher bills.

The FCC countered that the consumers lacked “standing” to proceed, arguing that they couldn't prove their broadband bills increased because of the merger conditions.

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The agency didn't defend the conditions on substantive grounds. Two of the current commissioners said back in 2016 that they disagreed with the merger conditions.

The appellate panel voted 2-1 to reject the FCC's argument regarding two of the merger conditions -- the ban on interconnection fees, and the mandate to offer discounts -- but accepted the argument for other conditions, including the prohibition on data caps.

"Before the merger, the companies raised significant revenue from paid interconnection agreements,” Circuit Judge Gregory Katsas wrote in an opinion joined by Judge Karen LeCraft Henderson.

“Just as prohibiting paid interconnection agreements would likely cause broadband prices to rise, permitting those agreements would likely cause broadband prices to fall,” Katsas added. “Thus, a favorable ruling is likely to redress the consumers’ financial injuries.”

The judges added that the customers who sued were in a position to challenge the mandate for discounts because they had shown a “substantial likelihood” that Charter would narrow its discount program if it could, which would “produce lower prices for subscribers” like themselves.

But the judges said the customers failed to show how the prohibition on data caps led to price increases.

The impact of the ruling wasn't immediately clear, given that some state regulators had separately imposed conditions on Charter's merger.

Charter didn't respond to MediaPost's request for comment.

Charter recently asked the FCC to terminate two merger conditions -- the ban on data caps and interconnection fees -- in 2021, instead of 2023.

Matt Wood, vice president of policy at the group Free Press, questioned the court's apparent conclusion that broadband prices increased as a result of the merger conditions.

"Prices went up after the merger? Who could have predicted that?! That is, besides Free Press and everyone else that rightly opposed this deal,” he stated Friday. “But here's a newsflash: prices go up because of mergers, not the tame conditions imposed on them.”

The trade group Incompas, which counts internet and streaming companies among its members, said the “stealthy” decision shows the need for “bolder interconnection clarity and protections from policy makers.”

“To keep the streaming market competitive, creative and affordable we must prevent cable gatekeepers from inflating prices at the point of interconnection,” Incompas CEO Chip Pickering stated.

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