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Improving cable merger conditions amid Charter's NY regulatory battle

Months after threatening to force a sale of Charter Communications Inc.'s Time Warner Cable Inc. assets in New York, state regulators are still negotiating with the cable giant, raising questions about how local merger conditions are best imposed and enforced.

With Charter recently saying that "considerable progress" has been made between the two sides, the New York State Public Service Commission this month agreed to give the cable operator another 30-day extension, giving Charter until April 5 to reach an agreement and to apply for a rehearing with the state. The commission has accused Charter of not meeting conditions imposed on its 2016 merger with Time Warner Cable related to building out broadband service to unserved and underserved state residents. Charter must request another extension or submit by May 3 a six-month plan to divest its Time Warner Cable assets and leave the state.

In the eight months since the commission threatened to rescind its approval of the deal, there has been little public movement on the issue outside of the extensions. Broadband advocacy groups on both sides of the political spectrum say the ongoing negotiations highlight some of the problems around the merger condition process. Advocates who support greater regulation say the process needs to be more transparent with greater specificity around terms, while those who support less regulation say the process creates inefficiencies that end up costing both businesses and taxpayers.

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"If you think about the point of a merger in a free market, it's to create efficiencies," said Jessica Melugin, associate director of the Center for Technology and Innovation at the free market public policy group Competitive Enterprise Institute.

Melugin said merger conditions that stipulate certain build-out requirements or guarantee service levels can actually get in the way of those efficiencies and hurt the majority of consumers in the long run.

"You have these few sociopolitical goals you want to accomplish with these conditions, but what is the offset? How much is this costing the average cable subscriber to Charter? Or the taxpayer? I don't know. But that should be a consideration," Melugin said, noting that New York regulators at this point are spending time and money enforcing conditions on a deal that closed several years ago.

But Phillip Dampier — founder of the broadband-focused, New York-based consumer group Stop the Cap! — said expanding internet service to unserved areas is an important goal that can only be achieved through government intervention. He noted that many of these unserved areas are rural, where the low population density makes it uneconomical to deploy broadband without subsidies or political pressure.

The problem with the original conditions, according to Dampier, is that they were not specific enough in defining terms like "unserved" or "underserved."

"If you don't really define what unserved means … cable companies have a tendency to declare anything like a new housing start or a condo redevelopment or even a business park … a new passing," Dampier said.

As a result, instead of the rural broadband expansion that the state public service commission has been hoping for, "converted Brooklyn lofts suddenly become new passings," he added.

Charter and the state commission declined to comment on the matter beyond their public filings.

Aija Leiponen, a professor at Cornell's Dyson School of Applied Economics and Management, said in an interview that she also believes the original merger conditions lacked specificity and thinks that is what the two sides are working on now as they try to finalize a new agreement.

"It sounds like they are still working to even define what they should do — and then they'll need to do it," Leiponen said, noting this process can take a long time and "lots of lawyers talking through the definitions of words and terms."

Both Leiponen and Dampier expect another extension ahead of the upcoming April 5 deadline. Pointing back to the July 2018 order, Leiponen said, "It looks like it's going to be at least a year before there's any real clarity."

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Dampier hopes the new agreement requires Charter to build out service to more unserved homes beyond the original 145,000 passings identified in the 2016 merger conditions. But he would also like to see more transparency in the process.

"Our group can only file letters making suggestions, but we're doing it in the dark … because we don't really have any idea as to what sanctions they are talking about," Dampier said. "What concessions are going to be made? What kind of fines are they talking about?"

Charter is New York's largest cable and internet provider, serving more than 2 million subscribers in the state with digital cable television, broadband internet and telephone service.