FTC, DoJ to bless Charter acquisition of Time Warner Cable

We hear a lot, especially from the Obama administration, about income inequality, outrageous CEO:worker pay ratios, and the influence of corporate America. At the same time, we see a considerable amount of deference given to the latter on market consolidations, which intensifies to varying degrees all of the other ills against which they rail. The Washington Post reports that the FTC and Department of Justice will approve the mega-acquisition of Time Warner Cable by Charter Communications, a move that will create the second-largest cable provider in a market already dominated by only a few:

Federal regulators are allowing Charter Communications to move ahead with its $78.7 billion takeover of Time Warner Cable, a massive deal that would create the second-largest cable and Internet provider in the country.

The move also means Charter can purchase Bright House Networks for $10.4 billion. The combined company would instantly become a powerhouse in the telecommunications industry with about 24 million customers in regions such as New York, Dallas, central Florida, Detroit, and Los Angeles.

This feels anachronistic to some degree. The problem in cable markets — for consumers, at least — has been a lack of competition. The so-called “last mile” gets controlled by one cable provider in most communities, so the choice for consumers is either the one cable provider, a couple of satellite-TV providers paired with the local phone company for Internet and landline services, or an antenna on the roof. That lack of choice has more and more consumers choosing to “cut the cable” and stick with streaming entertainment services such as Netflix to avoid spending money on large bundles they don’t want from providers who see them as a captive market.

This acquisition makes the problem worse, at least in the sense that there are now fewer providers and millions more under the control of one company’s product. It might accelerate the “cut the cable” movement, although that still requires the kind of broadband connection for which there are also limited providers in most markets — one cable company and one local phone company. And the latter market has also undergone considerable consolidation since the break-up of AT&T three decades ago.

On top of all that, the structure of these large acquisitions guarantees that executive pay will escalate significantly and that lower-level jobs will get eliminated as a result of efficiencies of scale. That has been the experience of market consolidations long before the Obama administration under the laissez-faire policies of presidents from both parties. None of them have talked about CEO pay and income inequality as much as Barack Obama, though. So what gives?

Perhaps it’s the opportunity for back-door social engineering and regulation:

Washington plans to put several conditions on the merger that will last for seven years and aim to enhance competition in online video and broadband service. For instance, the combined company would be prevented from fashioning agreements with companies such as Netflix and other streaming services that force them to pay a fee to reach consumers’ devices. The merged firm also would be prohibited from imposing data caps on home Internet service which could discourage watching videos online.

In addition, Charter will be required to deploy high-speed Internet services to roughly 2 million new households, roughly half of which must be in markets where Charter currently is not offered and where there is already one broadband provider. This target is slightly more ambitious than what Charter told regulators it would otherwise plan to build, according to senior FCC officials who spoke on condition of anonymity because the deal is still pending.

The Justice Department, which also intends to let the deal occur, proposed its own conditions that prohibit the combined company from penalizing cable programmers if they decide to license their content separately to online video companies, among other things.

If these conditions sound familiar, they should:

While the conditions only affect Charter and its acquisitions and will not apply to the broader cable industry, they are a sign of FCC priorities.

Basically, it’s a way to impose net-neutrality regulation and FCC authority without having to go through Congress to get it. Yes, it will only apply to Charter, and only for a seven-year period, but the FCC will use this opportunity to argue to Congress that their authority should extend to the entire market on these issues. And since the new Charter Communications footprint will extend out to 24 million homes and will be the second-largest provider in the country, this agreement will go a long way toward making that the de facto reality.

Conservatives have not paid much attention to anti-trust issues over the last few decades, but this deal should have them thinking about it. In the past, anti-trust efforts have been seen as government interference in markets. The Charter deal makes it clear that the actual danger is that corporations can collude with government to squeeze consumers and lock out workers while allowing government to regulate via the consent of the very few and the very powerful. It’s time to develop a conservative approach to anti-trust enforcement for the hygienic purpose of limited government overall, and to close off another avenue of cronyism and rent-seeking behavior.