Comcast, one of the most influential lobbying powerhouses in Washington, failed to get government approval for its bid to buy Time Warner Cable last month.
So why does Charter Communications think it can succeed? The short answer: Charter thinks it's a lot less scary than Comcast.
"We're a very different company than Comcast, and this is a very different transaction," Charter CEO Tom Rutledge said on a conference call with investors Tuesday, explaining his company's planned $55 billion purchase of Time Warner Cable.
Charter also plans to buy Bright House Networks, a smaller cable company, for $10 billion. The two deals would instantly turn Charter into a cable behemoth, with 24 million subscribers in 41 states.
But that's still much smaller than Comcast would have been if it had bought Time Warner. Even without the deal, Comcast still has 27 million subscribers.
A major reason for the government's opposition to Comcast's merger was fear that the merged company could have acted as a gatekeeper to the Internet and controlled the future of online video. Earlier this year, the Federal Communications Commission raised its definition of high-speed broadband Internet to 25 megabits per second or higher, concluding that consumers are demanding faster speeds to stream video. Under that benchmark, Comcast would have controlled nearly 60 percent of the broadband market with its merger.
If Charter wins approval for its deal, it would still have only about 30 percent of all broadband subscribers.
And unlike Comcast, Charter hasn't been involved in disputes over Netflix traffic congestion. Comcast, Verizon, and other Internet providers have demanded that Netflix pay for additional capacity on their networks to ensure that the videos stream smoothly. Netflix, which claimed it was being charged unfair "tolls" to reach customers, helped to rally opposition to Comcast's deal. A spokeswoman for the video site had no comment on Charter's deal Tuesday.
Additionally, Charter doesn't own any media-content companies. Because Comcast owns NBC-Universal, critics warned that it has an incentive to favor its own programming and that allowing it to buy Time Warner Cable would have only multiplied its leverage.
Charter also says that it doesn't cap its customers' Internet usage, charge modem-rental fees, or impose early-termination fees. And it says it would upgrade Time Warner's Internet speeds, TV packages, and technologies, like DVRs and menus.
John Bergmayer, a senior staff attorney for Public Knowledge, a consumer advocacy group, said the Charter deal doesn't raise the same level of concerns over gatekeeper power that led his group to oppose the Comcast merger. He also argued that Charter has a better track record of regulatory compliance, claiming that Comcast failed to follow some of the conditions on its 2011 purchase of NBC-Universal (Comcast denies violating the terms).
While Bergmayer said he is generally skeptical of more cable consolidation, he suggested the Charter deal could create a new, more powerful rival to Comcast that could actually benefit consumers.
"There's an argument that TWC is already too big, and also an argument that they and Charter need more scale to keep from being left behind by Comcast or taken advantage of by large programmers," Bergmayer said. But he said he'd have to review more information about the deal before taking a position.
Paul de Sa, an industry analyst for Bernstein Research, noted that both Charter and Time Warner Cable were deeply involved in the last failed cable deal. Charter had planned to buy some of the subscribers that Comcast would have spun off in a bid to ease concerns about its size.
"They have a better sense of how regulators were thinking than anyone on the outside, so that they are trying is a signal in itself," de Sa said.
But not everyone thinks the Charter deal is any less worrisome than Comcast's attempt.
"This new deal creates a giant gatekeeper that would be able to dictate prices to both consumers and programmers," said Michael Copps, a former FCC commissioner now with the advocacy group Common Cause. "It can only squelch independent content and diversity on the cable dial. Regulators should just say 'No.'"
In a note to investors, Craig Moffett, an analyst for MoffettNathanson, said that the deal has "relatively good odds of approval" but cautioned that "simply being smaller than Comcast may not be safe harbor.
"One has to be sober about genuine risks that this deal could still be rejected," Moffett wrote.
The Justice Department will investigate whether the merger would stifle competition, while the FCC will decide whether allowing the deal would be in the public interest.
The Wall Street Journal reported last week that FCC Chairman Tom Wheeler had called the CEOs of Charter and other cable companies to assure them that, despite his decision on the Comcast deal, he is not opposed to all consolidation.
"The FCC reviews every merger on its merits and determines whether it would be in the public interest," Wheeler said in a statement Tuesday. "In applying the public interest test, an absence of harm is not sufficient. The Commission will look to see how American consumers would benefit if the deal were to be approved."
This article is from the archive of our partner National Journal.
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