Home » Communications » Mergers » New Charter Merger

Merger:  New Charter Company
Acquisition of Charter Communications,
Time Warner, and Brighthouse

 

Background

On July 2, 2015, Charter Communications, Time Warner Cable, and Bright House Networks filed an Application with the CPUC requesting approval for these three entities to merge into the “New Charter” organization. The Application values the merger transaction at: 

  • Time Warner = $78.7 billion    
     
  • Bright House Networks = $10.4 billion (acquisition cost) 

The proposed merger will impact millions of customers, primarily located in Southern California. 

 

State Law Guiding Mergers and Acquisitions

State law requires the CPUC to consider 8 elements to determine whether a utility merger or acquisition, with gross annual California revenues greater than $500 million, is in the public interest of Californians [Public Utilities Code § 854(c)].  

  1. Maintain or improve the financial condition of the resulting public utility.  
  2. Maintain or improve the quality of service.  
  3. Maintain or improve the quality of management. 
  4. Be fair and reasonable to affected public utility employees, including both union and nonunion employees.  
  5. Be fair and reasonable to the majority of all affected public utility shareholders.  
  6. Be beneficial to state and local economies, and to the communities served by the resulting utility. 
  7.  Preserve the jurisdiction of the CPUC to regulate and audit public utility operations in the state.  
  8. Provide mitigation measures to prevent significant adverse consequences which may result.  

 

Scope of the Proceeding

On November 13, 2015, the CPUC issued a Ruling setting the schedule for the proceeding, and determining that the scope would address:                       

  • Does the proposed transaction meet the criteria of state law [Public Utilities Code § 854(c)]? 
  • How will the New Charter proposal affect broadband deployment and/or affordability? 
  • Is the New Charter proposal in the public interest? 
  • Are there any implications for public safety? 

 

CPUC Final Decision

On May 12, 2016, the CPUC issued its final Decision approving the merger.

 

 

ORA Position

 

 Application for Rehearing

On May 26, 2016, ORA filed with the CPUC a joint Application for Rehearing with the Center for Accessible Technology. The purpose of the Rehearing Application is not to contest the New Charter merger, but to point out significant errors which need to be corrected. ORA believes the errors in the CPUC’s final decision approving the merger to be inadvertent, but significant.

ORA contends that correction of these errors will promote safety, service quality, and additional customer benefits. The CPUC should make the following modifications to the merger decision:

 
1. Adopt Charter’s service quality commitments, as stated in Charter’s March 11, 2016 Reply Brief, including its commitments to improve the company’s ability to serve and communicate with customers with disabilities.

2. Comply with the FCC’s approval of the merger, which prohibits Charter from imposing data caps or charging usage-based pricing for residential broadband service for a period of 7years (compared with the CPUC’s adoption of 3 years).

See:

ORA and Center for Accessible Technology’s May 26, 2016 Joint Application for Rehearing.
 


 

ORA's Analysis of the Proposed Merger

On January 15, 2016, ORA issued its analysis of the proposed merger via Testimony. After completing its detailed review, ORA recommends that the CPUC should deny the New Charter proposal because it is not in the public interest, based on the 8 criteria established in the above state law. ORA supports broadband service at the FCC-adopted minimum speed of 25 Mbps upload and 3 Mbps download. These are the minimum megabits per second (Mbps) speeds necessary to support customers’ needs for today’s advanced services and technologies. ORA’s review found that the increased cost of debt as a result of the New Charter company would outweigh any efficiencies in merging the three companies.      

ORA’s Analysis Demonstrates that:     
  • The New Charter would be the dominant broadband carrier in California, particularly in 10 Southern California counties.     
  • Approximately 70% of these households would have no alternative provider to purchase broadband service at the FCC-adopted minimum speed of 25 Mbps up / 3 Mbps down.     
  • Charter and Time Warner Cable rank near the bottom in service quality, reliability, and customer satisfaction, compared to other voice and broadband service providers.     
  • The New Charter would incur substantial debt in undertaking this proposed transaction, with the only way to offset the debt being to increase customer prices.
  • With essentially no competition for minimum broadband speeds or reliable service quality, the New Charter company would have the incentive and ability to increase its prices without consequence because customers would have few, if any, alternative broadband choices.    
        
Improved Customer Service Required:  

ORA finds that the New Charter proposal does not commit to verifiable improvements to customer service, with any accountability, including for: 

  • Service quality, reliability, and customer satisfaction.   
  • Additional investments to extend and improve broadband in unserved and underserved areas.   
  • Providing LifeLine telephone service, as needed to low-income customers.    
       
     
Low-Income Objectives

ORA supports annual subscription targets and asserts that discounts should be made available to all low-income households. However, the New Charter proposal would offer this discount only to the low-income elderly and households with at least one child eligible for the National School Lunch Program, and would not establish annual subscription targets.  

 

ORA's January 15, 2016 Testimony with full details of ORA's analysis.  

 

See ORA's March 2, 2016 Opening Brief.

See ORA's March 11, 2016 Reply Brief.
 

 

ORA's Protest

In August 2015, ORA filed a Protest urging the CPUC to review the effects of the merger on safety, reliability, and competition for voice and broadband services to California consumers. ORA recommended that the CPUC should: 

  • Ensure that voice and broadband service quality and reliability, public safety, and deployment of advanced communications are not diminished.    
  • Require the Joint Applicants to provide sufficient detail to meet their burden of proof regarding the public interest and the benefits of the proposed transaction.   
  • Hold public participation hearings throughout the combined service territories of Charter, Time Warner, and Bright House Networks to obtain public input. 

 

See ORA's August 7, 2015 Protest to the Joint Applicants' Application.  

 

 

Proceeding Docket

See the CPUC's Proceeding docket for a record of the case. 

Visit the docket to subscribe to proceeding updates.  

 

 

Other Resources

2015 FCC Broadband Progress Report and Actions to Accelerate Deployment

2015 J.D. Power Customer Satisfaction Study