Charter Can Charge Video Services for Network Connections

In a 2-1 vote, the U.S. Court of Appeals for the District of Columbia Circuit ruled that Charter Communications can charge Netflix and other video streaming services for network interconnection. That overturned one of the merger conditions imposed by the Obama administration when, in 2016, Charter purchased Time Warner Cable and Bright House Networks. FCC chair Ajit Pai set the stage for the court overturning these conditions by not defending their merits in court. The Competitive Enterprise Institute (CEI) filed the suit.

Ars Technica reports that the FCC “unsuccessfully challenged the suing parties’ standing to sue … [but] did not mount a legal defense of the conditions themselves.” Separately, Charter “asked the FCC to let the network-interconnection condition and a condition prohibiting data caps expire on May 18, 2021, two years earlier than scheduled.”

The court did not, however, overturn the latter condition. In 2016, the FCC’s condition requiring Charter to “provide free interconnection to large online providers until 2023 … was intended to prevent business disputes that have a history of harming consumer-broadband performance when companies refuse to pay fees demanded by ISPs.”

The recent ruling stated that, “since broadband providers allow edge providers to reach their subscribers, the broadband providers often can extract payments from edge providers” although this condition “prohibits New Charter [the post-merger entity] from doing so.”

CEI claimed that, because the condition prevented Charter from charging for interconnection, it instead increased broadband prices. Ars Technica notes that, even if Charter received interconnection revenue, it could have still raised Internet prices, “as it faces little competition from other high-speed broadband providers in its cable territory.”

Consumers who filed the lawsuit saw their monthly bills jump shortly after the merger, from 5 percent to 40 percent; “the case turned largely on the question of whether the consumers who sued had standing to challenge the conditions.” The judges wrote that, “for standing purposes, even a small financial injury is enough, and the consumers have shown a substantial likelihood that their bills are higher because of the prohibition on paid interconnection agreements.”

The judges ruled they could challenge two of the suit’s four conditions: “the interconnection-payment ban and a condition requiring Charter to offer a discount Internet service to people with low incomes.”

The judges rejected the other two challenges: the data-cap condition, saying “there is scant evidence that New Charter would offer usage-based pricing if allowed to do so,” and a requirement that Charter extend its network to two million additional homes and businesses, saying that “New Charter already has built much of the required infrastructure, and its sunk costs in doing so cannot be recovered.”

Charter told the FCC that it does not currently plan to impose data caps or charge video providers for interconnection, but wanted the conditions lifted to dispel their “competitive disadvantage.”