As Charter prepares to take over Time Warner Cable and create a huge new company covering 24 million customers, regulators want the combined firm to make some commitments of its own to ensure the merger doesn't create problems for competition.
In isolation, this condition of the deal is somewhat unremarkable. It directly affects just a sliver of the overall U.S. population, and the stated target of 2 million "customer locations" — a term that covers single-family homes, apartment buildings and other dwellings — is only slightly more ambitious than what the company would have otherwise built out in the coming years, according to regulators.
But it's potentially a big deal for other reasons. Depending on how they shake out, these actions could foreshadow some unprecedented changes in the way Americans get their Internet. The Charter-TWC deal could end up being the tip of a very large iceberg.
To fulfill the FCC's requirement Charter is allowed (and would likely need) to consider entering markets where a cable company already offers service. That's a huge change from what consumers have historically known, which is a system where — because the costs of building infrastructure are so high — towns and cities simply agreed to let one provider do all the legwork. As a result, Americans at one point could choose from only one cable provider.
Since then traditional phone companies like Verizon and AT&T have also begun offering high-speed service and competing with the local cable companies. But we generally haven't seen cable firms go head-to-head with one another for Internet customers in the same geographic area.
For the first time, then, consumers could someday see New Charter compete directly with the likes of Comcast in places like Pennsylvania or Florida. To give you an idea of what this could look like, what follows are two coverage maps that help illustrate it. Here's everywhere that the companies creating New Charter — Charter, Time Warner Cable and Bright House Networks — currently serve:
And here's Comcast's footprint compared with TWC's. (This map comes from when Comcast was trying to buy Time Warner Cable in 2014-2015.)
Asked Wednesday about the possibility of having to compete against Charter and Time Warner Cable on an earnings call, Comcast executives said their experience competing with firms like Verizon and AT&T has prepared them for a fight with other cable providers.
"Comcast is generally in urban markets, and these urban markets have been overbuilt by one or another telco," said Neil Smit, the chief executive of Comcast's cable business. "And so we're in a very competitive environment as it is; we think we're well-positioned."
But the TV and Internet business is also changing rapidly — and Charter may be able to turn having to comply with FCC requirements into an opportunity that would give it a competitive edge on other cable firms trying a similar strategy.
That strategy is all about mobile. Cable companies are known for providing fixed, wired home broadband, not wireless connectivity. But in a world where many more Americans are now opting for smartphones over PCs, Internet providers everywhere now face a decision: How much do we want to go after mobile users? If the future is mobile, then we have no choice but to start competing with Sprint, T-Mobile, AT&T and Verizon for wireless customers.
We'll get to see how they could do so in a second. But as the choice between investing in wired or wireless Internet service becomes more urgent, build-out requirements like those the FCC wants to impose on Charter might be the perfect excuse to move forward with such experiments. Meeting new FCC obligations with wireless data could help put Charter in a better position to serve Internet users of the future.
Charter certainly seemed interested in setting up a mobile Internet service when it was asking regulators' permission to buy Time Warner Cable.
"New Charter’s scale and footprint make offering a mobile product … a good investment we intend to pursue," the company said on a website it published as part of its campaign to convince regulators of the TWC deal's benefits.
The big question now is whether the terms of the FCC's build-out condition allow for Charter to execute on that strategy. When asked about the issue, the FCC didn't rule it out, but it didn't offer an affirmative answer, either.
Charter, for its part, declined to comment.
Cable companies have made no secret of their interest in developing a wireless Internet strategy. Americans are not only using their phones more often to go online — they're also increasingly ditching their wired Internet providers and going mobile-only. That's a potential threat to cable's three-legged business model of Internet, phone and TV — as it has also come under attack by streaming video companies who've enabled some consumers to cut the cord.
Developing a mobile capability is therefore going to be vitally important for the traditional wired broadband industry as providers adapt to shifting consumer habits.
Right now, cable companies offer public WiFi hotspots to let subscribers go online when they're away from home; this helps them compete to some degree with cellular data plans from the likes of Verizon and AT&T. But the long-term vision for wireless cable connectivity goes far beyond that. Someday, you might be able to buy actual cell service from Comcast or another provider of fixed home Internet or TV, just like you currently go to AT&T, Verizon, T-Mobile or Sprint for cell service today.
Exactly how this might work technologically is still unclear and would probably differ from one provider to the next. Cable companies could lease cellular capacity from an existing cellular carrier, for instance, or they could acquire their own rights to wireless airwaves and turn that into a mobile data service. Or they could try blanketing areas in WiFi, or a mix of everything. There are a lot of possibilities here.
Some analysts believe the FCC always intended for Charter to fulfill its requirement using wired broadband, not wireless — the better to introduce direct competition with the likes of Comcast or Cox.
But if the FCC ends up allowing Charter to use wireless technology to meet its mandate, then not only could Americans start seeing direct cable company competition for Internet customers but also competition among different forms of Internet access, as well. And that could have reverberations throughout the industry.