Federal Communications Commission FCC 16-59 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Applications of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership For Consent to Assign or Transfer Control of Licenses and Authorizations ) ) ) ) ) ) ) ) ) ) MB Docket No. 15-149 MEMORANDUM OPINION AND ORDER Adopted: May 5, 2016 Released: May 10, 2016 By the Commission: Commissioner Clyburn approving in part, concurring in part, and issuing a separate statement; Commissioner O’Rielly approving in part, concurring in part, dissenting in part and issuing a separate statement; Commissioner Pai dissenting and issuing a separate statement. TABLE OF CONTENTS Heading Paragraph # I. EXECUTIVE SUMMMARY ................................................................................................................ 1 II. DESCRIPTION OF THE TRANSACTION ........................................................................................ 13 A. Description of the Parties ............................................................................................................... 13 B. The Proposed Transaction .............................................................................................................. 18 III. STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK .......................................... 26 IV. COMPLIANCE WITH COMMUNICATIONS ACT AND FCC RULES AND POLICIES .............. 31 V. POTENTIAL PUBLIC INTEREST HARMS ...................................................................................... 34 A. Applicants’ Incentives to Harm OVD Competition ....................................................................... 34 B. Use of Residential BIAS Retail Terms to Harm Video Competition ............................................ 48 1. Relevant Markets ..................................................................................................................... 50 2. Unilateral Effects ..................................................................................................................... 68 a. Data Caps and Usage-Based Pricing ................................................................................. 74 b. Standalone BIAS Pricing .................................................................................................. 87 C. Increased Concentration in Interconnection Services .................................................................... 93 1. Background ............................................................................................................................. 94 a. The Internet Interconnection Ecosystem .......................................................................... 94 b. The Applicants’ Interconnection Operations .................................................................. 101 2. Relevant Markets ................................................................................................................... 104 3. Increased Interconnection Costs ............................................................................................ 108 a. BIAS Subscriber Shares .................................................................................................. 110 b. Increased Bargaining Power within the Interconnection Market .................................... 113 c. Higher Interconnection Fees ........................................................................................... 118 4. Specific Harms to OVDs ....................................................................................................... 122 5. Conditions ............................................................................................................................. 131 a. Mandatory Interconnection ............................................................................................. 132 Federal Communications Commission FCC 16-59 2 b. Interconnection Disclosure ............................................................................................. 135 c. Open Internet Order Related Commitments ................................................................... 137 D. Competition in Video Distribution .............................................................................................. 140 1. Background ........................................................................................................................... 141 2. Relevant Markets ................................................................................................................... 146 3. Potential Effects .................................................................................................................... 154 E. Competitors’ Access to Programming ......................................................................................... 160 1. Background ........................................................................................................................... 161 2. Program Access ..................................................................................................................... 165 3. RSNs and Other Sports Programming ................................................................................... 166 4. Other Programming ............................................................................................................... 176 a. Program Access Attribution Rules.................................................................................. 177 b. Attributable Programming .............................................................................................. 179 c. Incentive and Ability to Foreclose or Raise Prices of Affiliated Programming ............. 188 F. Access to Online Content ............................................................................................................. 206 G. Other Potential Public Interest Harms and Issues Raised in the Record ...................................... 224 1. Fewer Regulatory Benchmarks ............................................................................................. 224 2. Increased Coordination in the BIAS Market among BIAS Providers ................................... 228 3. Cable Modems ....................................................................................................................... 237 4. Set-Top Boxes and Other Video Navigation Devices ........................................................... 248 5. Supply, Quality, and Diversity of Video Programming ........................................................ 264 a. Carriage Decisions for Diverse, Independent Programmers ........................................... 265 b. Creation of New Programming and Quality in the Video Programming Market ........... 276 (i) Video Programming Market ..................................................................................... 276 (ii) Latino Video Programming Market ......................................................................... 280 c. PEG Channels ................................................................................................................. 289 6. Competitors’ HiJKer 3rices Ior 3roJramminJ ...................................................................... 298 7. Local Broadband Competition .............................................................................................. 301 8. 1eZ CKarter’s DeEt ............................................................................................................... 305 9. NAB and Entravision Petitions ............................................................................................. 313 VI. ANALYSIS OF POTENTIAL BENEFITS ........................................................................................ 315 A. Analytical Framework ................................................................................................................. 316 B. Reduced Programming Acquisition Costs ................................................................................... 321 C. Conversion of Time Warner Cable and Bright House to All-Digital Service, and Related Increased Residential Broadband Speeds and Improved Video Services .................................... 347 1. Conversion to an All-Digital Network .................................................................................. 348 2. Residential BIAS Speed Upgrades ........................................................................................ 356 3. Improved Video Benefits ...................................................................................................... 362 D. Uniform Broadband Pricing and Marketing ................................................................................ 364 E. Increased Competition to Serve Commercial Customers ............................................................ 373 F. Network Buildout to Residential Customers ............................................................................... 382 G. Expanded Deployment of WiFi Access Points ............................................................................ 390 H. Deployment of a Mobile Video Application ................................................................................ 396 I. Video Device and User Interface Innovation ............................................................................... 400 J. Generalized Claims Related to Reduced Barriers to Innovation ................................................. 405 K. Generalized Claims Related to Lowered Costs ............................................................................ 409 L. Improved Service for Regional and National Advertisers ........................................................... 416 M. 1eZ CKarter’s AEility to 0arNet ItselI ........................................................................................ 421 N. Other Potential Public Interest Benefits ....................................................................................... 423 1. Cybersecurity......................................................................................................................... 423 2. Diversity Practices ................................................................................................................. 433 Federal Communications Commission FCC 16-59 3 3. Labor Practices ...................................................................................................................... 439 4. Low-Income Broadband Offerings........................................................................................ 445 VII. REMEDIES ..................................................................................................................................... 454 VIII. BALANCING POTENTIAL PUBLIC INTERST HARMS AND BENEFITS ............................. 464 IX. CONCLUSION................................................................................................................................ 465 X. ORDERING CLAUSES .................................................................................................................. 466 APPENDIX A - List of Licenses and Authorizations to be Transferred APPENDIX B - Remedies & Conditions APPENDIX C - Economic Appendix I. EXECUTIVE SUMMMARY 1. In this proceeding, we approve, subject to conditions, the applications of Charter Communications, Inc. (Charter), Time Warner Cable Inc. (Time Warner Cable), and Advance/Newhouse Partnership (Advance/Newhouse or Bright House) for Commission consent to the transfer of various Commission licenses and other authorizations from Charter, Time Warner Cable, and Bright House (collectively the Applicants) to a new company, New Charter, pursuant to Sections 214(a) and 310(d) of the Communications Act of 1934, as amended (the Act). 1 2. Our consent to the transfer of these licenses is based on a careful review of the economic, documentary, and other record evidence. We engaged in a rigorous analysis of the potential harms and benefits to ensure that the proposed transaction serves the public interest, convenience, and necessity.2 Based on this review, we conclude that, with the adoption of certain conditions designed to address specific harms and confirm certain benefits that would result from the transaction, the license transfers will serve the public interest. 3. CKarter claims its cXrrent manaJement employs a ³Eest-in-class´ EXsiness moGel tKat results in more subscribers choosing to stay with the company. According to Charter, it focuses on offering services with higher broadband speeds and simplified, uniform pricing that is often faster and cheaper than its cable peers. It does not impose data caps or usage-based pricing for broadband, nor does it charge extra for cable modem rentals or levy early termination fees if subscribers opt to switch providers. Because of its focus on its high-speed broadband service, Charter proffers that it views current and emerging online video competitors as complementary and, therefore, it would not engage in actions that would undermine the viability of these competitors that drive broadband demand. 4. The Applicants present the transaction as a best-of-EreeG merJer comEininJ CKarter’s consumer-IrienGly EXsiness moGel ZitK 7ime :arner CaEle’s loZer proJramminJ costs AmonJ tKe benefits the Applicants promise this combination would deliver are innovative ways for consumers to access viGeo content Ior e[ample Ey GeployinJ an app inteJratinJ CKarter’s cloXG-based television guide ZitK 7ime :arner CaEle’s e[istinJ app tKat streams KXnGreGs of live channels. 5. The materials in the record largely²but not entirely²comport ZitK CKarter’s claims regarding its current business model. Today, Charter is a medium-sized cable company. Once the transaction with Time Warner Cable and Bright House closes, New Charter will be a far larger company facing different incentives and possessing different abilities that could lead it to hamper or prevent its current and future online video rivals from expanding, becoming more competitive, or starting-up in the first place. 1 See 47 U.S.C. §§ 214(a), 310(d); Application of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership for Consent to the Transfer of Control of Licenses and Authorizations, MB Docket No. 15-149, at 13 (filed June 25, 2015) (Application). 2 47 U.S.C. §§ 214(a), 310(d). Federal Communications Commission FCC 16-59 4 6. Our public interest inquiry raises the question of whether the track record and outlook of CKarter’s cXrrent manaJement would Ee carrieG over to 1eZ CKarter’s e[panGeG Iootprint to tKe EeneIit oI consXmers 7Kat is ZKetKer 1eZ CKarter’s cKanged incentives and abilities would lead it down a path that is less consumer friendly and more hostile to online video competition. 7. We conclude that the transaction will materially alter the Applicants’ incentives and abilities in ways that are potentially KarmIXl to tKe pXElic interest )irst 1eZ CKarter’s increaseG broadband footprint and desire to protect its video profits will increase incentives to impose data caps and usage-based prices in order to make watching online video more expensive, and in particular more expensive than subscribing to a traditional pay-TV bundle. Second, 1eZ CKarter’s larger number of broadband subscribers will increase its incentive and ability to raise prices on companies²including online video distributors²that interconnect ZitK 1eZ CKarter’s netZorN to Geliver Internet traIIic that consumers want. 7KirG tKe transaction Zill liNely increase 1eZ CKarter’s incentive anG aEility to Xse its leverage over programmers to extract contractual terms that will frustrate the prog rammers’ aEilities to license content for online distribution. In doing so, New Charter will foreclose online video distributors from content that allows them to be more vibrant competitors to cable operators. 8. Because we find that the transaction will likely cause public interest harms, we impose conGitions tKat ensXre 1eZ CKarter aGKeres more closely to CKarter’s prior consXmer-friendly approach, and reduce the risk of public interest harms. The conditions also require New Charter to execute a nXmEer oI its claimeG pXElic interest EeneIits so tKat tKe transaction’s EeneIits Zill clearly oXtZeiJK tKe likely public interest harms. 9. First, for seven years, we prohibit New Charter from imposing data caps or charging usage-based pricing for its residential broadband service. This condition ensures that New Charter will continXe CKarter’s past pricinJ practices and protects subscribers from paying fees designed to make online video consumption more expensive leading subscribers to stick with a traditional pay-TV bundle. 10. Second, to prevent New Charter from raising prices on companies that deliver Internet traffic²including online video traffic²requested by its broadband subscribers, we condition the transaction on a modified version of the Applicants’ settlement-free interconnection commitment. The Applicants committed to interconnect with qualifying companies for free. Our modifications will ensure that companies may more easily qualify for free interconnection and that they may increase their traffic anG e[panG tKeir services at a Jreater rate EeIore neeGinJ to pay to Geliver content to 1eZ CKarter’s subscribers. 11. Third, because New Charter will have an increased incentive to use its greater leverage over programmers to frustrate online video competition, Commission staff worked in close coordination with the Department of Justice Antitrust Division to prohibit, for seven years, New Charter from entering or enforcing contractual terms that prevent or penalize programmers from distributing content online. 12. Fourth, the proposed transaction will likely result in a number of modest efficiencies and public benefits, including lower overhead and programming costs and increased enterprise competition. We intend the conditions we impose today to permit the transaction’s liNely eIIiciencies anG EeneIits to proceed while mitigating the likely harms. We acknowledge, however, that conduct remedies may not eliminate all harms and require close monitoring to prevent evasion in ways that cannot be anticipated. We adopt a monitoring system designed to watch for any attempts by New Charter to avoid the letter and spirit of the conditions. We further require New Charter to undertake a build out program that will deploy high-speed broadband to 2 million more homes and a low-income broadband program for eligible households. Taken together, tKese JXaranteeG EeneIits proviGe conIiGence tKat tKe transaction’s pXElic interest benefits will outweigh any harms. Federal Communications Commission FCC 16-59 5 II. DESCRIPTION OF THE TRANSACTION A. Description of the Parties 13. Charter. Charter provides broadband Internet, video, voice, and business services to over 5.8 million residential customers and has 386,000 commercial customers in 28 states.3 Charter provides broadband Internet services to 4.8 million residential customers4 and voice service to 2.4 million residential customers through VoIP technology.5 Charter is currently the sixth-largest multichannel video programming distributor (MVPD) in the United States, serving 4.2 million residential customers over its all-digital network.6 CKarter also oIIers commercial services inclXGinJ ³Gata netZorNinJ EroaGEanG Internet, managed video and music services, wireless backhaul, and fiber connectivity to commercial premises´ to  commercial cXstomers7 14. Time Warner Cable. Time Warner Cable provides broadband Internet, video, and voice services to over 15 million customers across 30 states.8 Time Warner Cable provides high-speed broadband Internet service to approximately 11.7 million residential customers, and voice services to approximately 5.3 million residential customers through VoIP technology. 9 Time Warner Cable provides advanced cable services to approximately 10.8 million residential video customers, making it the fourth- largest MVPD in the United States.10 In addition, Time Warner Cable offers a variety of business services to local and regional customers, including video, voice, broadband Internet access, Ethernet networking, and managed hosting and cloud computing services.11 3 Application at 7. Charter operates subsidiaries authorized to provide domestic interstate telecommunications services in 27 states. Application of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership for Consent to the Transfer of Control of Licenses and Authorizations, MB Docket No. 15-149, Joint Section 214 Application at 6-7, 11-12 (filed June 25, 2015) (Joint Section 214 Application). 4 Application at 1. According to the Application, Charter currently offers a minimum of 60 Megabits per second (Mbps) to most of its residential broadband Internet access (BIAS) customers. Id. 5 Id. In February 2016, Charter and Time Warner Cable filed their annual reports with updated subscriber information. See Charter Communications, Inc., Annual Report (Form 10-K) (Feb. 10, 2016) (Charter 2015 Annual Report); Time Warner Cable Inc., Annual Report (Form 10-K) (Feb. 12, 2016) (Time Warner Cable 2015 Annual Report). Charter reports that as of December 31, 2015, it served 6.7 million total residential customers of which 5.2 million subscribe to its high-speed BIAS and 4.3 million to its MVPD service. Charter 2015 Annual Report at 1. Time Warner Cable reports that as of December 31, 2015, it served 15.1 million residential customers of which 12.7 million subscribe to its high-speed BIAS and 10.8 million to its MVPD Service. Time Warner Cable 2015 Annual Report at 2-3. These figures do not materially alter our analysis of the competitive effects of the proposed transaction. 6 Application at 8. After the Application was filed, the Commission approved the merger of AT&T and DIRECTV. See generally Applications of AT&T and DIRECTV for Consent to Assign or Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 30 FCC Rcd 9131 (2015) ( AT&T-DIRECTV Order ). With the combination of these two firms, Charter became the sixth-largest MVPD, not the seventh as stated in the Application. See SNL Kagan 2Q2015. 7 Application at 9. 8 Id. at 10. 9 Id. Time Warner Cable operates subsidiaries authorized to provide domestic interstate telecommunications services in 31 states. Joint Section 214 Application at 9-11, 15. 10 Application at 11. The Applicants state that Time Warner Cable plans to convert to a seventy-five percent digital footprint by the end of 2016. Id. 11 Id. at 11-12. Federal Communications Commission FCC 16-59 6 15. Time Warner Cable owns seventeen regional sports networks (RSNs), including Time Warner Cable SportsNet and Time Warner Cable Deportes²which carry Los Angeles Lakers basketball games and other regional programming.12 Time Warner Cable also manages the distribution of SportsNet LA, which carries Los Angeles Dodgers games.13 According to Applicants, Time Warner Cable possesses a 26.8 percent minority interest in SportsNet New York, but does not control its management, strategic direction, or distribution rights, and provides affiliate sales, advertising sales, and production and technical services to SportsNet LA.14 Time Warner Cable (together with Bright House) has an attributable interest of 6.35 percent in the national MLB Network and a 28.9 percent interest in the iN Demand, L.L.C. ( iN Demand) programming service. 15 16. Time Warner Cable also owns and manages local news and lifestyle networks, including Time Warner Cable News NY1.16 Time Warner Cable sells video and online advertising to local, regional, and national customers by itself, through a consortium of cable companies under NCC Media, and through a number of local and regional cable advertising interconnects that Time Warner Cable manages on behalf of itself and other MVPDs.17 Finally, Time Warner Cable provides programming acquisition, network management, and maintenance services to Bright House pursuant to a management agreement.18 17. Advance/Newhouse. Advance/Newhouse is the parent of Bright House Networks, LLC,19 which provides video, high-speed data, home security, and voice services to approximately 2.5 million residential and business customers in Florida, Alabama, Indiana, Michigan, California, and Georgia. 20 Bright House is the ninth-largest MVPD in the United States, serving over 2 million video customers, approximately 1.7 million of whom are located in the central Florida region. 21 Bright House owns and operates local news and high school sports networks in Florida.22 Advance/Newhouse also holds a 32.81 percent attributable interest in national programming services provided by Discovery Communications 12 Time Warner Cable Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 30-32, 34, 37, 37, 40, 161 (filed Oct. 13, 2015) (Time Warner Cable Response to Information Request); Application at 11-12. 13 Application at 11. 14 Id. The Applicants state that Time Warner Cable does not possess an ownership interest in SportsNet LA. Id. at 11 n.18. 15 Id. at 11. 16 Id. at 11. 17 Id. at 12. 18 Id. 19 Id. Advance/Newhouse holds 33.3 percent of Time Warner Entertainment-Advance/Newhouse Partnership (TWE-A/N Partnership), which in turn is the sole member of Bright House, and Time Warner Cable currently holds the other 66.67 percent of TWE-A/N Partnership. Id. at 12 n.19. According to the Applicants, Advance/Newhouse exclusively tracks the economic performance of Bright House and has day- to-day management responsibility for and de facto control over tKe operation oI tKe %riJKt HoXse’s systems Id. The Applicants state that in order to facilitate, and simultaneously with, the transaction, the TWE-A/N Partnership would be restructured pursuant to the existing agreement among the parties, resulting in Advance/Newhouse being the sole member of Bright House. Id. 20 Id. at 12. The Commission approved the merger of AT&T and DIRECTV after the filing of the Application ²the comEination resXlteG in %riJKt HoXse EecominJ tKe nation’s nintK-largest MVPD provider. See supra note 6. 21 Application at 12. 22 Id. at 13. Federal Communications Commission FCC 16-59 7 Inc., and Bright House owns 5.3 percent of iN Demand.23 It also offers video, voice, data and cloud- based services to small and medium businesses and in addition provides fiber-based telecommunication services to midmarket and carrier customers, including cloud-based hosted voice, managed security, and cell backhaul to wireless carriers.24 B. The Proposed Transaction 18. On May 23, 2015, Charter, Time Warner Cable, and Advance/Newhouse entered into an agreement whereby the Applicants would merge into a new entity, referred to as New Charter, in a stock- and-cash transaction.25 Under the terms of the agreement, Time Warner Cable stockholders would receive a combination of cash and stock that values Time Warner Cable at approximately $78.7 billion, and Advance/Newhouse would receive a combination of cash and partnership units that values Bright House at approximately $10.4 billion. 26 As the Applicants describe, there are three components to the transaction, each of which would be expected to occur simultaneously upon closing. 27 19. First, Time Warner Cable would become a subsidiary of New Charter through a series of mergers.28 Time Warner Cable shareholders would be given the choice to receive, for each share of Time Warner Cable stock, either (a) a combination of $100 per share and approximately 0.4891 shares of New Charter Class A common stock, or (b) a combination of $115 per share and approximately 0.4125 shares of New Charter Class A common stock.29 20. Second, Charter would merge with a subsidiary of New Charter, becoming a subsidiary of New Charter, and each then outstanding share of Charter Class A common stock would be converted into 0.9042 shares of New Charter Class A common stock.30 New Charter would assume the Charter name.31 Additionally, Liberty Broadband would contribute $4.3 billion in cash to New Charter in exchange for shares of New Charter Class A common stock, which, with the additional contribution of $700 million referred to below, would give Liberty Broadband a 17 to 19 percent interest in New Charter.32 23 Application, Exhibit H, Programming Interests Held by Advance/Newhouse Partnership or any Affiliated Persons. 24 Bright House, Bright House Networks Enterprise Solutions Expands Cloud Portfolio With Introduction of Two New Services, Press Release (June 17, 2015), http://enterprise.brighthouse.com/content/dam/bhn/ent/news/ Enterprise-Cloud-Services-Press-Release.pdf. 25 See Application, Exhibit B, Agreement and Plan of Mergers dated as of May 23, 2015, among Time Warner Cable Inc., Charter Communications, Inc., CCH I, LLC, Amazon Corporation, Inc., Amazon Company II, LLC, and Amazon Company III, LLC. 26 Application at 13. 27 Id. 28 Id. 29 Id. at 14. The Applicants state that, prior to that conversion, Liberty Broadband and Liberty Interactive Corp. would contribute their shares of Time Warner Cable stock to the merger subsidiary in exchange for shares of the merger subsidiary on a one-for-one basis, which would be converted into shares of surviving Time Warner Cable on a one-for-one basis in the merger. Id. 30 Id. 31 Id. 32 Charter Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 105 (filed Oct. 16, 2015 (public version)/Oct. 27, 2015 (confidential version)) (Charter Response to Information Request). According to the Applicants, these shares would be issued at a price equivalent to an exchange ratio of $176.95 per current continXeG« Federal Communications Commission FCC 16-59 8 21. Third, New Charter would acquire Bright House, with limited exceptions, from Advance/Newhouse for approximately $10.4 billion, consisting of (a) approximately $2 billion in cash, (b) one share of New Charter Class B common stock carrying voting rights in New Charter, 33 and (c) common and preferred units, valued at approximately $8.4 billion, in a partnership that would be principally held by New Charter and that ZoXlG KolG all oI %riJKt HoXse’s assets as Zell as assets oI Charter and Time Warner Cable.34 The preferred units would be convertible into common units of the partnership, and the common units would be exchangeable by Advance/Newhouse, in certain circumstances, for cash or, at the election of New Charter, New Charter Class A common stock. TogetKer AGvance1eZKoXse’s preIerreG anG common partnersKip Xnits ZoXlG represent appro[imately 13 to 14 percent of New Charter on an as-converted, as-exchanged basis. 35 22. In connection with the Bright House portion of the transaction, Liberty Broadband would contribute an additional $700 million in cash (for a total of $5 billion, including the $4.3 billion noted above) in exchange for shares of New Charter Class A common stock. 36 As noted above, Liberty Broadband would own approximately 17 to 19 percent of New Charter (with additional voting rights pursuant to a proxy granted by Advance/Newhouse and a proxy granted by Liberty Interactive Corp.) as a result of its investments.37 23. Upon the transaction’s completion maMority oZnersKip²67 to 69 percent on an as- converted, as-exchanged basis ²of New Charter would be publicly held, and a majority of the 13-person board would not be nominated by either Advance/Newhouse (which would nominate two board members at closing) or Liberty Broadband (which would nominate three board members at closing). 38 In addition, Applicants state tKat 7om RXtleGJe CKarter’s cXrrent 3resiGent anG C(O ZoXlG KolG a EoarG seat anG Ee offered the position of Chairman and CEO of New Charter.39 Following the transaction, New Charter would own and/or manage systems serving approximately 23.9 million customers ²19.4 million broadband customers, 17.3 million video customers, and 9.4 million voice customers²across 41 states.40 (Continued from previous page) CKarter sKare ZKicK represents CKarter’s closinJ price on 0ay   tKe traGinJ Gay on ZKicK CKarter’s oIIer to acquire Time Warner Cable was based. Application at 14 n.21. 33 The Applicants state that New Charter would also receive nominal consideration in exchange for the issuance of this share. Application at 15 n.22. 34 Id. at 14-15. According to the Applicants, these partnership units consist of (i) exchangeable common units valued at approximately $5.9 billion and (ii) convertible preferred units with a face amount of $2.5 billion, which would pay a six percent coupon. Id. at 15 n.23. In addition, the one share of Class B common stock held by Advance/Newhouse would be economically equivalent to Class A common stock but would initially possess a number of votes reflecting the voting power of the common units and the convertible preferred units held by Advance/Newhouse on an as-converted, as-exchanged basis. Id. 35 Id. at  AccorGinJ to tKe Applicants an ³as-converted, as-e[cKanJeG Easis´ assXmes tKat all oI tKe partnersKip units held by Advance/Newhouse are converted into Class A common stock of New Charter. Id. at 15 n.24. 36 Id. at 15. 37 See supra note 32. The Applicants state that, by virtue of its exchange of Time Warner Cable shares, Liberty Interactive Corp. would receive approximately 1.7 to 1.9 percent of New Charter stock, and pursuant to a proxy aJreement /iEerty %roaGEanG ZoXlG vote /iEerty Interactive’s 1eZ CKarter sKares Application at 15 n.26. 38 Application at 16. 39 Id. 40 Id. at 13, 16. The Applicants state that New Charter would be the third-largest MVPD. Id. at 16. Federal Communications Commission FCC 16-59 9 24. On June 25, 2015, Charter, Time Warner Cable, and Bright House filed the Application. 41 On July 27, 2015, the Commission released a public notice accepting the Application for filing. 42 On September 11, 2015, the Commission released a public notice establishing a pleading cycle seeking public comment on the Application.43 The Commission received eleven petitions to deny and thousands of public comments and other filings in this proceeding.44 In addition to building its record through public comment, the Commission requested additional information from the Applicants 45 and other entities.46 41 See supra note 1. Subsequent to filing the Application and prior to release of the Public Notice accepting the Application for filing, the Applicants submitted additional information. See Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed July 2, 2015) (Charter July 2, 2015, Ex Parte Letter) (submitting broadband geographic overlap data); Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed July 10, 2015) (submitting data on expected cost savings and additional data on commercial service overlap); Letter from Samuel L. Feder, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed July 15, 2015) (submitting current interconnection policy and letter committing to settlement-free interconnection for three years) (Charter July 15, 2015, Peering Policy Ex Parte Letter). 42 See Commission Accepts for Filing Applications of Charter Communications, Inc., Time Warner Cable, Inc., and Advance/Newhouse Partnership for Consent to Transfer Control of Licenses and Authorizations, Public Notice, 29 FCC Rcd 8107 (MB 2015) ( Accepted for Filing Public Notice ) . 43 See Commission Seeks Comment on Applications of Charter Communications, Inc., Time Warner Cable, Inc., and Advance/Newhouse Partnership for Consent to Transfer Control of Licenses and Authorizations, Public Notice, 30 FCC Rcd 9916 (MB 2015) ( Public Notice ). 44 Petitions to Deny or to Impose Conditions were filed by: The Alliance for Community Media and the Alliance for Communications Democracy, COMPTEL, DISH Network, Entravision, Free Press, Lincolnville Networks, Inc. et al., Public Knowledge, Stop the Cap, the Greenlining Institute, the Writers Guild of America, West, Inc., and Zoom Telephonics, Inc. On Oct. 19, 2015, COMPTEL changed its name to INCOMPAS. Press Release, Introducing INCOMPAS, a Unified Voice for Competition (Oct. 19, 2015), http://www.incompas.org/Files/filings/2015/10% 2019%2015%20Introducing%20INCOMPAS.pdf . In this Order, we refer to this filer as INCOMPAS throughout, except in citation to its Petition to Deny. The National Association of Broadcasters filed a petition to hold the transaction in aEeyance penGinJ tKe resolXtion oI tKe Commission’s  anG  TXaGrennial revieZ oI its broadcast ownership rules under Section 202(h) of the Telecommunications Act of 1996. See Petition of the National Association of Broadcasters to Hold in Abeyance, MB Docket No. 15-149 (filed Oct. 12, 2015) (NAB Petition). 45 Letter from William T. Lake, Chief, Media Bureau, FCC to Catherine Bohigian, Executive Vice President, Government Affairs, Charter, MB Docket No. 15-149 (Sept. 21, 2015) (Information Request to Charter); Letter from William T. Lake, Chief, Media Bureau, FCC, to Steven Teplitz, Senior Vice President, Government Relations, Time Warner Cable, MB Docket No. 15-149 (Sept. 21, 2015) (Information Request to Time Warner Cable); Letter from William T. Lake, Chief, Media Bureau, FCC, to Steven J. Horvitz, Counsel for Advance/Newhouse, MB Docket No. 15-149 (Sept. 21, 2015) (Information Request to Advance/Newhouse). 46 See, e.g., Letter from William T. Lake, Chief, Media Bureau, FCC, to Aaron Ahola, Deputy General Counsel, Akamai Technologies, Inc., MB Docket No. 15-149 (Oct. 9, 2015); Letter from William T. Lake, Chief, Media Bureau, FCC, to Stacy Fuller, Vice President, Federal Regulatory, AT&T Services, Inc., MB Docket No. 15-149 (Oct. 9, 2015); Letter from William T. Lake, Chief, Media Bureau, FCC to Melissa Newman, Vice President, Federal Regulatory Policy and Affairs, CenturyLink, Inc., MB Docket No. 15-149 (Oct. 9, 2015). Federal Communications Commission FCC 16-59 10 The record includes responses to those requests, 47 subject to the protections of the Protective Order issued in this proceeding.48 25. In addition to Commission review, the proposed transaction is subject to review by the United States Department of Justice (DOJ) pursuant to its authority in Section 7 of the Clayton Act. 49 III. STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK 26. Pursuant to Sections 214(a) and 310(d) of the Act, we must determine whether the proposed transfer of certain licenses and authorizations held and controlled by the Applicants will serve the public interest, convenience, and necessity.50 In making this determination, we first assess whether the proposed transaction complies with the specific provisions of the Act,51 other applicable statutes, and tKe Commission’s rXles52 If the transaction would not violate a statute or rule, we consider whether it could result in public interest harms by substantially frustrating or impairing the objectives or implementation of the Act or related statutes.53 We then employ a balancing test weighing any potential public interest harms of the proposed transaction against any potential public interest benefits.54 The Applicants bear the burden of proving, by a preponderance of the evidence, that the proposed transaction, 47 See, e.g., Charter Response to Information Request; Time Warner Cable Response to Information Request; Advance/Newhouse Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Steven J. Horvitz, Counsel for Advance/Newhouse Partnership, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149 (filed Oct. 13, 2015) (Advance/Newhouse Response to Information Request). 48 The Commission adopted a Protective Order to (i) limit access to proprietary or confidential information filed in this proceeding and (ii) more strictly limit access to certain particularly competitive sensitive information. See Applications of Charter Communications, Inc., Time Warner Cable, Inc., and Advance/Newhouse Partnership for Consent to Assign or Transfer Control of Licenses and Authorizations, Order, 30 FCC Rcd 10360, Attach. (2015) ( Protective Order ). In this Order, Highly Confidential Information, as defined in the Protective Order, will be marNeG Ey tKe terms ³[B EGIN HIGHLY CONF. INFO.] ´ anG ³[END HIGHLY CONF. INFO.] ´ anG Confidential Information, as defined in the Protective Order Zill Ee marNeG Ey tKe terms ³[BEGIN CONF. INFO.] ´ anG ³[END CONF. INFO.] ´ as appropriate 6XcK inIormation Zill Ee reGacteG Irom the publicly available version of the Order. The unredacted information will be available upon request to persons qualified to view it under the Protective Order. 49 15 U.S.C. § 18. 50 47 U.S.C. §§ 214(a), 310(d). 51 Section 310(d) of the Act requires that we consider applications for transfer of Title III licenses under the same standard as if the proposed transferee were applying for licenses directly under Section 308 of the Act. 47 U.S.C. § 310(d). 52 See AT&T-DIRECTV Order, 30 FCC Rcd at 9139, para. 18 n.35; Applications of Comcast Corporation, General Electric Company, and NBC Universal, Inc. for Consent to Assign Licenses and Transfer Control of Licenses, Memorandum Opinion and Order, 26 FCC Rcd 4238, 4247, para. 22, n.42 (2011) ( Comcast-NBCU Order ); Applications for Consent to the Assignment and/or Transfer of Control of Licenses Adelphia Communications Corp., Assignors, to Time Warner Cable, Inc., Assignees; Adelphia Communications Corp., Assignors and Transferors, to Comcast Corp., Assignees and Transferees; Comcast Corp., Transferor, to Time Warner Inc., Transferee; Time Warner Inc., Transferor, to Comcast Corp., Transferee, Memorandum Opinion and Order, 21 FCC Rcd 8203, 8217, para. 23 (2006) ( Adelphia-TWC Order ); Application of EchoStar Communications Corp., General Motors Corp., and Hughes Electronics Corp. (Transferors) and EchoStar Communications Corp. (Transferee), Hearing Designation Order, 17 FCC Rcd 20559, 20574, para. 25 (2002) ( EchoStar-DIRECTV HDO ). 53 See AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 18; Comcast-NBCU Order, 26 FCC Rcd at 4247, para. 22; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20574, para. 25. 54 See AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 18; General Motors Corp. and Hughes Electronics Corp., Transferors, and the News Corporation, Transferee, MB Docket No. 03-124, Memorandum Opinion and Order, 19 FCC Rcd 473, 483, para. 15 (2004) ( News Corp.-Hughes Order ). Federal Communications Commission FCC 16-59 11 on balance, serves the public interest.55 If we are unable to find that the proposed transaction serves the public interest for any reason, or if the record presents a substantial and material question of fact, we must designate the Application for hearing.56 27. OXr pXElic interest evalXation necessarily encompasses tKe ³EroaG aims oI tKe CommXnications Act´57 which include, among other things, a deeply rooted preference for preserving and enhancing competition in relevant markets,58 accelerating private sector deployment of advanced services,59 promoting a diversity of information sources and services to the public,60 and generally managing the spectrum in the public interest.61 Our public interest analysis also entails assessing whether the proposed transaction would affect the quality of communications services or result in the provision of new or additional services to consumers.62 In conducting this analysis, we may consider technological and market changes, and the nature, complexity, and speed of change of, as well as trends within, the communications industry.63 28. Our competitive analysis, which forms an important part of the public interest evaluation, is informed by, but not limited to, traditional antitrust principles.64 The Commission and the DOJ each has independent authority to examine the competitive impacts of proposed communications mergers and transactions involving transfers of Commission licenses, but the standards governing the Commission’s 55 47 U.S.C. § 309(e); see AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 18; Adelphia-TWC Order, 21 FCC Rcd at 8217, para. 23; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20574, para. 25. 56 47 U.S.C. 309(e); see AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 18; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20562- para  6ection  e ’s reTXirement applies only to tKose applications to which Title III of the Act applies. We are not required to designate for hearing applications for the transfer or assignment of Title II authorizations when we are unable to find that the public interest would be served by granting the applications, see ITT World Communications, Inc. v. FCC, 595 F.2d 897, 901 (2d Cir. 1979), but may do so if we find that a hearing would be in the public interest. 57 Western Union Division, Commercial Telegrapher’s Union, A.F. of L. v. United States, 87 F. Supp. 324, 335 (D .D.C. 1949), aff’d, 338 U.S. 864 (1949); see AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 19; see also FCC v. RCA Communications, Inc., 346 U.S. 86, 93-95 (1953). 58 47 U.S.C. §§ 521(6), 532(a); see Applications for Consent to the Transfer of Control of Licenses and Authorizations by Time Warner, Inc. and America Online, Inc. to AOL Time Warner Inc., Memorandum Opinion and Order, 16 FCC Rcd 6547, 6555-56 para. 22 (2001) ( AOL-Time Warner Order ). 59 See 47 U.S.C. §§ 254, 332(c)(7), 1302; Telecommunications Act of 1996, Preamble, Pub. L. No. 104-104, 110 6tat   one pXrpose oI tKe Act is to ³accelerate rapiGly private sector Geployment oI aGvanceG telecommunications and information technologies anG services´  60 47 U.S.C. §§ 521(4), 532(a); see Turner Broad. Sys., Inc. v. FCC  86    ³>I@t Kas lonJ Eeen a tenet of national communications policy that the widest possible dissemination of information from diverse and antagonistic soXrces is essential to tKe ZelIare oI tKe pXElic´ TXotinJ United States v. Midwest Video Corp., 406 U.S. 649, 668, n.27 (1972)) (internal quotation marks omitted). 61 See 47 U.S.C. §§ 301, 303, 307, 309, 310(d). 62 See AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 19; Adelphia-TWC Order, 21 FCC Rcd at 8218, para. 24; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 26. 63 See AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 19; Comcast-NBCU Order, 26 FCC Rcd at 4248, para. 23; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 26. 64 See Satellite Bus. Sys., 62 FCC 2d 997, 1068-73, 1088 (1977), aff’d sub nom United States v. FCC, 652 F.2d 72 (D.C. Cir. 1980) ( en banc); see also Northeast Utils. Serv. Co. v. FERC, 993 F.2d 937, 947 (1st Cir. 1993) (public interest stanGarG Goes not reTXire aJencies ³to analy]e proposeG merJers XnGer tKe same stanGarGs tKat tKe Department of Justice . .  mXst apply´ ; AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 20. Federal Communications Commission FCC 16-59 12 competitive review differ somewhat from those applied by the DOJ. 65 The Commission, like the DOJ, considers how a transaction would affect competition by defining a relevant market, looking at the market power of incumbent competitors, and analyzing barriers to entry, potential competition, and the efficiencies, if any, that may result from the transaction.66 29. The DOJ, however, reviews telecommunications mergers pursuant to Section 7 of the Clayton Act, and if it sues to enjoin a merger, it must demonstrate to a court that the merger may substantially lessen competition or tend to create a monopoly.67 The DOJ review is consequently limited solely to an examination of the competitive effects of the acquisition, without reference to diversity, localism, or other public interest considerations.68 0oreover tKe Commission’s competitive analysis under the public interest standard is broader. For example, the Commission considers whether a transaction would enhance, rather than merely preserve, existing competition, and often takes a more expansive view of potential and future competition in analyzing that issue. 69 30. Finally, our public interest authority enables us, where appropriate, to impose and enforce transaction-related conditions to ensure that the public interest is served by the transaction.70 Specifically, Section 303(r) of the Communications Act authorizes the Commission to prescribe restrictions or conditions not inconsistent with law that may be necessary to carry out the provisions of the Act.71 Similarly 6ection  c oI tKe Act aXtKori]es tKe Commission to attacK to tKe certiIicate ³sXcK terms 65 See AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 20; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 27; see also Adelphia-TWC Order, 21 FCC Rcd at 8219, para. 25. 66 See AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 20; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 27; see also Applications of Sprint Nextel Corp. and SoftBank Corp. and Starburst II, Inc. for Consent to Transfer Control of Licenses and Authorizations, IB Docket No. 12-343, Memorandum Opinion and Order, Declaratory Ruling, and Order on Reconsideration, 28 FCC Rcd 9642, 9652, para. 25 (2013) ( SoftBank-Sprint Order). 67 15 U.S.C. § 18; see AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 21; Comcast-NBCU Order, 26 FCC Rcd at 4248, para. 24; News Corp.-Hughes Order, 19 FCC Rcd at 484, para. 17. 68 See AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 21; Comcast-NBCU Order, 26 FCC Rcd at 4248, para. 24; SoftBank-Sprint Order, 28 FCC Rcd at 9652, para. 25. 69 See AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 21; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575-76, para. 27. Cf. Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP  86    ³7Ke  Act is in an important respect mXcK more amEitioXs tKan tKe antitrXst laZs It attempts µto eliminate the monopolies enMoyeG Ey tKe inKeritors oI A7 7’s local IrancKises’ 6ection  oI tKe Sherman Act, by contrast, seeks merely to prevent unlawful monopolization It ZoXlG Ee a serioXs mistaNe to conIlate tKe tZo Joals´ empKasis in original) (quoting Verizon Commc’ns v. FCC, 535 U.S. 467, 476 (2002) (internal citations omitted)). 70 See AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 22; Comcast-NBCU Order, 26 FCC Rcd at 4249, para. 25; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 27; see also Application of WorldCom, Inc. and MCI Commc’ns Corp. for Transfer of Control of MCI Communications Corporation to WorldCom, Inc., Memorandum Opinion and Order, 13 FCC Rcd 18025, 18032, para. 10 (1998) ( WorldCom-MCI Order ) (stating that the Commission may attach conditions to the transfers). 71 47 U.S.C. § 303(r); see AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 22; Adelphia-TWC Order, 21 FCC Rcd at 8219, para. 26; WorldCom-MCI Order, 13 FCC Rcd at 18032, para. 10 (citing FCC v. Nat’l Citizens Comm. for Broad., 436 U.S. 775 (1978) (upholding broadcast-newspaper cross-ownership rules adopted pursuant to Section 303(r))); United States v. Sw. Cable Co., 392 U.S. 157, 178 (1968) (holding that Section 303(r) permits the Commission to orGer a caEle company not to carry EroaGcast siJnal EeyonG station’s primary marNet ; United Video, Inc. v. FCC, 890 F.2d 1173, 1182-83 (D.C. Cir. 1989) (affirming syndicated exclusivity rules adopted pursuant to Section 303(r) authority). Federal Communications Commission FCC 16-59 13 anG conGitions as in its MXGJment tKe pXElic convenience anG necessity may reTXire´72 Indeed, our extensive regulatory and enforcement experience enables us, under this public interest authority, to impose and enforce conditions to ensure that the transaction will yield net public interest benefits.73 In exercising this authority to carry out our responsibilities under the Act and related statutes, we have imposed conditions to confirm specific benefits or remedy harms likely to arise from transactions.74 IV. COMPLIANCE WITH COMM UNICATIONS ACT AND FCC RULES AND POLICIES 31. Section 310(d) of the Act requires that we make a determination as to whether the Applicants have the requisite qualifications to hold Commission licenses. 75 Among the factors the Commission considers in its public interest review is whether the applicant for a license has the requisite ³citi]ensKip cKaracter Iinancial tecKnical anG otKer TXaliIications´76 Therefore, as a threshold matter, the Commission must determine whether the applicants to the proposed transaction²the transferors and the transferee²meet the requisite qualifications requirements to hold and transfer licenses under Section  G anG tKe Commission’s rXles77 32. Discussion. We note that no party has raised an issue with respect to the basic qualifications of Time Warner Cable and Bright House. The Commission generally does not reevaluate the qualifications of assignors unless issues related to basic qualifications have been sufficiently raised in petitions to warrant designation for hearing.78 We find that there is no reason to reevaluate the requisite citizenship, character, financial, technical, or other basic qualifications under the Communications Act and our rules, regulations, and policies of either Time Warner Cable or Bright House. In addition, no parties have alleged that Charter lacks the requisite qualifications. The Commission has previously found Charter to be qualified to hold Commission licenses. 79 We find that Charter continues to have the requisite citizenship, character, financial, technical, and other basic qualifications under the Communications Act and our rules, regulations, and policies. 33. As noted above, for the proposed transaction to be in the public interest, it must be in compliance ZitK tKe CommXnications Act otKer applicaEle statXtes anG tKe Commission’s rXles80 We find that the proposed transaction will not violate any statutory provision or Commission rule. We 72 47 U.S.C. § 214(c); see AT&T Inc. and BellSouth Corp. Application for Transfer of Control, Memorandum Opinion and Order, 22 FCC Rcd 5662, 5674, para. 22 (2007) ; Adelphia-TWC Order, 21 FCC Rcd at 8219, para. 26; WorldCom-MCI Order, 13 FCC Rcd at 18031-32, para. 10. 73 See AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 22; Comcast-NBCU Order, 26 FCC Rcd at 4249, para. 25; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 27. 74 See AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 22; Adelphia-TWC Order, 21 FCC Rcd at 8219, para. 26. 75 47 U.S.C. § 310(d). 76 47 U.S.C. §§ 308, 310(d); see also, e.g. AT&T-DIRECTV Order, 30 FCC Rcd at 9142, para. 24; News Corp.- Hughes Order, 19 FCC Rcd at 485 para. 18; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20576, para. 28. 77 See 47 U.S.C. § 310(d); see also, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9142, para. 24; EchoStar- DIRECTV HDO, 17 FCC Rcd at 20576, para. 28. 78 See, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9142, para. 25; SoftBank-Sprint Order, 28 FCC Rcd at 9653 para. 27. 79 See, e.g., Applications Granted for the Transfer of Control of Bresnan Broadband Holdings, LLC to Charter Communications, Inc., Public Notice, DA 13-1088 (WCB 2013). 80 See, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9154, para. 52; Comcast-NBCU Order, 26 FCC Rcd at 4247, para. 22; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20574, para. 25. Federal Communications Commission FCC 16-59 14 aGGress tKe arJXment oI =oom 7elepKonics Inc =oom tKat CKarter’s caEle moGem policies violate Section 629 of the Act and various FCC regulations81 in Section V.G.3 below. V. POTENTIAL PUBLIC INTEREST HARMS A. Applicants’ Incentives to Harm OVD Competition 34. Online video distributors (OVDs) increasinJly compete ZitK 0V3Ds Ior ³vieZinJ time subscription revenue, and advertising revenXe´82 The potential for OVDs to place competitive pressure on New Charter, for all or portions of the MVPD bundle, is likely to increase and place pressure on New CKarter’s viGeo proIits Before discussing the specific harms that could result from the proposed transaction Ze GiscXss Jenerally tKe Applicants’ incentives to Karm OVDs83 because it is relevant to several of the theories of harm we consider below. In particular, we consider whether the proposed transaction would increase tKe comEineG Iirm’s incentive to Xse eitKer its EroaGEanG netZorN or its increased bargaining position relative to programmers to limit OVD competition. We address separately below the competitive effects in the markets for wired cable and fiber broadband Internet access service (BIAS), interconnection, and MVPD service. Because OVDs represent an increasingly competitive alternative to tKe Applicants’ viGeo services anG tKe Applicants control EroaGEanG netZorNs tKat many consumers use to access OVD services Ze consiGer tKe recorG reJarGinJ tKe Applicants’ Jeneral vieZs oI OVDs anG tKeir increasinJ tKreat to 1eZ CKarter’s EXsiness %aseG on tKat recorG Ior tKe reasons described below, we find that New Charter would have an increased incentive to harm OVDs. 35. Positions of the Parties. Several commenters argue that New Charter would have an increased incentive and ability to harm OVDs in order to protect its video offerings.84 Its larger footprint would make OVD foreclosure more profitable.85 According to DISH, the Applicants already view at least some OVDs as competitors.86 Specifically, DISH asserts that online video services which offer access to linear programming, such as its Sling TV, compete directly with the traditional pay-TV services the Applicants offer, creating a particularly strong incentive for New Charter to harm such services.87 DISH 81 Petition to Deny of Zoom Telephonics, Inc., MB Docket No. 15-149 (filed Oct. 13, 2015) (Zoom Petition). 82 See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Sixteenth Report, 30 FCC Rcd 3253, 3289, para. 83 (2015) ( Sixteenth Video Competition Report ). 83 For purposes of this Order, an OVD is an entity that distributes video programming (1) by means of the Internet or other Internet Protocol (IP)-based transmission path; (2) not as a component of an MVPD subscription or other managed video service; and (3) not solely to customers of a broadband Internet access service owned or operated by the entity or its affiliates. 84 See, e.g., Petition to Deny of DISH Network, MB Docket No. 15-149, at 4, 15-20, 46-55, 68 (filed Oct. 13, 2015) (DISH Petition); Petition to Deny of Free Press, MB Docket No. 15-149, at 18, 23-39 (filed Oct. 13, 2015) (Free Press Petition); Petition to Deny of Public Knowledge, Common Cause, Consumers Union, and Open Mic, MB Docket No. 15-149, at 6-18 (filed Oct. 13, 2015) (Public Knowledge et al. Petition); Petition to Deny of Writers Guild of America, West, Inc., MB Docket No. 15-149, at 13-16, 23-30 (filed Oct. 13, 2015) (WGAW Petition); Free Press Reply at 5; Public Knowledge Reply at 2-6; Writers Guild of America, West, Inc. Reply at 20-22 (WGAW Reply); Letter from Stop Mega Cable Coalition to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2, 6 (filed Feb. 9, 2016) (Stop Mega Cable Coalition Feb. 9, 2016, Ex Parte Letter); Letter from Ellen Stutzman, Senior Director of Research and Public Policy, WGAW, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, at 2-5 (filed Feb. 10, 2016) (WGAW Feb. 10, 2016, Ex Parte Letter); Letter from Jeffrey H. Blum, Senior Vice President & Deputy General Counsel, DISH Network Corp., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Feb. 26, 2016) (DISH Feb. 26, 2016, Ex Parte Letter). 85 DISH Petition at 48-50. 86 Id. at 46-48. 87 DISH Petition at 15-20, 55; DISH Reply at 12; Letter from Pantelis Michalopoulos and Stephanie A. Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Dec. 7, 2015) (DISH continXeG« Federal Communications Commission FCC 16-59 15 arJXes tKat CKarter’s cKaracteri]ation oI OVDs as ³complementary´ to its viGeo oIIerinJs is an attempt to Iorestall ³corG cXttinJ´ anG prevent tKe rise oI OVDs as Girect competitors to its 0V3D services.88 Commenters arJXe tKat tKe Applicants’ KiJK marJins on broadband do not deter them from harming OVDs because consumers are unlikely or unable to switch BIAS providers in response to harmful actions by the Applicants, and because the Applicants want to protect their large video profits.89 In particular, Public Knowledge argues that, because Charter faces more competition in the video marketplace than in broadband, it has incentives to use its control over its broadband network to disadvantage OVDs that compete with its video products.90 36. The Applicants respond that New Charter would have no incentive or ability to harm OVDs.91 6peciIically tKe Applicants arJXe tKat IoreclosinJ OVDs ZoXlG Ee contrary to 1eZ CKarter’s economic interest in expanding its broadband subscribership. 92 They contend that New Charter would, in fact, have an increased incentive to promote OVDs, because its gross margin on broadband would exceed those of its video business, and because OVDs drive broadband demand.93 The Applicants also assert that many OVD services complement CKarter’s video products Ey IillinJ Japs in CKarter’s video-on-demand (VOD) content library. 94 For example, the Applicants suggest that, in some instances, offering OVD (Continued from previous page) Dec. 7, 2015, Ex Parte Letter); Letter from Pantelis Michalopoulos and Stephanie A. Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2-4 (filed Dec. 21, 2015) (DISH Dec. 21, 2015, Ex Parte Letter); Letter from Pantelis Michalopoulos and Stephanie A. Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 6-11 (filed Jan. 27, 2015) (DISH Jan. 27, 2016, Ex Parte Letter); Letter from Pantelis Michalopoulos and Stephanie A. Roy, Counsel for DISH Network Corp., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attach. at 17-20 (filed Feb. 12, 2016) (DISH Feb. 12, 2016, Ex Parte Letter). 88 DISH Reply at 11-13; see also DISH Dec. 7, 2015, Ex Parte Letter at 3; DISH Feb. 12, 2016, Ex Parte Letter, Attach. at 12. 89 DISH Petition at 50-54; WGAW Petition at 2-3; DISH Reply at 8-10; Letter from Pantelis Michalopoulos and Stephanie A. Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Dec. 2, 2015) (DISH Dec. 2, 2015, Ex Parte Letter); DISH Jan. 27, 2016, Ex Parte Letter at 5-6; WGAW Feb. 10, 2016, Ex Parte Letter at 2, 4; DISH Feb. 12, 2016, Ex Parte Letter, Attach. at 7-11. See also DISH Feb. 12, 2016, Ex Parte /etter AttacK at  ³3ost-transaction, video will be even more profitable because of significant cost savinJs in neJotiations ZitK proJrammers´  90 Public Knowledge Reply at 3-5. 91 Application at 43-51; Opposition to Petitions to Deny and Response to Comments of Charter, Time Warner Cable, and Advance/Newhouse, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 16-19, 52-53, 69 (filed Nov. 2, 2015) (Opposition); see also Free State Foundation Comments at 16-20 (Free State Comments). 92 Application at 46-47; Application, Declaration of Fiona M. Scott Morton, transmitted by letter from John L. Flynn, Counsel for Charter, and Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at paras. 52-60 (filed Jun. 25, 2015) (Scott Morton Decl.); Opposition at 16-17; Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, at 2 (filed Jan. 14, 2016) (Charter Jan. 14, 2016, Ex Parte Letter). 93 Application at 49; Scott Morton Decl. at paras. 43, 57-61; Opposition, Reply Declaration of Fiona Scott Morton, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at paras. 77-81, 100-32 (filed Nov. 2, 2015) (Scott Morton Reply Decl.); Charter Jan. 14, 2016, Ex Parte Letter at 2-3, 5-6. 94 Scott Morton Decl. at para. 58; Opposition at 16-18; Scott Morton Reply Decl. at paras. 19-21, 31-49, 77, 82-100; Charter Jan. 14, 2016, Ex Parte Letter at 3. The Applicants also argue that New Charter would be a stronger partner for OVDs, and that integration of OVD services into set-top Eo[es ³creates a competitive aGvantaJe anG Zill continXeG« Federal Communications Commission FCC 16-59 16 content alongside an MVPD service may provide New Charter a less costly alternative to acquiring costly content rights itself.95 7Ke Applicants conclXGe tKat CKarter’s cXrrent anG past EXsiness practices together with its transaction-specific commitments, reflect its intent to continue supporting OVDs.96 37. The Applicants submitted an economic study²a critical loss analysis²purportedly showing that OVD foreclosure would not be profitable for the new firm.97 A critical loss analysis assumes that a company takes a certain action, and compares the increased profit from increased sales of one product with the predicted decrease in profits resulting from the loss of sales of another product. Here, for example, the Applicants argue that if New Charter were to foreclose or hinder OVDs from reaching its customers, in response, some of those customers would purcKase 1eZ CKarter’s viGeo service (including more premium channels and VOD offerings), while others would stop purchasing its broadband service (perhaps switching to another BIAS provider). 98 The Applicants claim that broadband is more profitable than video services and that this trend would become more pronounced in the future.99 In their critical loss analysis, the Applicants argue that based on their estimate of the number of broadband subscribers that are also Netflix subscribers, the new firm would lose an average of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per month for each subscriber that switched to another BIAS provider and that it would gain an average of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per month for each subscriber that purchased MVPD video from the new firm as the result of OVD foreclosure.100 As a result, the Applicants state that more than [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscribers would have to newly purchase video for each subscriber that left the new firm for another BIAS provider, in order for OVD foreclosure to be profitable for the new firm.101 They conclude that New Charter therefore would not have an incentive to foreclose OVDs.102 38. Discussion. As discussed in detail below, we conclude that New Charter will have an increased incentive to discriminate against or harm OVDs.103 As we have found in other proceedings, (Continued from previous page) proviGe even more incentive Ior Xs to proviGe oXr cXstomers ZitK access to OVD services´ Application at ; see also Scott Morton Reply Decl. at paras. 23-49, 70-75. 95 Scott Morton Reply Decl. at para. 32; see also Thomson Reuters StreetEvents, Edited Transcript, CHTR - Charter Communications Inc. at UBS Global Media and Communications Conference, at 11-12 (Dec. 8, 2014) (quoting CKarter 3resiGent anG C(O 7om RXtleGJe ³to the extent I can save money by not paying somebody because their content is Jenerally availaEle elseZKere I tKinN tKat’s an opportXnity´  96 Application at 47-51; Opposition at 18-19; Scott Morton Reply Decl. at paras. 133-48. 97 See Opposition, Analysis of Video Programming Foreclosure Issues Involving Dr. John Malone and Advance/Newhouse Partnership, Reply Declaration of Steven C. Salop, Robert Stillman, Jarrod R. Welch and Serge Moresi, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at para. 21 (filed Nov. 2, 2015) (Salop Decl.). 98 See Scott Morton Decl. at para. 39; U.S. Department of Justice and the Federal Trade Commission Horizontal Merger Guidelines, Aug. 19, 2010, § 4.1.3 at 12 ( 2010 DOJ/FTC Horizontal Merger Guidelines ). 99 See Scott Morton Decl. at para. 41. 100 Id. at para. 51. 101 Id. 102 See id. at para. 61. 103 The Commission has recognized the incentive of Internet access providers such as Charter to discriminate against unaffiliated OVDs. See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Fourteenth Report, 27 FCC Rcd 8610,   paras    ³0V3Ds Kave tKe aEility and incentive to degrade the broadband service availaEle to XnaIIiliateG OVDs´ Fourteenth Video Competition Report ) ; Preserving the Open Internet, Report and Order, 25 FCC Rcd 17905, 17916, para. 22 ( 2010 Open Internet continXeG« Federal Communications Commission FCC 16-59 17 ³EroaGEanG proviGers Kave incentives to interIere ZitK anG GisaGvantaJe tKe operation of third-party Internet-EaseG services tKat compete ZitK tKeir oZn services´104 We disagree ZitK tKe Applicants’ contention tKat 1eZ CKarter’s incentive to attract anG retain EroaGEanG sXEscriEers ZoXlG preclXGe any incentives to engage in conduct that hinGers consXmers’ access to competinJ OVDs Moreover, as the Commission has stated in prior proceedings, many end users may have limited choice among BIAS providers,105 and switching costs can be a significant impediment to the ability of consumers to change BIAS providers in response to an 0V3D’s GeJraGation oI a competinJ OVD service106 39. We find that New Charter will have greater incentives to harm those OVDs that serve as a sXEstitXte Ior anG tKereIore compete ZitK 1eZ CKarter’s viGeo services Charter claims that New Charter would have incentives to support OVDs because their services complement its own video services. HoZever as tKe Applicants’ e[pert Dr )iona 6cott 0orton acNnoZleGJes ³>t@o Getermine iI New Charter will have an incentive to foreclose OVDs, one needs to compare the benefits and losses New CKarter ZoXlG Jet Irom IoreclosXre´ anG ³>t@Ke EeneIits Zill GepenG on ZKetKer OVDs oIIer services tKat are sXEstitXtes or complements Ior 1eZ CKarter services´107 Moreover, Charter acknowledges tKat ³at least for many customers, whether an OVD operates as a complement or substitute to MVPDs depends in siJniIicant part on tKe viGeo proJramminJ oIIereG´ anG tKat ³>s@ome OVD services may Ee more similar to traGitional viGeo´108 Charter acknowledges tKat ³DI6H 6linJ7V anG 6ony VXe inclXGe streaminJ oI content sXcK as EroaGcast anG e[tenGeG Easic cKannels also IoXnG on linear traGitional viGeo´ anG ³>I@or some subset of customers, these products may appear to be differentiated substitutes for traditional viGeo´109 In addition, although some OVDs²particularly those that offer primarily prior season and library VOD content²may complement CKarter’s comparatively limiteG VOD oIIerinJs toGay sXcK OVDs may Kave more overlap ZitK tKe comEineG company’s more extensive VOD offerings post- (Continued from previous page) Order ³>%@roadband providers have incentives to interfere with the operation of third-party Internet-based services tKat compete ZitK tKe proviGers’ revenXe-generating telephony and/or pay-television services )´ . 104 Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, 5662, para. 140 (2015) ( 2015 Open Internet Order ). 105 See 2015 Open Internet Order, 30 FCC Rcd at 5631, para. 81 n ³Gata sXJJests tKat meaninJIXl alternative broadband options may be largely unavailable to many Americans, further limiting the ability to switch providers. Based on the submissions from various commenters, it appears that between 65% and 70% of households have at most tZo options Ior KiJK speeG Internet access´ ; see also 2010 Open Internet Order, 25 FCC Rcd at 17923, para. 32; Appendix C, Section II.A.1., Table 1 (showing that, nationwide, 97 percent of households have two or fewer providers of BIAS at download speeds of 25 Mbps). 106 See 2015 Open Internet Order, 30 FCC Rcd at 5631-62, para.  ³>t@Ke EroaGEanG proviGer’s position as gatekeeper is strengthened by the high switching costs consumers face when seeking a new service. . . . These costs may limit consXmers’ ZillinJness anG aEility to sZitcK carriers iI sXcK a cKoice is inGeeG availaEle´ ; see also 2010 Open Internet Order, 25 FCC Rcd at 17924-25, para. 34; see infra Section V.B.1. 107 Scott Morton Decl. at para. 38. 108 Charter Response to Information Request at 220-21; see also Charter Comments, MB Docket No. 14-261, at 2 IileG 0ar    7Ke Commission Kas IoXnG tKat ³inGiviGXal consXmers seeNinJ to vieZ speciIic viGeo programs, may perceive OVDs as a substitute, a supplement, and a complement to tKeir 0V3D viGeo service´ depending on the video content offered. Sixteenth Video Competition Report, 30 FCC Rcd at 3352-53, para. 215. 109 Charter Response to Information Request at 221; see also DISH Feb. 12, 2016, Ex Parte Letter, Attach. at 17 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 18 transaction, making them less complementary and more of a substitute Ior 1eZ CKarter’s viGeo services and giving New Charter a greater incentive to harm them than Charter has today.110 40. The Applicants arJXe tKat tKe neZ Iirm’s focus on broadband implies that it would not harm OVDs but would instead use its broadband business to promote OVDs and other edge providers.111 However, the Applicants fail to support their contention tKat 1eZ CKarter’s competitive strateJy anG its future profitability depend more on broadband than on traditional video. In fact, we find that, despite the JroZtK oI tKe Applicants’ EroaGEanG EXsinesses viGeo services ZoXlG remain 1eZ CKarter’s larJest source of revenue by a substantial margin and a significant source of profit. New Charter will have an increased incentive to protect that business aJainst perceiveG tKreats )or instance tKe Applicants’ aggregate video revenues were approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] billion in 2014, compared to approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] billion for broadband.112 41. 0oreover ZKen GiscXssinJ 1eZ CKarter’s incentives reJarGinJ OVDs tKe only examples they offer are of subscription video-on-demand providers (SVODs) like Netflix and Amazon Prime that have primarily focused, thus far, on distributing arguably complementary programming. The Applicants ignore OVDs that are closer substitutes for their video services such as Sling TV, Sony Vue, and other slim or full bundle OVD competitors that may be launching in the future. And while Netflix and Amazon Prime have focused on movies and past seasons of TV, they are increasingly competing with portions of the MVPD programming bundle by distributing more original programming, thus making CKarter’s past actions toZarGs tKem less preGictive oI 1eZ CKarter’s IXtXre actions 7Ke Applicants’ claimed openness to complementary OVDs that provide unique programming therefore sidesteps the Applicants’ incentive to Karm tKose OVDs tKat compete more Girectly ZitK its 0V3D service 42. 7Ke Applicants’ internal GocXments support our conclusion. Many documents indicate that, despite some instances of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , New Charter would have an incentive to harm OVDs that could serve as substitutes for some or all of its video products.113 For instance, the record indicates that the Applicants have taken steps to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .114 Nonetheless, there is also evidence that the Applicants recognize the potential for increased competition from online platforms.115 While we do not believe the mere fact that the Applicants have [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] inherently reflects an intent to harm those services, tKe Applicants’ internal GocXments also reveal [BEGIN HIGHLY CONF. INFO.] 110 See Application at 10; Charter Response to Information Request at 19-21; Time Warner Cable Response to Information Request at 15- 16. 111 See Scott Morton Decl. at para. 37. 112 See Charter Response to Information Request, Exhibit 117-1 PIS Tables 4-9. 113 See infra Section V.D.1. 114 See Charter Response to Information Request at 10-11, 15, 92-97, 139-45; Charter Jan. 14, 2016, Ex Parte Letter at 5- As noteG aEove DI6H arJXes tKat CKarter’s attempts to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See DISH Reply at 11-13; DISH Dec. 7, 2015, Ex Parte Letter at 3; see also DISH Jan. 27, 2016, Ex Parte Letter at 8-10. We disagree and find instead that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 115 See, e.g., Application at 59-60; Charter Response to Information Request at 220-22. Federal Communications Commission FCC 16-59 19 [END HIGHLY CONF. INFO.] .116 0oreover tKe Applicants’ internal GocXments also Gemonstrate concern ZitK [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .117 116 See, e.g., Charter Response to Information Request, Exhibit 3(d) ±1 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-FCC-00000047705 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ -00000050848 at 8, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000920532 at 1, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ - 00000052987 at 18, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000773460 at 13, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ -00000933897 at 2, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 117 See, e.g., CHR-DOJ-0000730527 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ -00000055936, [B EGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ-00000096895, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ - 0000765724, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ-00000055364 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ -00000139914, [BEGIN HIGHLY CONF. INFO.] continXeG« Federal Communications Commission FCC 16-59 20 43. :e also IinG tKat tKe Applicants’ critical loss analysis is IlaZeG in several respects First, the analysis is premised on the assumption that a consumer could and would switch to a different BIAS provider in response to 1eZ CKarter’s EeKavior As tKe Commission Kas noteG KoZever lacN oI competitive alternatives118 and prohibitively high switching costs119 can present barriers to switching for consumers. Second, consumers may switch only if they believe that New Charter²and not the edge provider²is responsible for the problem and that switching would resolve the issue. Finally, the evidence shows that, in fact, consumers do not switch BIAS providers in these circumstances. During the Time Warner Cable/Netflix interconnection dispute, for example, Time Warner Cable customers did not aEanGon its %IA6 ZKen tKe TXality oI 1etIli[’s stream deteriorated.120 44. Second, the Applicants have not adequately justified how they calculated the gross margins of providing video and broadband service (which they interpret as an indicator of the profitability of each service). In particular, they did not indicate if and how shared revenues or costs were allocated across the two services in their gross margin calculations; and nor did they present a sensitivity analysis of how their gross margin estimates would vary if such revenue or cost allocation assumptions were changed.121 This is important because the revenues earned on, and any costs shared by, a double- or triple-play service could be attributed in a myriad of ways between video, broadband and voice services. An approach used to ensure that a range of revenue and cost allocation assumptions is examined and that the implications of these assumptions are considered is a sensitivity analysis. A sensitivity analysis would show how the results would change depending on how the revenues or costs were allocated.122 As a result of these failures, we cannot reliably discount the possibility that the Applicants (Continued from previous page) [END HIGHLY CONF. INFO.] . 118 See 2015 Open Internet Order, 30 FCC Rcd at 5631, para. 81 n ³Gata sXJJests tKat meaninJIXl alternative broadband options may be largely unavailable to many Americans, further limiting the ability to switch providers. Based on the submissions from various commenters, it appears that between 65% and 70% of ho useholds have at most tZo options Ior KiJK speeG Internet access´ ; see also 2010 Open Internet Order, 25 FCC Rcd at 17921, para. 25, 17923, para. 32; Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and the Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, 2016 Broadband Progress Report, GN Docket No. 15 -191, FCC 16-6, para. 86, Table 6 ( 2016 Broadband Progress Report ) (showing that for fixed 25 Mbps/3 Mbps service, approximately 10 percent of Americans have no providers and approximately 51 percent of Americans have only one provider). 119 See 2015 Open Internet Order, 30 FCC Rcd at 5631-62, para.  ³>t@Ke EroaGEanG proviGer’s position as gatekeeper is strengthened by the high switching costs consumers face when seeking a new service. . . . These costs may limit consXmers’ ZillinJness anG aEility to sZitcK carriers iI sXcK a cKoice is inGeeG availaEle´ ; see also 2010 Open Internet Order, 25 FCC Rcd at 17924-25, para. 34. 120 See infra para. 111. In addition, as discussed in greater detail in Section V.F, the assumptions about switching upon which the analysis rests do not account for ways, beyond impeding delivery, by which New Charter could make the OVD service itself less appealing to consumers across the board, regardless of their broadband provider. For instance, New Charter could raise the costs and/or reduce the quality of an OVD service through restrictive contractual provisions in its agreements with third-party content providers that would limit the ability of OVDs to obtain the content they may need to compete more effectively. As a result, the ability to switch broadband providers would not provide an effective remedy because the OVD service would now be less appealing to consumers, reJarGless oI ZKicK proviGer’s netZorN consXmers XseG to access it. 121 See, e.g., Scott Morton Decl. at paras. 39 et seq. 122 See Armen A. Alchian and William R. Allen, University Economics 240-41 (2d ed. 1967); George J. Stigler, The Theory of Price 165 (1966). Federal Communications Commission FCC 16-59 21 exaggerated their estimates of broadband gross margins while underestimating their MVPD gross margins.123 45. Moreover, the Applicants improperly argue that a lower marginal cost for broadband as compared with the marginal cost of MVPD video necessarily implies that the gross profit margin for broadband is greater than the gross margin for MVPD service.124 The Applicants do not discuss consumer demand²how consumer willingness to pay for these two services affects their gross margins. Regardless of cost, where a company has some market power, greater demand would lead to higher prices and higher profits. Absent inclusion of consumer demand in the analysis tKe Applicants’ estimates oI Jross proIit margins may be faulty. 46. )inally Ze GisaJree tKat 1eZ CKarter’s lacN oI a Girect oZnersKip interest in national programming makes it less likely that the combined entity would harm OVDs. In the Comcast-NBCU Order, the Commission found that Comcast would use its control over video and broadband networks, as well as its control over programming, to protect its MVPD business.125 47. %ecaXse oI 1eZ CKarter’s increased MVPD and broadband footprint, and its increased number of homes passed, it will capture a greater share of the benefits that would accrue to MVPDs should New Charter take actions that reduce the competitive viability of OVDs. For the reasons stated above, we find that New Charter is likely to have a greater incentive to take such actions following the transaction. B. Use of Residential BIAS Retail Terms to Harm Video Competition 48. In this section, we conclude that New Charter could use its increased size to harm consXmers’ cKoices in tKe marNet Ior viGeo services Ey Xnilaterally GiscriminatinJ aJainst potential video competitors (such as OVDs) through the use of anticompetitive retail terms for residential BIAS, upon which OVDs rely to reach current and potential customers. BIAS providers such as New Charter can hinder third-party online video competition through practices such as data caps, usage-based pricing (UBP), and discriminatory stand-alone residential BIAS pricing. Based on our analysis of the record in this proceeding, we find that while, to date, the Applicants have not shown a proclivity to use discriminatory retail terms for residential BIAS to harm OVDs, the increased size resulting from the combined company makes it more likely that New Charter would use data caps and UBP in the future to disadvantage its competitors. To remedy this potential harm, we are conditioning our approval of the transaction on extending the Applicants ’ commitment to refrain from imposing data caps and UBP for seven years. We conclude, however, that the transaction is unlikely to increase the risk that New Charter will price its standalone BIAS offerings to harm OVDs. Moreover, we find that the benefits guaranteed by the conditions we adopt in this Order will outweigh any potential harms if New Charter does indeed change its approach to pricing standalone BIAS. 49. We begin by defining the relevant markets. We then discuss how, as a general matter, tKe transaction Zill increase 1eZ CKarter’s incentives to increase consXmer prices, followed by a more specific examination o I tKe transaction’s potential eIIects on 1eZ CKarter’s EeKavior ZitK respect to Gata caps, UBP, and standalone BIAS pricing. 123 See Scott Morton Decl. at para. 43, Table 4. 124 See id. at para  ³Girect e[penses  . . are higher for video services. Consequently, the highest gross margins are not maGe on viGeo services EXt on EroaGEanG services´  125 See Comcast-NBCU Order, 26 FCC Rcd at 4252-59, 4266-76, paras. 34-48, 70-73, 78-90, 93-95; see also infra Section V.D.2 (discussing whether OVDs are included in the MVPD market); Section V.B.2.a (discussing using caps as a way to protect their MVPD business). Federal Communications Commission FCC 16-59 22 1. Relevant Markets 50. In this section, we discuss whether New Charter would have the ability to impose terms on its sale of residential BIAS such that it would be able to harm edge providers generally and OVDs specifically. If New Charter’s subscribers could easily use alternative means to access edge providers and OVDs, then competition from other BIAS providers would constrain New Charter from taking actions that could harm those providers. We find, however, to the contrary. As discussed below, for the purpose of this evaluation, we conclude that the relevant product market is wired cable and fiber BIAS. We find that, as a general matter, consumers do not view wireless, satellite, or legacy DSL BIAS as close substitutes for cable or fiber BIAS offerings. We further find that in any given location, customers have few BIAS choices and that high entry barriers make it unlikely that new substitutes will emerge in the near future. We therefore conclude that New Charter will have the ability to act on its incentives to use anticompetitive terms in connection ZitK tKe company’s resiGential retail %IA6 proGXcts 51. Background. BIAS is a mass market wireline or wireless retail service that provides the capability to transmit and receive data across substantially all Internet endpoints.126 The Applicants provide BIAS over hybrid fiber-coaxial networks. 127 7Ke Applicants’ cXrrent %IA6 oIIerinJs Kave a range of download and upload speeds: CKarter’s loZest oIIereG GoZnloaG speeG is  0Eps128 Time Warner Cable offers download speeds as low as 2 Mbps and as high as 100 Mbps,129 and Bright House offers download speeds ranging from 2 Mbps to 300 Mbps.130 After the transaction, New Charter intends to provide wired BIAS across its new service area at a minimum of 60 Mbps.131 Charter claims that download speeds of 60 Mbps would allow multiple users in a household to watch high-definition online video and make other uses of the Internet at the same time (e.g., gaming, web surfing, reading email). 132 52. The Applicants claim that New Charter would Iace ³roEXst anG rapiGly increasinJ competition tKroXJKoXt its service territory´ inclXGinJ Irom satellite anG moEile Zireless,133 and argue that the relevant product market should include all BIAS, whether provided by wired or wireless means.134 Certain commenters and petitioners argue that neither wireless BIAS nor BIAS provided via DSL is a 126 47 CFR § 8.11(a); see also 2015 Open Internet Order, 30 FCC Rcd at 5610, para. 25. The definition of BIAS exclude s ³enterprise services virtXal private netZorN services KostinJ or Gata storaJe services´ Id. at 5610, para. 26. The FCC made clear in the 2015 Open Internet Order that BIAS encompasses access to edge providers. Id. at 5610, para. 27. As we discuss further below, we find that wireless BIAS is not within the scope of the product market definition for our examination of potential harms associated with the transaction relating to retail terms for residential BIAS. See infra para. 56. 127 Application at 7, 10, 12. 128 Charter, Combine TV, Internet & Phone for the Best Deal, https://www.charter.com/browse/content/packages (last visited Jan. 29, 2016). 129 Time Warner Cable, TV, Internet & Phone Plans, http://www.timewarnercable.com/en/plans-packages/cable- internet.html (last visited Jan. 29, 2016). 130 Bright House, Offers, http://brighthouse.com/shop/internet.html (last visited Jan. 29, 2016). 131 Application at 1. 132 Id. 133 Application at 60-61; Opposition at 32; see also Comcast Response to Oct. 9, 2015, Information and Data Request at 6, transmitted by letter from Michael D. Hurwitz, Counsel for Comcast, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Oct. 23, 2015) (Comcast Response to Information Request). 134 See Opposition at 32. Federal Communications Commission FCC 16-59 23 substitute for wired BIAS and that the relevant product market should be limited to high-speed wired BIAS.135 53. Discussion. :Kile tKe Commission’s GeIinition oI %IA6 Ior reJXlatory pXrposes inclXGes services provided by both wired and wireless means, the market definition inquiry when analyzing a proposeG transaction is GiIIerent )or oXr pXrposes Kere a relevant marNet inclXGes ³all proGXcts µtKat consXmers consiGer reasonaEly intercKanJeaEle Ior tKe same pXrposes’´136 When one product is considered by consumers to be a reasonable substitute for another product, it is included in the relevant market.137 In maNinJ tKis Getermination Ze looN at ³cXstomers’ aEility anG ZillinJness to sXEstitXte aZay Irom one proGXct to anotKer in response´ to cKanJes in price anG TXality138 Here, both the empirical and economic evidence demonstrate that consumers find that legacy DSL, satellite, and mobile wireless are generally not close substitutes for the Applicants’ cable BIAS offerings, while fiber to the premises (FTTP) and, perhaps to a lesser extent, fiber to the node (FTTN) BIAS are reasonable substitutes. 54. DSL. We find that consumers are abandoning legacy DSL for faster, more advanced technologies. For instance, according to some calculations, over 10 million legacy DSL customers dropped their DSL service from 2009 to 2013.139 Given the limitations of the copper technology underlying it, typical legacy DSL speeds average from 1.5 Mbps to 6 Mbps depending on how close the 135 See :*A: 3etition at  statinJ tKat ³Zireless Gata plans are not viaEle alternatives Ior online viGeo consXmption EecaXse oI KiJK costs anG Internet Gata tKresKolGs´ ; 0)RConsXltinJ Reply at  statinJ tKat ³tKe Xse by consumers of mobile networks for real-time access to video services such as Netflix is economically prohibitive as Zell >as@ e[perientially XnGesiraEle´ ; )ree 3ress Reply at -12. 136 Applications of Nextel Communication, Inc. and Sprint Corp. for Consent to Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 20 FCC Rcd 13967, 13984, para. 39 (2005) ( Sprint-Nextel Order); United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956); see also United States v. Microsoft, 253 F.3d 34, 52 (D.C. Cir. 2001), cert. denied, 534 U.S. 952 (2001) (discussing non-interchangeability among products); Wireless Telephone Services Antitrust Litigation, No. 02 Civ. 2637(DLC), 2003 WL 21912603 at 9 (S.D. 1< AXJ   relevant proGXct marNet ³consists oI proGXcts tKat Kave reasonaEle intercKanJeaEility for the purposes for which they are produced ± price Xse anG TXalities consiGereG´  137 The Commission has considered whether one product is a reasonable substitute for another product. See Applications of AT&T Wireless Services, Inc. and Cingular Wireless Corp., et al., Memorandum Opinion and Order, 19 FCC Rcd 21522, 21557 para. 71 (2004); Applications of Western Wireless Corp. and ALLTEL Corp., Memorandum Opinion and Order, 20 FCC Rcd 13053, 13077-79, paras. 60-64 (2005). 138 2010 DOJ/FTC Horizontal Merger Guidelines § 4 at 7. 139 See Industry Analysis and Technology Division, Wireline Competition Bureau, FCC, Internet Access Services: Status as of June 30, 2013, at 23, 25 (June 2014), https://apps.fcc.gov/edocs public/attachmatch/DOC- 327829A1.pdf (showing that total DSL connections with at least three Mbps downstream increased by 10.4 million while total DSL connections remained nearly constant between June 2009 and June 2013, indicating a decline of over 10 million legacy DSL subscriptions); see also AT&T Inc., Annual Report for the Year Ended December 31, 2014, at 17, http://www.att.com/Investor/ATT Annual/2014/downloads/att ar2014 annualreport.pdf; AT&T Inc., Annual Report for the Year Ended December 31, 2013, at 19 http://www.att.com/Investor/ATT Annual/2013/ downloads/ar2013 annual report.pdf (showing that AT&T DSL subscriptions decreased from 11.2 million in DecemEer  to  million as oI DecemEer  ZKile ³8-Verse KiJK speeG Internet´ sXEscriEers increaseG from 5.2 million to 12.2 million over the same period); Jon Brodkin, Comcast, Time Warner Cable Get 71% of New Internet Subscribers, Ars Technica (Nov. 23, 2015), http://arstechnica.com/business/2015/11/comcast-time-warner- cable-get-71-of-new-internet-subscribers/ (reporting AT&T quarterly loss of 129,000 subscribers and Verizon gain quarterly gain of 2,000 in contrast to Comcast and Time Warner Cable, which added 552,000 new subscribers); Steve Donohue, Comcast Dominates 2013 Broadband Subscriber Growth Rankings, Fierce Cable (Mar. 17, 2014), http://www.fiercecable.com/node/67516/ reportinJ tKat A7 7 anG Veri]on ³KaG a net loss oI  million D6/ cXstomers´  Federal Communications Commission FCC 16-59 24 sXEscriEer is to tKe telepKone company’s central oIIice140 In the 2015 Broadband Progress Report, we GetermineG tKat  0Eps Zas insXIIicient to satisIy most KoXseKolGs’ BIAS needs, particularly when accounting for the bandwidth intensive demands of video services, which is the concern of this section.141 Moreover, the Commission has previously found that viewing HD video without degradation requires 5 Mbps downstream.142 While the Applicants submit that 5 Mbps is not necessarily required, citinJ HXlX’s recommenGation oI  0Eps anG Ama]on’s recommenGation oI  0Eps Ior HD viGeo143 other providers, such as Apple, recommend an even higher speed.144 Given legacy DSL speeds, even those subscribers with the fastest connections may have difficulty viewing HD video without degradation. Further, those DSL customers who are able to view HD video are likely devoting the entirety of their capacity to that viGeo anG XnliNe tKe vast maMority oI tKe Applicants’ caEle BIAS subscribers, would likely be unable to use other devices simultaneously.145 Finally, public statements by DSL providers and submissions in this docket demonstrate that they find it difficult to compete with cable and fiber BIAS,146 anG tKe Applicants’ 140 See Public Knowledge Reply, MB Docket No. 14-57, Attach., The State of the Art and Evolution of Cable Television and Broadband Technology at 1, 9- IileG Dec    AccorGinJ to tKe Commission’s 2015 Measuring Broadband America Report, a variety of DSL providers could not meet advertised speeds during peak hours. See Office of Engineering and Technology and Consumer and Governmental Affairs Bureau, FCC, 2015 Measuring Broadband America Fixed Broadband Report: A Report on Consumer Fixed Broadband Performance in the U.S. at 15 (2015), http://data.fcc.gov/download/measuring-broadband-america/2015/2015-Fixed-Measuring- Broadband-America-Report.pdf ( 2015 Measuring Broadband America Report ) (showing that during peak periods, DSL-based services from AT&T, CenturyLink, Frontier, and Verizon delivered download speeds between 80 and 98 percent of advertised speeds). In addition, the 2015 Measuring Broadband America reported that some DSL ISPs are not GeliverinJ aGvertiseG speeGs as tKese I63s ³continXe to aGvertise µXp-to’ speeGs tKat on averaJe e[ceeG tKe actXal speeGs e[perienceG Ey tKeir sXEscriEers´ Id. at 13. 141 Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, Report and Notice of Inquiry, 30 FCC Rcd 1375, 1393, para. 26 (2015) ( 2015 Broadband Progress Report ). 142 See Connect America Fund et al., Report and Order, 29 FCC Rcd 15644, 15649-50, para. 17 (2014) ( Connect America Fund Report ) (finding that HD video streaming requires 5 Mbps downstream); see also Netflix, Internet Connection Speed Recommendations, https://help.netflix.com/en/node/13844 (last visited Jan. 11, 2016) recommenGinJ a speeG oI ³at least´  0Eps to receive HD content  143 Opposition at 34. 144 See Apple, Get Help Playing or Streaming Content on Your Apple TV, http://support.apple.com/kb/TS3623 (last visiteG -an   recommenGinJ  0Eps ³Ior p KiJK-GeIinition movies anG 7V sKoZs´ anG  0Eps Ior ³p content´  145 Cf. 2016 Broadband Progress Report, FCC 16-6, para. 54 IinGinJ tKat a GoZnloaG speeG oI  0Eps ³remains sufficient to ensure that a household can access a range of bandwidth intensive services, including HD video streaminJ simXltaneoXsly over mXltiple Gevices´  146 See, e.g., Fran Shammo, Executive Vice-President and Chief Financial Officer, Verizon Communications Inc., Comments at UBS Global Media and Communications Conference (Dec. 9, 2014), http://www.verizon.com/about/ investors/ubs-42nd-annual-global-media-and-communications-conference; AT&T Inc. Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Maureen R. Jeffreys, Counsel for AT&T Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exh. 1.6, at 13 (filed Oct. 30, 2015) (AT&T Inc. Response to Information Request); CenturyLink Inc. Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Tiffany West Smink, Associate General Counsel, CenturyLink Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 6 (filed Oct. 30, 2015) (CenturyLink Inc. Response to Information Request). Federal Communications Commission FCC 16-59 25 internal documents confirm this view.147 We therefore find that legacy, non-upgraded DSL is not a sufficient substitute from a consumer perspective Ior tKe Applicants’ %IA6 offering. 55. Fixed Satellite BIAS. In the 2016 Broadband Progress Report Ze ³observe[d] significant differences involving technical capabilities and adoption patterns between fixed terrestrial and fixed satellite se rvices´ anG IoXnG tKat ³>m@ost satellite EroaGEanG service proviGers Iace tecKnoloJical challenges separate and apart from those faced by fixed terrestrial providers ´148 Satellite BIAS typically has monthly usage allowances,149 and, in contrast to cable BIAS providers, recently submitted data indicates that satellite BIAS providers are generally not offering speeds of even 25/3 Mbps, with download speeds generally between 5 and 15 Mbps.150 Satellite BIAS also suffers from latency issues, making it an impractical service for uses such as real-time gaming.151 Taken together, these reasons currently make satellite BIAS an impractical option for many households and likely explain why, despite the recent growth of satellite BIAS, SNL Kagan predicts that by 2018, satellite BIAS providers would have only a 1.8 percent share, contrasted with cable BIAS providers’ proMecteG nationZiGe sKare oI  percent of all BIAS subscribers.152 56. Mobile Wireless. As we recently concluded in the 2016 Broadband Progress Report, cXrrently ³Ii[eG anG moEile EroaGEanG services are not aGeTXate sXEstitXtes Ior one anotKer   . Rather 147 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See, e.g., CHR2-DOJ -00000246406 at 6, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR- DOJ -0001602824 at 1, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWCable-DOJ -000529554; TWC-DOJ -00479311 at 17, 32, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -04882953 at 45, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 148 2016 Broadband Progress Report, FCC 16-6, para. 47. 149 Id. at para. 47 n.162; 2015 Broadband Progress Report, 30 FCC Rcd at 1446, para. 123; see also SNL Kagan, Media Trends: Actionable Metrics, Benchmarks & Projections for Major Media Sectors, 2014 Edition, at 145- 46 Dec  statinJ tKat ³>t@Ke pricinJ compares to some oI tKe KiJKer-tier off ings of cable and telco HSD plans, yet the satellite download speeds are more comparable to the lower-end packages of advanced-technology wireline competitors´  150 See 2016 Broadband Progress Report, FCC 16-16, paras. 47-48; id., Appx. F at 69, para. 1 (showing no satellite service offering speeds of 25/3 Mbps) ; see also, e.g., HughesNet, Plans and Pricing, http://www hughesnet.com/ plans-and-pricing/internet-service (last visited Jan. 14, 2016) (showing download speeds for HughesNet satellite service from 5-15 Mbps). 151 2015 Measuring Broadband America Report at 17; see also DISH, dishNET Satellite – Need to Know & FAQs, https://www.mydish.com/upgrades/products/satellite-internet last visiteG -an   ³Due to the latency that occurs as the signal travels to and from the satellite, real-time JaminJ oI any NinG is not recommenGeG´ . 152 SNL Kagan, Media Trends: Actionable Metrics, Benchmarks & Projections for Major Media Sectors, 2014 Edition, at 142 (Dec. 2014) (Projected U.S. Residential HSD Market Share, 2008-2018). [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See, e.g., CHR2-DOJ -00000246406 at 2, 5-6, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000931664 at 2, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000369592 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 26 . . . in toGay’s society Ii[eG anG moEile EroaGEanG are EotK critically important services tKat proviGe different and complementary aEilities anG are tailoreG to serve GiIIerent consXmer neeGs´153 Mobile BIAS differs from fixed terrestrial BIAS in several fundamental ways, including speed, latency, price and usage allowances, and consistent quality of service. 154 As we have found, many households subscribe to both fixed and mobile services because they use the services in fundamentally different ways and, as such, view fixed and mobile services as distinct product offerings. 155 Data caps, prevalent on most mobile wireless plans, force consumers to limit their data consumption or face increased costs.156 Indeed, the Applicants’ GocXments conIirm tKat tKey do not currently view wireless as a comparable competitor to their BIAS offerings.157 And while the deployment of new technologies, such as HSPA+, and LTE, capable of meeting 10 Mbps is increasingly widespread,158 the ability of these services to offer an adequate functional substitute for fixed terrestrial BIAS is limited. 159 Currently, it would be cost prohibitive for most consumers to switch from viewing over-the-top (OTT) content over a wireline BIAS 153 2016 Broadband Progress Report, FCC 16-6, para. 17. 154 We also find that fixed wireless service currently does not provide an effective competitive constraint for the Applicants’ caEle %IAS. The service currently faces limitations on data usage, speeds, higher prices and availability. Fixed wireless connections are not ubiquitous and only account for less than one percent of all residential fixed Internet connections. See Industry Analysis and Technology Division, Wireline Competition Bureau, Internet Access Services: Status as of December 31, 2013, at 24, Table 6 (Oct. 2014), http://transition. fcc.gov/Daily Releases/Daily Business/2014/db1016/DOC-329973A1.pdf; c.f. 2016 Broadband Progress Report at 12-13, para. 26 (noting that satellite and fixed wireless combined represent under three percent of residential fixed wireless subscribers) . In addition, it would appear that fixed wireless service is generally being rolled out only in areas that are largely unserved by cable and fiber BIAS competitors and thus would not serve as an alternative to the Applicants’ %IA6 oIIerinJs See generally Matt Larsen, Wireless Internet Service Providers Association (WISPA), America’s %roaGEanG Heroes )i[eG :ireless %roaGEanG 3roviGers   http://www.wirelesscowboys.com/wp- content/uploads/2011/10/americas-broadband-heroes-fixed-wireless-2011.pdf ; see also Verizon, LTE Internet (Installed) FAQs, http://www.verizonwireless.com/support/lte-internet-installed-faqs/ (last visited Feb. 5, 2016) e[plaininJ tKat /7( Internet InstalleG is ³a Jreat solXtion Ior cXstomers ZitK * /7( coveraJe at Kome ZKo Gon t have other high-speeG Internet options´  155 2016 Broadband Progress Report, FCC 16-6, paras. 17, 35-42. 156 See U.S. Government Accountability Office, Broadband Internet: FCC Should Track the Application of Fixed Internet Usage-Based Pricing and Help Improve Consumer Education at 17-18 (Nov. 2014), http://gao.gov/assets/ 670/667164.pdf (explaining that consumers subject to data caps change behavior to limit data usage). 157 See CHR2-DOJ -00000022862 at 8, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000369592 at 7, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000808382 at 27, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ - 00479311 at 20, 32, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -03925493 at 23-25, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO] . 158 See 2016 Broadband Progress Report, FCC 16-6, paras. 58 & n.192, 111. 159 See id. at para. 24. Federal Communications Commission FCC 16-59 27 provider to a mobile provider with the same level of service (i.e., 1080p+ resolution). 160 For example, it ZoXlG cost an averaJe 1etIli[ sXEscriEer XsinJ tKe Applicants’ caEle %IA6 many hundreds of dollars each month to view that same Netflix programming over a wireless provider. 161 57. The Applicants’ Competitive Behavior. Evidence in the record confirms that fiber, FTTP, and FTTN are reasonable substitutes for cable BIAS, while other technologies are not. The evidence shows that the Applicants alter their pricing and product offerings materially in response to FTTP and FTTN offerings from companies like Google (Google Fiber), Verizon (FiOS), and AT&T (U-Verse) but not in response to other technologies. As described in the attached Economic Appendix  tKe Applicants’ predicted pricing behavior is most affected when the companies are in competition with providers that are aEle to matcK or e[ceeG tKe GoZnloaG speeGs oI tKe Applicants’ BIAS product offerings.162 The Applicants’ predicted pricing decreases the most when faced with competition from Verizon FiOS and from U-Verse, while legacy DSL competition has a minimal effect on the Applicants’ predicted pricing.163 58. The economic analysis is borne out by the Applicants’ GocXments164 and past examples of their behavior.165 In aGGition analysis Ey tKe Commission’s economists inGicates tKat ZKile tKe 160 Although T-Mobile has recently introduced Binge On featuring video streaming that does not count against a sXEscriEer’s Gata alloZance 7-0oEile’s proJram offers video streaming at 480p+ resolution. See T-Mobile, Introducing Binge On, http://www.t-mobile.com/offer/binge-on-streaming-video.html (last visited Mar. 10, 2016) . 161 Netfli[ proviGeG tKe averaJe montKly amoXnt oI Gata its sXEscriEers XseG on tKe Applicants’ caEle %IA6 Ior tKe first eight months of 2014. See NFX-FCC-00000067, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 162 See Appendix C, Section II.A.3., paras. 11-19, Tables 4-5; see also Parks Associates, Parks Associates Research Shows Faster Broadband Speeds Drive More Switching than do Lower Fees (Nov. 30, 2015), http://www.parksassociates.com/blog/article/pr-11302015-needforspeed (indicating that the most common reason for broadband consumers to sZitcK is to ³Jet a Iaster EroaGEanG speeG´  )773 competitors are tKe only entities tKat can offer faster speeds than those offered by the Applicants. 163 See Appendix C, Section II.A.3., paras. 11-19, Tables 4- 5. 164 See, e.g., CHR2-DOJ -00000022862 at 13, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -01031389 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 165 See City of Wilson, North Carolina Petition for Preemption of North Carolina General Statute Sections 160A- 340 et seq. et al., Memorandum Opinion and Order, 30 FCC Rcd 2408, 2434, paras. 52-54 (2015) ( Municipal Broadband Preemption Order IinGinJ 7ime :arner CaEle’s rates loZer in :ilson tKan in otKer areas oI 1ortK Carolina and that Time Warner Cable improved its BIAS speed offerings after Wilson entered the market). 6imilarly 7ime :arner CaEle prioriti]eG AXstin 7e[as as a 7:C 0a[[ marNet in response to *ooJle’s planneG deployment of 1 Gbps service. See Press Release, Time Warner Cable, Time Warner Cable Bringing Incredibly continXeG« Federal Communications Commission FCC 16-59 28 Applicants’ volXntary cKXrn is Jenerally very loZ it is KiJKer in areas Zhere the companies face competition from FTTP and FTTN, which further suggests that consumers see fiber BIAS options, but not other technologies, as close substitutes.166 59. Relevant speed. Although we find that legacy DSL provides speeds that are too slow to be an effective substitute for cable and fiber BIAS, for the purposes of this proceeding we otherwise do not find it necessary to determine a minimum downstream speed to define the relevant product market for wired BIAS. The Applicants contend that ³tKe online viGeo marNetplace is not GeIineG Ey any particXlar speeG oI EroaGEanG service´ anG tKat consXmers may consiGer GiIIerent speeGs as sXEstitXtes ³GepenGinJ on tKeir Xse anG valXe preIerences´167 On the other hand, several commenters contend that the Commission should focus on BIAS subscribers receiving download speeds of 25 Mbps or faster.168 We observe that currently there is no single speed that perfectly captures the wired BIAS market. We agree with commenters who argue that the BIAS marketplace is rapidly evolving as consumers increasingly use multiple devices at the same time and bandwidth intensive applications.169 60. 6iJniIicantly reJarGless oI ZKat speeG Ze select Ior evalXation tKe Applicants’ local market shares for BIAS will not change as a result of the transaction. Because the Applicants largely do not compete against each other to serve households at the local level,170 the transaction does not affect their market shares for local BIAS service. We observe that the state of local competition for fixed BIAS is already poor for most customers at all but the slowest download speeds,171 and the transaction will not alter that competitive landscape.172 Consequently, the speed tier is immaterial for purposes of our (Continued from previous page) Fast Internet Plans Across its Entire Austin Service Area (Feb. 20, 2014), http://www.timewarnercable.com/ en/about-us/press/twc-bringing-incredibly-fast-internet-to-austin.html. 166 See Appendix C, Section II.C.1.c, Tables 20- 22. 167 Application at 44. 168 See :*A: 3etition at ; )ree 3ress 3etition at  ³>t@Ke  0Eps GoZnstream 0Eps Xpstream tKresKolG is instructive, because it helps inGicate EroaGEanG proviGers’ level oI control over conGXits roEXst enoXJK to transmit and receive high-TXality content´ ; 3XElic .noZleGJe Reply at 3. In the 2015 and 2016 Broadband Progress Reports, the Commission determined that the speed benchmark to measure advanced telecommunications capability should be 25 Mbps downstream/3 Mbps upstream. 2016 Broadband Progress Report, FCC 16-6, para. 51; 2015 Broadband Progress Report, 30 FCC Rcd at 1393, para. 26. 169 See DISH Petition at 46. 170 Application at 5. See also id. at 42-43; Letter from John L Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed July 6, 2015) (stating that at least two of the Applicants provide service in only 0.046 percent of the same census blocks served by the companies, which corresponds to a mere  percent overlap oI resiGential EroaGEanG cXstomers  Dr )iona 6cott 0orton conclXGes tKat ³tKere can Ee no change in the post-merJer Iirm’s incentives to Xnilaterally increase prices to sXEscriEers´ EecaXse oI tKe de minimis geographic overlap among the Applicants. Application at 42 (quoting Scott Morton Decl. at para. 5). 171 Our data show that only 38 percent of Americans have more than one choice of providers for fixed advanced telecommunications capability (i.e., service of at least 25 Mbps downstream/3 Mbps upstream); 13 percent of Americans living in rural areas having more than one choice of such providers and 44 percent of Americans living in urban areas have more than one alternative at those speeds. 2016 Broadband Progress Report, FCC 16-6, para. 6 & Table 6. Conversely, at speeds under 10 Mbps downstream, 14% of American households have access to three or more ISPs providing such speed, 69% have access to two such providers, 12% have access to only one such provider, while 5% have access to no such providers. See Media Bureau Makes Available Broadband Subscriber Data Relevant To Review Of Proposed Charter-Time Warner Cable-Advance/Newhouse Transactions, Public Notice, 30 FCC Rcd 12753, Exh. 3b. (2015) ( 477 Data PN ). 172 Based on broadband reporting data from FCC Form 477 as of December 2014, in the post-transaction New Charter footprint there will be limited choices for wired ISPs for households at broadband speed tiers of 10 Mbps continXeG« Federal Communications Commission FCC 16-59 29 competitive review of the local BIAS market, so we will refrain from selecting a particular speed tier for our analysis.173 61. Geographic Market. )or pXrposes oI evalXatinJ tKe Applicants’ potential Xse oI anticompetitive residential BIAS terms, we find it appropriate to examine the relevant geographic market.174 As the Commission has held previously with regard to wired services, and as we discuss below with regard to MVPD services, we find that the geographic market is the particular customer’s location, because it would be prohibitively expensive for a customer to move in orGer to avoiG a ³small but significant and nontransitory increase in the price.´175 For reasons of administrative convenience, the Commission traditionally has aggregated customers facing similar competitive choices176 and we do so again here. Because we agree with the Applicants that competition for BIAS end users takes place at a local level,177 we find that the relevant geographic market for the purposes of analyzing residential retail BIAS practices is local. 62. Market Participants. For the reasons just discussed, to evaluate the potential anticompetitive use of retail terms for residential BIAS, we find that BIAS providers offering wireline cable and fiber BIAS are the relevant market participants. These include telephone company BIAS providers such as AT&T, CenturyLink, Frontier Communications, and Verizon. Other relevant market participants include commercial fiber overbuilders (including, but not limited to, Google), municipal and other public fiber overbuilders such as the City of Wilson, North Carolina and the Electric Power Board (Continued from previous page) downstream and 25 Mbps downstream. See 477 Data PN, 30 FCC Rcd 12749, 12752, Exh. 3a. Only 11% of homes in the New Charter footprint will have access to three or more wired ISPs providing 10 Mbps downstream, while 65% of homes will have access to two wired ISPs providing that speed, and 24% will have access to just one such provider. Id. At 25 Mbps, only 3% of homes in the New Charter footprint will have access to three or more wired ISPs that provide such speed, 30% of homes will have access to two such providers, while 66% of homes will have access to just one wired ISP providing 25 Mbps downstream speeds. Id. 173 Moreover, when looking at the number of cable and fiber BIAS subscribers nationwide, there is not a substantial GiIIerence in 1eZ CKarter’s sKare EaseG on tKe speeG oI tKe oIIerinJ See infra para. 110 & note 358. 174 The Applicants submit this is the only relevant market. See Application at  statinJ tKat ³competition Ior enG- users²which determines whether those users can switch in the face of anticompetitive practices²takes place at a local level´ ; see also Opposition at  arJXinJ tKat tKe consXmer %IA6 marNet is ³local EecaXse eacK consXmer selects Irom options availaEle at Kis or Ker location´  7Ke local resiGential retail %IA6 marNet stanGs in contrast to the national market for interconnection services. As we discuss below there is a national market for the interconnection services purchased by businesses in order to gain access to their customers. See infra paras. 106- 107. The business models of OVDs typically depend on the ability to reach customers on a nationwide basis. Id. As we note above, when an OVD is contracting for transit, CDN services, or direct interconnection with a BIAS provider, it does so on a national basis in order to reach as many customers as possible. Id. 175 See, e.g., Applications filed by Qwest Communications International Inc. and CenturyTel, Inc. d/b/a CenturyLink for Consent to Transfer Control, Memorandum Opinion and Order, 26 FCC Rcd 4194, 4202-03, para. 16 (2011); SBC Communications, Inc. and AT&T Corp. Applications for Approval of Transfer of Control, Memorandum Opinion and Order, 20 FCC Rcd 18290, 18307, para. 28 (2005) (citing then current version of the DOJ/FTC Horizontal Merger Guidelines). Cf. Comcast-NBCU Order, 26 FCC Rcd at 4256, para, 42 (discussing MVPD service); EchoStar-DIRECTV HDO, 17 FCC Rcd at 20610, para. 119 (same). 176 Our finding that the relevant geographic market for the sale of residential BIAS is consistent with the principles discussed in the 2010 DOJ/FTC Horizontal Merger Guidelines § 4.2.2 at 14-15 (discussing when it is appropriate to define geographic markets based on customer locations). 177 See Application at 44. Federal Communications Commission FCC 16-59 30 of Chattanooga, Tennessee,178 cable company BIAS providers such as Comcast, Cox Communications, and Cablevision, and cable company overbuilders such as RCN and WOW! (Wide Open West). 63. Entry Barriers. We find that it is unlikely that other competitors will emerge in a timely manner. 7Ke Commission’s annXal Broadband Progress Reports have repeatedly found that there are ³nXmeroXs Earriers to inIrastrXctXre investment´ to proviGe ZireG caEle or IiEer %IA6 particXlarly ³tKe KiJK cost oI GeployinJ anG operatinJ a EroaGEanG netZorN´179 We agree with the Applicants that the entrance of traditional telecommunications companies, smaller local overbuilders, and non-traditional providers such as Google have helped to increase competition in the BIAS market. 180 But the presence of such competition is limited geographically and the Applicants have not sufficiently demonstrated that there will be timely, likely, or sXIIicient EroaGEanG entry in 1eZ CKarter’s Iootprint in tKe near IXtXre For instance, Google has demonstrated a strategy of entering a small number of select communities, and deployment time is measured in years rather than months.181 CenturyLink has begun to deploy 1 Gbps residential broadband service and has announced plans to roll out additional 1 Gbps service, but only in limited areas.182 Verizon has reported that about 70 percent of the premises in its landline territory would have access to all-fiber facilities,183 but has also publicly stated that it generally has no plans to expand the footprint of its all-fiber broadband service.184 Moreover, Verizon DSL customers outside the FiOS 178 See generally City of Wilson, North Carolina Petition for Preemption of North Carolina General Statute Sections 160A-340, et. seq., the Electric Power Board of Chattanooga, Tennessee Petition for Preemption of a Portion of Tennessee Code Annotated Section 7-52-601, Memorandum Opinion and Order, 30 FCC Rcd 2408 (2015). 179 2016 Broadband Progress Report, FCC 16-6, para. 125; 2015 Broadband Progress Report, 30 FCC Rcd at 1455, para. 141; Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, Report, 27 FCC Rcd 10342, 10403-10, paras. 139-54 (2012) ( 2012 Broadband Progress Report ) ; Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, Report and Order on Reconsideration, 26 FCC Rcd 8008, 8040, para. 65 (2011) ( 2011 Broadband Progress Report ) ; see also Letter from Markham C. Erickson, Counsel for INCOMPAS, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attach. at 38-40, paras. 76-80 (filed Jan. 15, 2016) (Evans Decl.). 180 See 2015 Broadband Progress Report, 30 FCC Rcd at 1383-85, paras. 15-16. 181 See Jeff Baumgartner, Google Fiber Ended 2014 with 29,867 TV Subs: Report, Multichannel News (Mar. 12, 2015), http://www multichannel.com/news/technology/google-fiber-ended-2014-29867-tv-subs-report/388806. 182 See CenturyLink, CenturyLink is Rolling Out Speeds Up to 1 Gig Across the Country, Feb. 10, 2016, https://www.centurylink.com/ fiber/plans-and-pricing/; see also Technology Transitions et al., Report and Order, Order on Reconsideration, and Further Notice of Proposed Rulemaking, 30 FCC Rcd 9372, 9374, para. 2 (2015) ( Technology Transitions Order ). 183 Technology Transitions Order, 30 FCC Rcd at 9373-74, para. 2 (citing Comments of Verizon, GN Docket No. 13-5, RM-11358, WC Docket No. 05-25, RM-10593, at 9 (filed Feb. 5, 2015)). 184 Karl Bode, Verizon: 30% or More of Our Users Will Never Get FiOS, DSLReports (May 7, 2014), http://dslreports.com/news/128862 (quoting Verizon CFO Fran Shammo that 30% of the legacy Verizon footprint will not be covered by FiOS). We note that on April 12, 2016, the City of Boston announced a partnership with Verizon whereby Verizon will invest $300 million over six years in deploying FiOS to the city. See News Release, Verizon, Mayor Walsh annoXnces partnersKip ZitK Veri]on to transIorm city’s tecKnoloJy inIrastrXctXre April  2016), http://www.verizon.com/about/news/mayor-walsh-announces-partnership-verizon-transform-citys- technology-infrastructure. However, there is no evidence that this project is an indicator of additional FiOS deployment. See Jon Brodkin, Verizon is Actually Expanding FiOS Again, With New Fiber in Boston, arstechnica (April 12, 2016), http://arstechnica.com/business/2016/04/verizon-is-actually-expanding-fios-again-with-new-fiber- in-boston (noting that Verizon did not commit to further FiOS expansion). Federal Communications Commission FCC 16-59 31 footprint appear unlikely to receive upgraded DSL service.185 We note that while AT&T is expected to deploy FTTP service to 12.5 million customer locations by 2019, this buildout was compelled by the Commission as part of the regulatory approval oI A7 7’s merJer ZitK DIR(C7V186 and thus we cannot expect that any further build-out will occur. With respect to other BIAS provider s tKese proviGers’ deployments are limited and they face significant barriers in expanding deployment. For instance, the record indicates that a significant impediment to new BIAS provider entrants is the high cost of obtaining linear video programming, which most subscribers prefer to bundle with BIAS.187 64. Switching. 1eZ CKarter’s aEility to aGopt terms on resiGential %IA6 tKat coXlG Karm OVDs or other edge providers is enhanced by the low risk of subscribers switching to other providers if it did so. The Applicants claim that because New Charter does not plan to impose early termination fees or ³lonJ-term lock-in provisions seen elseZKere in tKe inGXstry´ it would Ee ³easy´ Ior 1eZ CKarter BIAS cXstomers to sZitcK proviGers iI tKey are GissatisIieG ZitK tKe company’s treatment oI eGJe content188 185 See Fran Shammo, Executive Vice-President and Chief Financial Officer, Verizon Communications Inc., Comments at UBS Global Media and Communications Conference (Dec. 9, 2014), http://www.verizon.com/about/ investors/ubs-42nd-annual-global-media-and-communications-conference ³OXtsiGe oI )iO6 ZKere I only Kave copper to compete against cable, I am not going to win that battle: We can't compete on speed and we made a strategic decision not to invest in that copper plant so now it's trying to maintain that and keep customers as long as Ze can´ ; see also Verizon Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Meredith Singer, Counsel for Verizon, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Nov. 6, 2015) (Verizon Response to Information Request) (in IDR response to Request 1(b), reporting that Verizon [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 186 See AT&T-DIRECTV Order, 30 FCC Rcd at 9278, para. 394. 187 See, e.g., Evans Decl. at para. 78 (citing AT&T-DIRECTV Order, 30 FCC Rcd at 9155-9157, paras. 57- ³>7@o be viable, broadband providers have to enter the MVPD business in addition to the ISP business because most KoXseKolGs Zant to pXrcKase EotK viGeo proJramminJ anG Internet access toJetKer´ ; see also Petition to Deny of COMPTEL, MB Docket No. 15-149, at 8- IileG Oct   CO037(/ 3etition ³7o Ee competitive in tKe residential broadband marketplace, competitive wireless providers must offer broadband and linear video services. . . . [COMPTEL members] offer linear video service at a loss, which necessarily impacts their ability to e[panG anG XpJraGe tKeir EroaGEanG netZorNs´ ; 17CA²The Rural Broadband Association Reply at 3 (NTCA Reply) (arguing New Charter would have the ability and incentive to withhold video content from competitors, thus increasing consumer prices, reducing competition, and limiting the ability of rural providers to invest in the quality and reach of their broadband networks); see also Brian Fung, Here’s the Single Biggest Thing Holding Google Fiber Back, Washington Post (Oct. 6, 2014), http://wpo.st/es7G1/ notinJ tKat *ooJle’s Vice 3resiGent oI Access 6ervice GescriEeG viGeo as ³tKe sinJle EiJJest impeGiment´ to *ooJle )iEer’s Geployment  188 Application at 47-48; see also Scott Morton Decl. at para. 39. See also Scott Morton Reply Decl. at para. 120. Dr. Scott Morton cites a survey by Global Strategy Group (GSG) that was funded by Comcast as part of its advocacy in the now-abandoned Comcast/Time Warner Cable transaction, claiming that 70 percent of BIAS subscribers who also subscribed to Netflix would switch ISPs if their Netflix service was degraded. See id. at para.  Dr 6cott 0orton claims tKat tKe sXrvey ³implies appro[imately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of total broadbanG sXEscriEers ZoXlG sZitcK´ iI 1etIli[ Zas IorecloseG Id. In response to Commission inquiries during the Comcast/Time Warner Cable proceeding, GSG admitted that a confidence interval could not be calculated for the statistics reported by the survey because the sampling method employed was non-random and non-probability based. See Letter from Michael D. Hurwitz, Counsel for Comcast, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 14-57, Attach. (Memo from Global Strategy Group to Willkie Farr & Gal laJKer //3 at  IileG 0ar   statinJ tKat EecaXse ³tKe sXrvey Zas conGXcteG XsinJ an on-line opt-in panel ratKer tKan a ranGom samplinJ metKoGoloJy´ a ³stanGarG marJin oI error cannot Ee calcXlateG for the estimated frequencies reported in the survey, as margin of error calculation depend upon the assumption of ranGom samplinJ´  7KXs tKe resXlts oI tKe sXrvey are meaninJless as a statistical matter anG proviGe no reasonaEle basis for inferring the behavior of BIAS customers in the situations about which the survey inquires. Federal Communications Commission FCC 16-59 32 65. Dr. Scott Morton claims tKat ³CKarter e[periences sXEstantial cKXrn amonJ its EroaGEanG sXEscriEers´189 However, based on the record, we find that BIAS subscribers infrequently switch providers. The churn figures cited by Dr. Scott Morton include customers who disconnected their Charter BIAS offering because they moved, as well as customers that left Charter because of their failure to pay.190 These departures are not relevant for the purposes of determining the likelihood of subscribers leaving New Charter, because these customers were forced to end their Charter service rather than aIIirmatively cKoosinJ anotKer proviGer :Ken tKese Gisconnections are eliminateG Irom CKarter’s cKXrn Gata tKe company’s montKly cKXrn rate is nearly non-existent. 191 66. Switching BIAS providers can be a difficult consumer experience and high switching costs are likely a factor in consumers choosing to retain their current broadband provider. The Commission recently recognized that, 7Ke EroaGEanG proviGer’s position as JateNeeper is strenJtKeneG by the high switching costs consumers face when seeking a new service. Among the costs that consumers may experience are: high upfront device installation fees; long-term contracts and early termination fees; the activation fee when changing service providers; and compatibility costs of owned equipment not working with the new service. 192 67. A lack of alternatives at the local level also likely leads to low churn among BIAS sXEscriEers 7Ke Applicants’ comEineG Iootprint is illXstrative 6i[ty-six percent of New Charter customers seeking BIAS with at least a 25 Mbps download speed will have no alternative option at that speed.193 Even at a slower speed, the competitive landscape is sparse²twenty-four percent of New Charter customers will lack any alternative for BIAS with at least a 10 Mbps download speed.194 Only eleven percent of New Charter customers would have more than one alternative offering 10 Mbps or faster service. Between this lack of alternatives and high switching costs, New Charter is unlikely to lose many BIAS subscribers if the company were to adopt retail terms on residential BIAS that consumers find incompatible with use of an OVD. 189 Scott Morton Decl. at para. 55. Dr. Scott Morton cites an approximate monthly churn rate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent OXr e[amination oI CKarter’s Gata sKoZeG a sliJKtly lower monthly churn rate, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. See Appendix C, Table 17. 190 See Scott Morton Decl. at para. 55. The Park Associates research showed that 9 percent of U.S. BIAS KoXseKolGs sZitcKeG over tKe last year siJniIicantly loZer tKan CKarter’s reporteG annXal cKXrn rate oI [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Compare Parks Associates, Parks Associates Research Shows Faster Broadband Speeds Drive More Switching Than Do Lower Fees (Nov. 30, 2015), http://www.parksassociates.com/blog/article/pr-11302015-needforspeed, with Scott Morton Decl. at para. 55. 191 See Appendix C, paras. 81-82, Figures 11-13. The data shows a voluntary churn rate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. See Appendix C, para. 82, Figure 11. Time Warner CaEle’s nXmEers sKoZ a similar Gecrease 7Ke company reporteG [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent monthly churn, but only [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of that was actually voluntary. See id. & )iJXre  DI6H’s economist Dr William Zarakas calculated similar voluntary churn figures. See Letter from Stephanie A. Roy, Counsel for DISH Network, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attach., at paras. 13-16 (filed Jan. 20, 2016) (Zarakas Decl.). 192 2015 Open Internet Order, 30 FCC Rcd at 5631, para. 81; see also Tom Wheeler, Chairman, FCC, Prepared RemarNs oI )CC CKairman 7om :Keeler ³7Ke )acts anG )XtXre oI %roaGEanG Competition´  HeaGTXarters Washington, D.C. (Sept. 4, 2014), at 4, https://apps fcc.gov/edocs public/attachmatch/DOC-329161A1.pdf. 193 See 477 Data PN, 30 FCC Rcd 12748, 12752, Exh. 3a; Appendix C, para. 7, Table 1. 194 See 477 Data PN, 30 FCC Rcd at 12752, Exh. 3a; Appendix C, para. 7, Table 1. Federal Communications Commission FCC 16-59 33 2. Unilateral Effects 68. %eloZ Ze analy]e 1eZ CKarter’s cKanJeG incentives to enJaJe in Xnilateral actions tKat would have anticompetitive effects on the provision of video programming.195 A merger can diminish competition in a market by eliminating competition between the merging parties, even if the merger does not change the way other companies in the market interact or coordinate.196 Adverse competitive effects arisinJ in tKis manner are reIerreG to as ³Xnilateral eIIects´197 As Public Knowledge points out, New CKarter’s cKanJeG incentives resXlt in part Irom oZnersKip oI a Jreater sKare oI tKe caEle inGXstry tKat may enable New Charter to capture a greater share of the benefits that accrue to the industry when New Charter takes actions that reduce the competitive viability of video competitors, such as OVDs.198 Thus, we analyze the concern that New Charter would internalize more of the external benefits in the event New Charter acts to harm OVDs, a rival of the entire industry. Based on our review of the record, it does not appear that New Charter intends to take any immediate unilateral actions with respect to retail residential BIAS terms to discriminate against video competitors such as OVDs in an effort to detrimentally affect their ability to compete with the video products of cable providers.199 HoZever to aGGress 1eZ CKarter’s increased incentive to protect its video profits and to discriminate against OVDs, we conclude that targeted conditions are necessary.200 69. Positions of the Parties. The Applicants claim that New Charter would not have the incentive to harm video competition through any consumer-facing retail residential BIAS practices.201 As an initial matter, the Applicants state that BIAS competition at the local and national levels202 from telephone companies, among others, would sXIIiciently constrain 1eZ CKarter’s incentive to Ioreclose video competition.203 Furthermore, as discussed above, the Applicants claim that New Charter would not 195 Our discussion of potential coordinated effects resulting from the transaction can be found infra in Section V.G.2 . 196 2010 DOJ/FTC Horizontal Merger Guidelines § 2.2. 197 Id. 198 See Public Knowledge et al. Petition at 6 (stating that the incentive to use broadband gatekeeper power to protect viGeo proIits is common to all caEle companies EXt tKat ³tKis merJer ZoXlG liNely increase not only CKarter’s expected returns from anticompetitive activities, but its increased scale would give it more ability to discriminate aJainst online viGeo ZKile increasinJ tKe potential pXElic interest Karm´  199 Charter appears to be rolling out friendly practices for certain arguably complementary OVDs that are not considered replacement services for an MVPD subscription in order to improve its BIAS product. For example, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Scott Morton Reply Decl. at para. 47. As Dr. 6cott 0orton states ³OVDs EeneIit 1eZ CKarter in at least tZo Zays )irst OVDs increase tKe GemanG Ior 1eZ CKarter’s EroaGEanG services 6econG OVDs proviGe GiIIerentiateG viGeo services that subscribers can use in tanGem ZitK 1eZ CKarter’s viGeo services to create a more complete viGeo oIIerinJ´ 6cott 0orton Reply Decl at para. 77. 200 See infra Sections V.B.2.a, V.B.2.b, and VI.N.4. 201 Application at 5, 43. 202 The Applicants state that New Charter would serve only 23 percent of the national BIAS market for speeds of at least 25 Mbps downstream/3 Mbps upstream²a marNet sKare tKat tKe Applicants claim is ³Iar sKort´ oI tKe level needed for the ability to foreclose video competition. Application at 46. 203 Id. at 44-45. But see AppenGi[ C para  7aEle  IinGinJ tKat at tKe  0Eps GoZnstream speeG ³CKarter is the sole BIAS provider in 73 percent of its footprint; Time Warner Cable is the sole BIAS provider in 64 percent of its footprint; and Bright House is the sole BIAS provider in 34 percent of its footprint. Post-transaction, New CKarter ZoXlG Ee tKe sole proviGer in  percent oI its Iootprint´ ; (vans Decl. at 12-14 (predicting that the lack of local BIAS competition would result in the transaction harming local competition). Federal Communications Commission FCC 16-59 34 possess the economic incentive to foreclose competitors such as OVDs,204 since any OVD discrimination ZoXlG Karm 1eZ CKarter’s %IA6 EXsiness.205 The Applicants state that New Charter’s IXtXre sXccess depends much more on its BIAS business than its video business,206 which New Charter claims would incentivize it to promote OVDs and other edge providers207 in order to increase BIAS demand and subscribership.208 70. Despite tKe Applicants’ claims to tKe contrary certain commenters contend that New Charter would possess the increased incentive to unilaterally impose anticompetitive policies.209 For example, DISH states ³tKat 1eZ CKarter’s control oI one-third of the nation’s KiJh-speed broadband connections gives them sXEstantial poZer to saEotaJe OVDs´210 The Writers Guild of America, West, Inc. (WGAW) claims tKat 1eZ CKarter’s ³control over high-speed Internet connections and the lack of alternative providers would give New Charter the power to set prices for services and dictate access and GistriEXtion terms Ior eGJe proviGers anG online viGeo services´211 AT&T expresses concern that New Charter would have a greater incentive to harm OVDs because, as a result of its increased size, it would 204 See supra Section V.A. 205 Opposition at  CKarter’s incentives to ZorN ZitK OVDs are Eorne oXt Ey its internal GocXments ZKicK sKoZ tKe reliance oI CKarter’s %IA6 cXstomers on streaminJ viGeo See, e.g., CHR2-DOJ -00000246437 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 206 Application at 5-; Opposition at  CKarter notes tKat tKe Applicants’ %IA6 sXEscriEers alreaGy oXtnXmEer their video subscribers by 2.6 million, a tilt toZarG %IA6 tKat ³is liNely to continXe into tKe IXtXre´ 6cott 0orton Decl at para  )XrtKer accorGinJ to tKe Applicants CKarter’s averaJe Jross revenXes Ior %IA6 are [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent higher than for its video services. Opposition at 16. According to Charter, these incentives make economic foreclosure of OVDs irrational. Id. CKarter’s economist Dr )iona 6cott 0orton estimates tKat ³1eZ CKarter ZoXlG neeG to aGG or maintain more tKan ten MVPD sXEscriEers Ior every one OVD sXEscriEer tKat leIt 1eZ CKarter in response to tKe IoreclosXre´ Id. at 16-17. Dr. Scott Morton claims that this ratio is unlikely to be obtained under any plausible set of circumstances. Id. at 17. 207 Opposition at 19 (s tatinJ tKat Ior e[ample 1eZ CKarter ZoXlG Ee aEle to Iacilitate OVDs’ access to a larJe nXmEer oI %IA6 sXEscriEers tKroXJK inteJration into 1eZ CKarter’s 6pectrXm *XiGe ZKicK also alloZs OVDs to economize by working with only one unified deployment partner). See also Charter Jan. 14, 2016, Ex Parte Letter at 5-6 (stating that DISH ignored numerous documents in the record reflecting Charter's technical efforts to make OVD content seamlessly available on its Spectrum Guide). 208 See Charter Jan. 14, 2016, Ex Parte Letter at 1. 209 :*A: 3etition at  claiminJ tKat CKarter’s JroZtK as a resXlt oI tKis transaction ³increase EotK tKe incentive anG tKe aEility oI 1eZ CKarter to Xse its increaseG si]e to Karm OVDs´ ; 3XElic .noZleGJe Reply at  ³Gespite its protests to the contrary, Charter would have ample incentive to take anticompetitive actions to benefit its MVPD EXsiness ZKile KarminJ online viGeo´  210 DI6H 3etition at  6top tKe Cap ecKoes tKat tKeme statinJ ³>Z@itK many consXmers KavinJ no practical choi e for an alternative broadband provider, allowing Charter to impose usage limits or forcing customers into even higher-priced usage billing plans would deliver a major unfair advantage into the hands of the cable operator, always concerned with protectinJ its caEle television pacNaJe Irom emerJinJ online viGeo competition´ 6top tKe Cap Comments at 11. 211 WGAW Petition at 22; Letter from Markham C. Erickson, Counsel for INCOMPAS, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 4 (filed Jan. 15, 2016) (INCOMPAS Jan. 15, 2016, Ex Parte Letter) ³1eZ CKarter’s increaseG marNet poZer over viGeo proJrammers resXltinJ Irom tKe merJer ZoXlG GiscoXraJe entry and expansion by smaller broadband providers that would otherwise compete against Charter or Time Warner Cable Ior cXstomers´ Iootnote omitteG  Federal Communications Commission FCC 16-59 35 receive a greater share of the benefits that accrue to the cable industry if New Charter harms a rival of the entire industry.212 71. Discussion. The record indicates that edge providers such as OVDs represent a common threat to both New Charter213 and the entire cable industry.214 Post-transaction, New Charter will have a larger footprint and pass more homes, and thus can capture more of the gains from any discriminatory actions directed against the OVD threat.215 In order to address New Charter’s increaseG incentive to discriminate against OVDs in the future, targeted conditions are necessary to ameliorate anticompetitive harms with respect to data caps and UBP. Moreover, we find that the benefits arising from the buildout and low-income broadband conditions we adopt herein would outweigh any harms in the unlikely event that Charter increases standalone BIAS pricing to blunt the competitiveness of OVDs. 72. As an initial matter, we note that because there is almost no overlap in the local distribution footprints of Charter, Time Warner Cable, and Bright House, the proposed transaction does not result in any direct reduction in local competition for video or BIAS.216 Consequently, the transaction will not give New Charter a greater ability to impose anticompetitive practices due to a reduction in local competition. )XrtKer 1eZ CKarter’s commitments anG tKe recorG eviGence inGicate tKat 1eZ CKarter is attempting to mute its immediate incentives to engage in discriminatory behavior through its commitments to preserve several consumer-friendly practices that pre-transaction Charter has utilized, notwithstanding the competitive threat of OVDs.217 In Iact tKere is eviGence in CKarter’s internal 212 See, e.g., AT&T Reply, Attach. at 7 6cKZart] Analysis ³II a sXEset oI caEle companies coorGinate to taNe costly actions that exclude OVDs, the share of the gains that are internalized by the excluding group will vary with tKeir sKare oI tKe relevant marNet anG tKe si]e oI tKe entry Earriers´  213 According to internal Charter documents, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See CHR2-DOJ -00000246437 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 214 See :*A: Reply at  ³7Ke incentive to Karm online viGeo e[ists EotK Ior caEle companies Jenerally all oI which Kave e[perienceG tKe matXration oI tKe 0V3D marNet anG Ior 1eZ CKarter in particXlar´  215 See, e.g., Letter from Pantelis Michalopoulos and Stephanie Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Jan. 20, 2016) (DISH Jan. 20, 2016, Ex Parte /etter ³1eZ CKarter’s incentive to GisaEle ratKer tKan MXst KXrt its competitors Zill also JroZ ZitK its enlarJeG aEility to Go so´  216 Application at 42-43; see also 6cott 0orton Decl at para  ³CKarter %H1 anG 7:C Kave d minimis overlap geographically, and therefore do not currently compete to provide MVPD, broadband or voice services to the same subscribers. Because there is de minimis geographic overlap between the merging firms, there can be no change in the post-merJer Iirm’s incentives to Xnilaterally increase prices to sXEscriEers´ ; see also Letter from Tom Giovanetti, President, Institute for Policy Innovation, to FCC, MB Docket No. 15-149, at 4-5 (filed Nov. 13, 2015) ³%ecaXse oI tKe caEle inGXstry’s Kistorical EXsiness moGel tKese companies Go not compete ZitK eacK otKer²their business territories do not overlap to a significant degree. Thus, consumer choice will not be reduced by the merger, and that sKoXlG Ee tKe most siJniIicant Iactor in tKe Commission’s revieZ process´  217 1eZ America’s Open 7ecKnoloJy InstitXte Comments at -2 (OTI Comments) (stating the Applicants ³preconGitioneG tKe transaction ZitK a relatively roEXst IoXnGation oI commitments, including consumer-friendly practices relateG to Gata caps anG interconnection´ ; see also Charter Jan. 14, 2016, Ex Parte /etter at  ³As tKe Applicants have explained, UBB is inconsistent with New Charter's operating strategy to offer simple, unifor m pricing and [BEGIN HIGHLY CONF. INFO.] continXeG« Federal Communications Commission FCC 16-59 36 documents that indicate the company attempts to differentiate itself from its competition by not employing such practices as UBP.218 HoZever Gespite 1eZ CKarter’s commitments aGvanceG in connection ZitK tKe transaction concerns remain tKat tKe company’s comEination oI GistriEXtion assets ultimately will increase 1eZ CKarter’s incentives to taNe Xnilateral actions sXcK as tKe implementation oI data caps and UBP,219 which may harm rivals like OVDs that pose a competitive threat to the entire cable industry. 73. In the two sections that follow, we discuss how the transaction will aIIect 1eZ CKarter’s incentives with respect to Gata caps8%3 anG stanGalone %IA6 pricinJ 1otZitKstanGinJ 1eZ CKarter’s apparent intent not to take such actions at present, we conclude that there is a greater probability in the future that New Charter could data caps and UBP to harm video competition. We, however, find it unlikely tKat tKe transaction Zill siJniIicantly cKanJe 1eZ CKarter’s incentives or aEilities to price standalone BIAS in a manner that would harm video competition. However, we conclude that the conditions we impose would both mitigate and sufficiently outweigh any potential harms. a. Data Caps and Usage-Based Pricing 74. In this section, we consider whether the transaction would increase the likelihood that New Charter would implement data caps or UBP across its territories in order to more effectively impede competition from OVDs. We find that post-transaction, New Charter may be more likely to use data caps or UBP to curb current and future OVD-consumption levels with the purpose of inhibiting or eliminating OVD competition. In addition, Ze IinG tKe Applicants’ proposeG commitment to reIrain Irom tKe Xse oI data caps or UBP for three years is insufficient to address these potential harms and that seven years is a more appropriate term. 75. Background. In recent years, some BIAS providers have attempted to shift away from flat-rate, unlimited data plans, to UBP models.220 Frequently these usage-based plans involve some sort (Continued from previous page) [END HIGHLY CONF. INFO.] . Consequently, New Charter has no incentive to adopt UBB and has committed not to Go so Ior tKree years´ Iootnotes omitteG  218 See CHR2-DOJ -00000620432 at 5-7, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] See also CHR-FCC-0000102137 at 2, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 219 See infra Section V.B.2.a (discussing the use of potentially discriminatory retail BIAS terms by New Charter, such as data caps and UBP). See also WGAW Petition at 25-  ³Applicants’ volXntary time-limited commitment to abstain from implementing data caps or charging select edge providers for interconnection should not preclude a thorough review of how effectively New Charter could use these mechanisms to harm online markets, nor does that commitment allay :*A:’s concerns´ ; DI6H Reply at  ³It seems very liNely tKereIore tKat New Charter would impose UBP the minute after the expiration of any condition prohibiting it from doing so. In light of Charter's proclivities towards UBP, the three- year term oI its proposeG commitment is ZoeIXlly inaGeTXate´  220 Comcast, Questions & Answers About Our Data Usage Plan Trials, http://customer.xfinity.com/help-and- support/internet/data-usage-trials/ (last visited Dec. 16, 2015); AT&T, Facts About Your Data Plan, http://www.att.com/esupport/internet/usage.jsp (last visited Dec. 16, 2015); Karl Bode, Time Warner Backs Off Metered Billing, (Apr. 16, 2009), http://dslreports.com/news/101948. Federal Communications Commission FCC 16-59 37 of capped allotment of monthly data usage (data cap), measured in gigabytes (GB). 221 To give effect to these data caps, BIAS providers could enforce the limitations with a combination of overage charges, degraded performance, or discontinued service.222 Service providers have justified the practice as a way of alleviating alleged network congestion by managing heavy Internet users and also as a method for making additional investments in broadband infrastructure.223 76. The Applicants have varied experiences with UBP. Time Warner Cable began a trial data cap program in several markets in 2008, setting a cap of 40 GB per month for users with 15 Mbps downstream service.224 These customers were charged $1 for each GB exceeding the limit. 225 In response to significant public backlash against the trial policy, Time Warner Cable abandoned data cap trials.226 Currently, Time Warner Cable does not have mandatory caps, but in 2012 Time Warner Cable launched a ³volXntary cap´ proJram calleG (ssentials Internet ZKere 7ime :arner CaEle oIIers tZo GiIIerent plans with discounts if subscribers use, depending on the plan, 5 GB or less or 30 GB or less per month. 227 But because the program is voluntary, all Time Warner Cable customers have access to an unlimited option.228 77. CKarter Goes not cXrrently impose Gata caps HoZever Ior several years CKarter’s Internet Acceptable User Policy (AUP) containeG an ³([cessive 8se oI %anGZiGtK´ provision GetailinJ usage limits for its three residential Internet Service tiers²CKarter’s /ite/Express, Plus/Max, and Ultra 100 tiers²which had 100GB, 250GB, and 500GB usage limits, respectively. 229 The record indicates that Charter only enforced these limits during a trial between December 2010 and January 2012. 230 During the trial enforcement period, customers surpassing the usage limits received a notification that they had e[ceeGeG tKeir accoXnt’s limits231 Charter converted users who repeatedly exceeded the cap to business 221 Public Knowledge, Data Caps, https://www.publicknowledge.org/issues/data-caps, (last visited Dec. 16, 2015). 222 Id. 223 Charter Response to Information Request at 160; Comcast Response to Information Request at 9; Associated Press, Time Warner Cable Tries Metering Internet, (Jun. 2, 2008), http://www.nydailynews.com/1.293653. 224 See Associated Press, Time Warner Cable Tries Metering Internet (Jun. 2, 2008), http://www.nydailynews.com/ news/money/time-warner-cable-metering-internet-article-1.293653; Ryan Paul, 40 GB for $55 Per Month: Time Warner Bandwidth Caps Arrive (Jun. 3, 2008), http://arstechnica.com/uncategorized/2008/06/40gb-for-55-per- month-time-warner-bandwidth-caps-arrive/. 225 See Associated Press, Time Warner Cable Tries Metering Internet (Jun. 2, 2008), http://www.nydailynews.com/ news/money/time-warner-cable-metering-internet-article-1.293653; Ryan Paul, 40 GB for $55 Per Month: Time Warner Bandwidth Caps Arrive, Ars Technica (Jun. 3, 2008), http://arstechnica.com/uncategorized/2008/06/40gb- for-55-per-month-time-warner-bandwidth-caps-arrive/. 226 See Karl Bode, Time Warner Backs Off Metered Billing (Apr. 16, 2009), http://www.dslreports.com/shownews/ Time-Warner-Backs-Off-Metered-Billing-101948 (quoting Time Warner Cable CEO Glen Britt as having stated, in annoXncinJ tKe enG oI tKe trial proJram ³It is clear Irom tKe pXElic response over tKe last tZo ZeeNs tKat tKere is a great deal of misunderstanding about our plans to roll out additional tests on consumption based billing. As a result we will not proceed with implementation of additional tests until further consultation with our customers and other interesteG parties´  227 Time Warner Cable Response to Information Request at 86. Comcast is trying a similar program. See Comcast, What Is the New Flexible-Data Option, http://customer.comcast.com/help-and-support/internet/exp-fdo-data-plan (last visited Dec. 16, 2015). 228 See Time Warner Cable Response to Information Request at 86- 87. 229 Charter Response to Information Request at 159-64. 230 Id. 231 Id. at 159. Federal Communications Commission FCC 16-59 38 accounts or asked them to buy a higher residential service tier.232 In some cases Charter terminated their service.233 Under its current AUP, Charter retains the ability to manage its network and to limit practices that undermine security or harm services to its customers.234 This list of prohibited practices includes excessive u se oI EanGZiGtK tKat ³places an XnXsXally larJe EXrGen on tKe netZorN or Joes aEove normal XsaJe´235 although Charter no longer publishes specific limits on consumption.236 Bright House has never implemented data caps or UBP.237 78. Positions of the Parties. The Applicants have committed to refrain from implementing data caps or UBP for three years.238 7Ke Applicants’ maintain tKey Kave no cXrrent plans to implement data caps or UBP, or for future trials regarding the same.239 Charter in particular emphasizes its aversion to data caps, stating that instead of enforcing usage limits it chooses to market the absence of data caps as a competitive advantage.240 Charter also argues there is a strong business case for not implementing caps. Specifically, Charter explains that it terminated its enforcement of the usage limits trial in the AUP in January 2012 because the benefits to customers of continuing the trial (minimizing bandwidth consXmption to preserve a positive Internet e[perience ZoXlG not e[ceeG tKe proJram’s co ts.241 Charter also states that caps create marketing challenges because they complicate consumer purchasing decisions.242 Furthermore, Charter argues that data caps increase churn among subscribers.243 Finally, Charter states that it plans to distinguish itself from its competitors based largely on the quality and speed of its broadband offerings and that data caps undermine that marketing message.244 79. 6everal commenters sXEmit tKat CKarter’s three-year commitment to abstain from data caps and UBP is insufficient. WGAW argues that the voluntary, time-limited commitment to abstain from implementing data caps Goes not sXIIiciently aGGress 1eZ CKarter’s increaseG aEility to Ioreclose OVD competition.245 The Greenlining Institute argues that New Charter does not sufficiently commit to abstaining from data caps, usage-based billing, or early termination fees, finding that the Application contains no speciIic commitment reJarGinJ maintaininJ tKese practices anG tKat 1eZ CKarter’s allegedly vague data caps promise does not guarantee the proposed transaction would not harm the public 232 Id. 233 Id. 234 Id. at 159-64. 235 Id. 236 Id. 237 Advance/Newhouse Response to Information Request at 46. 238 Application at 18-19. 239 Time Warner Cable Response to Information Request at 86-87; Advance/Newhouse Response to Information Request at 54. 240 Charter Response to Information Request at 164. 241 Charter Response to Information Request at 159-64. 242 Id. at 164. 243 Id. 244 Id. at 159-64. 245 WGAW Petition at 25. WGAW also notes that New Charter has not committed to waiving early termination fees or modem lease fees so that customers could more readily switch ISPs in the event they became dissatisfied with the implementation of data caps. WGAW Reply at 27-28. Charter notes that it has not had early termination fees since 2012 and has no plans to reintroduce residential contracts with termination fees. Charter Response to Information Request at 155- 56. Federal Communications Commission FCC 16-59 39 interest.246 )ree 3ress sXEmits tKat even tKoXJK tKe Applicants’ cXrrent anG past practices maNe it unlikely that they would institXte caps ZitKin tKe ne[t tKree years tKe transaction’s eIIects ZoXlG ³Eoost otKer I63s’ aEility to enJaJe in tKe very practices the Applicants Kave temporarily sZorn oII´ eIIectively maNinJ tKe Applicants’ commitments a moot point247 Stop The Cap maintains that without including all variations of UBP CKarter’s commitment is larJely meaninJless anG tKereIore must be expanded to prohibit all forms of usage-EaseG pricinJ inclXGinJ any ³Gata plans´ tKat sXpposeGly alloZ cXstomers to voluntarily exceed their usage allowance, at a cost. 248 DISH argues that the Commission should accept 1eZ CKarter’s commitment not to impose Gata caps EXt e[tenG tKe commitment to seven years alonJ with requiring a stronger commitment to abide by the 2015 Open Internet Order in its entirety.249 Public Knowledge argues that if the purpose of the condition is to protect consumers by ensuring a competitive playing field for online video then only a ten-year duration would provide a sufficient window.250 Americans for Tax Reform contends that the three-year moratorium on data caps would be sufficient to protect nascent OVD competition.251 Similarly, Southlake Chamber of Commerce and others argue that the commitment would be a major relief for all its customers residing in its community. 252 80. Discussion. :e are XnconvinceG Ey CKarter’s arguments that it has no incentive to harm OVDs through the use of data caps or UBP.253 We rejected this argument in our discussion above and IinG tKat 1eZ CKarter’s incentive to retain 0V3D sXEscriEers is TXite stronJ Internal CKarter GocXments detailing CKarter’s an[iety reJarGinJ O77 sXEstitXtes Ior 0V3D services eviGence CKarter’s incentives.254 )or e[ample CKarter’s internal GocXments preGict [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .255 CKarter’s internal GocXments appear to inGicate tKat tKe company’s position on XsaJe-based billing is subject to change [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .256 For example, a 2012 PowerPoint 246 Petition to Deny of The Greenlining Institute, MB Docket No. 15-149, at 13-14 (filed Oct. 13, 2015) (Greenlining Institute Petition). 247 Free Press Petition at 55-56. 248 Stop The Cap Comments at 10. 249 DISH Petition at 69-70. 250 See Letter from John Bergmayer, Senior Staff Attorney for Public Knowledge, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (Feb. 8, 2016) (Public Knowledge Feb. 8, 2016, Ex Parte Letter). 251 Digital Liberty and Americans for Tax Reform Comments at 2 (Americans for Tax Reform Comments). 252 Letter from Mark Guilbert, President, Southlake Chamber of Commerce, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Aug. 3, 2015); see, e.g., Letter from Chris Vierra, Mayor, City of Ceres to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Dec. 1, 2015); Letter from Dana McGrew, Superintendent, IOSCO Regional Educational Service Agency, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Nov. 19, 2015). 253 Application at 44, 48. 254 CHR-DOJ -0000636589, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 255 Charter Response to Information Request, Exhibit 35-1 at 7. 256 CHR-DOJ -0000636589 at 21, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 40 presentation [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .257 While a 2010 executive level presentation [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .258 However, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .259 A 2014 document discusses [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .260 Again, the document notes that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .261 Therefore, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .262 81. OVD competition has been persistent for several years.263 These incentives have not disappeared and, as indicated by recent documents including [BEGIN HIGHLY CONF. INFO.] 257 Id., [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Charter contends that it ultimately decided against implementing data caps at that time. See Charter Jan. 14, 2016, Ex Parte Letter at 1. 258 CHR-DOJ -0002265578 at slide 9, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 259 Id. at 10, 13, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 260 CHR-DOJ -0000757324 at CHR-DOJ -0000757330, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 261 CHR-DOJ -0000757324 at 7, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 262 CHR-FCC-0000219309, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 263 InGeeG asiGe Irom CKarter’s stateG EXsiness strateJy it appears tKat mXcK oI CKarter’s reservations aroXnG Gata caps had to do with [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . CHR-DOJ -0000636589 at 21, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . CHR2-DOJ-00000306584 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2- DOJ -00000368088, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 41 [END HIGHLY CONF. INFO.] ,264 with [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .265 Overall, it seems that Charter is keeping its options open regarding data caps, should such [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .266 :e also note tKat Gespite 7ime :arner CaEle’s relative lacN oI sXccess in implementinJ XsaJe-based billing, its internal documents leave no doubt that it is also incentivized to use data caps to protect its MVPD business.267 82. The record evidence shows that Charter has been steadily making preparations to ease its ability to impose UBP. For example, while Charter has produced documents [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ,268 many of those same supporting documents [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .269 These documents show, for example, that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .270 One email message [BEGIN 264 CHR-DOJ -0000927353, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 265 CHR2-DOJ -00000368134 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 266 CHR-DOJ -0000636589 at 21, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] :e also note tKat in aGGition to 1eZ CKarter’s incentives to Karm OVD competition, it also has considerable incentives to implement usage-based pricing simply as a method of generating additional revenue. The record indicates that New Charter [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See LBR-0031493 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 267 See TWC-DOJ -00679808 at 9, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -00704379 at 114, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 268 Charter Response to Information Request, Exhibit 35-1 at 6 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000636589, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO] . 269 Charter Response to Information Request, Exhibit 35-3 at 15- 17. 270 Id. Federal Communications Commission FCC 16-59 42 HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .271 83. We further find that the proposed transaction may make New Charter more likely to impose Gata caps or 8%3 to inKiEit OVD competition anG tKat 1eZ CKarter’s Xse oI tKose caps ZoXlG Ee more GamaJinJ to OVDs tKan any oI tKe Applicants actinJ inGiviGXally :e acNnoZleGJe tKat CKarter’s current management team has not implemented data caps or UBP and have rejected internal proposals for implementing such policies. Post-transaction, however, the management team will be operating a substantially different company with a far greater footprint and subject to significantly different incentives. First, the merged entity will likely have lower programming costs, which will increase New CKarter’s marJin Ior viGeo anG tKereIore increase 1eZ CKarter’s incentive to protect tKis larJer proIit stream from online competitors with data caps.272 Second, the transaction may increase 1eZ CKarter’s incentive to use data caps or UBP against OVDs because, as explained above, the rewards it would reap from doing so may be larger than those currently available to Charter. That is to say that any cable MVPD provider taking action to weaken an OVD provider through the use of data caps would need to balance the cost of those actions against the potential benefits. Currently, to extent MVPDs use data caps and UBP to foreclose OVDs from the market, those benefits would be shared by Charter and all the other MVPD providers. Post-transaction, however, a larger portion of those gains would accrue to New Charter alone because it would also control the territories of Time Warner Cable and Bright House. We find that this increased incentive may makes such activity more profitable and therefore more likely. Third, any future use of data caps and UBP by New Charter will likely have a greater impact than may be anticipated by its unilateral action. Comcast continues to expand its data caps and UBP across its footprint. Because oI Comcast’s actions 1eZ CKarter may Ee more conIiGent tKat its actions alonJsiGe Comcast’s actions will harm OVDs and blunt their competitiveness. Therefore, we find that New Charter may be more likely and more able to use data caps or UBP to curb current and future OVD-consumption levels with the purpose of inhibiting OVD competition. 84. While wired BIAS providers sometimes claim there are cost-based and efficiency justifications for implementing usage-based billing policies, 273 the Applicants fail to advance such a justification or demonstrate any cost-based or efficiency enhancing rationale for the implementation of data caps or UBP. We find that the record in this proceeding demonstrates that data caps and UBP can Karm online viGeo consXmption CKarter’s internal GocXments are consistent ZitK IinGinJs across tKe industry274 that IP-delivered video has driven a rapid growth in residential data consumption.275 According to Sandvine, streaming entertainment now accounts for over 70 percent of internet traffic over 271 CHR-DOJ -0000925377, [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] . 272 See infra Section VI.B; see also DISH Jan. 20, 2016, Ex Parte Letter. 273 See 2015 Open Internet Order, 30 FCC Rcd at 5814, paras. 151-153. 274 Cisco, Cisco Visual Networking Index Predicts IP Traffic to Triple from 2014-2019; Growth Drivers Include Increasing Mobile Access, Demand for Video Services, http://newsroom.cisco.com/press-release-content?article Id=1644203 last visiteG Dec   ³I3 viGeo Zill accoXnt Ior  percent oI all I3 traIIic Ey  Xp Irom  percent in ´ 275 Charter Response to Information Request, Exhibit 35-1 at 7; CHR-FCC- 0000098190 at 7, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 43 wireline BIAS during peak evening hours.276 And data caps and UBP represent an acute threat to virtual 0V3Ds tKat oIIer consXmers a sXEstitXte Ior CKarter’s 0V3D service. For example, DISH reported that households subscribing to its DISH World (now known as Sling International 277 ) virtual MVPD watched approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] hours of online video per day on the service, not including other OVD viewing time.278 %aseG on tKe Commission’s prior estimates,279 a household viewing that many hours of online video per day could easily exceed a 250 GB data cap and pay, using a current Comcast UBP plan as an example, 280 an extra $10 to $35 per month. For DI6H’s O77 cXstomers 8%3 ZoXlG siJniIicantly increase tKe cost in some cases more tKan GoXElinJ it oI XsinJ tKe company’s O77 services ZKicK are cXrrently priceG EetZeen $15 and $25 per month. 281 85. We find that by their very nature, the data caps and UBP in use by wired BIAS providers currently significantly and chiefly affect online video traffic.282 There are few, if any, other residential data uses that would cause a consumer to hit the data caps currently employed by BIAS providers.283 When implemented, subscribers who rely on their BIAS as the primary means for consuming online video often must curtail their video usage or pay more than those subscribers that rely primarily on traditional MVPD service to consXme viGeo :e note tKat Comcast’s sXEscriEers to MVPD service are not subject to any usage-based limitations on that service. Neither were Charter and Time Warner Cable viGeo cXstomers GXrinJ tKose companies’ past usage-based BIAS pricing trials. Through the practice of metering consumption of rival online video offerings while provisioning MVPD service without such metering, cable companies can discriminate in favor of their own video services and protect them from competition. 276 Sandvine, Over 70% of North American Traffic Is Now Streaming Video and Audio, (Dec. 7, 2015), https://www.sandvine.com/pr/2015/12/7/sandvine-over-70-of-north-american-traffic-is-now-streaming-video-and- audio.html; see also Sixteenth Video Competition Report, 30 FCC Rcd at 3373, para. 260. 277 Sling TV, Sling TV Introduces Sling International; Launches Nearly 200 Channels in18 Languages, http://news.sling.com/press-release/company/sling-tv-introduces-sling-international-launches-nearly-200-channels- 18 (last visited Mar. 11, 2016). 278 Petition to Deny of DISH Network, MB Docket No. 14-57, at 15 (filed Aug. 25, 2014) (DISH Petition to Deny in Comcast/TWC). 279 Sixteenth Video Competition Report, 30 FCC Rcd at 3375, para. 264; Open Internet Advisory Committee, Economic Impacts of Open Internet Frameworks Working Group, Federal Communications Commission, Policy Issues in Data Caps and Usage-Based Pricing, at 10 (Aug. 20, 2013). 280 See Mike Dano, Sling TV CEO comes out against Comcast's data caps, FierceCable (Dec. 7, 2015), http://www.fiercecable.com/node/88856/ (reporting that in some areas Comcast imposes a 300 GB usage limit and charges $10 for each additional 50 GB, but permitting unlimited usage for an additional flat fee between $30 - $35). 281 See Sling International, Homepage (last visited Mar. 9, 2016), http://www.sling.com/International. See also DI6H Reply at  ³A 6linJ 7V sXEscriEer Ior e[ample ZKo noZ pays  per montK Ior Ker 6linJ 7V service but a hefty $40.00 or $65.00 to one of the Applicants for broadband, may be confronted with a prohibitively e[pensive proposition iI sKe Kas to IorN over anotKer  to 1eZ CKarter´  282 For example, when Comcast initially implemented its 250 GB usage allowance in 2008, it claimed that less than 1% of users would be affected. John Mahoney, Comcast's 250GB Data Caps Now Official, Starting in October, Gizmodo (Oct. 8, 2008), http://gizmodo.com/5043253/ TXotinJ Comcast’s )A4 ³7Ke vast maMority - more than 99% - oI Comcast cXstomers Zill not Ee impacteG Ey a  *% montKly EanGZiGtK or Gata XsaJe tKresKolG´  More recently, Comcast says 8% of users exceed the 300 GB usage allowance. See Tali Arbel, How Comcast Wants to Meter the Internet, AP (Oct. 27, 2015) , http://apne.ws/1PPjQcK . 283 Cf. AT&T, Broadband Usage FAQs, http://www.att.com/esupport/article html#!/dsl-high-speed/KM1010099 reportinJ tKat A7 7’s %IA6 oIIerinJs inclXGe  *% Ior HiJK 6peeG D6/  *% Ior 8-Verse High Speed Internet, 500 GB for U-Verse High Speed Internet 100 and 300, and 1 terabyte for U-Verse High Speed Internet 1Gbps) (last visited Mar. 10, 2016); see supra note 282 (discussing Comcast data caps). Federal Communications Commission FCC 16-59 44 86. Given this conclusion, and the weight of the evidence in this record, we view the Applicants’ commitment to a tKree-year moratorium on data caps as insufficient to prevent potential harm to OVDs in general and virtual MVPDs in particular. As noted above, the Applicants have failed to prove that BIAS entry or expansion will likely occur in a timely or sufficient manner to counteract the transaction’s competitive eIIects %ecaXse entry anG e[pansion will not GiminisK 1eZ CKarter’s BIAS shares in the foreseeable future, subscribers will continue to have no (or limited) alternative cable or fiber BIAS options when faced with data caps and UBP designed to deter online video consumption. At least one internal Charter document discussing the commitment suggests that New Charter could [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .284 We agree with the commenters that express concerns with the length of the commitment.285 :e recoJni]e KoZever tKat oXr aEility to preGict 1eZ CKarter’s IXtXre marNet poZer based on the current record diminishes the farther into the future we look. Therefore we adopt, as a condition to granting the Application, a requirement that New Charter shall not implement data caps for a period of seven years. We find that this period of time will allow the edge provider market room to become more mature and better positioned to withstand attempts by New Charter to impose data caps and UBP at levels indeed to blunt their competitiveness. Seven years may also provide the high-speed BIAS provider market sufficient time to develop further with additional investments in fiber from established wireline BIAS providers,286 Wireless 5G technology, 287 use of smartgrid fiber for broadband, additional overbuilding, and other potential competitors to traditional wired BIAS providers. It is our expectation that these developments will foster competition in the market to make the anticompetitive use of data caps less tenable in the future. b. Standalone BIAS Pricing 87. In this section, we assess whether the proposed transaction would enKance 1eZ CKarter’s incentive to harm video competition through its pricing of standalone BIAS and bundled services. Based on our review of the record, we find that Charter288 currently does not price its standalone BIAS so as to disincent consumers from switching to OVDs. We further find that while the transaction may increase 1eZ CKarter’s incentives to Xse KiJKer stanGalone EroaGEanG pricinJ to Karm OVDs tKe GocXmentary 284 CHR2-DOJ -00000077093, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 285 WGAW Reply at 25, 27-28; Free Press Reply at 15-16; Greenlining Institute Petition at 13- 14; see DISH Jan. 20, 2016, Ex Parte Letter at 3 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 286 For example, competitive ISPs such as Google Fiber are investing in new broadband plant within New Charter territory such as Kansas City, Missouri, Salt Lake City, Utah, and Charlotte, North Carolina. 287 While there are some estimates that early 5G technology will launch in 2020, some feel that even this timetable (which is well beyond the three years proposed by the Applicants) is very optimistic. See William Pelegrin, Sprint Doesn’t Believe 5G Will Hit The United States By 2020 (Oct. 19, 2015), http://www.digitaltrends.com/mobile/ sprint-doesnt-believe-5g-will-hit-the-united-states-by-2020/. 288 :e are IocXsinJ oXr revieZ in tKis section on CKarter’s stanGalone %IA6 pricinJ practices since 1eZ CKarter will be adopting CKarter’s cXrrent %IA6 pricinJ plans See Application at 19 (claiming that within twelve months of closinJ ³1eZ CKarter Zill marNet services consistent ZitK CKarter’s cXrrent pacNaJinJ anG pricinJ strateJies´  Federal Communications Commission FCC 16-59 45 evidence does not support the conclusion that New Charter would likely undertake such a strategy. To tKe e[tent tKe transaction poses a Karm ZitK respect to 1eZ CKarter’s %IA6 pricinJ Ze conclXGe tKat such a harm would be outweighed by the benefits of the conditions that we impose in this Order. 88. Positions of the Parties. Several parties urge the Commission to condition approval of tKe transaction on 1eZ CKarter’s oIIerinJ oI a stanGalone %IA6 option Ior consXmers.289 These parties express concern that New Charter would have an increased incentive post-transaction to raise the price of its standalone BIAS product, thereby effectively tying its BIAS and video services by making the bundled option tKe consXmer’s only reasonaEle economic cKoice290 89. The Applicants contend that consistent ZitK CKarter’s cXrrent practices 1eZ CKarter would oIIer %IA6 on EotK a stanGalone anG EXnGleG Easis tKroXJKoXt its neZ Iootprint ³ZitK competitive pricing and consumer-IrienGly terms´ anG ZitKoXt moGem Iees or early termination Iees.291 The Applicants claim CKarter’s cXrrent pricinJ anG pacNaJes are less e[pensive tKan EotK 7ime :arner CaEle’s anG %riJKt HoXse’s comparaEle oIIerinJs.292 The Applicants again argue that New Charter would have an incentive to promote OVDs and edge providers 293 and that any effort to foreclose OVDs through discriminatory practices (like standalone BIAS pricing) would be contrary to its economic interest in growing its BIAS subscriber base.294 )inally tKe Applicants claim tKat ³>c@Xrrently CKarter Kas no plans to increase tKe price oI its stanGalone EroaGEanG oIIerinJ´295 90. Discussion. :e IinG tKat CKarter’s cXrrent %IA6 pricinJ conGXct Goes not appear to Ee aimed at disadvantaging OVDs or steering consumers away from standalone BIAS in favor of its bundled 289 See, e.g., Letter from Stephanie A. Roy, Counsel to DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1, Appx. A (filed Apr. 19, 2016) (DISH Apr. 19, 2016, Ex Parte Letter); DISH Petition at 6, 69, Exhibit A (seeking a standalone residential broadband requirement similar to the one adopted in Comcast-NBCU.); Stop the Cap Comments at 8-9. 290 See, e.g., DISH Apr. 19, 2016, Ex Parte Letter at 3; WGAW Reply at 24- 25; Free Press Reply at 9. 291 Opposition at 56; Application at 3, 19. However, New Charter will not force existing Time Warner Cable and Bright House customers to change their current service and pricing plans post-transaction. Charter, Time Warner CaEle anG %riJKt HoXse :Kite 3aper AGGitional InIormation ReJarGinJ CKarter’s ResiGential 3ricinJ anG Packaging Methodology, at 4 (Residential Pricing and Packaging White Paper), transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Dec. 11, 2015) ³Importantly ZKile a neZ pricinJ anG pacNaJinJ plan Zill be offered to TWC and BHN subscribers, those subscribers will not be forced to change their current plan. Current TWC and BHN subscribers who prefer to retain their services on their existing pricing or move to new pricing at Rack Rates at the expiration of any promotional perioG may Go so´  292 Application at 2-3. 293 6everal internal CKarter GocXments GiscXss claims tKat OVDs anG eGJe proviGers ErinJ to enKance CKarter’s broadband service. See, e.g., CHR2-DOJ -00000246437 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 294 Application at  ; Opposition at  CKarter arJXes tKat its consXmer contractinJ practices ³Gemonstrate its support of OVD entry and innovation, and Charter has committed to continue these practices post-merJer´ Id. at 18. Similarly, both Charter and Time Warner Cable advertise to subscribers that they can use our high-speed data services to Eetter vieZ OVDs´ Id. AccorGinJ to Dr 6cott 0orton tKe ³eviGence sXJJests 1eZ CKarter ZoXlG lose a substantial number of profitable broadband subscribers if OVDs Zere IorecloseG´ 6cott 0orton Reply Decl at para. 120. 295 Residential Pricing and Packaging White Paper at 4. Federal Communications Commission FCC 16-59 46 products. In comparing standalone BIAS options CKarter’s cXrrent introGXctory stanGalone BIAS rate is among the lowest of any of the major BIAS providers for the speeds offered. 296 Charter offers a standalone BIAS option with a 12-month introductory price of $39.99 per month for 60 Mbps downstream speeds.297 By comparison, Time Warner Cable charges $64.99 per month for standalone BIAS at 50 Mbps downstream speeds,298 Bright House charges $74 per month for standalone BIAS at speeds of 35 Mbps downstream,299 Verizon charges $50 per month for symmetrical speeds of 50 Mbps, 300 AT&T charges $65 per month for 45 Mbps downstream, 301 CenturyLink charges $97 per month for standalone BIAS at 60 Mbps downstream,302 and while Comcast does not have nationwide standalone BIAS pricing, it does have a standalone BIAS offering at 75 Mbps downstream that is priced between $40 and $50 per month in certain markets. 303 Based on the advertised prices of its peers, Charter appears to be 296 See CHR2-FCC-00000002925, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 297 Charter, Combine TV, Internet & Phone for the Best Deal, https://www.charter.com/browse/content/packages (last visited Jan. 29, 2016) (after one year, the standalone BIAS price rises to the standard rate of $59.99/month). 298 Time Warner Cable, TV, Internet & Phone Plans, http://www.timewarnercable.com/en/plans-packages/cable- internet.html?cic721 last visiteG -an    7ime :arner CaEle’s %IA6 tiers are all plans are -month introductory pricing, except for the most basic tier): (1) $64.99/month for 50 Mbps downstream; (2) $54.99/month for 30 Mbps downstream; (3) $44.99/month for 20 Mbps downstream; (4) $34.99/month for 15 Mbps downstream; (5) $29.99/month for 6 Mbps downstream, and (6) $14.99/month for 2 Mbps downstream). See also TWCable- DOJ 000295256, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] We note that less than two weeks after the New York Public Service Commission approved the Charter-Time Warner Cable-Bright House transaction (with conditions), Time Warner Cable increased the rates on certain of its standalone BIAS plans in the New York area (the 15 Mbps downstream plan increased to $59.99 per month, while the 6 Mbps downstream plan increased to $49.99 per month). Katharine Trendacosta, Time Warner Cable Unleashes Infuriating Price Hike, Gizmodo (Jan. 19, 2016), http://gizmodo.com/1753780357. 299 Bright House, Offers, http://brighthouse.com/shop/internet.html (last visited Jan. 29, 2016). Bright House has several BIAS tiers (at 12-month introductory prices): (1) $199/month for 300 Mbps downstream (only available in Florida); (2) $104/month for 150 Mbps downstream; (3) $89/month for 75 Mbps downstream; (4) $74/month for 35 Mbps downstream; (5) $54/month for 15 Mbps downstream bundled with phone service; and (6) $20/month for 2 Mbps downstream. 300 Veri]on’s )IO6 service Kas several tiers oI symmetrical stanGalone %IA6 all at -month introductory prices): (1) $270/month for 500 Mbps; (2) $170/month for 300 Mbps; (3) $70/month for 150 Mbps; (4) $60/month for 100 Mbps; and (5) $50/month for 50 Mbps. Verizon, Go Fiber Optic with FIOS Internet, http://www.verizon.com/home/fios-fastest-internet (last visited Feb. 2, 2016). 301 AT&T has several tiers of standalone BIAS (all at 12-month introductory prices): (1) $75/month for 75 Mbps downstream; (2) $65/month for 45 Mbps downstream; (3) $55/month for 24 Mbps downstream; (4) $45/month for 18 Mbps downstream; (5) $40/month for 12 Mbps downstream; (6) $35/month for 6 Mbps downstream; and (7) $30/month for 3 Mbps downstream. AT&T, U-verse Internet Offers, https://www.att.com/shop/u-verse/offers. html?alt ineligible page=OFP (last visited Feb. 2, 2016). 302 CenturyLink charges $54/month for its base BIAS speed tier of 1.5 Mbps downstream, while it charges $154/month for a speed tier of 1 Gbps downstream. CenturyLink, Inc. Response to Information Request at Attach. 5b, Bates Nos. 0000031-33. At 60 Mbps downstream, CenturyLink charges $97/month. Id. 303 Comcast, New Customer Internet Offers, http://www.xfinity.com/?CMP=1 (last visited Feb. 2, 2016). For example, in Atlanta. Comcast has the following tiers of standalone BIAS (all at 12-month introductory prices): (1) $90/month for 105 Mbps downstream; (2) $45/month for 75 Mbps downstream; (3) $25/month for 25 Mbps downstream; and (4) $15/month for 3 Mbps downstream. In San Francisco, the BIAS tiers are as follows: (1) $50/month for 150 Mbps downstream; (2) $45/month for 75 Mbps downstream; (3) $40/month for 25 Mbps downstream; and (5) $30/month for 10 Mbps downstream. In Philadelphia, the 75 Mbps downstream offering is priced at $50/month. Federal Communications Commission FCC 16-59 47 pricing its standalone BIAS competitively, and in fact would lower the standalone BIAS prices currently available in Time Warner Cable and Bright House territories for comparable speeds. With regard to its cXrrent introGXctory EXnGleG pricinJ moGel in contrast to tKe otKer Applicants CKarter’s stanGalone BIAS prices are notably less expensive than its bundled prices. 304 91. We conclude that the record provides insufficient evidence to demonstrate that Charter will change its post-transaction standalone BIAS pricing by pricing its bundled service offerings close in price to its stanGalone %IA6 in an eIIort to alter tKe valXe proposition oI OVDs’ viGeo oIIerinJs305 CKarter’s cXrrent %IA6 pricinJ ZKicK tKe company states it plans to continXe post-transaction,306 does not suggest New Charter will make standalone BIAS offerings economically prohibitive. The documentary evidence leads us to reach a conclusion regarding standalone BIAS pricing different from our findings regarding data caps and UBP. With respect to Gata caps CKarter’s GocXments sKoZ tKat [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .307 CKarter’s GocXments Go not show that its top-level executives ²or its pricing or marketing teams²have considered changing the company’s stanGalone %IA6 pricinJ strategy.308 304 For its introductory prices, Charter charges $39.99/month for its standalone BIAS product, compared to montK Ior CKarter’s EXnGleG viGeo anG %IA6 a -month introductory rate comprised of $59.99/month for the basic video tier and $29.99/month for BIAS) and compared to the 12- montK introGXctory rate Ior CKarter’s bundled triple play BIAS, phone, and basic video services, which is $29.99/month per service. See Charter, Combine TV, Internet & Phone for the Best Deal, https://www.charter.com/browse/content/packages (last visited Jan. 29, 2016). By comparison, Time Warner Cable has numerous introductory bundles that include BIAS, where generally the total bundled pricing is closer in cost to Time Warner Cable’s stanGalone %IA6 oIIerinJs 7ime Warner Cable prices, for example, its 50 Mbps downstream BIAS at 59.1% of the price of its triple-play service using BIAS at 50 Mbps downstream ($65 vs. $110), and it prices its 30 Mbps service at 61.1% of the price of its triple-play service using BIAS at 30 Mbps downstream ($55 vs. $90). See Time Warner Cable, Inc., TV, Internet & Phone Plans, http://www.timewarnercable.com/en/plans-packages/cable-internet.html?cic721 (last visited Jan. 29, 2016). Bright House tends to price its standalone BIAS even closer to the price of its bundled services than does Time Warner Cable. For example, Bright House prices its introductory 35 Mbps standalone BIAS at 74.7 percent of the cost of its premier double-play service ($74 vs. $99), and it prices its 15 Mbps broadband service at 73 percent of the cost of its standard double-play service ($54 vs. $74). Bright House Networks, Offers, http://brighthouse.com/shop/internet html (last visited Jan. 29, 2016) . 305 See CHR-DOJ-0001998954 at 1, [ BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 306 See ResiGential 3ricinJ anG 3acNaJinJ :Kite 3aper at  ³CXrrently CKarter Kas no plans to increase the price of its standalone broadband offering. Moreover, because included in Charter's pricing and packaging model is the strategic goal of national pricing, competition in one market benefits consumers in areas where the local competitor (e.g., ILEC, CLEC, or municipality) is offering lower value broadband offerings. Consumers in those markets tend to receive the benefit of competition's effects on prices in other Charter markets, as Charter seeks to lift price- adjusted quality levels across th e EoarG´  307 See supra paras. 80-83. 308 See, e.g., Letter from John Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- at  IileG Dec   notinJ ³Charter confirmed that its pricing strategy is the same for standalone broadband pricing as it is for bundled services, and that Charter currently has no plans to increase the price of its stanGalone EroaGEanG oIIerinJ´  Federal Communications Commission FCC 16-59 48 92. The record indicates that Charter currently does not engage in anticompetitive pricing of standalone BIAS.309 We conclude that the merger is unlikely to increase the risk that New Charter will price either its standalone BIAS or its bundled services in a manner designed to disadvantage OVDs. To the extent the transaction poses a potential harm with respect to BIAS pricing, we believe such a harm is speculative and would be minimal.310 In any event, any such harm²if it occurred²would be outweighed by the benefits secured by the conditions we impose herein, including a residential build-out requirement and the establishment of a standalone BIAS plan for low income consumers.311 C. Increased Concentration in Interconnection Services 93. In this section, we assess the potential harms that the proposed transaction poses to the exchange of data across the Internet. We begin by determining that the relevant market is the national market for access to wired BIAS subscribers via interconnection. We find that the transaction will transform New Charter into a leader in that national interconnection market. We further find that New CKarter’s sKare oI wired nationwide BIAS subscribers and control of interconnection traffic will give it sufficient market and bargaining power in the interconnection market to raise prices for edge providers, and to cause harm to video competition by impairing rival OVDs. Finally, we determine that conditions are necessary to address potential public interest harms and impose a limited set of conditions to remedy the identified harms, including a mandatory settlement-free interconnection condition and an interconnection disclosure requirement. 1. Background a. The Internet Interconnection Ecosystem 94. The Internet is a complex ecosystem that connects consumers, businesses, governments, non-profits and others to each other. Internet communications enable a vast array of content and services that drives a virtuous cycle of innovation to tKe pXElic’s great benefit.312 As the Commission has previously recognized, BIAS providers operate within a two-sided market.313 On one end of the market, BIAS providers sell consumers access to the Internet, while at the other end, BIAS providers offer edge providers access to tKe %IA6 proviGers’ consXmers314 In a two-sided market like BIAS, the value each set of customers derives from the platform increases as usage by customers on the other side increases. Residential subscribers value BIAS more as edge providers offer more content and higher quality content. And edge providers value interconnection with BIAS providers more as the providers service more sXEscriEers anG tKeir sXEscriEers’ enJaJement increases 309 According to Charter, it sets its prices for both standalone and bundled services on a number of factors, including [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Residential Pricing and Packaging White Paper at 3. Charter also states that its pricing depends on [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. 310 DISH argues that NeZ CKarter Zill Kave every incentive ³to Xse its EXnGlinJ cross-subsidy advantage to protect its viGeo proGXct´ DI6H Apr   Ex Parte Letter at 5. In support of that claim, DISH cites exclusively to GocXments Irom 7ime :arner CaEle’s GiscXssion of pre-transaction pricing strategy. Id. at 6-8. However, Applicants Kave stateG tKat 1eZ CKarter Zill aGopt CKarter’s not 7ime :arner CaEle’s pricinJ strateJies post- transaction, and DISH presents no documents suggesting New Charter will likely adopt Time :arner CaEle’s pricing behavior. 311 See infra Sections VI.F & VI.N.4. 312 2015 Open Internet Order, 30 FCC Rcd at 5603, paras. 1-3. 313 Id. at 5747, para. 338. 314 See id. Federal Communications Commission FCC 16-59 49 95. BIAS providers like the Applicants function as gatekeepers between their subscribers and the rest of the Internet; all traffic going to or from a subscriber must pass through the BIAS provider. Because of this gatekeeping role, BIAS providers with large numbers of subscribers have greater leverage to negotiate preferential terms and prices with edge providers seeking to reach those subscribers. As we discuss below in greater detail, the largest BIAS providers can use this leverage to charge higher prices that could stifle edge provider innovation, and create terms and prices that discriminate against OVDs that compete ZitK tKe %IA6 proviGers’ aIIiliateG viGeo services 96. Intermediaries connect edge providers at one end of the Internet with BIAS subscribers at the other end. Edge providers offer content, applications, and services for use by BIAS subscribers.315 Examples of intermediaries include BIAS providers, backbone providers, and content delivery networks CD1s  %IA6 proviGers ³oIIer a mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints.´316 Backbone providers, in essence, provide long-haul transport that connects their customers (BIAS providers) and edge providers.317 CDNs are distributed systems of servers that cache edge provider content closer to end users to lessen delivery costs and improve delivery quality. 318 97. These various parties interconnect in order to exchange Internet traffic among their netZorNs typically at ³e[cKanJe points.´319 The structure of interconnection agreements between edge providers, BIAS providers, CDNs, and backbone providers can have a significant impact on the ability of consumers and businesses to connect with each other.320 If an edge provider does not obtain sufficient interconnection capacity through its agreements, it may encounter congestion while trying to deliver traffic to BIAS subscribers. 98. Interconnection agreements govern, first, what traffic is exchanged between the parties and over what route, and, second, the compensation, if any, to be paid by one party to the other. Historically, parties have exchanged traffic on either a transit or a peering basis. In a transit relationship, which is usually fee-based, the transit provider gives its customer access to the full Internet, and gives the rest of the Internet access to the transit customer. In a peering relationship, the parties exchange traffic only EetZeen tKemselves anG tKeir respective cXstomers 3eerinJ can Ee ³settlement Iree´ no Iees exchanged) or one party can cKarJe tKe otKer Ior ³paiG peerinJ´321 While previously, large BIAS providers paid backbone providers for transit to receive Internet traffic, they now typically enter into peering relationships with edge providers and CDNs, sometimes on a paid basis, in exchange for allowing 315 2010 Open Internet Order, 25 FCC Rcd at 17907, para. 4 n.2. Examples of major edge providers include Google and Amazon, but there are many types of edge providers, such as online news, education, and gaming services. See Michael Kende, The Digital Handshake: Connecting Internet Backbones, FCC Working Paper #32, at 2-3 (2000), https://transition.fcc.gov/Bureaus/OPP/working papers/oppwp32.pdf. 316 47 CFR § 8.2(a). 317 See Verizon v. FCC, 740 F.3d 623, 628-29 (D.C. Cir. 2014) (describing backbone networks and broadband providers); WorldCom-MCI Order, 13 FCC Rcd 18025, para. 143-44. 318 See Rajkumar Buyya, Al-Mukkadim Khan Pathan, James Broberg, & Zahir Tari, Working Paper, A Case for Peering of Content Delivery Networks at 3 (Oct. 2006), http://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber =4012578 ; %oGy oI (Xropean ReJXlators Ior (lec Commc’ns An Assessment oI I3 Interconnection in the Context of Net Neutrality at 47 (2012), http://berec.europa.eu/eng/document register/subject matter/berec/reports/ ?doc=1130 ; Akamai, Our Customers, https://www.akamai.com/us/en/our-customers.jsp (last visited Jan. 21, 2016). 319 2015 Open Internet Order, 30 FCC Rcd at 5686, para. 194 n.482. 320 Id. at 5689-92, paras. 196-201 (discussing the Internet traffic exchange market and recent disputes). 321 Id. at 5687-88, para. 196-98. Federal Communications Commission FCC 16-59 50 them to interconnect ZitK anG reacK tKe %IA6 proviGer’s sXEscriEers322 Edge providers may also be able to reacK a %IA6 proviGer’s sXEscriEers by contracting with a CDN or transit provider who has access to tKe %IA6 proviGer’s netZorN 99. Within the market for interconnection with BIAS providers, the providers fall along a spectrum. At one end of the spectrum are small BIAS providers without their own backbone which rely heavily on transit providers to connect to the full Internet. These small providers do not have the infrastructure necessary to reach Internet exchange points and arrange for settlement-free peering. 323 At the other end of the spectrum are large BIAS providers that operate network infrastructure as a backbone provider or on a scale approaching that of a backbone provider. At present five BIAS providers fall into this category and currently charge for paid peering: Comcast, AT&T, Verizon, Time Warner Cable, and CenturyLink.324 In between are medium-sized BIAS providers (like Charter) with partial backbones and presence at exchange points that are able to negotiate settlement-free peering with some edge providers but continue to rely on transit arrangements to reach the full Internet. 100. As we discuss further below, the success of a BIAS provider charging paid peering depends on the two factors: tKe nXmEer oI sXEscriEers or ³eyeEalls´ tKat tKe %IA6 proviGer serves anG tKXs tKe portion oI an eGJe proviGer’s EXsiness tKat tKose %IA6 sXEscriEers represent anG tKe %IA6 proviGers’ control over interconnection capacity into its network.325 Networks that have strong control over interconnection and purchase little or no transit service can be accessed primarily by peering.326 In this regard, we note that BIAS providers can make available paid peering capacity while constraining settlement-free peering capacity. Conversely, when a BIAS provider has less control over interconnection and purchases some transit, an edge provider can attempt to deliver its traffic over those transit links, thereby circumventing the need to enter into a direct relationship (paid or settlement-free) with the BIAS provider.327 Through size and control, the largest BIAS providers can solidify their 322 See id. at 5687-92, para. 196-201; Paid Peering, DrPeering, http://drpeering.net/white- papers/Ecosystems/Internet-Paid-Peering.html (last visited Apr. 29, 2016); William Norton, The Evolution of the U.S. Internet Peering Ecosystem, DrPeering, http://drpeering.net/white-papers/Ecosystems/Evolution-of-the-U.S.- Peering-Ecosystem.html (last visited Apr. 29, 2016). 323 7Kese small %IA6 proviGers typically rely on EacNEone proviGers to oEtain ³transit´ services JivinJ them access to the rest of the Internet that they can resell to their subscribers. 324 See, e.g., 2015 Open Internet Order, 30 FCC Rcd at 5689-92, paras. 199-201; Comcast Response to Information Request at Exh. 125.1; AT&T First Supplemental Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Maureen R. Jeffreys, Counsel for AT&T, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Nov. 24, 2015); Verizon Response to Information Request at 3; Time Warner Cable Response to Information Request at Exh. 51; CenturyLink Inc. Response to Information Request at 4- 5. 325 See infra Section V.C.3; Appendix C., Section II.B.1. 326 See, e.g., Verizon, Press Release, Verizon Offering Pricing Incentives to CDN Providers to Connect Directly to Company’s Internet Backbone Network (January 7, 2009), http://newscenter2.verizon.com/press-releases/ verizon/2009/verizon-offering-pricing html; Letter from Tiffany West Smink, Associate General Counsel, CenturyLink, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 4 (filed Oct. 30, 2015); AT&T- DIRECTV Order, 30 FCC Rcd at 9211-12, para. 214. 327 Consequently, if a BIAS provider has transit links, the price it could charge for paid peering will be moderated by the market price of transit²tKe eGJe proviGer’s alternate roXte into tKe %IA6 proviGer’s netZorN %Xt a %IA6 provider without any transit links does not face the same price constraint on its paid peering prices. Further, when the BIAS provider relies on transit, it must pay for every inbound bit of traffic over a transit link. Thus, such a BIAS provider faces strong incentives to offer settlement-free peering to any edge provider that is prepared to bring traffic to its doorstep instead of over a transit link because it would save on transit costs. Federal Communications Commission FCC 16-59 51 position as gatekeepers between their subscribers and edge providers²and use this position in a two- sided market to their benefit.328 b. The Applicants’ Interconnection Operations 101. CKarter is cXrrently tKe nation’s si[tK-largest BIAS provider serving approximately 4.8 million residential subscribers.329 Charter maintains a backbone with national reach, with a presence in eight major peering cities. 330 Charter uses this backbone network to connect its own properties, provide business services, interconnect with edge providers, CDNs, and other access networks, and reduce its transit costs.331 Charter does not currently engage in any paid peering relationships.332 Instead, Charter relies on a combination of settlement-free peering relationships and transit service it buys from several backbone service providers to exchange traffic with the full Internet. 333 102. Time :arner CaEle is tKe nation’s tKirG-largest BIAS provider, with 11.7 million residential subscribers.334 Time Warner Cable also handles the interconnection negotiations on behalf of %riJKt HoXse’s  million resiGential sXEscriEers335 Time Warner Cable currently maintains a backbone with nationwide reach that is present at seven major peering cities. 336 Time Warner Cable has established settlement-free interconnection relationships with many of the backbone service providers while relying 328 See 2015 Open Internet Order  )CC RcG at  para  ³tKe Commission aJrees tKat a tZo-sided market e[ists´  329 Application at 7, 29. Charter serves an additional 0.3 million commercial customers. Application at 29. The Applicants’ EroaGEanG sXEscriEersKip anG tKe nXmEer oI nationZiGe EroaGEanG sXEscriEers Kas Eeen placeG in tKe record here subject to the Protective Order. See 477 Data PN, 30 FCC Rcd at 12749, Exh. 1a. For purposes of our analysis tKe Applicants’ sXEscriEersKip as reporteG in tKe Application is sXIIiciently close to tKe nXmEer oI year-end 2014 subscribers they reported to the Commission on Form 477 that for ease of reading we will refer to the public nXmEers in tKe te[t 7Ke Applicants’ DecemEer  )orm  Gata sKoZ tKe IolloZinJ nXmEer oI total EroaGEanG subscribers: [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] . 330 Charter Response to Information Request at 184; Charter Communications Inc., Annual Report (Form 10-K) at 17 (Feb. 21, 2014). 331 See CHR2-DOJ -00000338676, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ -00000259102, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ -00000259838, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 332 Charter Response to Information Request at 190, 217- 18. 333 See id. at 213-18 (listing peers and transit providers). 334 Application at 10, 29. Time Warner Cable serves an additional 0.6 million commercial customers. Application at 29. 335 Id. Bright House serves an additional 0.2 million commercial broadband customers. Id. Time Warner Cable and Bright House have separately confirmed that Time Warner Cable currently handles the transit and peering negotiations on behalf of both companies. See Letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attach. at 1 (filed Jan. 19, 2016); Advance/Newhouse Response to Information Request at 41; Time Warner Cable Response to Information Request at 67. Therefore, under the current Time Warner Cable-Bright House arrangement, an edge provider cannot gain access to Bright HoXse’s netZorN ZitKoXt neJotiatinJ ZitK 7ime :arner CaEle eitKer Girectly Ior interconnection or inGirectly through a third party that has a transit or peering relationship with Time Warner Cable. 336 Time Warner Cable Response to Information Request at 99-100 (stating that Time Warner Cable acquired a backbone when it acquired Adelphia in 2006 which it expanded into a new backbone and brought online in 2007). Federal Communications Commission FCC 16-59 52 on transit connections for some traffic, such as intercontinental traffic.337 Time Warner Cable has negotiated paid-peering relationships with several edge providers and CDNs.338 103. New Charter is projecte G to Eecome tKe nation’s seconG-largest residential BIAS provider, serving 18.4 million residential BIAS subscribers.339 New Charter will control access to approximately 35 percent more BIAS subscribers than Time Warner Cable and Bright House combined, anG Zill inKerit 7ime :arner CaEle’s Zell-developed portfolio of settlement-free interconnection and paid-peering arrangements with nearly all of the major backbone providers, CDNs, and edge providers. 340 AIter tKe transaction closes 1eZ CKarter Zill Ee positioneG to inteJrate tKe Applicants’ EacNEones into a unified national backbone, and will have increased bargaining power on the interconnection side of the two-sided BIAS market.341 Our economic analysis indicates that, in the absence of a condition, New CKarter’s paiG peerinJ traIIic in tKe meGiXm term ZoXlG liNely increase siJniIicantly to over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of its total traffic.342 We are concerned that this consolidation of bargaining power will harm other participants in the interconnection market, and further consider the effect of this transaction below. 2. Relevant Markets 104. Product Market. To evaluate tKe transaction’s competitive anG otKer pXElic interest effects, we first identify the relevant product market.343 Here, we find that the relevant product market is the market for access to wireline BIAS subscribers via interconnection tKe ³interconnection marNet´ .344 Edge providers, either directly or via transit providers and CDNs, need to access their customers and potential cXstomers over tKe netZorN controlleG Ey tKeir cXstomers’ %IA6 proviGers. BIAS is a two-sided market that brings together edge providers and consumers.345 Because consumers subscribe to wired cable or fiber BIAS for its particular attributes, including its ability to distribute large quantities of high quality video traffic, OVDs and other edge providers would not view interconnection with wireless or satellite BIAS providers as a substitute for wired BIAS providers to reach their customers. Access to cable and fiber wired BIAS is crucial to the newest and most innovative business models, and cable and 337 Time Warner Cable maintains settlement-free interconnection relationships with several backbone service providers, including: [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See Time Warner Cable Response to Information Request at Exh. 41-01. Settlement-free interconnection is a variation of settlement-free peering. In a settlement-free interconnection arrangement, traffic exchanged between the parties within an agreed-upon traffic ratio is settlement-free, and traffic in e[cess oI tKat ratio is ³senGinJ-party-pays´ 338 Time Warner has paid-peering relationships with [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Time Warner Cable Response to Information Request at Exh. 41-0 1. 339 See 477 Data PN, 30 FCC Rcd at 12749, Exh. 1a. 340 See id. at 12749, Exhs. 1a, 1b. 341 See supra Section V.C.1. 342 See Appendix C, Section II.B., para. 21. 343 See generally 2010 DOJ/FTC Horizontal Merger Guidelines § 4 at 7- 8. 344 See Verizon v. FCC  )G   DC Cir  notinJ tKat ³EroaGEanG proviGers IXrnisK a service to eGJe proviGers´  345 2015 Open Internet Order, 30 FCC Rcd at 5747, para. 338. Federal Communications Commission FCC 16-59 53 fiber BIAS providers are well-positioned to act as gatekeepers to their subscribers, collecting interconnection fees in return for access.346 105. We find that the relevant interconnection product market is not limited to any set speed threshold. The Applicants argue that if a product market for high-speed BIAS subscribers exists, it is not limited to subscribers who have download speeds of 25 Mbps download speeds and faster.347 ConsXmers’ increasing consumption of video from OVDs, and at higher resolutions, requires increasingly faster downstream speeds²which in turn requires robust, uncongested interconnection. 348 However, as we discuss above,349 there is no single speed that perfectly captures the wired BIAS market and we do not adopt a specific speed measure to define the product market here. 106. Geographic Market. We find that the relevant geographic market for access to wireline BIAS subscribers via interconnection is national. (GJe proviGers’ EXsiness moGels typically GepenG on the ability to reach customers on a nationwide basis.350 Edge providers have two main types of business models: subscriber-based and advertising-based.351 The more BIAS subscribers that an edge provider can reach with its service, the more potential subscribers it can have, and in turn, the greater the potential revenues from subscriptions or advertising.352 Edge providers therefore view interconnection with different BIAS providers²whether directly or through transit or CDN services²as substitute sources of eyeballs regardless of the portion of the United States each BIAS provider serves. 107. There is no indication that edge providers contract for direct or indirect interconnection with BIAS providers on a local market-by-market basis. Instead, the record indicates that, whether an 346 Verizon v. FCC, 740 F.3d at 646 (discussing role of BIAS as gatekeeper); 2010 Open Internet Order, 25 FCC Rcd. at 17919, 17935, paras. 24, 50. Because BIAS providers often face minimal competition, they have little fear of losing subscribers in the event of an interconnection dispute. See supra para. 64-67. 347 See Opposition at 33-39; Charter Response to Information Request at 76. 348 Cf. %ill %aer Assistant Attorney *eneral 86 Dep’t oI -Xstice .eynote AGGress at DXNe 8niversity /aZ 6cKool’s Future of Video Competition and Regulation Conference (Oct. 9, 2015), http://www.justice.gov/opa/file/ 782401/download ³6o many consXmers’ only option Ior KiJK-speed internet service is the cable company²the same cable company that also derives significant revenues from its cable television business. This means that as online video distribution increases the cable companies have both the incentives and means to use their gatekeeper power to slow innovation to protect their video profits. In this way, the high-speed internet market and the video GistriEXtion marNet are ine[tricaEly intertZineG´  349 See supra para. 59. 350 See DISH Petition, Exh. B, at para. 16 (Lynch Decl.); WGAW Petition at 22. Because, like video programming, the content supplied by edge providers is a non-rival good that can be distributed at little marginal cost, the relevant geographic market could potentially be national or international in scope. See News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 64. However, we conclude that the relevant market here is national, not international. The record indicates that edge providers typically contract for distribution (whether from transit providers, CDN services, or direct interconnection) on a national basis. See, e.g., TWCable-DOJ -000000537, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; see also, e.g., WGAW Petition at 29; DISH Petition at 44. Many prominent websites either differentiate their products based on regional markets or have separate U.S. and international versions. Also, OVDs are likely to have the right to distribute their programming only in the United States. See, e.g., Petition to Deny of Netflix, Inc., MB Docket No. 14-57, at 8-10, 24-27, Florance Decl. at paras. 14-24; Evans Decl. at para. 122 (market for edge provider distribution of its content is national). 351 See Sixteenth Video Competition Report, 30 FCC Rcd at 3381, para. 295. 352 See id. at 3352, para. 213. Federal Communications Commission FCC 16-59 54 edge provider is contracting for transit, CDN services, or direct interconnection with a BIAS provider, it provides access to its full footprint.353 3. Increased Interconnection Costs 108. We find that the transaction will enable New Charter to impose higher costs on edge providers, transit services, and CDNs due to its increased market power. In the 2015 Open Internet Order Ze conclXGeG tKat ³EroaGEanG Internet access proviGers Kave tKe aEility to Xse terms oI interconnection to GisaGvantaJe eGJe proviGers anG tKat consXmers’ aEility to responG to XnMXst or unreasonable BIAS provider practices are limited by switching costs´354 This transaction aggravates those concerns²it creates a large BIAS provider and thereby strengthens its ability to unilaterally impose increased interconnection costs on edge providers, transit providers, and CDNs, ultimately raising costs to consumers for a diverse array of Internet-based services and impeding the virtuous cycle of development.355 We conclude that increased interconnection costs can disrupt the virtuous cycle of innovation by diverting funds towards interconnection fees that could have otherwise been used for further innovation or price reductions for consumers.356 109. New Charter will be well positioned to leverage its larger BIAS subscriber base and increased control of interconnection traffic to act as a gatekeeper between edge providers and their customers. The combination of Charter and Time Warner Cable will increase the potential damage to their business if they forgo²even temporarily²interconnection with New Charter compared with either Charter or Time Warner Cable individually.357 Moreover, because there is limited competition in its BIAS footprint and BIAS subscribers switch providers infrequently, New Charter will be able to pressure edge providers without fear of harming its retail BIAS business. a. BIAS Subscriber Shares 110. Since we have determined the relevant market, we turn to assessing the impact this transaction will likely have in the market. As discussed above, New Charter will control a larger national share of BIAS subscribers than Time Warner Cable controls today.358 This holds true regardless of the 353 7ime :arner CaEle’s cXrrent paiG peerinJ contracts [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See Time Warner Cable Response to InIormation ReTXest at  proviGinJ copies oI all recent interconnection aJreements  CKarter’s settlement-free peering commitment would provide compulsory interconnection access to its subscriber-base on a national basis. See Charter Jul. 15, 2015, Peering Policy Ex Parte Letter; Letter from Samuel L. Feder, Counsel for Charter, to Marlene Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Dec. 11, 2015), Attach. 3 (Interconnection White Paper); see also, e.g. :*A: 3etition at   statinJ tKat ³>l@arJe OVDs mXst neJotiate in tKe nationZiGe marNet Ior interconnection in orGer to reacK consXmers at all´ ; DI6H 3etition at  assertinJ tKat ³>a@ll oI tKese eGJe providers ± whether established providers or fledgling entrants ± require national, or at least near-national, access at sXIIicient speeGs to compete ZitK incXmEent competinJ services´  354 2015 Open Internet Order, 30 FCC Rcd at 5694, para. 205. See also AT&T-DIRECTV Order, 30 FCC Rcd at 9214, para. 217. 355 See 2015 Open Internet Order, 30 FCC Rcd at 5694, para. 205. 356 See id. at  para  ³:Ken Internet traIIic e[cKanJe EreaNs GoZn²regardless of the cause²it risks preventing consumers from reaching the services and applications of tKeir cKoosinJ GisrXptinJ tKe virtXoXs cycle´  357 See /yncK Decl at para  notinJ tKat ³CKarter anG 7:C’s oIIerinJs are sXEstitXtes Ior one anotKer´ EXt post- transaction ³tKe option oI inclXGinJ eitKer CKarter or 7:C in tKe mi[ Zill Gisappear´  As discussed above, Time :arner CaEle KanGles %riJKt HoXse’s interconnection matters See supra para. 102 & note 335. 358 :e IinG tKat e[amininJ proGXct sXEstitXtes Ior tKe Applicants’ caEle %IA6 Zill Ee a more eIIective approacK to evaluating the impact of the transaction on the interconnection market rather than selecting a specific speed to evaluate. The Applicants contend they compete with services offering a wide range of speeds. See Application at 44. Several petitioners argue the effect of the transactions must be evaluated focusing on BIAS subscribers continXeG« Federal Communications Commission FCC 16-59 55 BIAS speed examined. *iven tKat 7ime :arner CaEle KanGles %riJKt HoXse’s transit anG peerinJ negotiations on behalf of both companies,359 we believe it is appropriate, when calculating national market shares in an interconnection conte[t to comEine 7ime :arner CaEle anG %riJKt HoXse’s pre-transaction subscriber counts. According to December 2014 data reported on Form 477, after the transaction, New Charter will control [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of all national fixed BIAS subscribers, which constitutes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percentage points more tKan 7ime :arner CaEle’s anG %riJKt HoXse’s cXrrent combined national market share.360 At download speeds of at least  0Eps 1eZ CKarter’s national market share will be [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, which is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percentage points more tKan 7ime :arner CaEle anG %riJKt HoXse’s current combined national market share.361 And at GoZnloaG speeGs oI at least  0Eps 1eZ CKarter’s national marNet sKare Zill Ee [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percentage points more than the combined national market share of Time Warner Cable and Bright House.362 111. As we discuss above, because BIAS subscribers infrequently switch their service to another local competitor,363 New Charter will be able to maintain its national market share of BIAS subscribers and, in turn, its bargaining leverage over interconnection partners.364 7Ke Applicants’ economist Dr 6cott 0orton claims tKat ³1eZ CKarter ZoXlG lose a sXEstantial nXmEer oI proIitaEle broadband subscribers if OVDs were IorecloseG´365 anG CKarter arJXes tKat ³>c@Xstomers tolG tKat tKeir ISP is providing sub-optimal service Ior tKeir OVDs can tKen responG Ey cKanJinJ I63s´366 However, tKe Applicants’ claims aEoXt sZitcKinJ in tKese sitXations assXme ZitKoXt sXpport tKat (1) consumers have suitable alternatives; (2) consumers are willing to absorb the switching costs associated with changing their BIAS provider; and (3) if a BIAS provider engages in certain practices that affect distribution quality, consumers are able to determine that their BIAS provider, rather than the OVD (or other edge provider) in question, is responsible for the poor performance. The available evidence suggests that consumers, possibly for a combination of these aforementioned reasons, do not switch BIAS providers when confronted with poor edge provider performance.367 We find that the Applicants have (Continued from previous page) receiving at least 25 Mbps downstream service. See, e.g., DISH Petition at 45-46; WGAW Petition at 19; Free Press 3etition at ; 3XElic .noZleGJe Reply at  :e IinG tKat reJarGless oI tKe speeG e[amineG 1eZ CKarter’s national market share of subscribers stays reasonably consistent and therefore selecting a specific speed for evaluation would not substantially benefit our analysis. 359 See supra para. 102 & note 335. 360 See 477 Data PN, 30 FCC Rcd at 12749, Exhs. 1a, 1b. 361 See id. 362 See id. 363 See supra paras. 64-65. 364 See 477 Data PN, 30 FCC Rcd at 12752, Exh. 3a. Only three percent of New Charter customers would have more than one alternative option at download speeds of at least 25 Mbps. See id. 365 Scott Morton Reply Decl. at para. 120. For a discussion of the survey Dr. Scott Morton cites to support the claim, see supra note 188. 366 Interconnection White Paper at 6. 367 See, e.g., DISH Reply, MB Docket No. 14-57, Exhibit B, para. 14 (stating the conclusion of economist Dr. David 6appinJton retaineG Ey DI6H in tKe Comcast7ime :arner CaEle transaction proceeGinJ tKat ³7Ke Gata reveal tKat Comcast experienced [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] GXrinJ or aIter tKe perioG in ZKicK 1etIli[’s traIIic Zas sloZeG on Comcast’s netZorN´  Federal Communications Commission FCC 16-59 56 failed to demonstrate that BIAS subscribers would leave New Charter if the company manipulated interconnection to degrade the performance of an edge provider. Indeed, the evidence in the record inGicates tKat consXmers GiG not aEanGon 7ime :arner CaEle GXrinJ tKe time perioG ZKen 1etIli[’s service Zas GeJraGeG on 7ime :arner CaEle’s netZorN368 AccorGinJ to DI6H’s economist Dr =araNas 7ime :arner CaEle’s churn [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] during the several months when Netflix service was degraded. 369 We note that Dr. Zarakas produced two separate analyses with different methodologies but similar conclusions,370 and the Applicants did not dispute the results of either study. 112. 0oreover Dr 6cott 0orton’s claims reJarGinJ cKXrn in response to OVD GeJraGation Go not account for the possibility that New Charter could be willing to tolerate some amount of BIAS subscriber churn if the negative monetary effects were outweighed by the resulting benefit accruing to 1eZ CKarter’s MVPD business. In other words, even if we accepted Dr. 6cott 0orton’s claim tKat %IA6 subscribers would leave New Charter if the company degraded OVDs, the threat of those departures would not necessarily disincent New Charter from foreclosing OVDs if doing so created a net monetary benefit. Furthermore, as just discussed, the evidence suggests that any subscriber departures, if they occur, would be minimal. b. Increased Bargaining Power within the Interconnection Market 113. :e IinG tKat tKe proposeG transaction strenJtKens 1eZ CKarter’s EarJaininJ position in the interconnection market in two related ways. First, by making New Charter the gatekeeper to 18.4 million residential BIAS subscribers, or over 20 percent of the national market.371 Second, by increasing 1eZ CKarter’s aEility to control interconnection traIIic into its oZn netZorN alloZinJ it to constrain routes and extract fees. 114. Cable and fiber BIAS subscribers represent a particularly valuable set of customers for many edge providers. Various edge providers (e.g., high-definition OVDs, real-time gaming, and online backup) offer services that may only function acceptably when delivered over a hi gh-speed connection.372 Due to the lack of alternatives, the most bandwidth-intensive edge provider services face intense pressure 368 Letter from Stephanie A. Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, Attach., at para. 3 (filed Mar. 15, 2016) (Zarakas Supplemental Decl.); see also Zarakas Decl. at para. 21 (finding [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in 7ime :arner CaEle’s churn during the Netflix degradation period relying on a time trend variable). 369 =araNas 6Xpplemental Decl at para  In Kis sXpplemental Geclaration Dr =araNas also IoXnG tKat ³Ior non- competitive ]ip coGes volXntary internet cKXrn increaseG in response to Iaster 1etIli[ streaminJ speeGs´²a result Ke GescriEeG as ³coXnter-intuitive´ Id. This second finding is likely explained by improvements in network performance (and, correspondingly, Netflix performance) that resulted from churn that occurred after the Netflix degradation ended. 370 :itK respect to Dr =araNas’ initial cKXrn analysis, the regression reflected in Table 3 of the analysis included a time trend variable that is difficult to justify theoretically. See Zarakas Decl. at Table 3. Because the quality of the Netflix stream progressively worsened over the first few months of the congestion episode, we find that is possible tKat inclXsion oI tKe time trenG variaEle coXlG Kave eIIecteG =araNas’ measXrement oI tKe impact oI tKe 1etIli[ conJestion on 7ime :arner CaEle’s cKXrn in Kis initial analysis In response to tKis possible concern, Zarakas eliminated the time trend variable for his supplemental analysis and determined that even without the variable, Time :arner CaEle’s cKXrn [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] during the Netflix congestion. See Zarakas Supplemental Decl. at paras. 3, 6. 371 See 477 Data PN, 30 FCC Rcd at 12749, Exhs. 1a, 1b. 372 See DISH Petition at 45- statinJ tKat O77 services especially streaminJ viGeo reTXire ³e[tremely KiJK EanGZiGtK´ ; )ree 3ress 3etition at . Federal Communications Commission FCC 16-59 57 to access cable or fiber BIAS subscribers, and thus will be the most susceptible to imbalanced bargaining power with cable or fiber BIAS providers. 115. 1eZ CKarter’s EarJaininJ poZer in tKe interconnection marNet Zill increase GXe to its larger share of BIAS subscribers. As described in the background section above, New Charter would become the second-largest BIAS provider in the United States, with an 18.4 million residential BIAS customers, over 20 percent of the residential BIAS customers nationwide (and approximately 35% larger than Time Warner Cable and Bright House combined). Our economic analysis suggests that the ability of a BIAS provider to charge for access to subscribers increases with the number of subscribers; the greater the number of subscribers, the more the BIAS provider can charge on a per-subscriber basis.373 As the nation’s seconG-largest BIAS provider serving over one-fifth of American wired BIAS consumers, edge providers would need access to New Charter subscribers to remain viable as a business.374 Furthermore, as previously discussed, because New Charter would face little competition to retain its BIAS subscribers, there is little competitive restraint on its efforts to collect fees for access to its subscribers. 116. A %IA6 proviGer’s aEility to cKarJe Ior access to its sXEscriEers depends on its ability to control traffic entering and exiting its network. Without such control, edge providers can access the BIAS proviGer’s sXEscriEers via alternative means.375 Thus, the degree of control that a BIAS provider is capable of exerting can be evaluated by measuring its dependence on transit capacity. 376 And the more transit capacity a BIAS provider uses, the greater the supply of capacity into the BIAS provider’s netZorN with no paid peering fees. In contrast, BIAS providers that have only limited transit capacity can act as gatekeepers controlling the traffic exchanged with their networks via direct interconnection. 117. The transaction would also give New Charter greater control over the traffic entering and exiting its network. Charter currently uses transit services to transport a significant amount of its out-of- network traffic,377 anG eGJe proviGers cXrrently can reliaEly reacK CKarter’s sXEscriEers Ey pXrcKasinJ transit.378 1eZ CKarter ZoXlG Ee aEle to Xse 7ime :arner CaEle’s e[istinJ peerinJ arranJements insteaG of relying on transit services, and would likely be able to use its combined subscriber-base to negotiate additional peering arrangements that the Applicants were unable to conclude individually. The transaction would transform Charter from [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . New Charter therefore would be capable of exerting control over interconnection traffic bound for its BIAS subscribers, and well-positioned to charge edge providers for access to its BIAS subscribers. c. Higher Interconnection F ees 118. Because the transaction will give New Charter increased bargaining power in the interconnection market, we expect that without conditions higher interconnection fees for edge providers 373 See Appendix C, Section II.B.2. 374 See /yncK Decl at para  notinJ tKat ³CKarter anG 7:C’s oIIerinJs are sXEstitXtes Ior one anotKer´ as eGJe proviGers pXrsXe ³a critical mass oI KiJK-speeG EroaGEanG sXEscriEers´ EXt post- ransaction ³tKe option of inclXGinJ eitKer CKarter or 7:C in tKe mi[ Zill Gisappear´  375 See supra Section V.C.1.a. 376 See supra Section V.C.1. 377 See Charter Response to Information Request at 217. [BEGIN CONF. INFO.] [END CONF. INFO.] ; CHR2-DOJ-00000338676, [BEGIN CONF. INFO.] [END CONF. INFO.] . 378 See Application at 29; 477 Data PN, 30 FCC Rcd at 12749, Exhs. 1a, 1b. Federal Communications Commission FCC 16-59 58 are likely to result. As noted above, New Charter will have a valuable base of BIAS subscribers and will be able to act as a gatekeeper to those subscribers by virtue of its network structure and the limited number of BIAS alternatives available to consumers at the local level. Time Warner Cable personnel Kave e[perience manaJinJ tKat company’s interconnection EXsiness to Jenerate revenXe379 and New Charter will be in a position to use that experience along with its improved bargaining position to unilaterally increase interconnection prices harming economic efficiency. 119. 7Ke Applicants arJXe tKat ³1eZ CKarter Zill continXe CKarter’s Kistory oI non- discriminatory interconnection anG traIIic manaJement´ anG IXrtKer contenG tKat CKarter’s neZ interconnection policy introduced last July, which the Applicants have committed to maintain post- transaction, would ³e[tenG>@ CKarter’s practice oI reliaEle settlement-Iree interconnection´380 CKarter’s internal GocXments GescriEe CKarter’s [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .381 To the extent that Charter has not exploited its position as a BIAS provider to generate revenue in the interconnection market, we agree with the petitioners and commenters who that argue tKe primary restraint Zas CKarter’s lacN oI aEility382 Time Warner Cable, by contrast, is a larger company with a history of charging for interconnection.383 Post- transaction and in the absence of any conditions, we find that New Charter would likely adopt practices similar to Time Warner Cable with the ability to charge higher interconnection prices. 120. The Applicants contend that New Charter would be unable to harm edge providers because the company would have a smaller BIAS subscriber base than Comcast.384 In making this argument, the Applicants recognize the concern of many edge providers that Comcast can use its size to harm edge providers by imposing comparatively higher interconnection prices.385 During its 2014 dispute with Netflix, some observers claim that Comcast demonstrated its ability to leverage Internet interconnection into its network in order to pressure Netflix to pay for a direct interconnect agreement with Comcast.386 The record indicates that Time Warner Cable, despite having fewer subscribers than 379 See Time Warner Cable Response to Information Request, at 96-  GescriEinJ 7ime :arner CaEle’s e[tensive experience in managing its interconnection business, including several thousand interconnection agreements). 380 Opposition at 54-55. 381 CHR-FCC-0000312699 at slide 41, [BEGIN HIGHLY CONF. INFO. @ [END HIGHLY CONF. INFO.] ; CHR-FCC-0000304045 at slide 62, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 382 See COMPTEL Petition at 13; OTI Comments at 5. 383 See Time Warner Cable Response to Information Request at 96-101 (describing Time Wa rner CaEle’s e[tensive experience in managing its interconnection business, including several thousand interconnection agreements); cf. Charter Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from John. L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Oct. 23, 2015) CKarter Oct   8pGateG Response to InIormation ReTXest GescriEinJ CKarter’s recent interconnection operations, lack of experience with paid peering, and reliance on transit services for Internet connectivity). 384 See Application at 44-45. 385 DXrinJ tKe Commission’s consiGeration oI Comcast’s aEanGoneG EiG to acTXire 7ime :arner CaEle in  several commenters stated that Comcast was able to exert pressure on edge providers and competitors due to its size. See, e.g., Packet Host, Inc. Comments, MB Docket No. 14-57, GN Docket No. 14-28, at 1-2 (filed Oct. 2, 2014). See also Letter from Hershel A. Wancjer, Counsel for Cogent Communications Group, Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 14-57, at 7 (filed Feb. 2, 2015). 386 See 2015 Open Internet Order, 30 FCC Rcd at 5689-92, paras. 199-201. Federal Communications Commission FCC 16-59 59 Comcast, has used similar tactics to pressure edge providers to pay for access to its BIAS subscribers.387 Likewise, AT&T, Verizon, and CenturyLink²companies with large subscriber bases and a high degree of control of interconnection access to their networks²have all been able to impose paid peering charges on edge providers.388 :Kile 1eZ CKarter’s sXEscriEer Ease would be 12 percent smaller than Comcast’s,389 it will have a sufficiently large subscriber base and control over interconnection to have the ability to impose higher interconnection prices.390 7Ke Commission’s economic analysis confirms that interconnection prices are likely to rise if the transaction is completed, with New Charter capturing those price increases.391 121. We conclude that, without conditions, New Charter would be able to extract higher interconnection fees as a result of the transaction. Because New Charter would not face substantial competition for BIAS subscribers, it would not be incented to pass through to its subscribers a significant proportion of these additional fees. 387 See TWC-DOJ -02000001 at 1, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See also TWC-DOJ -02005912 at slide 6, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -01371399 at slide 11, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -01821385 at slide 7, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; Id. at slides 3-4, [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO.] . See also infra note 415. 388 See supra Section V.C.1, para. 99. 389 See Application at 45. We note that the data in the Application [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Irom tKe )orm  Gata on 1eZ CKarter’s marNet sKare See 477 Data PN, 30 FCC Rcd at 12749, Exh. 1a. 390 It could be argued that increased interconnection revenues might not have any consequences for economic efficiency if post-transaction the change did nothing more than transfer revenues from edge providers who have marNet poZer in GealinJ ZitK %IA6 proviGers to 1eZ CKarter ZitKoXt KavinJ any eIIect on eitKer party’s proGXction decisions (in both cases the parties, operating as bilateral monopolists, simply maximize profits between them, and then split their shares). However, the vast majority of edge providers have no market power when dealing with BIAS providers. Indeed, even the largest of these would likely only have limited if any market power when dealing with a large BIAS provider like Comcast or New Charter. See, e.g., 2015 Open Internet Order, 30 FCC Rcd at 5689-92, paras. 199-201 (discussing, inter alia, interconnection disputes between Netflix and Comcast). Thus, the gain in market rents New Charter would obtain as a monopsonist from edge providers would inefficiently reduce edge provider output, and raise their prices, directly harming the customers of edge providers. One might attempt to rehabilitate the argument that we reject by noting that in a two-sided market the expectation would be that higher interconnection fees would lead to lower prices for subscribers, which would raise consumer welfare. We dismiss this second contention by noting that it is implausible that any increase in interconnection revenues to New Charter would be fully passed through to subscribers, because of the lack of competition in the local BIAS market. Consequently, it is even less likely that any fall in subscriber charges would fully offset the harms subscribers experience in facing higher edge provider prices and a reduced choice of edge provider output. Moreover, for the reasons given in the 2015 Open Internet Order, the reduced choice of edge provider output is not a factor that New Charter would fully take into account in making its private profit-maximizing decisions, so it does not, in setting interconnection and BIAS prices, act to promote economic efficiency or consumer welfare. See 2015 Open Internet Order, 30 FCC Rcd at 5686-96, paras. 194-206. Thus, while New Charter would take into account the negative effect of its actions on edge providers and the extent that influences demand for its BIAS offerings, the net effect of the increase in NeZ CKarter’s economic poZer ZoXlG Ee to Karm consXmers anG economic eIIiciency 391 See Appendix C, Section II.B. Federal Communications Commission FCC 16-59 60 4. Specific Harms to OVDs 122. We now consider the interconnection-related harms that the transaction poses to video competition through harms that could impact OVDs specifically. We previously concluded that New Charter will have a general incentive to discriminate against OVDs because they compete with New CKarter’s aIIiliateG viGeo services.392 Here, we further find that New Charter will have the ability and incentive to discriminate against OVDs via the interconnection market. New Charter will have greater ability to discriminate against OVDs because it will have greater control over interconnection access to its network, as discussed above.393 Moreover, OVDs are more vulnerable to interconnection-related harms than most other edge providers because of their intensive networking demands.394 Our economic analysis supports our conclusion that New Charter will have specific incentive and ability to discriminate against OVDs via interconnection.395 Restricting interconnection capacity for OVDs does not just pressure OVDs to pay higher fees for interconnection, it can also reduce the ability of the OVDs to serve their customers, and potentially driving those customers to switch to 1eZ CKarter’s aIIiliateG viGeo services Accordingly, we determine that the transaction, if not conditioned, would pose a potential harm to video competition Ey increasinJ 1eZ CKarter’s incentive anG aEility to Karm OVDs via interconnection practices. 123. Positions of the Parties. The Applicants argue that New Charter would lack the ability to foreclose or degrade OVDs.396 7Key note tKat CKarter’s cXrrent interconnection manaJement practices such as best-efforts delivery and maintaining [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] at tKe company’s interconnection points would prevent New Charter from harming OVDs.397 CKarter IXrtKer contenGs tKat ³>a@cross most oI its CaEle 0oGem Termination System locations, Charter employs [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscriber traffic management software, in which source- and protocol- agnosticism is hard-coGeG´ ZKicK it claims would prevent New Charter from foreclosing or degrading specific Internet traffic.398 The Applicants also argue that their commitment to submit interconnection disputes to the Commission for arbitration would prevent anticompetitive interconnection practices.399 124. Several commenters disagree and argue that New Charter would have greater ability to harm OVDs than the Applicants acting individually. Public Knowledge asserts tKat ³New Charter would Kave tKe leveraJe to reTXire payments oI Internet content companies tKat mXst interconnect ZitK it´400 DISH argues that, both generally and with respect to interconnection practices, pay-TV replacement OTT services sometimes reIerreG to as ³virtXal 0V3Ds´ are ³particXlarly vXlneraEle to bl cking and Giscrimination on tKe EroaGEanG pipe´ because they require high volumes of traffic and are more likely to be viewed as a competitor to an MVPD service than other OVDs.401 DISH also argues that Charter and 7ime :arner CaEle’s BIAS sXEscriEer Eases ³are sXEstitXtes Ior one anotKer in an OVD’s attempt to 392 See supra Section V.A, paras. 38-46. 393 See supra Section V.C.3. 394 See infra paras. 125-130. 395 See Appendix C, Section II.B. 396 See Application at 44-48; Opposition at 52-56. 397 See Charter Response to Information Request at 177; Opposition at 53. 398 Opposition at 54. See also Charter Response to Information Request at 177. 399 See Application at 19; Opposition at 53. 400 Public Knowledge et al. Petition at 6. 401 Lynch Decl. at para. 21. Federal Communications Commission FCC 16-59 61 assemble a mix of broadband BIAS providers sufficient to reach a critical mass of high- speed of high- speeG EroaGEanG sXEscriEers´ EXt post- ransaction ³tKe option oI inclXGinJ eitKer CKarter or [Time Warner Cable] in tKe mi[ Zill Gisappear´402 125. Discussion. :e IinG tKat tKe transaction increases 1eZ CKarter’s aEility anG incentive to harm video competition by harming OVDs. As discussed above, New Charter will have a greater ability to harm OVDs through its enhanced control over interconnection than either Charter or Time Warner Cable could individually.403 New Charter will have a greater incentive to use interconnection to harm tKese OVDs EecaXse OVDs are especially vXlneraEle anG 1eZ CKarter’s aIIiliateG viGeo services are likely to pick up subscribers dissatisfied with a congested OVD.404 126. OVDs are more susceptible to interconnection-related harms than other edge providers.405 OVDs are particularly heavy consumers of network resources, requiring up to 5 Mbps for a single High Definition stream or up to 25 Mbps for a single 4K stream.406 Consumers can typically obtain these amounts of bandwidth only from wired BIAS providers, and, as discussed above, many consumers have limited options for BIAS capable of supporting robust OVD usage.407 Because OVDs are bandwidth intensive, their services are particularly affected by congestion at the interconnection point.408 Thus, once OVDs achieve sufficient scale, they have little choice but to bargain with the largest BIAS providers, like New Charter, for satisfactory direct interconnection access to BIAS subscribers. 127. Two of the three Applicants, Charter and Bright House, have limited current ability to discriminate against OVDs via interconnection. As noted above, BIAS providers that rely heavily on 402 Id. at para. 18. 403 See supra Section V.C.3. 404 See supra Section V.C.3; see also Appendix C, Section II.B.3. 405 See AT&T-DIRECTV Order  )CC RcG at  para  ³OVDs are vXlneraEle to GeJraGation at tKe interconnection point ZitK a EroaGEanG Internet access service proviGer’s last mile netZorN´ ; Fourteenth Video Competition Report  )CC RcG at  para  ³OVDs rely on high-capacity and high-speed broadband Internet services tKat are oIten oZneG anG controlleG Ey XnaIIiliateG 0V3Ds´ ; Id. at  para  ³0V3Ds Kave tKe aEility anG incentive to GeJraGe tKe EroaGEanG service availaEle to XnaIIiliateG OVDs´  406 See Application at 44; Netflix Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Sarah K. Leggin, Counsel for Netflix, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 3 (filed Oct. 23, 2015) (Netflix Response to Information Request); see also See Connect America Fund et al., Report and Order, 29 FCC Rcd 15644, 15649-50, para. 17 (2014) ( Connect America Fund Report ) (finding that HD video streaming requires 5 Mbps downstream); Netflix, Internet Connection Speed Recommendations, https://help.netflix.com/en/node/306 (last visited Jan. 21, 2016) (recommending 5.0 mbps for HD quality video streaming and 25 Mbps for Ultra HD quality); Hulu, Hulu Subscription System Requirements, http://www.hulu.com/help/articles/19754 (last visited Jan. 21, 2016) (recommending 1.5 Mbps for Standard Definition video streaming and 3 Mbps for High Definition); Amazon, System Requirements for Streaming on Your Computer, http://www.amazon.com/gp/help/customer/display html?nodeId=201422810 (last visited Jan. 21, 2016) (recommending 900 Kbps for Standard Definition video streaming and 3.5 Mbps for High Definition). See also supra para. 54. 407 See supra para. 64-67. 408 See Netflix Response to Information Request at 3-4 (noting that congestion can reduce the effective bandwidth for a video stream, and that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO] . Federal Communications Commission FCC 16-59 62 transit to bring traffic onto their networks have less leverage in the market for interconnection access to their subscribers because they are ill-positioned to act as gatekeepers for access to BIAS subscribers.409 Charter today [BEGIN CONF. INFO.] [END CONF. INFO.] .410 8nGer %riJKt HoXse’s arranJement ZitK 7ime :arner CaEle 7ime :arner CaEle oEtains its Internet access and manages interconnection for Bright House.411 [BEGIN CONF. INFO.] [END CONF. INFO.] , Charter and Bright House today do not have the ability to selectively degrade OVDs via interconnection.412 Despite this disadvantage, however, the record indicates that Charter [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .413 128. Time Warner Cable, in contrast to the smaller Applicants, is better positioned to exploit interconnection as a means to harm OVDs. Time Warner Cable maintains [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] transit capacity into its network and has a large number of peering and settlement-free peering arrangements.414 Accordingly, Time Warner Cable can act as a gatekeeper by allowing the [BEGIN HIGHLY CONF. INFO.] [END CONF. INFO.] transit routes into its network to congest. Doing so disadvantages OVDs that rely on those routes to access 7ime :arner CaEle’s cXstomers The record suggests that Time Warner Cable may have used this strategy in 2014 to pressure Netflix into a paid peering arrangement, demonstrating its ability to use interconnection to harm OVDs.415 409 See supra Section V.C.3.b. 410 Charter maintains transit connections via [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] providers, and transit accounts for [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent oI CKarter’s interconnection traIIic See CHR2-DOJ -00000338676, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Netflix, the largest source of traffic among OVDs, reaches Charter subscribers via transit, and represents [BEGIN HIGHLY CONF. INFO.] [ END HIGHLY CONF. INFO.] percent oI CKarter’s total EacNEone traffic. See Interconnection White Paper; CHR2-DOJ -00000259102 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO .] . 411 See supra Section V.C.1.b. 412 Nevertheless, as discussed in Section V.B.2 supra, both Charter and Bright House do have the ability to impose retail terms for residential BIAS that may provide obstacles for OVDs or other edge providers. 413 See CHR-DOJ -0000109236, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR-DOJ -0000805750, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2- DOJ -00000259102, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 414 See Time Warner Cable Response to Information Request at Ex. 41.01 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 415 Drew Fitzgerald and Shalini Ramachandran, Netflix-Traffic Feud Leads to Video Slowdown, Wall St. J. (Feb. 18,  citinJ 1etIli[ Gata ³Over tKe past tKree montKs startinJ aroXnG tKe time 1etIli[ maGe sXper-high definition viGeo availaEle to all its sXEscriEers tKe averaJe speeGs oI tKe company’s prime-time video streams have slowed for Verizon, AT&T, TWC, and Comcast subscribers. . ´  http://on.wsj.com/1m7zyP2 ; Press Release, Netflix, Netflix continXeG« Federal Communications Commission FCC 16-59 63 129. The transaction will empower New Charter to force OVDs that are currently able to reach Charter and Bright House subscribers via transit to directly bargain with New Charter for access to those subscribers.416 On balance, we find that the transaction will force OVDs to come to New Charter for access to its subscribers sooner in the development of their businesses, and will increase the fees they are asked to pay for that access. This could retard upstart OVDs that subscribers might prefer to New CKarter’s aIIiliateG viGeo services 7KereIore Ze IinG tKat 1eZ CKarter ZoXlG Ee more liNely anG better able to use interconnection to interfere with OVD service delivery with the purpose of inhibiting or eliminating OVD competition. 130. We find that the Applicants have failed to demonstrate that New Charter will be sufficiently restrained from using the interconnection market to harm OVDs specifically. In defense of the transaction, Charter points to its previous and current behavior in the interconnection market along with the fact that current Charter has not acted in a hostile manner towards OVDs, and contends that such behavior will continue post-transaction.417 The Applicants, however, did not provide an analysis showing that market forces or other factors would prevent New Charter from imposing a unilateral price rise on interconnection or from using interconnection to discriminate against OVDs, only arguing that New CKarter’s manaJement ZoXlG not Go so %aseG on tKe analysis aEove Ze conclXGe tKat 1eZ CKarter would have an increased incentive and ability to use interconnection practices to harm edge providers, and OVDs in particular. We adopt conditions, described below, to guard against the potential public interest harm. 5. Conditions 131. Above we described public interest harms that the transaction is likely to cause in the interconnection market. We note tKat tKe Commission Kas asserteG MXrisGiction over tKe %IA6 proviGers’ Internet traffic exchange arrangements. 418 We find that this general statutory provision against unjust or unreasonable conduct is not a remedy for the transaction-specific harms presented by the proposed transaction. Accordingly, we impose a limited set of conditions related to interconnection. Specifically, we impose a mandatory interconnection condition that will ensure that a competitive market for access to 1eZ CKarter’s netZorks exists, and a disclosure condition that will allow the Commission to detect abusive behavior by New Charter. a. Mandatory Interconnection 132. We determine that a mandatory interconnection condition is necessary to mitigate transaction’s interconnection-related harms. By requiring that large backbone providers, CDNs, and edge providers have reliable, unfettered access to New Charter subscribers for seven years, we believe that New Charter will be constrained from harming the public interest in the interconnection market. For the reasons discussed above,419 we believe this is an appropriate duration to allow the interconnection market to evolve and for edge providers to mature to a position where they will be more resilient to potentially (Continued from previous page) ISP Speed Index for August 6ept   ³In tKe 86 interconnection aJreements ZitK A7 7 7ime :arner CaEle anG Veri]on resXlteG in siJniIicant increases in Internet speeGs Ior all tKree proviGers in AXJXst´  https://media.netflix.com/en/company-blog/netflix-isp-speed-index-for-august-1 . See also Appendix C, Section II.3.a; 2015 Open Internet Order, 30 FCC Rcd at 5690-92, para. 200-01 (citing and quoting, inter alia, comments discussing Netflix and congestion disputes). 416 See supra Section V.C.3. 417 See Application at 19, 23, 50-51; Opposition at 52-56. 418 2015 Open Internet Order, 30 FCC Rcd at 5686-5696, paras. 194-206. 419 See supra Sections V.C.3-V.C.4. Federal Communications Commission FCC 16-59 64 anticompetitive practices. Such a condition ensures that there will be a competitive market for access to New Charter subscribers, preventing the company from acting as a gatekeeper to its subscribers. 133. In July 2015, Charter adopted a new interconnection policy that enables third parties to interconnect with it through settlement-free peering if they can meet certain prerequisites. 420 Charter committed to keeping the policy in place for the new company after the transaction until December 31, 2018.421 1etIli[ GescriEes CKarter’s 3eerinJ 3olicy as ³a Zelcome anG siJniIicant GepartXre Irom tKe efforts of some BIAS providers to collect access tolls on tKe Internet´ anG aGGeG tKat tKis commitment ³Zill promote eIIicient interconnection ZitK online content proviGers anG ZitK tKe transit anG content Gelivery services tKat smaller online content proviGers rely on to reacK tKeir cXstomers´422 Netflix further states tKat tKis ³enIorceaEle merJer conGition Zill ensXre tKat consXmers Zill receive tKe Iast connection speeGs tKey e[pect´423 HoZever tKe recorG sKoZs tKat CKarter secXreG 1etIli[’s sXpport Ior tKe transaction only after it reached an interconnection agreement with it,424 and Netflix appears to be the only OVD currently able to satisfy all the requirements of the July Peering Policy. 134. 6everal commenters arJXeG tKat CKarter’s oriJinal commitment Zas lacNinJ425 We agree, and as result, we adopt a conGition tKat moGiIies CKarter’s proposeG terms inclXGinJ less burdensome interconnection location requirements, 426 a clearer augmentation provision,427 more reasonable trial428 and suspension429 policies, and a longer duration.430 These modifications ensure that a 420 See Charter, Charter Communication’s IP Interconnection Policy and Requirements, https://www.charter.com/ browse/content/peering (last visited Jan. 27, 2016); Charter Jul. 15, 2015, Peering Policy Ex Parte Letter at 1. 421 See Charter Jul. 15, 2015, Peering Policy Ex Parte Letter at 1. 422 Letter from Christopher D. Libertelli, Vice President of Global Public Policy for Netflix, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed July 15, 2015) (Netflix Jul. 15, 2015, Ex Parte Letter). 423 Id. 424 The record indicates that [BEGIN HIGHLY CONF. INFO.] [ END HIGHLY CONF. INFO.] . See CHR2-DOJ-00000065506 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ- 00000675516, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ-00000100665, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 425 Public Knowledge argues that Charter’s 3eerinJ 3olicy as oriJinally sXEmitteG is not aGeTXate EecaXse it protects only ³some larJe Internet companies´ anG tKat any sXcK commitment mXst Ee ³Iair to all Internet content companies, not just those large enough to negotiate legal and policy GocXments ZitK CKarter´ 3XElic .noZleGJe 3etition et al at  1eZ America’s Open 7ecKnoloJy InstitXte e[presses similar vieZs assertinJ tKat ³7Ke Commission mXst also ensXre tKat 1eZ CKarter’s interconnection policy EeneIits not MXst larJe eGJe providers and transit companies, but also smaller startups and future innovation that could compete with established Internet companies´ O7I Comments at -6. 426 See COMPTEL Petition at 15; Letter from Joseph C. Cavender, Vice President and Assistant General Counsel, Level3, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Oct. 20, 2015) (Level3 Ex Parte Letter). 427 See COMPTEL Petition at 15; Level3 Ex Parte Letter at 2. 428 See COMPTEL Petition at 14; Level3 Ex Parte Letter at 2. Federal Communications Commission FCC 16-59 65 larJer proportion oI traIIic into 1eZ CKarter’s netZorN Zill Ee availaEle for settlement-free interconnection, clarify that transit, CDNs, and edge providers may all qualify for settlement-free interconnection, and permit these third-parties greater flexibility to grow their traffic in response to consumer demand. b. Interconnection Disclosure 135. Because interconnection agreements are frequently subject to non-disclosure agreements, we are concerned that abusive behavior by New Charter could go unnoticed. To ensure that we are able to detect any such behavior, we impose a condition that requires New Charter to file all interconnection agreements with the Commission.431 This condition will continue for seven years after the transaction closes.432 136. We aJree ZitK 1eZ America’s Open 7ecKnoloJy InstitXte tKat tKis interconnection GisclosXre measXre is necessary to enaEle tKe monitorinJ oI 1eZ CKarter’s IXtXre interconnection aJreements’ terms to Getermine ZKetKer tKe comEineG entity is XsinJ sXcK aJreements to deny or impede access to its networks in ways that limit competition from rival edge providers. In addition to giving the Commission notice if anticompetitive practices arise, the simple act of disclosure may deter such practices in the first place. Therefore, we conclude that requiring New Charter to disclose such agreements to the Commission is necessary to address the increased risk of anticompetitive practices by the combined entity.433 c. Open Internet Order Related Commitments 137. The Applicants have committed that the merged entity would not block or throttle Internet traffic or engage in paid prioritization and have agreed to submit interconnection disputes to the Commission for resolution on a case by case basis, for three years, regardless of the outcome of the litigation concerning the 2015 Open Internet Order.434 The Applicants further state that they would not engage in specific practices, such as usage-based billing, which, according to the Applicants, would also preclude them from implementing zero-rating.435 As discussed above, we impose a condition to prevent 1eZ CKarter’s Xse oI Gata caps or XsaJe-based EillinJ Here Ze evalXate tKe Applicants’ pleGJe to aEiGe by portions of the 2015 Open Internet Order. (Continued from previous page) 429 See COMPTEL Petition at 16; Level3 Ex Parte Letter at 2. 430 I1CO03A6 notes tKat EecaXse tKe OVD marNet is still GevelopinJ ³it is important tKat tKe Commission alloZ sXIIicient time Ior OVD competition to IXrtKer Gevelop´ anG recommenGs tKat CKarter’s policy commitment endure for seven years from closing. COMPTEL Petition at 14. See also Public Knowledge et al. Petition at 8; DISH Petition at 12-13; Level3 Ex Parte Letter; OTI Comments at 5; Letter from Corie Wright, Director of Global Public Policy, Netflix, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Jan. 29, 2016) (stating tKat ³an enIorceaEle anG lonJ-standing [interconnection] condition will support growing demand for online services´  431 See infra Appendix B, Section III.3. 432 For the reasons discussed above, we think this is an appropriate duration to allow edge providers to mature into more resilient participants in the interconnection market. See supra para. 132. 433 We will not release interconnection agreements to the public as part of this condition. 434 Application at 18-19; Application, Declaration of Christopher L. Winfrey, Chief Financial Officer and Executive Vice President, Charter, transmitted by letter from John L. Flynn, Counsel for Charter, and Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at para. 13 (filed June 25, 2015) (Winfrey Decl.). 435 Application at 3, 18-19; Winfrey Decl. at 13. Federal Communications Commission FCC 16-59 66 138. 1eZ America asserts tKat tKe Applicants’ promise to aGKere to e[istinJ laZ ie, to abide by the 2015 Open Internet Order, should be given no weight as the Order is alreaGy tKe ³laZ oI tKe lanG´436 DISH observes that the Applicants joined in challenging the 2015 Open Internet Order, and notes that the Applicants only commit to abide by a subset of Open Internet rules, including the three bright line rules (no blocking, no throttling, no paid prioritization) ²but with respect to the no unreasonable interference or disadvantage rule and the general anti-discrimination standard, the Applicants commit only to observing those rules in limited ways related to additional fees, zero rating, data caps, and interconnection.437 139. Discussion. We agree with commenters that the 2015 Open Internet Order is the law. The Applicants may not determine with which specific provisions of the 2015 Open Internet Order they will comply, and with which they will not. Because the 2015 Open Internet Order already governs the Applicants, we give no weight to tKe Applicants’ commitment to IolloZ it D. Competition in Video Distribution 140. In this section, we assess potential harms to competition in the provision of video services to consumers. Specifically, we examine potential harms posed by market concentration and the loss of potential competition among the Applicants. We conclude that the relevant product market for evaluating the record on marNet concentration is ³mXlticKannel viGeo proJramminJ service´ as oIIereG Ey all MVPDs and that the relevant geographic market is the local market where consumers select MVPD services. Because the proposed transaction would not result in a meaningful reduction to competition, we find that the proposed transaction would not likely lead to harm to video competition in these markets. 1. Background 141. This transaction involves the combination of three entities that each deliver video programming to consumers. As background for our analysis, we first provide an overview of the video programming distribution industry. 142. Today there are primarily three types of entities that deliver video programming to consumers²broadcast television stations, MVPDs, and OVDs.438 We focus this industry description on MVPDs and the evolution of OVD services because our analysis of the public interest benefits and harms considers in substantial part the competitive effects of the transaction on those services.439 436 OTI Comments at 5-6. New America states that the Applicants deserve credit for proposing a voluntary commitment to interconnect on nondiscriminatory terms, but that the duration of the proposed condition is too short to ensXre tKat CKarter’s nonGiscriminatory interconnection practices carry over )XrtKer 1eZ America states tKat the merged entity should not be allowed to enter into exclusive arrangements that require interconnecting parties to send all of their traffic directly to it, and that interconnecting parties should not be forced into exclusivity arrangements that foreclose their ability to route their traffic through alternate routes. New America believes that tKe merJeG entity’s interconnection policy sKoXlG not EeneIit MXst larJe eGJe proviGers anG transit companies anG that it must also commit to robust transparency. 437 DISH Petition at 56-57. 438 See Sixteenth Video Competition Report, 30 FCC Rcd at 3256-59, paras. 2-11. 439 We do not consider broadcast television station competition as part of our analysis of the relevant distribution market herein. The Commission previously determined that broadcast television service is not sufficiently substitutable with MVPD service to constrain potential MVPD price increases and therefore has declined to include broadcasters in the MVPD product market. Comcast-NBCU Order, 26 FCC Rcd at 4255-56, para. 40; News Corp.- Hughes Order, 19 FCC Rcd at 509, para. 75 (citing Competition, Rate Deregulation, and the Commission’s Policies Relating to the Provision of Cable Television Services, Report, 5 FCC Rcd 4962, 5003, para. 69 (1990)); EchoStar- DIRECTV HDO, 17 FCC Rcd at 20607-09, paras. 109-15. We find no evidence in this proceeding to warrant a cKanJe to tKe Commission’s previoXs Getermination Federal Communications Commission FCC 16-59 67 143. MVPDs include incumbent cable operators and cable overbuilders,440 direct broadcast satellite (DBS) providers, such as DIRECTV and DISH, and telephone companies, such as AT&T and Verizon, which provide MVPD services.441 MVPDs bundle linear programming networks into groups of channels or ³tiers´442 and sell this programming to subscribers, deriving revenues from subscription fees and the sale of advertising time they receive through their carriage agreements.443 MVPDs primarily deliver video programming services using their own facilities.444 As part of an MVPD subscription, many MVPDs also offer VOD and TV Everywhere (TVE) services, which allow subscribers to access a selection of programming at a time of their choosing and on a variety of in-home and mobile, Internet- connected devices.445 144. Where capable, MVPDs may offer their subscribers such video services as part of a bundle that may include BIAS and voice telephony.446 Bundled services are one way that MVPDs differentiate themselves from their rivals.447 These bundles are usually offered at a discount to purchasing the parts of the bundle separately.448 145. OVDs oIIer consXmers cKoices tKat may eitKer complement tKe consXmer’s 0V3D services or compete directly with some or all of the video services MVPDs provide.449 Most OVDs today do not offer a substantial amount of the most popular video programming that is provided by MVPDs, including live sports programming and local broadcast programming. Nor do most OVDs offer bundles of linear programming such as those offered by MVPDs. The number and types of OVDs have grown significantly over the last few years and include programmers, content producers and owners, affiliates of 440 OverEXilGers are Jenerally GeIineG as companies tKat EXilG aGGitional caEle systems ³over´ one tKat alreaGy exists and offer consumers a competitive alternative. See Sixteenth Video Competition Report, 30 FCC Rcd at 3265 n.59. 441 The two largest telephone company MVPDs are Verizon and AT&T, which respectively provide such service as FiOS and U-Verse. See generally Sixteenth Video Competition Report at 30 FCC Rcd. at 3263-64, para. 27. In July 2015, the Commission approved the merger of AT&T and DIRECTV. See AT&T-DIRECTV Order, 30 FCC Rcd 9131. 442 Linear television channels are streams of programming that offer video programs on a specific channel at a specific time of day. See Sixteenth Video Competition Report, 30 FCC Rcd at 3260, para. 18; see also Promoting Innovation and Competition in the Provision of Multichannel Video Programming Distribution Services, Notice of Proposed Rulemaking, 29 FCC Rcd 15995 (2014) ( MVPD Definition NPRM ) (seeking comment on a proposal to GeIine ³linear viGeo´ as a ³stream oI viGeo proJramminJ tKat is prescKeGXleG Ey tKe proJrammer´  443 News Corp. and DIRECTV Group, Inc. and Liberty Media Corp. for Authority to Transfer Control, Memorandum Opinion and Order, 23 FCC Rcd 3280, para. 30 (2008) ( Liberty Media-DIRECTV Order ). We note tKat tKe Commission recently soXJKt comment on tKe interpretation oI tKe statXtory GeIinition oI ³0V3D´ anG on whether that definition includes certain Internet-based distributors of video programming. See MVPD Definition NPRM, 29 FCC Rcd 15995. 444 See Sixteenth Video Competition Report, 30 FCC Rcd at 3260-61, paras. 19, 21. See also MVPD Definition NPRM,  )CC RcG at  para  ³tKe Commission Kas previoXsly KelG tKat an entity neeG not oZn or operate tKe Iacilities tKat it Xses to GistriEXte viGeo proJramminJ to sXEscriEers in orGer to TXaliIy as an 0V3D´  445 See Sixteenth Video Competition Report, 30 FCC Rcd at 3260, para. 18, 3294-96, paras. 95-100. 446 See id. at 3288, para. 81, 3297, para. 101. 447 See id. 448 See id. at 3288, para. 81. 449 See id. at 3352-53, para. 215. Federal Communications Commission FCC 16-59 68 online services, retailers, manufacturers, and MVPDs.450 The types of services that OVDs offer vary widely. For instance, some OVDs (e.g., Netflix, Hulu, and Amazon Prime) offer primarily on-demand programming, which may include some combination of original programming and full length movies and television programs.451 In addition, several online video services (e.g., Sling TV and Sony Vue) have launched recently that offer access to popular linear networks in a manner similar to MVPD services.452 Some programmers also have introduced subscription services (e.g., CBS All Access and HBO Now) that offer access to their linear and on-demand programming online without an MVPD subscription.453 Although the number of consumers who are relying on OVD exclusively (or in conjunction with over-the- air broadcasting) services to access video programming is growing, the majority of consumers still purchase video services from traditional MVPDs.454 2. Relevant Markets 146. In orGer to Getermine ZKetKer 1eZ CKarter’s increaseG sKare oI 0V3D sXEscriEers poses potential for competitive harm, we first define the relevant product and geographic markets. We conclude tKat tKe relevant proGXct marNet Ior evalXatinJ tKe recorG on marNet concentration is ³mXlticKannel viGeo proJramminJ service´ as oIIereG Ey all 0V3Ds455 We further conclude that the relevant geographic market is a local market where consumers select MVPD services. 450 See id. at 3353-63, paras. 216-35. Further, some devices that access OVDs, such as Roku and Amazon Fire TV, function as aggregators. See id. at 3362, para. 233. It is difficult at this time to determine to what extent individual OVDs have grown because rating/viewing information is non-standard and limited. See id. at 3365-66, para. 242. However, Netflix publicly reports its subscriber and revenue figures for its online streaming service. Netflix reported 43 million streaming subscribers in the United States at the end of 2015. Netflix, Inc., Annual Report (Form 10-K) at 19 (Jan. 28, 2016). 451 An example of an OVD providing on-demand programming is Hulu, which includes programs that originally aired the previous day on broadcast and MVPD television. See Hulu, http://www hulu.com/tv (last visited Mar. 10, 2016). Examples of OVDs offering combinations of original programming and full length movies and television shows are Netflix and Amazon. See Sixteenth Video Competition Report, 30 FCC Rcd at 3359, para. 229, 3361-62, para. 232; Press Release, Amazon.com, Inc., Amazon Original Series Alpha House and Betas to Premier This Month (Nov. 4, 2013), http://phx.corporate-ir net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1871791 . In addition, Verizon has launched a free, ad-sXpporteG anG ³moEile Iirst´ viGeo service calleG *o tKat alloZs Xsers to watch video content, including some non-broadcast network content, on-demand via a mobile device and over a connection provided by any wireless provider. See Press Release, Verizon, For Your Entertainment Pleasure: We Present go90 (Oct. 1, 2015), http://www.verizon.com/about/news/your-entertainment-pleasure-we-present-go90. 452 See, e.g., Press Release, DISH Network Corp., Sling TV to Launch Live, Over-the-Top Service for $20 Per Month; Watch on TVs, Tablets, Computers, Smartphones, Game Consoles (Jan. 5, 2015), http://about.dish.com/printpdf/1407; Press Release, Sony Corp., Sony Network Entertainment International and Sony Computer Entertainment Unveil PlayStationTM Vue, A New Cloud-Based TV Service That Pioneers the Future of Television (Nov. 13, 2014), http://prn.to/1xAWnBB . 453 See, e.g., Tess Stynes and Keach Hagey, CBS to Roll Out Internet-Delivered Version of Showtime, Wall St. J. (May 7, 2015), http://on.wsj.com/1ImMNYp ; Joe Flint, CBS Launches Online Subscription Video Service, Wall St. J. (Oct. 16, 2014), http://on.wsj.com/1Dfe1fU ; Joe Flint and Shalini Ramachandran, HBO to Launch Stand-Alone Streaming Service, Wall St. J. (Oct. 15, 2014), http://on.wsj.com/1vvr6AK . 454 See, e.g., Keach Hagey, Cord-Cutting Is Accelerating, Wall St. J. (Dec, 10, 2015), http://on.wsj.com/1NHX58N , citinJ a stXGy pXElisKeG Ey e0arNeter anG statinJ tKat ³tKe total nXmEer oI KoXseKolGs tKat Gon’t sXEscriEe to pay- TV²a combination of cord-cutters and the far more common ³corG-nevers´ ZKo KaG never siJneG Xp in tKe Iirst place²will hit 20.8 million by the end of 2015 . .  or aEoXt  oI 86 KoXseKolGs´  In contrast tKere are approximately 101 million MVPD subscribers. See Sixteenth Video Competition Report, 30 FCC Rcd at 3256, para. 2. 455 See AT&T-DIRECTV Order, 30 FCC Rcd at 9159-60, para. 68; Comcast-NBCU Order, 26 FCC Rcd at 4255-56, para. 40; News Corp.-Hughes Order, 19 FCC Rcd at 501, para. 53. Federal Communications Commission FCC 16-59 69 147. Positions of the Parties. Some commenters suggest that because most consumers purchase a bundle of pay-TV and broadband service, the correct product market to examine is the market for the sale of cable services or MVPD services to consumers.456 Some commenters also suggest that the Commission sKoXlG e[amine 1eZ CKarter’s marNet sKare on a reJional or D0A Easis457 148. Commenters argue that the transaction would increase the concentration of the MVPD industry at the local, regional, and national levels.458 NAB contends that post-transaction, the top four MVPDs would control 79 percent of the nationwide MVPD market (measured in terms of subscribers), and the top three would control two-thirds.459 Commenters note that, in certain geographic regions, New Charter would hold a greater percentage of MVPD subscribers²and an even higher percentage of cable subscribers²than its nationwide MVPD market share reflects.460 Commenters also argue that regional consolidation as a result of the transaction would deter entry and competition by overbuilders and lead to higher prices for consumers.461 In particular, commenters argue that the transaction would exacerbate the existing disparity in programming costs paid by the Applicants versus overbuilders, which would further limit the competitiveness of overbuilders.462 NAB argues that economic literature supports the contention 456 Public Knowledge et al. Petition at 9, 11; COMPTEL Petition at 5-6, 8; Hawaiian Telcom Comments at 7-8, 22. Hawaiian Telcom argues that due to the unique characteristics of the Hawaiian market, DBS service and broadcast television should be excluded from any analysis of the product market in Hawaii. Hawaiian Telcom Comments at 7- 9. Additionally, as noted above, DISH contends that Sling TV competes as a substitute for traditional pay-TV services. DISH Petition at 15-16; DISH Reply at 12-13; DISH Feb. 26, 2016, Ex Parte Letter at 2. 457 Public Knowledge et al. Petition at 9; NAB Petition at 6-7. 458 See, e.g., NAB Petition at 5-10; OTI Comments at 1; WGAW Petition at 2-4, 11-12; Public Knowledge et al. Petition at 10-11; COMPTEL Petition at 5-7; DISH Petition at 3; Free Press Petition at 18; Hawaiian Telcom Comments at 10- AccorGinJ to 1A% 1eZ CKarter ZoXlG ³control  percent or more oI tKe entire 0V3D market in 112 DMAs ± or  percent oI all D0As in tKe coXntry´ 1A% 3etition at -7. 459 NAB Petition at 9. 460 Public Knowledge et al. Petition at 9; NAB Petition at 6-7; Hawaiian Telcom Comments at 2-3, 9. 461 NAB Petition at 7; Public Knowledge et al. Petition at 17; Petition to Deny of Lincolnville Networks, Inc., Tidewater Telecom, Inc., and Unitel, Inc., MB Docket No. 15-149, at 3-4 (filed Oct. 13, 2015) (Maine Rural Petition); Lincolnville Networks, Inc., Tidewater Telecom, Inc., and Unitel, Inc. Reply, MB Docket No. 15-149, at 4 (filed Nov. 12, 2015) (Maine Rural Reply); Hawaiian Telcom Comments at 17-20; see also INCOMPAS Jan. 15, 2016, Ex Parte Letter at 1-5 (offering economic analysis to demonstrate that New Charter would be able to use its greater bargaining leverage to negotiate for lower affiliate fees from programmers, which would in turn give it a competitive advantage that would deter entry and expansion by overbuilders). Maine Rural contends that New Charter should provide it with access to cable television transmissions received at its local headends at terms comparable to local New Charter (currently Time Warner Cable). Maine Rural Petition at 10. Maine Rural also sXEmits tKat 1eZ CKarter sKoXlG Ee reTXireG to temporarily Zaive Ior a minimXm perioG oI  years ³access to tKe enKancement oI local nXmEer portaEility ³/13´ in its provisioninJ oI caEle telepKone service in tKe service area of any rXral telepKone company ZitK ZKicK it Zas not competinJ prior to -anXary  ´ Xntil tKe rXral telepKone company has comparable access to video programming and any USF support or intercarrier compensation issues have been resolved with respect to the rural telephone company. Id. Maine Rural contends such a condition is necessary to ensure universal service to rural areas and alleges that the rural carriers in Maine already find it difficult to compete with Time Warner Cable and will find it more difficult after the transaction. Id. at 4-5, 9. We find that the harms alleged by Maine Rural are not transaction-specific; for instance, the rural carriers in Maine will face the same level of competition as was the case before the transaction. 462 Public Knowledge et al. Petition at 17; COMPTEL Petition at 8-13; Cincinnati Bell Comments at 11-14, 21-23; Hawaiian Telcom Comments at 17-20; Stop the Cap Comments at 13-15; Cincinnati Bell Reply at 1-6; Hawaiian Telcom Reply at 4-5; INCOMPAS Reply at 8-12; ITTA Reply at 6-8; NTCA Reply at 4-6; Letter from Markham C. Erickson, Counsel for INCOMPAS, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Dec. 4, 2015) (INCOMPAS Dec. 4, 2015, Ex Parte Letter); Letter from Jill Canfield, Vice President ± Legal and continXeG« Federal Communications Commission FCC 16-59 70 that clustering leads to higher prices for consumers.463 Commenters also argue that New Charter could use its broadband profits to subsidize its video offerings and thereby undercut video competitors, including OVDs, on price.464 149. In addition, DISH argues that the transaction would eliminate potential competition from tKe Applicants EXilGinJ oXt in eacK otKer’s local territories particXlarly in larJe marNets ZKere tKey serve adjacent geographic areas and such overbuilding would be more likely to occur. 465 Finally, commenters allege that the transaction would eliminate the possibility of competitive entry by one or more of the firms into tKe otKers’ marNets Ey oIIerinJ virtXal services oXtsiGe tKeir pKysical Iootprints466 150. The Applicants argue that, consistent with Commission precedent, the relevant product marNet Ior analysis is ³mXlticKannel viGeo proJramminJ service as oIIereG Ey all 0V3Ds´ anG KiJKliJKt in particular, video services offered by Verizon, AT&T, and Google as competitive services that have successfully entered the market in recent years.467 In addition, the Applicants contend that the market for the sale of MVPD services to consumers is local in nature.468 The Applicants further argue that DMAs are not an appropriate geographic market because consumers choose among services available in their homes, not among services available across town.469 Moreover, the Applicants contend that because they serve distinct geographic areas, the transaction would not result in a loss of competition or consumer choice for MVPD services.470 The Applicants also argue that the video distribution market is competitive (Continued from previous page) Industry and Assistant General Counsel, NTCA, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Jan. 29, 2016) (NTCA Jan. 29, 2016, Ex Parte Letter); Letter from Stop Mega Cable Coalition to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 8 (filed Feb. 24, 2016) (Stop Mega Cable Coalition Feb. 24, 2016, Ex Parte Letter). INCOMPAS suggests the Commission should explore a video programming purchasing cooperative as an ³alternative non-merger means oI acKievinJ viGeo proJramminJ pXrcKasinJ eIIiciencies´ ZKile at tKe same time mitiJatinJ ³tKe Karm to IXtXre EroaGEanG competition Ey alloZinJ potential EroaGEanG entrants to join and narrow the programming cost disparity between Applicants and smaller, competitive broadband service proviGers´ I1CO03A6 Reply at  %y contrast )ree 3ress contenGs tKat any proJramminJ cost savinJs Irom tKe transaction ZoXlG Ee ³miniscXle´ )ree 3ress 3etition at  463 NAB Petition at 7 (citing Philip Reny and Michael Williams, The Deterrent Effect of Cable System Clustering on Overbuilders, 35 Economics Bulletin 519 (2015)); Hal Singer, Does Clustering by Incumbent Cable MSOs Deter Entry by Overbuilders? (2003), http://ssrn.com/abstract=403720 ; National Association of Broadcasters Reply at 4-5 (NAB Reply). 464 Free Press Petition at 35-39; WGAW Petition at 24-26; Stop Mega Cable Coalition Feb. 9, 2016, Ex Parte Letter at 9; DISH Feb. 26, 2016, Ex Parte Letter at 3. 465 DISH Petition at 4, 32, 58-63; DISH Dec. 2, 2015, Ex Parte Letter at 2; see also Free Press Reply at 19. DISH recognizes that overbuilding between cable operators has been limited in the past but argues that the increasing opportunity to secure BIAS revenues has made the economic case for overbuilding more attractive today. DISH Petition at 61. 466 WGAW Petition at 36; DISH Petition at 47-49, 54, 63; Free Press Reply at 18-19; WGAW Reply at 21-22; DISH Feb. 12, 2016, Ex Parte Letter, Attach. at 24. 467 Opposition at 43-44 (citing AT&T-DIRECTV Order, 30 FCC Rcd at 9159, para. 68). 468 Application at 42; Opposition at 42. 469 Opposition at 42. Moreover, the Applicants argue that even under a DMA-level analysis, the transaction poses no harm because among the top 20 DMAs, New Charter would be the largest MVPD in four markets (the same four in which Time Warner Cable and Bright House are the largest MVPDs today), and the transaction would lead to increased concentration in six DMAs, five of which are DMAs where New Charter would not be among the two largest MVPDs following the transaction. Id. at 42-43. 470 Application at 42-43; Scott Morton Decl. at para. 5; Opposition at 52; see also Free State Comments at 16-17; Information Technology& Innovation Foundation Comments at 2-3 (ITIF Comments). The Applicants continXeG« Federal Communications Commission FCC 16-59 71 and dynamic, and would remain so following the transaction, noting that they face competition in local markets from DBS providers and overbuilders.471 7Ke Applicants contenG tKat contrary to )ree 3ress’s assertions, New Charter would not be able to use its broadband profits to cross-subsidize its video service and thereby undercut competitors on price.472 In particular, the Applicants argue that such a strategy would be unlikely to lead to subscriber gains given the competitiveness of the video distribution market, anG tKat GoinJ so ZoXlG reGXce 1eZ CKarter’s aEility to reinvest in EroaGEanG innovation to compete in the broadband market.473 Moreover, they contend that the greater reach and density of New Charter’s cable systems would produce public interest benefits, including an improved ability to compete for and serve enterprise customers and regional and national advertisers, as well as the improved ability for Charter to market itself.474 151. The Applicants also dispute assertions tKat 1eZ CKarter’s proJramminJ cost savinJs would harm other video distributors.475 According to the Applicants, no economic theory supports the arJXment tKat some competitors’ inpXt prices sKoXlG Ee Nept artiIicially KiJK to aiG otKer would-be competitors.476 In aGGition tKey arJXe tKat commenters’ alleJations rest on tKe IlaZeG assXmption tKat a proviGer’s Gecision aEoXt ZKetKer or not to enter a marNet GepenGs Xpon tKe incXmEent proviGer’s costs.477 The Applicants also argue that to the extent there is a problem with volume discounts, it is an industrywide issue and is therefore beyond the scope of this proceeding.478 Moreover, the Applicants maintain tKat Jiven increases in proJramminJ costs in recent years 1eZ CKarter’s aEility to loZer its programming rates to the level of 7ime :arner CaEle’s should be viewed as a consumer benefit.479 152. Discussion. We first consider the relevant product and geographic market definitions for video distribution in the proposed transaction. We consider the relevant product market consistent with Commission precedent and the analytical framework and principles outlined by the 2010 DOJ/FTC Horizontal Merger Guidelines. Consistent with Commission findings in prior transactions, we conclude (Continued from previous page) acknowledge that two or more Applicants have a residential broadband subscriber in the same census block in 617 census blocks, but argue that this data likely overstates the extent of any actual overlap, and that the overlaps identified are smaller than overlaps the Commission has deemed unproblematic in the past. Application at 42-43; Opposition at 52. 471 Application at 59-60. 472 Opposition at 57. 473 Id. 474 Application at 33-40; Opposition at 43, 52, 78. 475 Opposition at 58-61; see Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 3 (filed Jan. 29, 2016) (Charter Jan. 29, 2016, Ex Parte Letter), Attach., Surreply Declaration of Michael L. Katz, at paras. 20-33 (Katz Surreply Decl.); Letter from Samuel L. Feder, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Feb. 9, 2016) (Charter Feb. 9, 2016, Ex Parte Letter). For a discussion of allegations that lower programming payments by New Charter would reduce investment by programmers, see Section V.G.5.b , infra. 476 Opposition at 59. The Applicants claims that lower programming costs for New Charter would not lead to higher programming costs for other distributors are discussed in Section V.G.6 , infra. 477 Charter Feb. 9, 2016, Ex Parte /etter at  notinJ tKat ³*ooJle )iEer Kas recently entereG marNets ZKere tKere was already a larger incumbent MVPD whose relative size would have given it an advantage in terms of proJramminJ costs´  478 Opposition at 61. 479 Id. at 25-28, 58-59; Charter Feb. 9, 2016, Ex Parte Letter at 2. The Applicants claims regarding the nature and extent of the transaction-specific benefits are discussed in Section VI.B below. Federal Communications Commission FCC 16-59 72 that the relevant proGXct marNet Ior evalXatinJ tKe recorG on marNet concentration is ³mXlticKannel viGeo proJramminJ service´ as oIIereG Ey all 0V3Ds480 In addition, consistent with the prior Commission decisions, we find that, for most consumers today, OVD services are not substitutes for MVPD services.481 Rather, as we note in our description of current industry conditions discussed above,482 OVDs typically offer consumers choices that may either complement their MVPD services or compete with some portion of the services MVPDs offer, such as VOD. Given the development of additional and new OVD services and the proliferation of new technologies and devices that allow consumers to view video programming sold by OVDs on their computers, phones, and televisions, we acknowledge that OVDs have the potential to become substitutes for MVPD services with a market presence that is sufficient to counter an increase in price or decrease in quality by a hypothetical monopolist. 483 Despite the increased number of OVDs and increased consumer use of OVD services, however, we do not have evidence on the record that any OVD would, in the near term, discipline a hypothetical monopolist. Even assuming that OVDs such as Sling TV and Sony Vue are current market competitors, news reports of their current estimated subscribership imply that they are today niche competitors whose inclusion in the market GeIinition ZoXlG not materially alter tKe Applicants’ sKares or oXr competitive eIIects analysis484 480 See AT&T-DIRECTV Order, 30 FCC Rcd at 9159-60, para. 68; Comcast-NBCU Order, 26 FCC Rcd at 4255-56, para. 40; News Corp.-Hughes Order, 19 FCC Rcd at 501, para. 53. We do not reach a determination as to whether, as Hawaiian Telcom suggests, DBS providers should be excluded from analysis of the MVPD market in Hawaii. See Hawaiian Telcom Comments at 7-9. We find that, regardless of whether DBS providers are included or excluded, the transaction would not result in any change in the number, or market share, of MVPDs serving the Hawaiian market because only one of the Applicants (Time Warner Cable) serves that market today. 481 See AT&T-DIRECTV Order, 30 FCC Rcd at 9159-60, para. 68; Comcast-NBCU Order, 26 FCC Rcd at 4269, para. 79; see also United States v. Microsoft, 253 F.3d 34, 52-5454 (D.C. Cir. 2001) e[clXGinJ ³miGGleZare´ software from the definition of the relevant product market because of its present non-interchangeability with Windows, notwithstanding its long-term future potential). In the Comcast-NBCU Order, the Commission found that instances oI consXmers replacinJ 0V3D services ZitK OVD services Zere ³relatively inIreTXent´ Comcast-NBCU Order, 26 FCC Rcd at 4269, para.  ConsXmers may cKoose to cancel tKeir 0V3D service ³corG cXtters´  reGXce tKeir 0V3D spenGinJ ³corG sKavers´  or IoreJo sXEscriEinJ to an 0V3D service in tKe Iirst place ³corG nevers´  :Kile oEservers GiIIer on tKe GeJree to ZKicK tKese EeKaviors are occurring today, estimates continue to be relatively small. See Sixteenth Video Competition Report, 30 FCC Rcd at 3395-97, paras. 301-04. The vast majority of consumers who watch OVD video programming also subscribe to an MVPD service, indicating that many consumers view the services as complements, rather than substitutes. Sixteenth Video Competition Report, 30 FCC Rcd at 3289, para. 84, 3352-53, para. 215; see also Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Fifteenth Report, 28 FCC Rcd 10496, 10557-58, para. 132 (2013) ( Fifteenth Video Competition Report ) (noting that Netflix has reported that the overwhelming majority of its subscribers also subscribe to an MVPD). Notably, however, some recently launched linear online video services may be emerging as closer substitutes for MVPD services. See, e.g., DISH Feb. 12, 2016, Ex Parte Letter, Attach. at  notinJ tKat ³>v@ery IeZ Sling TV sXEscriEers also sXEscriEe to a linear 0V3D service´  482 See supra paras. 142-145. 483 See AT&T-DIRECTV Order, 30 FCC Rcd at 9159-60, para. 68. We note further that the Commission has sought comment on tKe interpretation oI tKe statXtory GeIinition oI ³0V3D´ anG on ZKetKer tKat GeIinition inclXGes certain Internet-based distributors of video programming. See MVPD Definition NPRM, 29 FCC Rcd 15995. As the Commission has stated, however, that proceeding will not define or opine on which services or providers are in the same relevant product market as a service designated as an MVPD. Id. at 16002, para. 15 n.33. 484 For instance, estimates suggest that Sling TV subscribers currently number in the hundreds of thousands, and Sony Vue is available in New York, Los Angeles, Chicago, Philadelphia, Dallas, San Francisco and Miami. See Jeff Baumgartner, Sling TV to Reach 2M Subs This Year: Analyst, Multichannel News (Jan. 15, 2016), http://www.multichannel.com/news/content/sling-tv-reach-2m-subs-year-analyst/396570; Press Release, PlayStation, PlayStation Vue Live TV Service Expands (Nov. 12, 2015), http://prn.to/1SgW9Ld. Federal Communications Commission FCC 16-59 73 7KereIore as Ze analy]e tKe transaction’s competitive effects, we consider any potential competitive harms that may arise from the transaction that would delay or minimize OVD entry into the market. 153. In addition to the relevant product market discussed above, we also consider the relevant geographic market consistent with Commission precedent and the analytical framework and principles outlined in the 2010 DOJ/FTC Horizontal Merger Guidelines.485 In previous transactions, the Commission defined the relevant market as local.486 Consistent with past practice and the record before us, for the purposes of analyzing market concentration arguments raised in the record, we define the relevant geographic market as a local market in which consumers select MVPD services. Consumers make decisions based on the MVPD services available to them at their residences, as they are unlikely to move in order to change providers.487 In previous transactions involving MVPDs, the Commission defined the relevant geographic market for MVPD services as the franchise area of the local cable operator, and we do so again here.488 Moreover, our analysis and the record evidence confirm that the Applicants do not serve entire DMAs and indeed face different competitors in different parts of any given DMA.489 Therefore, a DMA is not the ideal geographic area for analyzing changes in concentration that result from this transaction. 3. Potential Effects 154. Using the market definitions described above, we evaluate the potential competitive effects in video distribution from the transaction. We find that the transaction is unlikely to result in a loss of competition or potential competition in the distribution of MVPD services to consumers. We find that, in the overwhelming majority of franchise areas, the Applicants today do not compete head- to-head for video subscribers.490 In aGGition Ze IinG tKat any overlap EetZeen tKe Applicants’ Iootprints is not significant enough to appreciably affect concentration. Most consumers would not lose a video competitor as a direct result of the transaction in any relevant geographic area, nor would the transactions significantly increase the concentration of video subscription services in any local market. Moreover, even iI Ze consiGer consXmers’ options Ior pXrcKasinJ EXnGles tKat inclXGe EotK viGeo anG EroaGEanG services, we find no significant reduction in competition or consumer choice as a result of the transaction. 155. We also do not find that the transaction would make overbuilding by the Applicants into anotKer 0V3D’s territories less liNely :e note tKat Gespite tKe current appeal of expanding broadband revenues, the Applicants have not overbuilt each other to date. Additionally, we find no evidence in the recorG tKat tKe Applicants Kave contemplateG overEXilGinJ into anotKer incXmEent 0V3D’s territory nor 485 See, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9160, para. 69; Comcast-NBCU Order, 26 FCC Rcd at 4256- 57, para. 42; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20610, para. 119. 486 See, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9160, para. 69; Comcast-NBCU Order, 26 FCC Rcd at 4256- 57, para. 42; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20610, para. 119. 487 See, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9161-62, para. 71; Comcast-NBCU Order, 26 FCC Rcd at 4256-57, para. 42; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20610, para. 119. 488 See, e.g., Comcast-NBCU Order, 26 FCC Rcd at 4256-57, para. 42; Liberty Media-DIRECTV Order, 23 FCC Rcd at 3281, para. 32; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20610, para. 119. 489 See Charter Response to Information Request, Exhibits 107(b)-1, 107(b)-2; Time Warner Cable Response to Information Request, Exhibits 80b-01, 80b-02. For example, both Charter and Time Warner Cable today operate in the Los Angeles DMA, but serve distinct and separate geographic areas within that DMA. Accordingly, consumers in Los Angeles are unable to switch between Charter and Time Warner Cable. 490 According to the Applicants, two or more Applicants have a residential broadband subscriber in the same census ElocN in  censXs ElocNs or ³siJniIicantly less tKan  oI tKe censXs ElocNs tKat maNe Xp tKe merJeG company’s Iootprint´ See Application at 42; Opposition at 52. This represents well under 0.01 percent of all census blocks in the United States. Federal Communications Commission FCC 16-59 74 is there eviGence tKat tKey Kave any plans to enter into eacK otKer’s service territories 156. Several commenters assert that, if they did not merge, the Applicants could compete head-to-head with other cable operators through over-the-top entry outside their current cable footprints.491 7Kere are conIlictinJ alleJations in tKe recorG aEoXt CKarter’s plans ZitK reJarG to expanding its online video service offerings. Charter states that it has not and does not have any plans to offer an OVD service.492 By contrast, DISH asserts tKat ³CKarter Kas alreaGy TXietly laXncKeG an O77 service targeted toward its broadband-only cXstomers´ anG tKat tKe transaction ³Zill only stoNe its interest in tKis service anG tKereIore its incentive to tKZart or Gestroy competinJ O77 services´493 DISH further contends that documents show Charter has [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .494 DISH claims that Charter executives [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .495 CKarter responGs tKat ³DI6H misXnGerstanGs tKe GocXments it cites´496 According to Charter, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .497 Charter claims that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .498 Moreover, CKarter contenGs tKat GocXments GescriEinJ CKarter’s attempts [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .499 157. We find speculative the arguments that the transaction would materially decrease the likelihood that the Applicants would launch an out-of-footprint OVD service. In fact, some evidence citeG Ey DI6H may sXJJest tKat 1eZ CKarter’s increaseG scale IolloZinJ tKe transaction coXlG improve its ability to acquire the programming rights necessary to launch a non-facilities-based online video service.500 There is some evidence that [BEGIN HIGHLY CONF. INFO.] [END 491 See WGAW Petition at 36; DISH Petition at 47-49, 54, 63; Free Press Reply at 18-19; WGAW Reply at 21-22; DISH Feb. 12, 2016, Ex Parte Letter, Attach. at 24. 492 See Charter Jan. 14, 2016, Ex Parte Letter at 7. 493 DISH Dec. 7, 2015, Ex Parte Letter at 5. 494 DISH Dec. 21, 2015, Ex Parte Letter at 5-6; see also DISH Feb. 12, 2016, Ex Parte Letter, Attach. at 24. 495 DISH Dec. 21, 2015, Ex Parte Letter at 6. 496 Charter Jan. 14, 2016, Ex Parte Letter at 7. 497 Id. DI6H claims tKat CKarter’s 6pectrXm *XiGe App such as offered on Roku devices, meets the common GeIinition oI ³an O77 content Gelivery platIorm´ anG is tKereIore properly characterized by DISH as such. DISH Jan. 27, 2016, Ex Parte Letter at 11. 498 Charter Jan. 14, 2016, Ex Parte Letter at 7. 499 Id. 500 See DISH Dec. 7, 2015, Ex Parte Letter at 5 (citing CHR2- DOJ -00000066980 at 7, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 75 HIGHLY CONF. INFO.] .501 In October 2015, Charter announced the release of a Spectrum Guide Application on Roku devices tKat ³proviGes CKarter cXstomers an aGGitional Zay to vieZ tKe content tKey Kave pXrcKaseG ZitK tKeir caEle 7V service´502 In aGGition CKarter is ³testinJ in certain marNets a caEle TV product²Spectrum Stream and Spectrum Stream Plus²utilizing a Roku device that receives IP transmissions over CKarter’s private netZorN´503 There is also some evidence that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .504 We have found no evidence that the transaction would affect these plans. In particular, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .505 Moreover, DISH has launched a nationwide online video service; AT&T Kas annoXnceG plans to laXncK its OVD Ey year’s enG;506 and several other MVPDs and programmers 501 See, e.g., Time Warner Cable Response to Information Request at 10, 56 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , Exhibit 3(d)-02 at 1, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; Time Warner Cable Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Nov. 4, 2015) (Time Warner Cable Nov. 4, 2015, Updated Response to Information Request) [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 502 Charter Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Nov. 3, 2015) (Charter Nov. 3, 2015, Updated Response to Information Request); Charter Response to Information Request at 140, 317-18. 503 Charter Nov 3, 2015, Updated Response to Information Request at 2. Similarly, in late 2015, Time Warner Cable began testing a video offering that allows Time Warner Cable BIAS customers to subscribe to Time Warner Cable TV service delivered via a Roku box. See Jeff Baumgartner, TWC Launches Roku Trial in NYC, Multichannel News (Nov. 9, 2015), http://www.multichannel.com/news/content/twc-launches-roku-trial-nyc/395196. 504 See, e.g., Charter Response to Information Request at 96- 97 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , Exhibit 12-22 at 4-5, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , Exhibit 23-8 at 5, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 505 See, e.g., CHR2-FCC-00000073505 at 9-10, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 506 Press Release, AT&T, AT&T To Launch Three New Ways to Access & Stream DIRECTV Video Content Later This Year (Mar. 1, 2016), http://about.att.com/story/three new ways to access and stream directv video content.html. Federal Communications Commission FCC 16-59 76 have launched video services that are available without a traditional cable television subscription.507 There is no evidence in the record that New Charter would be better able to withstand the competitive pressure to launch its own online video service than Charter is today. We find that, regardless of New CKarter’s online viGeo plans tKere ZoXlG still Ee several viGeo options inclXGinJ D%6 anG OVD services, remaining in the markets served by the Applicants post-transaction. 158. The record does not indicate that clustering would remove a competitor or inhibit competition in any geographic market at issue in this transaction. NAB highlights the possibility that clustering may inhibit competition in particular geographic markets and has cited studies which support its claims.508 The Applicants, however, already operate large clusters in many of their service areas. We do not believe that additional clustering as a result of the transaction would significantly increase barriers to entry or reduce the competitive viability of overbuilders. For instance, even when examined at the DMA or metropolitan level, the transaction would not substantially increase the concentration of MVPD subscribers in any market.509 In aGGition Ze IinG tKat CKarter’s Xse oI nationZiGe pricing alleviates concerns that New Charter would engage in anticompetitive behavior with regard to pricing and reject requests from commenters to impose pricing conditions on New Charter. 510 159. For the reasons stated above, we conclude that the transaction is unlikely to substantially lessen competition in the market for the provision of video services to consumers either between the Applicants or between the Applicants and other incumbent video competitors. Although we find that the Applicants do not compete head-to-head for MVPD subscribers in local markets, this does not mean that there is no possible theory of harm based on New Charter having a larger nationwide share of MVPD subscribers. The primary input for MVPD services is video programming.511 Accordingly, we discuss elsewhere in this Order arguments that the combination of Charter, Time Warner Cable, and Bright House Kas tKe potential to increase tKe comEineG entity’s EarJaininJ leveraJe or monopsony poZer as an upstream buyer of programming, which New Charter then may be able to use to harm competition in downstream video distribution.512 E. Competitors’ Access to Programming 160. Because Time Warner Cable and Bright House each own both video programming and cable distribution networks, we examine whether New Charter would have an increased incentive or aEility to eitKer temporarily or permanently Ioreclose 1eZ CKarter’s viGeo GistriEXtion rivals Irom access 507 See, e.g., Shalini Ramachandran and Lisa Beilfuss, Comcast Launches Streaming Service for Cord-Cutting Customers, Wall St. J. (July 13, 2015), http://on.wsj.com/1K0VyKy ; Lisa Beilfuss, HBO Now Is Available to Apple, Cablevision Users, Wall St. J. (Apr. 7, 2015), http://on.wsj.com/1Dg082V . 508 See NAB Petition at 7 (citing Philip Reny and Michael Williams, The Deterrent Effect of Cable System Clustering on Overbuilders, 35 Economics Bulletin 519 (2015)); Hal Singer, Does Clustering by Incumbent Cable MSOs Deter Entry by Overbuilders? (2003), http://ssrn.com/abstract=403720 ); NAB Reply at 4- 5. 509 See Charter Nov. 3, 2015, Updated Response to Information Request at 38-39. In total, there are 41 DMAs in which the three Applicants overlap. Among these 41 DMAs, there are ten in which the subscriber share gain, GeIineG as tKe GiIIerence EetZeen 1eZ CKarter’s sKare anG tKe ma[imXm oI tKe pre-transaction shares among the three Applicants, is greater than five percent, with none exceeding approximately 15 percent . See Appendix C, Section III.A., Table 25. Specifically, in the Los Angeles DMA, Time Warner Cable currently serves approximately  percent oI 0V3D sXEscriEers anG aGGinJ CKarter’s sXEscriEers ZoXlG raise tKe percentaJe to  percent See Appendix C, Section III.A., Table 25; Charter Nov. 3, 2015, Updated Response to Information Request at 38- 39. 510 See Cincinnati Bell Comments at 18-19 (urging the Commission to require New Charter to price uniformly throughout a DMA). 511 See infra Section V.E.1. 512 See infra Section V.F. Federal Communications Commission FCC 16-59 77 to or raise rivals’ prices Ior tKe viGeo proJramminJ in ZKicK it would have an interest. The transaction would give New Charter a significantly larger footprint and increase its number of subscribers, giving it Jreater marNet poZer to enJaJe in sXcK e[clXsionary strateJies :e IinG tKat tKe Commission’s e[istinJ program access rules513 are adequate to address any potential harms to competition posed by the vertical combination of programming and distribution assets specific to this transaction. 1. Background 161. Firms that own video programming networks typically both produce their own programming and acquire programming others produce. They package and sell this programming as a network or networks to MVPDs and OVDs for distribution to consumers.514 In turn, to provide multichannel video services to subscribers, MVPDs and OVDs combine programming into bundles for distribution on either their cable, satellite, fiber, or wireless networks, or in the case of certain OVDs, on the public Internet.515 Programming typically distributed on these systems can be offered by over-the-air broadcast stations, national program networks²including news, entertainment, and special interest networks²regional sports networks (RSNs), and various non-sports regional networks. 516 162. Typically, programmers are compensated in part through license fees MVPDs and OVDs pay. License fees vary based on the value of the programming, the number of subscribers the distributor serves, and the programming tier on which the programming is placed, with a higher number of subscribers generally resulting in lower per-subscriber programming license fees.517 Programmers also usually earn revenues from advertising sales.518 163. Video programming varies significantly in terms of its characteristics, focus, and subject matter.519 The Commission has found previously that neither distributors nor their subscribers view networks with similar programming as perfect substitutes for one other.520 The Commission thus has 513 47 CFR §§ 76.1001 et seq. 514 Applications for Consent to the Transfer of Control of Licenses from Comcast Corporation and AT&T Corp., Transferors, to AT&T Comcast Corporation, Transferee, Memorandum Opinion and Order, 17 FCC Rcd 23246, 23258, para. 34 (2002) ( Comcast-AT&T Order ). 515 See, e.g., Liberty Media-DIRECTV Order, 23 FCC Rcd at 3281, para. 33; Adelphia-TWC Order, 21 FCC Rcd at 8236, para. 65; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20653, para. 245; Comcast-NBCU Order, 26 FCC Rcd at 4262-63, paras. 60, 63. 516 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 35; Adelphia-TWC Order, 21 FCC Rcd at 8236, para. 66; News Corp.-Hughes Order, 19 FCC Rcd at 504, para. 59. Entravision urges the Commission to define a separate submarket for Latino focused programming. Petition to Deny of Entravision Communication Corp., MB Docket No. 15-149, at 3-6 (filed Oct. 13, 2015) (Entravision Petition), Attach., Economic Analysis of the Effects of the Proposed Merger of Charter Communications, Time Warner Cable, and Bright House Networks on Program Providers Serving the Latino Market, para. 19 (Kwoka Analysis). The record before us in this transaction provides insufficient evidence to define a Latino programming market. See infra Section V.G.5.b(ii) . 517 EchoStar-DIRECTV HDO, 17 FCC Rcd at 20654 para. 249 (citing Implementation of Section 11 of the Cable Television Consumer Protection and Competition Act of 1992, Further Notice of Proposed Rulemaking, 16 FCC Rcd 17312, 17322 paras. 10-11 (2001)); News Corp.-Hughes Order, 19 FCC Rcd at 502 para. 55. 518 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3281, para. 34; Adelphia-TWC Order, 21 FCC Rcd at 8236, para. 65; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20654, para. 249. 519 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 35; Adelphia-TWC Order, 19 FCC Rcd at 8236, para. 66; News Corp.-Hughes Order, 9 FCC Rcd at 504, para. 59. 520 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 35; News Corp.-Hughes Order, 21 FCC Rcd at 504, para. 59. Federal Communications Commission FCC 16-59 78 concluded that markets that include video programming are differentiated product markets.521 In the past, the Commission has also found that at least a portion of video programming subscribers consider certain types of programming as so vital or desirable that they are willing to switch to a different distributor in order to gain or retain access to that programming.522 The Commission has recognized that such ³marTXee´ or ³mXst Kave´ proJramminJ can inclXGe ³a broad portfolio of national cable programming in aGGition to R61 anG local EroaGcast proJramminJ´523 164. The Commission has found in previous transactions that the area in which the program owner licenses its programming reasonably defines the relevant geographic market for video programming.524 For national programming networks, therefore, the relevant geographic market is national in scope.525 Such networks are generally licensed to distributors nationwide, and, in some cases, are licensed internationally.526 In contrast, with respect to RSNs and other regional networks, the Commission has concluded in previous transactions that the relevant geographic market is regional.527 In general, contracts between sports teams and RSNs limit the relevant geographic market to the ³GistriEXtion Iootprint´ tKe oZner oI tKe proJramminJ estaElisKes528 2. Program Access 165. Congress enacted the program access regime to address concerns that the vertical integration of cable systems with video programming assets creates or increases a possible incentive and ability for cable operators to favor their own, affiliated companies over unaffiliated MVPDs in the terms and conditions of licensing their affiliated programming.529 Thus, as Congress directed, the program access rules the Commission adopted require vertically integrated cable operators, and, more recently, common carrier video distributors, to offer competing MVPDs access to their affiliated programming on non-discriminatory rates, terms, and conditions, and prohibit such distributors from discriminating among MVPDs in the sale of their programming.530 MVPDs seeking enforcement of the program access 521 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 35; Adelphia-TWC Order, 21 FCC Rcd at 8236, para. 66; News Corp.-Hughes Order, 19 FCC Rcd at 504, para. 59. 522 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 35; Adelphia-TWC Order, 21 FCC Rcd at 8236-37, para. 66; see also Adelphia-TWC Order, 21 FCC Rcd at 8270-71, para. 46. 523 Comcast-NBCU Order, 26 FCC Rcd at 4260, para. 52. 524 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 37; Adelphia-TWC Order, 21 FCC Rcd 8237, para. 68; News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 64. 525 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 37; Adelphia-TWC Order, 21 FCC Rcd 8237, para. 68; News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 66. 526 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282 para. 37; Adelphia-TWC Order, 21 FCC Rcd 8237, para. 68; News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 66. 527 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 37; Adelphia-TWC Order, 21 FCC Rcd 8237, para. 68; News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 66. 528 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3282, para. 37; Adelphia-TWC Order, 21 FCC Rcd 8237, para. 68; News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 66. In the case of broadcast television programming, the Commission has found DMAs to define the relevant geographic market for each individual broadcast station. See Liberty Media-DIRECTV Order, 23 FCC Rcd at 3283, para. 37 & n.116; News Corp.-Hughes Order, 19 FCC Rcd at 506, para. 65. 529 See 1992 Cable Act § 2(a) (5), 47 U.S.C. § 521 (2012). 530 47 CFR §§ 76.1001-02; 76.1004. See also Revision of the Commission’s Program Access Rules, Report and Order, MB Docket Nos. 12-68, 07-18, 05-192, Further Notice of Proposed Rulemaking, MB Docket No. 12-68, Order on Reconsideration in MB Docket No. 07-29, 27 FCC Rcd 12605 (2012) ( 2012 Program Access Order ); Review of the Commission’s Program Access Rules and Examination of Programming Tying Arrangements, First continXeG« Federal Communications Commission FCC 16-59 79 protections may initiate an adjudicatory proceeding with the Commission by filing a program access complaint.531 In reviewing previous mergers involving the vertical integration of programming and distribution interests, the Commission has at times found increased incentive and ability to withhold or raise prices of certain types of programming, and imposed conditions to augment the program access rules. For example, where a cable operator also controlled programming such as an RSN or broadcast network, the Commission has imposed an obligation to engage in a baseball-style arbitration proceeding if initiated by an aggrieved MVPD.532 3. RSNs and Other Sports Programming 166. Presently, Time Warner Cable owns two RSNs²Time Warner Cable SportsNet and Time Warner Cable Deportes²that carry Los Angeles Lakers basketball games and other regional programming.533 The Applicants state that Time Warner Cable also manages the distribution of SportsNet LA, which carries Los Angeles Dodgers games, and provides affiliate sales, advertising sales, and production and technical services to SportsNet LA.534 According to the Applicants, Time Warner Cable also possesses a 26.83 percent minority interest in SportsNet NY, but does not control its management, strategic direction, or distribution rights.535 In addition, Time Warner Cable owns 15 other RSNs, of which 13 include Division I college sports programming, while two carry some Spanish-language Major League Baseball (MLB) games. 536 Time Warner Cable also owns two local sports networks, OC16 and (Continued from previous page) Report and Order, 25 FCC Rcd 746 (2010) ( 2010 Program Access Order ), aff’d in part and vacated in part sub nom. Cablevision Systems Corp. et al. v. FCC, 649 F.3d 695 (D.C. Cir. 2011). 531 47 CFR § 76.1003. See also 47 U.S.C. § 548(d); 2012 Program Access Order, 27 FCC Rcd at 12640-48, paras. 52-64; 2010 Program Access Order, 25 FCC Rcd at 777-87, paras. 46-57. The Commission also has allowed rules banning exclusive contracts for satellite cable programming or satellite broadcast programming between any cable operator and any cable-affiliated programming vendor in areas served by a cable operator to expire. See 2012 Program Access Order, 27 FCC Rcd at 12607, para. 1; see also 47 U.S.C. § 548(c)(2)(D). 532 See, e.g., Comcast-NBCU Order, 26 FCC Rcd at 4241, 4260, 4262, 4358, 4364-70, paras. 4, 54, App. A Sections II, VII, and VIII; News Corp.-Hughes Order, 19 FCC Rcd at 514, 552-555, 572-575, 631-632, paras. 87, 173-177, 220-223, Apps. B and C; Adelphia Order, 21 FCC Rcd at 8207, 8274, 8275-76, paras. 5, 156, 159-161, App. B, Sections B.2-3. In reviewing the Comcast-NBCU merger, the Commission broadened the arbitration condition to apply to Comcast-1%C8’s EroaG portIolio oI national proJramminJ limiteG Giscovery in arEitration anG aGopteG a standstill condition, permitting an MVPD to continue carrying the programming during arbitration of the dispute. Comcast-NBCU Order, 26 FCC Rcd at 4260, 4358, 4365, 4368, paras. 51-54, App. A, Sections II, VII.A.5, and D.3. The Commission also allowed MVPDs to demand standalone final offers for Comcast-1%C8’s EroaGcast R61 anG cable programming or any bundle of programming made available to another MVPD. Id. at 4262, 4364, para. 57, App. A. Section VII A.2. 533 Application at 11; Time Warner Cable Response to Information Request at 30, 34, 37, 40, 161. 534 Application at 11; Time Warner Cable Response to Information Request at 33, 162. The Applicants state that Time Warner Cable does not possess an ownership interest in SportsNet LA. Application at n.18; Time Warner Cable Response to Information Request at 33, 162. 535 Application at 11; Time Warner Cable Response to Information Request at 49- 50. Thus, we conclude that New Charter would not control licensing of SportsNet NY and note that, despite this significant ownership interest, no commenters specifically allege that New Charter would withhold or raise prices of SportsNet NY. The significance of attributable interests in programming is discussed at Section V.E.4.a, infra. 536 Time Warner Cable Response to Information Request at 30-32, 34, 37, 40, 161. The additional RSNs are: (1) OC Sports (Hawaii); (2) Time Warner Cable Sports Channel Kansas City; (3-6) Time Warner Cable Sports Channels in Albany, Buffalo, Rochester, and Syracuse NY; (7) Time Warner Cable Sports Channel Nebraska; (8) Time Warner Cable Sports Channel Raleigh, Charlotte, Greensboro, and Wilmington, NC and Columbia, Florence and Myrtle Beach, SC; (9-11) Time Warner Cable Sports Channels in Cincinnati/Dayton, Cleveland/Akron, and Columbus/Dayton, Ohio; (12) Time Warner Cable Sports Channel North Dallas, El Paso, South-Austin, San continXeG« Federal Communications Commission FCC 16-59 80 SURF Channel, which operate in Hawaii and carry Hawaiian high school sports and surfing, respectively, but which neither Time Warner Cable nor Charter consider RSNs.537 Time Warner Cable also holds a 6.35 percent share in the MLB Network, stating that this interest provides only the rights to distribute MLB content on its own systems, not to license such content for distribution on third-party systems.538 In addition to this Time Warner Cable sports programming, Bright House owns one local sports channel carrying Florida high school sports that it distributes exclusively 539 anG ³a minimal non-attributable) interest in tKe 0/% 1etZorN´540 CKarter oZns no proJramminJ ³otKer tKan a small nXmEer oI local origination channels whose programming Charter does not license for distribution by third parties´541 167. Vertical inteJration oI proJramminJ controlleG Ey 7ime :arner CaEle’s R61s ZitK Charter, Time Warner Cable and Bright House programing distribution networks requires an analysis of whether the transaction increases the Applicants’ incentive and ability to disadvantage competing distributors by withholding access to, or raising the price of, this programming.542 In tKe Commission’s recent review of the proposed Comcast-Time Warner Cable-Charter transaction, Time Warner Cable was accused of harming competition in video distribution by demanding excessive prices for SportsNet LA, which airs Los Angeles Dodgers games.543 Because Time Warner Cable still controls distribution of SportsNet LA, we pay close attention to possible incentives to withhold or raise prices of RSN programming in this transaction. 168. Positions of the Parties. The Applicants assert tKat 7ime :arner CaEle’s ³limiteG nXmEer oI R61s Goes not pose any competitive proElems´544 According to the Applicants, the significant cost of acquiring distribution rights and contractual terms compel Time Warner Cable to seek the broadest possible distribution of its RSNs.545 :itK respect to 7ime :arner CaEle’s IailXre to oEtain (Continued from previous page) Antonio and Corpus Christie, and RGV, Texas; (13) Time Warner Cable Sports Channel Milwaukee/Green Bay, WI; (14) Time Warner Cable Special Events; and (15) Canal de Tejas. Id. 537 Time Warner Cable Response to Information Request at 30; Charter Response to Information Request at 80. The Commission’s most recent GiscXssion oI an R61 GeIines it as ³any non-broadcast video programming service that (1) provides live or same-day distribution within a limited geographic region of sporting events of a sports team that is a member of Major League Baseball, the National Basketball Association, the National Football League, the National Hockey League, NASCAR, NCAA Division I Football, NCAA Division I Basketball Liga de Béisbol Profesional de Puerto Rico, Baloncesto Superior Nacional de Puerto Rico, Liga Mayor de Fútbol Nacional de Puerto Rico, and the Puerto Rico IslanGers oI tKe 8niteG 6occer /eaJXe’s )irst Division anG  in any year carries a minimum of either 100 hours of programming that meets the criteria set forth in subheading 1, or 10% of the regular season games of at least one sports team that meets tKe criteria oI sXEKeaGinJ ´ 2012 Program Access Order, 27 FCC Rcd at 12643-12644, para. 56. 538 Time Warner Cable Response to Information Request at 33, 164. 539 Application at 50 n.131-132; Charter Response to Information Request at 101. 540 Advance/Newhouse Response to Information Request at 17. 541 Charter Response to Information Request at 84; Application at 7- 9. 542 See, e.g., Comcast-NBCU Order, 26 FCC Rcd at 4254, para. 36. 543 See City of Los Angeles Comments, MB Docket No. 14-57, at 2 (filed Aug. 25, 2014); Petition to Deny of COMPTEL, MB Docket No. 14-57, at 38 (filed Aug. 25, 2014); National Hispanic Media Coalition Comments, MB Docket No. 14-57, at 15 (filed Aug. 25, 2014); Petition to Deny of Sports Fans Coalition, MB Docket No. 14-57 at 27-28 (filed Aug. 25, 2014). 544 Application at 52. 545 Id.; Charter, Time Warner Cable and Advance/Newhouse, White Paper, Analysis of Video Programming Foreclosure Issues Involving Time Warner Cable SportsNet and SportsNet LA, para. 1, (RSN Foreclosure Analysis continXeG« Federal Communications Commission FCC 16-59 81 broad distribution of SportsNet LA, Time Warner Cable asserts that it has committed publicly to enter into binding arbitration with any MVPD seeking to carry SportsNet LA, and the Applicants state that New Charter intends to continue to abide by this pledge for a period of three years from the close of the transaction.546 The Applicants also claim tKat tKe Commission’s proJram access rXles anG complaint process combined with the Applicants’ oIIer to enter arEitration are sXIIicient to alloZ any GistriEXtor believing it has been improperly denied access to SportsNet LA programming to seek relief.547 169. The Applicants provide an analysis of video programming foreclosure issues involving Time Warner Cable SportsNet and SportsNet LA that concludes that the transaction is unlikely to lead to permanent foreclosure or increased prices for Time Warner Cable SportsNet or permanent foreclosure of SportsNet LA.548 For Time Warner Cable SportsNet, the analysis compares the profitability to New Charter of not renewing expiring licensing agreements in hopes of gaining additional subscribers, relative to the profitability of renewing the expiring licensing agreements. 549 The analysis concludes that subscribers would not leave rival MVPDs in order to receive Time Warner Cable SportsNet at a sufficient rate to make permanent foreclosure more profitable for New Charter than renewing the licensing agreements.550 For SportsNet LA, the analysis first asserts that SportsNet LA has not been a successful venture for Time Warner Cable.551 7Ke analysis IXrtKer conclXGes tKat iI 7ime :arner CaEle’s cXrrent inability to license SportsNet LA to rival MVPDs is based on a foreclosure strategy, then the transaction would not lead to transaction-specific harm based on such a strategy.552 Concluding that a permanent foreclosure analysis as done in past transactions cannot be performed because no rival MVPDs currently carry SportsNet LA,553 the analysis then estimates the effect of the transaction on the maximum price another distributor (i.e., AT&T/DIRECTV) would be willing to pay for SportsNet LA, and the difference between the minimum price that New Charter would find acceptable and the minimum price that Time Warner Cable would have found acceptable absent the transaction.554 The analysis ambiguously concludes that, [BEGIN HIGLY CONF. INFO.] [END HIGLY CONF. INFO.] .555 (Continued from previous page) White Paper), transmitted by letter from Samuel Feder, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Dec. 3, 2015) (Charter Dec. 3, 2015, Ex Parte Letter). 546 Application at 52; Time Warner Cable Response to Information Requests at 41; Charter Dec. 3, 2015, Ex Parte Letter. Currently SportsNet LA is carried by Time Warner Cable, Bright House, and, since announcement of the transaction, Charter. RSN Foreclosure Analysis White Paper at paras. 2, 34. Time Warner Cable SportsNet is carried by all MVPDs in Los Angeles except DISH. Id. at para. 2. 547 Application at 52-53. 548 RSN Foreclosure Analysis White Paper at paras. 4-5, 32. 549 Id. at paras. 12-21. 550 Id. at para. 22. The Analysis also concludes that departure rates would be sufficiently low to allow New Charter to oEtain only ³very small´ per sXEscriEer price increases Ior 7ime :arner CaEle 6ports1et Id. at para. 27. 551 Id. at para. 38. The analysis states that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. 552 Id. at para. 39. 553 Id. at para. 42. 554 Id. at para. 51. 555 Id. at para. 55. Federal Communications Commission FCC 16-59 82 7Ke analysis IXrtKer conclXGes ³>7@Ke minimXm acceptaEle price to 1eZ CKarter post-merger would be somewhat higher than the minimum price acceptable to Time Warner Cable pre-merJer´556 170. Hawaiian Telcom Services Company (Hawaiian Telcom), a small company offering MVPD service in Hawaii, claims that Time Warner Cable has leveraged its control of OC Sports, a Hawaii RSN televising University of Hawaii football and other intercollegiate sports, to raise Hawaiian 7elecom’s costs Ey previously not allowing it to resell commercial airtime for local advertising to other potential advertisers.557 In addition, according to Hawaiian Telcom, Time Warner Cable previously required it to carry OC 6ports on its Easic tier increasinJ HaZaiian 7elcom’s ³non-compensable costs ´ and inhibiting free channel positions and marketing.558 Hawaiian Telcom admits that Time Warner Cable stopped making tKese GemanGs GXrinJ tKe Commission’s revieZ oI tKe proposeG Comcast-Time Warner CaEle merJer EXt ³stronJly sXspects´ that New Charter would resume making them if this transaction is approved.559 Further, according to Hawaiian Telcom, Time Warner Cable refuses to allow Hawaiian Telcom to purchase the Time Warner Cable-produced and televised OC16 channel, which shows Hawaii high school sports that are very popular.560 The lack of this channel, according to certain Hawaiian Telcom potential, current and former customers Kas caXseG a ³meaninJIXl portion oI tKose sXrveyeG´ to not subscribe, disconnect, or Ee GissatisIieG ZitK HaZaiian 7elcom’s viGeo services561 Finally, Hawaiian 7elcom complains tKat it is ³not alloZeG to air´ tKe 68R) cKannel ZKicK covers HaZaii surfing and is inclXGeG in 7ime :arner CaEle’s HaZaii caEle line-up.562 Hawaiian Telcom asks the Commission to impose conGitions on 1eZ CKarter tKat ZoXlG Jrant it access to 7ime :arner CaEle’s R61s Ior Iive years anG ³reTXire continXeG access Ey 0V3Ds in Hawaii to RSN networks and all University of Hawaii sports tKroXJK lonJ term contracts in accorGance ZitK cXrrent terms anG conGitions´563 It also asks for conGitions proKiEitinJ e[clXsive contracts Ior carryinJ HaZaii KiJK scKool sports anG access to ³amateur Hawaii high school sports on a live basis at fair market rates and conditions, as well as access to SURF cKannel at Iair marNet rates anG conGitions >EotK@ sXEMect to compXlsory arEitration´564 556 Id. at para. 56. 557 Hawaiian Telcom Comments at 12; Hawaiian Telcom Comments, Declaration of Jason Fujitsu, Vice President, Consumer Sales and Marketing, Hawaiian Telcom Services Company, Inc., at para. 7 (Fujitsu Decl.). 558 Hawaiian Telcom Comments at 12; Fujitsu Decl. at para. 8. 559 Hawaiian Telcom Comments at n.50; Fujitsu Decl. at para. 8. Hawaiian Telcom also complains that Time Warner Cable only negotiates one-year contracts for OC Sports. Hawaiian Telcom comments at 13; Fujitsu Decl. at para. 8. 560 Hawaiian Telcom Comments at 13; Fujitsu Decl. at para. 9. 561 Hawaiian Telcom Comments at 13; Fujitsu Decl. at para. 9. 562 Hawaiian Telcom Comments at 13; Fujitsu Decl. at para. 10. 563 Hawaiian Telcom Comments at iii, 21; Hawaiian Telcom Reply at 5. 564 Hawaiian Telcom Comments at 21; Hawaiian Telcom Reply at 5. Only a few other commenters raise withholding or raising prices of RSNs as a possible harm to competition in this transaction. US Telecom mentions tKe valXe oI R61 proJramminJ anG asserts Jenerally tKat ³In recent years 86 7elecom memEer companies Kave been tKe victims oI caEle ZitKKolGinJ R61s´ /etter Irom -onatKan %anNs 6enior V3 /aZ 3olicy 86 7elecom to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 6 (filed Nov. 12, 2015) (US Telecom Nov. 12, 2015, Ex Parte Letter). The Sports Fans Coalition and beIN SPORTS assert that New Charter would be able to prevent streaming or MVPD competitors from acquiring must have programming such as RSNs. Letter from David Goodfriend to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Feb. 15, 2016) (beIN SPORTS and Sports Fans Coalition Feb. 15, 2016, Ex Parte Letter); Letter from David Goodfriend to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Mar. 17, 2016) (beIN SPORTS and Sports Fans Coalition Mar. 17, 2016, Ex Parte Letter). The Sports Fans Coalition and beIN SPORTS raised their concerns for the first time in their Feburary 16, 2016 Ex Parte Letter. Under the pleading schedule established for this continXeG« Federal Communications Commission FCC 16-59 83 171. In response to these claims, Time Warner Cable states that in 2011, Hawaiian Telcom actually requested access to a Time Warner Cable pay-per-view package consisting of University of Hawaii football and basketball games, and a separate linear OC Sports Channel including University of Hawaii baseball, volleyball and diving.565 According to Time Warner Cable, it had made a business decision not to license the linear OC Sports Channel to other distributors, and therefore offered only its pay-per-view package to Hawaiian Telcom.566 ³6oon tKereaIter´ 7ime :arner CaEle cKanJeG its Gecision and licensed OC Sports Channel to Hawaiian Telcom on August 31, 2011, and has subsequently renewed tKe license aJreement annXally ZitK one reneZal occXrrinJ several montKs aIter tKe Commission’s review of the proposed Comcast-Time Warner Cable transaction ended.567 The Applicants’ economic expert Dr. 6cott 0orton also states tKat HaZaiian 7elecom’s claims are not transaction-specific because Charter and Bright House do not operate in Hawaii today, and the transaction would cause no change in the Applicants’ marNet sKare in HaZaii568 172. Discussion. Based on the record before us, we find that the transaction is not likely to Karm competition GXe to 1eZ CKarter’s control oI 7ime :arner CaEle’s R61s Though we acknowledge Commission precedent concerning the uniqueness of RSN programming, 569 this transaction will not create any increased incentive and ability to foreclose or raise prices of RSN programming because New Charter will not increase its share of video subscribers or homes passed in most of the regions in which it is acquiring RSN programming. With regard to the Los Angeles RSNs, the change in MVPD concentration across the Los Angeles metropolitan area caused by the transaction would be slight. Charter today serves under five percent of Los Angeles area subscribers. Thus the transaction would be unlikely to siJniIicantly increase tKe Applicants’ incentive or aEility to Ioreclose access to, or raise prices of, the Los Angeles RSNs. 173. To further investigate the issue concerning the Los Angeles RSNs, the Commission analyzed the Applicants’ submission regarding foreclosure of Time Warner Cable SportsNet and (Continued from previous page) proceeding, comments and petitions to deny were due October 13, 2015. See Public Notice, 30 FCC Rcd at 9916. The Sports Fans Coalition and beIN SPORTS had ample time to submit their comments during the established pleading cycle, but it failed to do so and offers no justification now for its late submission. As was emphasized in the Public Notice, to allow the Commission to consider fully all substantive issues regarding the Application in as timely and efficient a manner as possible, petitioners and commetners must raise all issues in their initial filings. New allegations may not be raised in responses or replies and, absent a showing of good cause, any issues not timely raised may be disregarded by the Commission. Public Notice, 30 FCC Rcd at 9918 (citing 47 CFR § 1.45(c)). We therefore dismiss The Sports Fans Coalition and beIN SPORTS requests as untimely. See AT&T-DIRECTV Order, 30 FCC Rcd at 9150, 9151, paras. 42, 46. 565 Time Warner Cable Response to Information Request at 44. 566 Id. 567 Id. at 44, 46, 48. CKarter asserts tKat HaZaiian 7elcom aGmits tKat it noZ carries 7ime :arner CaEle’s OC6ports anG noZ seeNs access to aGGitional 7ime :arner CaEle proJramminJ anG tKat tKe Commission’s proJram access rXles ³Go not compel 1eZ CKarter to oIIer its proJramming at the uneconomic rates, terms and conditions Hawaiian 7elcom ZoXlG preIer´ Opposition at  568 Scott Morton Reply Decl. at para. 11. We also note that Time Warner Cable does not categorize OC16 and SURF Channel as RSNs, and that their programming is not the type of major league sports or NCAA Division I content contained in our definition of RSNs. See Time Warner Cable Response to Information Request at 30-32; 2012 Program Access Order, 27 FCC Rcd at 12643-12644, para. 56. 569 See 2010 Program Access Order, 25 FCC Rcd 746, 782-83, para. 52 (rejecting per se rule that an unfair act involving an RSN always hinders an MVPD from providing programming and allowing a defense against program access complaints by establishing that the unfair act involving an RSN does not significantly hinder or prevent the MVPD from providing programming). Federal Communications Commission FCC 16-59 84 SportsNet LA programming, and also performed its own foreclosure analysis, presented in Appendix C. Using estimates of subscriber departure derived from an empirical examination of SportsNet LA holdouts during the 2014 and 2015 baseball seasons, the Commission has determined that New Charter will not have an incentive to foreclose competitors from access to Los Angeles RSN programming.570 Under any reasonable assumptions, the expected benefit to New Charter of foreclosing these RSNs is outweighed by the expected loss of licensing fees and advertising revenue. This conclusion is in line with the findings the Applicants presented.571 174. Only Hawaiian Telcom and Sports Fans Coalition/beIN SPORTS allege that New Charter would foreclose or raise prices for its RSN programming, and US Telecom asserts, without evidence, merely that cable companies have withheld RSN programming from its members.572 None of these commenters provide any economic analysis to support their allegations. With respect to SportsNet LA, the Applicants have committed to arbitration.573 Time Warner Cable also presents a detailed account of its efforts to license SportsNet LA programing to competing distributors.574 Time Warner Cable documents also support a conclusion that it [BEGIN HIGHLY CONF. INFO. ] [END HIGHLY CONF. INFO.] .575 175. :itK respect to HaZaiian 7elcom’s claim tKat 7ime :arner CaEle is ZitKKolGinJ or raising the price of OC Sports Channel, we note that the parties agree that Time Warner Cable now licenses the programming to Hawaiian Telcom without restrictions on advertising sales or tier placement.576 HaZaiian 7elcom’s claim tKat New Charter would cease doing so if the transaction is approved is speculative, [BEGIN HIGHLY CONF.INFO.] 570 See Appendix C, Section III.C.1. As part of its investigation of this issue, the Commission performed a rigorous econometric analysis of subscriber departure and improveG Xpon tKe Applicants’ estimates oI e[pecteG sXEscriEer value to obtain revised estimates of the potential costs and benefits of a foreclosure strategy. As discussed in Appendix C, the transaction may result in significant upward pricing pressure for 7ime :arner CaEle’s /os AnJeles RSNs in one DMA, Santa Barbara, where New Charter would face limited, non-cable competition and would have the greatest incentive to increase prices. See id., Section III.C.1.b.(iii)(b). New Charter is unlikely to obtain this theoretical price increase, however, because it would be required to negotiate across several markets simultaneously, and transaction-specific pricing pressures are much less pronounced in the other California DMAs. Therefore, potential buyers of the RSNs across the distribution area would resist paying the potentially higher Santa Barbara price. Currently, Time Warner Cable charges a uniform price for its RSNs across all Zone 1 markets. 571 See Appendix C, Section III.C.1. 572 See supra note 564. 573 Application at 52; Time Warner Cable Response to Information Request at 41; Charter Dec. 3, 2015, Ex Parte Letter. 574 Time Warner Cable Response to Information Request at 46-47; Fujitsu Decl. at para. 8. 575 TWC-DOJ -01563570 at 2-13, 15-18, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. at 18. 576 Hawaiian Telcom Comments at 13, note 50. Fujitsu Decl. at para. 8; see also Time Warner Cable Response to Information Request at 44, 46, 52. Federal Communications Commission FCC 16-59 85 [END HIGHLY CONF. INFO.] .577 Further, as Charter points out, Hawaiian Telecom makes no showing that the alleged harm from Time Warner CaEle’s anG potentially 1eZ CKarter’s oZnersKip oI tKis proJramminJ is speciIic to tKis transaction578 Because Charter and Bright House are not present in Hawaii today, the transaction would not change the Applicants’ incentive or aEility to ZitKKolG or raise prices oI tKe HaZaiian sports proJramminJ We therefore do not need to address arguments about the desirability of the programming offered by the Applicants.579 Finally, we find our program access rules and the Applicants’ oIIer to sXEmit to arEitration regarding access to SportsNet LA sufficient to protect MVPD competition in connection with New CKarter’s control of RSNs and other sports programming. Accordingly, we decline to impose the additional sports programming-related conditions sought by Hawaiian Telcom.580 4. Other Programming 176. In addition to the sports programming discussed above, Time Warner Cable owns 36 local news networks and has attributable interests of 8.23 percent in Nippon Golden Network Inc., and in NGN Hotel Channels (available in hotels only). 581 Bright House owns and exclusively distributes local news networks Bay News 9, Central Florida News 13, and InfoMás, a Spanish language news station. 582 Both Time Warner Cable and Bright House hold attributable ownership interests (28.9 percent and approximately 5.3 percent, respectively) of iN Demand, a provider of pay-per-view and VOD programming.583 The Applicants assert that, because all their programming is regional and local, concerns regarding vertical integration of video programming and MVPD distribution are not relevant.584 The Applicants IXrtKer assert tKat ³Jiven tKe limiteG natXre anG TXantity oI proJramminJ aIIiliateG ZitK Liberty Broadband and Advance/Newhouse, neither has any incentive to take actions that conflict with 1eZ CKarter’s Eest interests´585 The programming in which, according to the Applicants, Liberty %roaGEanG AGvance1eZKoXse or /iEerty %roaGEanG’s CKairman -oKn Malone (Malone)  ³may Ee GeemeG to Kave an attriEXtaEle interest´ inclXGes several national caEle netZorNs oZneG Ey Discovery Communications, Inc., (Discovery), the Starz channels, and a few smaller cable networks. 586 Therefore, 577 Time Warner Cable Response to Information Request at 52. 578 Opposition at 80. 579 HaZaiian 7elcom’s sXpport Ior its claim reJarGinJ tKe valXe oI OC proJramminJ amoXnts to XnspeciIieG contacts ZitK potential cXrrent anG Iormer cXstomers a ³meaninJIXl portion´ oI ZKom ³inGicate tKat tKe inaEility to receive the OC16 channel and high school sports is a deciding factor for not subscribing to, being completely satisIieG ZitK or GisconnectinJ Irom HaZaiian 7elcom viGeo services´ HaZaiian 7elcom Comments at  )XMitsX Decl. at para. 9. Hawaiian Telcom offers no evidence to support claims regarding the value of SURF Channel. 580 :e also note tKat HaZaii Kas approveG tKe transaction ZitK no mention oI HaZaiian 7elcom’s complaints in tKis proceeding. See Joint Application of Time Warner Cable, Inc., and Charter Communications, Inc. for Approval of the Transfer of Control of Oceanic Time Warner Cable LLC’s Cable Television Franchises, Hawaii Dept. of Commerce and Consumer Affairs, Cable Television Division, Decision and Order No. 336 (Dec. 17, 2015). 581 Application at 50, n.134; Time Warner Cable Response to Information Request at 30- 32. 582 Application at 50 n.131; Charter Response to Information Request at 101. 583 Application at 11 & n.131; Charter Response to Information Request at 101, 103; Advance/Newhouse Response to Information Request at 17. 584 Application at 52. 585 Id. at 53 n.146. 586 Charter Response to Information Request at 100-101. See also :*A: 3etition at  Discovery’s  national cable networks include Discovery, The Learning Channel (TLC), Oprah Winfrey Network (OWN), Animal Planet, continXeG« Federal Communications Commission FCC 16-59 86 the Commission must determine whether the transaction will significantly increase the incentive or ability of New Charter, Discovery, Starz, or any additional programmers that would be affiliated with New Charter to foreclose or raise the prices of this programming to the detriment oI 1eZ CKarter’s viGeo distribution competitors. a. Program Access Attribution Rules 177. 6ection  E oI tKe CommXnications Act proKiEits ³a caEle operator a satellite caEle programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor [from] engag[ing] in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or prevent any MVPD from providing satellite cable programming or satellite EroaGcast proJramminJ to sXEscriEers or consXmers´587 The Commission Kas IoXnG tKat ³any party ZitK an attriEXtaEle interest in a caEle operator XnGer tKe proJram access attribution standard shall be treated as a cable operator for purposes of the rules´588 Accordingly, a cable operator such as New Charter and a satellite cable programming vendor such as Discovery need only share common attributable interest holders in order to be subject to the program access rules. 178. In the cable context, there are tw o strains oI caEle attriEXtion rXles  tKe ³Jeneral attriEXtion stanGarG´589 anG  tKe ³proJram access attriEXtion stanGarG´590 The program access attribution standard is more inclusive than the general attribution standard (i.e., it counts more relationships as attributable). 591 Under the program access attribution standard, a party has an attributable interest in a proJrammer iI amonJ otKer tKinJs it ³KolGs Iive percent or more oI tKe stocN oI tKe programmer, whether voting or non-votinJ´592 In addition ³all oIIicer anG Girector positions anG Jeneral partnersKip interests´ are attriEXtaEle as Zell as ³limiteG partnersKip interests oI Iive percent or Jreater (Continued from previous page) Science, Investigation Discovery, Discovery Family, Destination America; Discovery en Espanol, Discovery Familia, Velocity, Discovery Life, and American Heroes Channel. Charter Response to Information Request at 100- 101. Starz programming includes the Encore channels, which are subsequently referred to collectively as Starz. 587 47 U.S.C. § 548(b); see also 47 CFR §§ 76.1000 et seq. 588 Implementation of the Cable Television Consumer Protection and Competition Act of 1992, Review of the Commission’s Cable Attribution Rules, Report and Order, CS Docket Nos. 98-82, 96-85, 14 FCC Rcd 19014, 19056, para. 111 ( 1999 Cable Attribution Order); see also 47 CFR § 76.1000(b). 589 See 47 CFR § 76.501 notes 1-5. 590 See 47 CFR § 76.1000(b). The program access attribution standard incorporates by reference much of the general attribution standard, but with several notable exceptions that allow the program access attribution standard to capture additional relationships. For example, the program access attribution standard (1) counts non-voting stock interests in addition to voting stock interests; (2) does not include limited partner and LLC/LLP/RLLP insulation provisions; and (3) does not include a single majority shareholder exemption. 591 See 1999 Cable Attribution Order, 14 FCC Rcd at 19054-55, para. 105; Implementation of the Television Consumer Protection and Competition Act of 1992, Review of the Commission’s Cable Attribution Rules, Notice of Proposed Rulemaking, 13 FCC Rcd 12990, 12993, para. 5 (1998); Implementation of the Television Consumer Protection and Competition Act of 1992, Development of Competition and Diversity in Video Programming Distribution and Carriage, Memorandum Opinion and Order on Reconsideration of the First Report and Order, 10 FCC Rcd 1902, 1922, para. 44 (1994) ( 1994 Program Access First Reconsideration Order); Implementation of the Television Consumer Protection and Competition Act of 1992, Development of Competition and Diversity in Video Programming Distribution and Carriage, First Report and Order, 8 FCC Rcd 3359, 3370, para. 31 (1993) ( 1993 Program Access First R&O ) . 592 1993 Program Access First R&O, 8 FCC Rcd at 3370-71, paras. 31-32; 47 CFR §§ 76.1000(b)(2), 76.501 note 2(a). Ownership interests held indirectly through one or more intervening companies are determined by successive multiplication up the vertical ownership chain, except that ownership percentages over 50% are counted as 100% ownership for purposes of multiplication. 47 CFR § 76.501 note 2(c). Federal Communications Commission FCC 16-59 87 reJarGless oI insXlation´593 The general attribution and program access standards both attribute interests ZKere certain ³passive´ institXtional investors eJ investment companies insXrance companies or banks) hold voting stock interests of 20 percent or more. 594 The program access attribution standard places a particular emphasis on influence in addition to control.595 b. Attributable Programming 179. Positions of the Parties. The Applicants state that Advance/Newhouse, which would hold 13 to 14 percent of New Charter, also holds, through its parent Advance Newhouse Programming Partnership, a 32.81 percent attributable interest in national programming provided by Discovery.596 Specifically, according to the Applicants, Advance/Newhouse owns preferred stock in Discovery which, if converted to common stock, would give Advance/Newhouse Series A and Series C common stock representing approximately 24.9 percent of the voting power on all matters, plus preferred stock entitling it to GesiJnate tKree Girectors to Discovery’s EoarG597 Additionally, the Applicants state, the transaction would give Liberty Broadband, which, as of July 31, 2015, owns 25.71 percent of Charter, a 17 to 19 percent interest in New Charter and the right to nominate three members to its 13-member Board of Directors.598 Liberty Broadband would be contributing its shares of Time Warner stock as part of the transaction, and $4.3 billion in cash to New Charter. 599 Malone is Chairman of the Board of Liberty Broadband, and owns shares constituting 46.6 percent of the voting power and 8.7 percent of the equity of Liberty Broadband.600 Malone also has a 28.7 percent voting interest and a 4.8 percent equity interest in Discovery and sits on its Board of Directors.601 According to Dr. Salop, Malone and Advance/Newhouse have a combined 35.8 percent equity share in Discovery, and would have a combined attributable interest 593 1993 Program Access First R&O, 8 FCC Rcd at 3370, para. 31; 47 CFR §§ 76.1000(b)(1); 76.501 note 2(g). 594 47 CFR § 76.501 note 2(b); Commission’s Cable Horizontal and Vertical Ownership Limits, Fourth Report and Order and Further Notice of Proposed Rulemaking, 23 FCC Rcd 2134, 2176-77, para. 93 (2008); 1999 Cable Attribution Order, 14 FCC Rcd at 19037-38, paras. 55-56. In addition, an Equity Debt Plus (EDP) rule seeks to capture non-attributable investments that, in the aggregate, carry the potential for influence. Under the EDP rule, an investor who holds more than 33 percent of the entity's total asset value (equity plus debt) is deemed to have an attributable interest if certain other conditions are met, regardless of whether the interest is otherwise non- attributable. 47 CFR § 76.501 note 2(i). 595 1994 Program Access First Reconsideration Order, 10 FCC Rcd at 1922, para  ³>7@Ke amoXnt oI oZnersKip anG tKereIore an entity’s µcontrol’ is tKe IocXs oI tKe vertical anG Kori]ontal oZnersKip rXles %y comparison tKe attriEXtion stanGarG in tKe proJram access rXles is IocXseG on µinIlXence’ on proJramming vendor behavior, irrespective oI tKe amoXnt oI oZnersKip tKat may Ee involveG´ ; 1993 Program Access First R&O, 8 FCC Rcd at  para  ³7Ke policy oEMective involveG Kere Ze Eelieve Zarrants a relatively inclXsive attriEXtion rXle´  596 Application at 15 and Exh. H. See also American Cable Association Comments at 9 (ACA Comments). 597 Charter Response to Information Request at 103. 598 Application at 14, 16; Charter Response to Information Request at 27, 102, 105, 107, 109. Liberty Broadband would also hold proxies to vote additional shares of New Charter common stock, but would not have the right in the aggregate to vote more than 25.01 percent of New Charter common stock. Charter Response to Information Request at 106, 108. 599 Application at 14. See also Liberty Broadband Response to Nov. 2, 2015, Information Request and Data Request, transmitted by letter from Robert L. Hoegle, Counsel for Liberty Broadband, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 3 (Liberty Broadban G Response to InIormation ReTXest ³/iEerty %roaGEanG Kas aJreeG to invest  Eillion in 1eZ CKarter´  600 Charter Response to Information Request at 27, 105. 601 Id. at 102. See also Discovery Communications (Form 10-K) at 22-   ³Ey virtXe oI tKeir respective holdings, Malone and Advance/Newhouse each have significant influence over the outcome of any corporate transaction or otKer matter sXEmitteG to oXr stocNKolGers´  Federal Communications Commission FCC 16-59 88 in New Charter of 14.7 percent.602 Malone also is Chairman of the Board of Liberty Interactive, of which he owns an aggregate 36.6 percent voting interest and a 6.0 percent equity interest. 603 Liberty Interactive would own between 1.7 and 1.9 percent of New Charter common stock and provide a proxy to Liberty Broadband to vote those shares.604 0alone is a memEer oI CKarter’s %oarG anG liNely to Ee one oI tKe three directors that Liberty Broadband would name to 1eZ CKarter’s %oarG605 180. In addition to his interests in Discovery and Liberty Broadband, Malone holds a 31.8 percent voting interest and a 6.0 percent equity interest in Starz, Inc., whose programming consists of the Starz and Encore channels.606 Malone has a 37.7 percent voting interest and a 6.2 percent equity interest in the QVC Group, which owns the video and online retailer QVC, Inc. 607 QVC Group also owns 38 percent of the video retailer HSN, Inc.608 Finally, Malone is a Director of Lions Gate Entertainment Corporation (Lionsgate), in which he holds a 3.3 percent voting interest and a 3.3 percent equity interest.609 Lionsgate maintains interests in the following programmers: 50 percent of Pop Network (formerly TV Guide Network), 31.2 percent of EPIX, and 14.7 percent of Starz, Inc. 610 181. The Applicants assert that a number of precautions are in place to prevent Advance/Newhouse or Malone from improperly influencing New Charter, including: 1) the initial 26 percent cap on /iEerty %roaGEanG’s eTXity interest in 1eZ CKarter ZKicK can rise to 35 percent if Advance/Newhouse permanently reduces its New Charter ownership percentage); 2) the initial cap of 14 percent on AGvance1eZKoXse’s eTXity interest in 1eZ CKarter;  tKe Iact tKat proJramminJ-related transactions involving Liberty Broadband or Advance/Newhouse or their respective programming affiliates require approval of a majority of unaffiliated directors other than Tom Rutledge or directors named by Liberty Broadband and Advance/Newhouse; 4) the fact that a majority of the directors on the Nominating, Corporate Governance and Compensation, and Benefit Committees would be unaffiliated 602 Salop Decl. at para. 21. 603 Charter Response to Information Request at 102. 604 Id. at   6alop states 0alone’s eTXity interest in 1eZ CKarter as  percent 6alop Decl at para  605 Charter, Board of Directors, ir.charter.com/phoenix.zhtml?c=112298&p=irol-govboard (last visited Apr. 29, 2016); Charter Response to Information Request at 110. 606 Charter Response to Information Request at 102  AccorGinJ to /iEerty %roaGEanG’s  6(C )orm -K, Malone holds 10.1 percent of the common stock and a 45.5 percent voting interest in Starz, LLC, which owns the Starz, Encore and MoviePlex cable networks. Liberty Broadband (Form 10-K) at IV-44 (2014 ). 607 Charter Response to Information Request at 102 & n.146. 608 Id. See also Charter Response to Information Request at 101 (listing HSN and QVC as programming affiliated with Malone, Liberty Broadband and Advance/Newhouse). 609 Charter Response to Information ReTXest at  Discovery anG (Xrope’s EiJJest caEle operator /iEerty *loEal of which Malone is also a major shareholder, recently purchased 5 million shares of Lionsgate each, giving each an equity stake in Lionsgate of 3.4 percent. As part of the sale, both companies signed licensing agreements for Lionsgate television and theater releases. Discovery and Liberty Global CEOs would both become members of the Lionsgate Board of Directors. Discovery and Liberty Global also have a joint venture in programmer All3Media. See, Leon Lazaroff, What John Malone Is Planning with Latest Media Stock Roll-Up, The Street, Nov. 10, 2015, available at http://www.thestreet.com/print/story/13359569 html. Documents discuss benefits of the agreement. See, e.g., BHN-000326927 at BHN-000326932, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 610 Charter Response to Information Request at 102 & n.147. Federal Communications Commission FCC 16-59 89 directors; and 5) the fact that the Audit Committee must approve any transaction likely to exceed $100,000 in a calendar year in which Liberty Broadband or Advance/Newhouse has a direct or indirect interest, and all members of that committee would be independent, outside directors.611 In addition, Charter claims that the 13-member size of Board of Directors of New Charter ensures that the five directors Liberty Broadband and Advance/Newhouse nominate would not be able to cause New Charter to undertake conflicted transactions that do not benefit New Charter as a whole. Further, Charter claims that pXrsXant to a 6tocNKolGer’s AJreement sXcK aIIiliateG Girectors would not serve on any committee formed to evaluate a transaction or arrangement with Liberty Broadband and Advance/Newhouse or their affiliated entities.612 )inally CKarter points to DelaZare laZ reJarGinJ Girectors’ IiGXciary responsiEilities to act in the best interests of the corporations they serve and to place those interests above their personal interests.613 182. On the connected TXestion oI inIlXence over aIIiliateG proJrammers’ Gecisions aEoXt licensing their programming, Charter points to the existence oI a ³relateG person transaction policy´ Ior Discovery’s Girectors inclXGinJ 0alone or any otKer Girectors aIIiliateG ZitK AGvance1eZKoXse or /iEerty %roaGEanG 7Ke policy reTXires sXcK Girectors to inIorm Discovery’s C(O *eneral CoXnsel anG chairpersons of the Nominating and Corporate Governance Committees of any actual or potential conflict of interest, including being a party to a proposed related person transaction.614 Finally, Discovery directors must recuse themselves from any decision of the Board or a Board committee that involves or affects their personal, business, or professional interests.615 183. :Kile Discovery conceGes tKat its proJramminJ is sXEMect to tKe Commission’s proJram access rules,616 it asserts that, while it shares common owners with certain of the Applicants under the )CC’s proJram access attriEXtion rXles it operates as a ZKolly inGepenGent proJrammer anG Goes not coordinate carriage decisions with Charter and would not coordinate such decisions with New Charter.617 According to Discovery since tKe Commission last revieZeG 0alone’s anG /iEerty’s interests in Discovery in the 2008 Liberty Media-DIRECTV transaction, the ownership interests and relationships have changed.618 In 2008, Malone controlled Liberty Media, and the Commission found that, by holding 4 of 5 Board seats and serving as Chairman of the Board and CEO, Malone also controlled Liberty, which 611 Application at 54; Charter Response to Information Request at 109. The Audit Committee must consider ZKetKer tKe transaction ZitK an aIIiliateG party is on terms ³no less IavoraEle tKan terms Jenerally availaEle to an unaffiliated third-party under the same or similar circXmstances´ CKarter Response to InIormation ReTXest at  612 Charter Response to Information Request at 110-  7Ke 6tocNKolGer’s AJreement also proKiEits /iEerty Broadband or Advance/Newhouse from soliciting proxies or consents relating to the election of directors not nominated by the Board, proposing any matter for submission to a vote or calling a meeting of shareholders, and taking any actions or making public statements not approved by the Board seeking to control or influence the management, Board or policies of New Charter. Id. at 112. 613 Id. at 113-114. 614 Id. at 115. The Nominating, Corporate Governance or other independent Board Committee is required to resolve the conflict of interest, and must approve any related person transaction. Id. at  6imilarly to CKarter’s policy Discovery policy requires that, in evaluating the related person transactions, the Committees consider whether the transaction is entered on terms no less favorable than terms that could have been reached with an unrelated third party and the potential benefits to Discovery to the transaction. Id. at 116. 615 Id. at 115. 616 Discovery Communications, Inc. Response to Comments, MB Docket No. 15-149, at 3-4 (filed Nov. 2, 2015) (Discovery Response). 617 Discovery Response at 1. 618 Letter from Tara M. Corvo, Counsel for Discovery, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, at 2 (filed Feb. 10, 2016) (Discovery Feb. 10, 2016, Ex Parte Letter). Federal Communications Commission FCC 16-59 90 in turn controlled Discovery Holdings, which owned 66 percent of Discovery.619 Discovery states that, since then, Discovery has become a public company, neither Liberty Media nor Discovery Holdings is in Discovery’s oZnersKip cKain anG 0alone’s eTXity interest anG votinJ poZer in Discovery Kave Eeen significantly reduced.620 Discovery adds that Malone holds no executive office in Discovery and is one of ten Board members.621 6imilarly 6tar] asserts tKat 0alone Kas ³neitKer tKe economic incentive nor aEility to caXse 6tar] to GisaGvantaJe its oZn interests in Iavor oI 1eZ CKarter’s interests´622 Starz also argues that the program access rules adequately protect competing MVPDs. 623 184. In contrast to the Applicants’ claim tKat 1eZ CKarter ZoXlG control only minimal local or regional networks, several commenters assert that the Discovery and Starz programming discussed above is attributable to New Charter, which itself would control significant national and regional programming.624 ACA points oXt tKat 0alone’s oZnersKip interests in Discovery anG 6tar] Iar e[ceeG tKe five percent attribution threshold established by FCC rules, and asserts that this programming would be attributable to New Charter.625 ACA XrJes tKe Commission to consiGer 0alone’s Iinancial interests in Charter, New Charter, Liberty entities, Discovery, and Starz.626 Cincinnati Bell alleges that Malone and entities he controls would influence Charter and 1eZ CKarter’s Gecisions627 Public Knowledge urges the Commission to analyze the extent to which Malone, with his interests in Discovery and Starz and seat on the board of Lionsgate, would unduly influence the decisions of New Charter.628 185. Discussion. We agree with Discovery that its programming is subject to our program access rules and conclude that post-transaction, by operation of our program access attribution rules, all Discovery proJramminJ ZoXlG Eecome 1eZ CKarter’s aIIiliateG proJramming and thus continue to be subject to our program access rules. We further conclude that Starz, QVC, HSN, and iN Demand proJramminJ ZoXlG Eecome 1eZ CKarter’s aIIiliateG proJramminJ sXEMect to oXr proJram access rXles :e Go not consiGer 0alone’s 3.3 percent voting and equity interest in Lionsgate and his indirect oZnersKip in (3I; proJramminJ tKroXJK /ionsJate’s  percent oZnersKip oI (3I; sXIIicient ownership, influence or control to make Lionsgate or EPIX programming attributable to New Charter. 619 Id. Liberty Media spun off its interest in Liberty Broadband and Charter in 2014, and is not a party to this transaction. Liberty Media Response to Nov. 2, 2015, Information Request, MB Docket No. 15-149, at 1 (filed Nov. 16, 2015). Liberty Media has no interests greater than 5 percent in any MVPD, video programmer or OVD distributor. Id. 620 Today Malone holds a 4.8 percent equity and 28 percent voting interest in Discovery. Charter Response to Information Request at 102. 621 Letter from Tara M. Corvo, Counsel for Discovery, to Marlene H. Dortch, Secretary FCC, MB Docket No. 15- 149, at 1 (filed January 14, 2016) (Discovery Jan. 14, 2016, Ex Parte Letter); Discovery Feb. 10, 2016, Ex Parte Letter at 2. 622 Response of Starz at 2 (filed Nov. 2, 2015) (Starz Response). 623 Id. at 1. 624 WGAW Petition at 9-11; ACA Comments at ii, 8-10; Cincinnati Bell Comments at 6-7; Hawaiian Telcom Comments at 14; US Telecom Nov. 12, 2015, Ex Parte Letter at 5-6. 625 ACA Comments at 9-10, 13. ACA also asserts that it is not the quantity of programming that may trigger competitive harm, but that such harm arises from affiliation alone. Id. at 8. 626 ACA Comments at 13. 627Cincinnati Bell Comments at 7. Cincinnati Bell points to Malone becoming the largest shareholder of Charter and then negotiating the current transaction, as well as his close business relations with Charter President and CEO Tom Rutledge. Cincinnati Bell Comments at 7. 628 Public Knowledge et al. Petition at 19. Federal Communications Commission FCC 16-59 91 186. Malone and Advance/Newhouse exert additional influence over Discovery unrelated to their ownership interests. Advance/Newhouse controls approximately 24.9 percent of the voting power on all Discovery matters anG GesiJnates tKree oI Discovery’s Girectors629 The CEO of AGvance1eZKoXse 6teve 0iron also sits on Discovery’s %oarG oI Directors630 Robert Miron, former C(O oI AGvance1eZKoXse anG IatKer oI 6teve 0iron is CKairman oI Discovery’s %oarG631 Further, 0alone can inIlXence Discovery’s Gecision maNinJ through his 28.7 percent voting interest and position on tKe Discovery %oarG’s ([ecXtive Committee632 In addition to influencing Discovery, Malone would also Kave an aEility to inIlXence 1eZ CKarter’s Gecisions tKroXJK his significant voting interest, ChairmansKip oI tKe %oarG oI Directors oI 1eZ CKarter’s larJest sKareKolGer /iEerty %roaGEanG anG /iEerty %roaGEanG’s riJKt to nominate tKree oI 1eZ CKarter’s  %oarG memEers633 Malone would likely be one of these three Board members.634 With respect to additional programming, Malone’s interests in Starz, QVC, and HSN are all above the five percent threshold established by our program access attriEXtion rXles anG tKereIore are attriEXtaEle to 0alone *reJ 0aIIei is a memEer oI CKarter’s Board of Directors, President and CEO, Liberty Media (of which Malone is Chairman), and Chairman of the Board of Starz.635 187. For all the forgoing reasons, we find that Malone and Advance/Newhouse have attributable interests in cable operators, and that the Discovery, Starz, QVC, HSN and iN Demand programming attributable to them is programming attributable to a cable operator and thus subject to the Commission’s proJram access rXles As a resXlt of this transaction, this programming would also become 1eZ CKarter’s aIIiliateG proJramminJ c. Incentive and Ability to Foreclose or Raise Prices of Affiliated Programming 188. Above we conclude that Discovery, Starz, QVC, HSN and iN Demand programming would be 1eZ CKarter’s aIIiliateG proJramminJ636 Commenters arJXe tKat EecaXse oI 1eZ CKarter’s 629 Charter Response to Information Request at 103. 630 Advance/Newhouse Response to Information Request at 18. 631 See Discovery, Leadership, https://corporate.discovery.com/our-company/leadership/ (last visited Mar. 14, 2016) . 632 Charter Response to Information Request at 102. See also Liberty Broadband Response to Information Request at 8, 10. 633 Application at 14, 16; Charter Response to Information Request at 27, 102, 105, 107, 109. 634 CKarter Response to InIormation ReTXest at  7Ke Applicants’ GocXments reJarGinJ CKarter’s Iirst anG ultimately unsuccessful effort to merge with Time Warner Cable also support a conclusion that Malone would have significant influence over New Charter decisions. See TWC-DOJ -01945448 at 19, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See also id. at 3 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 635 Charter, Board of Directors, http://ir.charter.com/phoenix.zhtml?c=112298&p=irol-govboard (last visited Feb. 24, 2016); Liberty Media Corp., Management, http://ir.libertymedia.com/management.cfm; Starz, Board of Directors, http://ir.starz.com/directors.cfm (last visited Feb. 24, 2016); Charter Response to Information Request at 110. 636 As discussed at Section V.E.4.b, supra i1 DemanG is attriEXtaEle to AGvance1eZKoXse tKroXJK %riJKt HoXse’s  percent oZnersKip interest anG to 1eZ CKarter tKroXJK tKis interest anG 7ime :arner CaEle’s  percent interest. Application at 11 & n.131; Charter Response to Information Request at 101, 103; Advance/Newhouse Response to InIormation ReTXest at  %ecaXse no commenters GiscXss 1eZ CKarter’s potential incentive anG continXeG« Federal Communications Commission FCC 16-59 92 larger size, New Charter would be more likely to withhold or raise prices of this affiliated programming for its rival video distributors, both MVPDs and OVDs. We do not believe that the transaction will have this effect. Because New Charter will lack the incentive or ability to withhold or raise prices of affiliated programming, we further find it unnecessary to extend or modify our program access rules or impose otKer conGitions on tKe licensinJ oI 1eZ CKarter’s aIIiliateG content 189. Positions of the Parties. The Applicants assert that the minority interests held by Liberty %roaGEanG anG AGvance1eZKoXse in 1eZ CKarter ZoXlG not aIIect 1eZ CKarter’s proJramminJ decisions.637 According to the Applicants, because New Charter would have no economic interest in /iEerty %roaGEanG AGvance1eZKoXse or any oI tKose tZo entities’ aIIiliates 1eZ CKarter ZoXlG Kave no financial stake in the success of programming affiliated with those entities.638 In addition, the Applicants state tKat ³Jiven tKe limiteG natXre anG TXantity oI proJramminJ aIIiliateG ZitK /iEerty Broadband and Advance/Newhouse, neither has any incentive to take actions that conflict with New CKarter’s Eest interests´639 190. The Applicants also assert that any strategy of withholding Discovery programming from MVPDs or OVDs competing with New Charter would not be profitable for Malone, Advance/Newhouse, or the entities in which they may be deemed to have an attributable interest.640 Because of the comparatively higher equity stake of Malone and Advance/Newhouse in Discovery, withholding would not Ee proIitaEle EecaXse any amoXnt tKat tKey ZoXlG Jain tKroXJK potential increases in 1eZ CKarter’s subscribership and proIits ZoXlG Ee oXtZeiJKeG Ey tKeir losses Irom tKe Gecreases in Discovery’s aIIiliate and advertising revenues.641 The Applicants support this assertion with an economic analysis of both nationwide and DMA-targeted permanent foreclosure of Discovery programming from MVPDs that concludes that Malone and Advance/Newhouse would be unlikely to profit from such a strategy, assuming they had the ability to implement it.642 The analysis calculates that the critical departure rate (rate at which subscribers must switch from a foreclosed MVPD to New Charter for nationwide foreclosure to be profitable) would be [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, while the estimated actual departure rate would be [BEGIN HIGHLY CONF . INFO.] [END HIGHLY CONF. INFO.] percent, making foreclosure unprofitable for Malone and Advance/Newhouse.643 For DMA-targeted foreclosure, the critical departure rate would be [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO.] percent, while the actual departure rate would again be [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, indicating that a DMA-targeted foreclosure strategy would also be unprofitable for Malone and Advance/Newhouse.644 (Continued from previous page) ability to withhold or raise prices of QVC, HSN or iN Demand, our subsequent analysis and discussion concern only Discovery and Starz programming. 637 Application at 53. 638 Id. 639 Id. at 53 n.146. 640 Charter Response to Information Request at 103. 641 Id. at 104; Opposition at 47-48. 642 Salop Decl. at paras. 11, 33. 643 Id. at para. 56. 644 Id. at para. 64. Federal Communications Commission FCC 16-59 93 191. The Applicants further assert that Discovery and Starz programming is not the type of ³marTXee´ proJramminJ at issXe in tKe Comcast-NBCU Order.645 Dr. Salop asserts that History, National *eoJrapKic 6mitKsonian anG 7ravel cKannels 3%6 stations anG H*7V sXEstitXte Ior Discovery’s Jeneral proJramminJ; Disney CKannel 1icNeloGeon anG Cartoon 1etZorN sXEstitXte Ior Discovery’s cKilGren’s proJramminJ; anG /iIetime O[ygen and major over-the-air networks substitute for the Oprah Winfrey Network.646 He also asserts that HBO and Showtime are substitutes for the Starz premium channel.647 Discovery asserts tKat it ³Goes not oIIer the type of broadcast network or regional sports programming that would cause subscribers to switch MVPDs´648 According to Discovery, it could not Ioreclose 1eZ CKarter’s competitors anG remain sXccessIXl EecaXse not only ZoXlG it lose licensinJ Iees and advertising revenues, viewers would find substitutes and stop watching its programming.649 Further, Discovery asserts that it lacks the incentive to withhold or raise prices of its programming to competitors of New Charter because Malone’s losses as an  percent oZner oI Discovery ZoXlG oXtZeiJK any Jain from new subscribers derived from his smaller interest in New Charter.650 Discovery also claims that it has entered into distribution agreements with many OVDs, including Sony Play Station Vue, to avoid additional losses from its brand losing relevance to toGay’s aXGience651 Discovery adds that it prices its 645 Opposition at 47. 646 Salop Decl. at para. 36. 647 Id. at para. 79. Charter documents indicate that it [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See CHR2-DOJ -00000117761, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; CHR2-DOJ-00000090296, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Charter documents also indicate that Charter would have preferred [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See CHR2-DOJ -00000101210, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 648 Discovery Response at 3. See also Discovery Feb. 10, 2016, Ex Parte Letter at 1. Documents submitted by the Applicants support this assertion. For example, BHN-000626726, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; BHN-000326927, [BEGIN HIGHLY CONF INFO.] [END HIGHLY CONF. INFO.] . 649 Discovery Response at 5-6. 650 Id. at 2-3, 7-8. 651 Discovery Feb. 10, 2016, Ex Parte Letter at 2. We note that some of the OVD distribution agreements identified by Discovery appear to relate not to OVDs but to TV Everywhere carriage, some appear to limit content libraries or means oI access to tKat content anG one is ZitK a cKilGren’s proJramminJ GistriEXtor noZ in EanNrXptcy Federal Communications Commission FCC 16-59 94 programming nationally, and does not selectively price programming where Charter or, potentially, New Charter may face aggressive competition from other MVPDs.652 Finally, Discovery points out that Malone has held his interests in Discovery and several MVPDs for years without withholding Discovery programming or other accusations of using these interests inappropriately.653 192. Starz similarly argues that Malone lacks the incentive or ability to cause Starz to disadvantage its own interests in favor of New Charter.654 Starz further asserts that the Commission repeatedly has concluded, most recently in the AT&T-DIRECTV Order, that its program access rules are sXIIicient to prevent tKe e[ercise oI proJrammers’ influence to cause affiliated MVPDs to harm competing distributors.655 Documents submitted by Liberty Broadband show that Starz programming [BEGIN HIGHLY CONF. INFO.] [ END HIGHLY CONF. INFO.] .656 Starz also disputes allegations that it withheld its programming from Netflix, claiming that while its agreement with Netflix expired in 2012 when Netflix had license agreements with many other studios and produced its own programming, Starz made thousands of movies, TV Shows, and concerts available to Netflix beginning in 2008. 657 We note that, since filing its comments, Starz has made its content available to OVD distributor Amazon Prime and in April 2016 announced the launch of its standalone OTT service, following the lead of its more prominent rivals HBO and Showtime.658 193. Several commenters argue that these programming interests, combined with New CKarter’s larger number of subscribers and geographical footprint, would increase New CKarter’s incentive and ability to harm competition by withholding or raising the cost of this programming to competing MVPDs and OVDs.659 ACA arJXes tKat increases in a vertically inteJrateG 0V3D’s proIits per subscriber increase its opportunity cost of selling its programming to rival distributors because the vertically integrated MVPD risks losing existing or potential subscribers to its rivals. 660 According to ACA, programmers that choose to incur these higher opportunity costs (rather than avoid them altogether 652 Discovery Feb. 10, 2016, Ex Parte Letter at 1. 653 Id.; Discovery Response at 3. 654 Starz Response at 2. 655 Id. (citing AT&T-DIRECTV Order, 30 FCC Rcd at 9194-95, paras. 167-170). Starz also asserts that the Commission has repeatedly concluded that any inadequacies in the program access rules or complaint procedures, ³are inGXstry-ZiGe not merJer speciIic´ Id. at 3 (citing AT&T-DIRECTV Order, 30 FCC Rcd at 9131, 9195, para. 170 & n.476). 656 See LBR-0032749, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 657 Starz Response at 4-5 & n.7. Also, Netflix supports the transaction. See Netflix Jul. 15, 2015, Ex Parte Letter. 658 Avery *reJ ³6tar] -oins Ama]on 3rime in )irst ViGeo 6treaminJ Deal´ Denver Business Journal, Dec. 8. 2015, http://www.bizjournals.com/denver/blog/boosters bits/2015/12/starz-joins-amazon-prime- in-first-video- streaming.html; 3ress Release Ama]on ³Ama]on AnnoXnces tKe 6treaminJ 3artners 3roJram´ Dec   http://phx.corporate-ir net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2121003 ; Press Release, Starz, ³6tart] 3remiers Its )irst 6XEscription 6treaminJ App´ Apr   http://starz mediaroom.com/index.php?s=43&item=1430 . 659 WGAW Petition at 4, 15-16; WGAW Feb. 10, 2016, Ex Parte Letter at 2; ACA Comments at ii-iii, 2, 10-12; US Telecom Nov. 12, 2015, Ex Parte Letter at 5; Stop Mega Cable Coalition Feb. 9, 2016, Ex Parte Letter at 2, 6. 660 ACA Comments at 11. Federal Communications Commission FCC 16-59 95 by completely withholding their programming) would recoup them by extracting higher programming fees from rival distributors.661 WGAW asserts that New Charter could temporarily or permanently foreclose access to or limit OVD licensing of affiliated programming, and urges the Commission to conduct a detailed foreclosure analysis of this programming.662 WGAW further claims that temporary foreclosure of Discovery programming could cause customers of competing distributors to switch and then remain with New Charter, causing any temporary loss of Discovery programming revenue to ultimately be profitable to New Charter because Malone anG AGvance1eZKoXse oZn ³larJe´ staNes in both companies.663 Cincinnati Bell and WGAW also assert that Malone and his Liberty affiliates withheld Starz programming from Netflix, 664 and WGAW urges the Commission to require Liberty Broadband to divest its stake in New Charter.665 US Telecom claims that Malone’s ³oZnersKip anG votinJ riJKts Zill give him great influence over both his content and distribution assets and, thus, the ability to act on his increaseG incentives´666 Finally, Hawaiian Telcom seeks a prohibition on exclusive arrangements and access to local 7ime :arner CaEle ³social interest´ cKannels ³at Iair market rates, subject to compulsory arEitration´ as conGitions Ior approval oI tKe transaction667 194. AccorGinJ to :*A: tKe Discovery anG 6tar] proJramminJ is ³mXst Kave´ ZitK Discovery airinJ all Iive oI caEle’s top XnscripteG series in the second quarter of 2015, and Starz ranked as the second-most widely distributed premium pay-TV network in the fourth quarter of 2014. 668 ACA anG HaZaiian 7elecom aJree tKat 6tar] anG Discovery are ³mXst Kave´ proJramminJ669 ACA points to tKe Commission’s imposition oI a conGition requiring non-discriminatory access for Discovery programming in the Liberty-DTV Order, but admits that the condition only became operative for Discovery if Discovery ceased to be a cable satellite programming vendor subject to the program access rules tKroXJK AGvance 1eZKoXse’s sale oI its caEle GistriEXtion interests 670 USTelecom asserts that, ³>t@Ke Applicants’ alone Kave oZnersKip interest in several marTXee caEle networks.´671 195. Commenters IXrtKer state tKat tKe Commission’s proJram access rXles anG program access and baseball-style arbitration conditions imposed in past transactions involving vertically inteJrateG 0V3Ds ZoXlG Ee insXIIicient to protect 1eZ CKarter’s competitors particXlarly smaller 661 Id. 662 WGAW Petition at 13; WGAW Reply at 12. 663 WGAW Petition at 13 . 664 Cincinnati Bell Comments at 6; WGAW Petition at 15. According to WGAW, withholding Malone-affiliated programming can do particular damage to OVDs, with Malone and his affiliates repeatedly claiming a need to restrict Netflix from accessing their content. WGAW Petition at 15- 16. 665 WGAW Feb. 10 Ex Parte Letter at 5. 666 US Telecom Nov. 12, 2015, Ex Parte /etter at  86 7elecom asserts tKat ³>7@Ke Commission sKoXlG aGopt a condition that would limit Dr 0alone’s aEility to inIlXence 1eZ CKarter anG to proKiEit 1eZ CKarter anG Dr 0alone’s proJramminJ interests Irom enJaJinJ in anticompetitive selI-dealing by precluding him from exercising any riJKt to inIlXence tKe operation oI 1eZ CKarter´ Id. at 10 & Attach. US Telecom also seeks a condition to prohibit the Applicants from giving to or receiving from other incumbent cable providers any undue preferences. Id. 667 Hawaiian Telcom Comments at iii, 21; Hawaiian Telcom Reply at 5. 668 WGAW Petition at 12; WGAW Reply at 7-8. 669 ACA Comments at 14 (citing October 2015 weekly and quarterly rankings); Hawaiian Telcom Comments at 14 (citing 2014 rankings and 2012 Program Access Order ). 670 ACA Comments at 16 (citing Liberty Media-DIRECTV Order, 23 FCC Rcd at 3301, para. 79). 671 US Telecom Nov. 12, 2015, Ex Parte Letter at 5. Federal Communications Commission FCC 16-59 96 MVPDs, from these potential competitive harms.672 HaZaiian 7elcom claims tKat small 0V3Ds ³Zill Ee unable to sustain the delay and financial expenditures attendant to prosecuting such a [program access] complaint, particularly given the proclivity of large cable ventures to vigorously contest programming- relateG complaints at tKe Commission´673 ACA asserts that the Commission must impose program access and commercial arbitration conditions as it has in past transactions with modifications to make them more effective for smaller MVPDs, and that these conditions must be long term and require New Charter to apply to the Commission for relief at the expiration of the term. 674 ACA, supplemented by Cincinnati %ell proposes several cKanJes to tKe Commission’s complaint675 and arbitration676 procedures used to enforce these conditions in order to make them more effective for smaller MVPDs. 196. Discussion. In considering the potential harm to competition from 0alone’s anG AGvance 1eZKoXse’s partial ownership of Discovery, Starz and other national programming and their potential future interests in New Charter, we conclude that the transaction is not likely to increase the incentive or ability of Malone or Advance/Newhouse to foreclose or raise prices of programming they control or influence to rival MVPDs or OVDs in order to favor New Charter. In reaching this conclusion, we have analyzed the record, Dr 6alop’s proJramminJ IoreclosXre analysis,677 and have conducted our own economic analysis regarding the possible foreclosure of Discovery programming.678 672 ACA Comments at iii, 18-30; Hawaiian Telcom Comments at 17; Cincinnati Bell Comments at 20. 673 Hawaiian Telcom Comments at 17. 674 ACA Comments at iii, 18-20, American Cable Association Reply at 14, 18 (ACA Reply). 675 For the program access condition, ACA claims that an MVPD seeking to enforce the condition must have the right to bring a complaint comparing itself to an MVPD serving a comparable number of subscribers regardless of ZKetKer tKe comparaEle 0V3D is tKe complainant’s Girect competitor or Kas JeoJrapKical overlap ACA Comments at iv, 22; ACA Reply at 17. ACA also protests that complaining MVPDs cannot access sufficient information on rates, terms and conditions offered to competing MVPDs to determine which MVPD would be best for a comparison to prove that rates, terms and conditions the complaining MVPD is being offered are discriminatory. ACA Comments at iv, 26-28. This problem, according to ACA, is exacerbated by the volume discount defense, which is difficult to disprove due to non-disclosure provisions in programming contracts. ACA Comments at iv, 23- ACA’s proposeG remeGy is to impose conGitions on 1eZ CKarter-affiliated programmers to require them to: 1) provide requesting MVPDs evidence that the rates, terms and conditions offered are non- discriminatory compared to a similarly situated distributor; 2) allow MVPDs the opportunity to audit them annually to ensure against discrimination; and 3) refrain from withdrawing programming while a program access complaint is penGinJ ACA Reply at  Cincinnati %ell’s proposeG remeGy Ior lacN oI inIormation on rates terms anG conditions and non-disclosure provisions would be to require New Charter and Liberty to offer terrestrial-based competitors the same or better pricing and non-economic terms provided to New Charter within a given DMA, and to require the Applicants to produce all programming agreements. Cincinnati Bell Comments at 19-22. 676 For the arbitration condition to protect competing MVPDs from uniform price increases, ACA claims that small and medium-sized MVPDs lack sufficient information to determine whether a vertically-integrated programmer is offering them rates above fair market value or to formulate a final offer that would be close enough to fair market value to have a chance of winning an arbitration. ACA Comments at v, 29-30. ACA therefore proposes that in arbitrations: 1) upon request of an MVPD, a New Charter-affiliated programmer must provide data and information that permits the MVPD to determine whether the offered prices, terms and conditions equate to fair market value; and 2) New Charter-affiliated programmers must submit a first final offer before an MVPD. ACA Reply at 17. 677 See generally Salop Decl. 678 The Applicants provide no analysis for the additional Starz, QVC, HSN, and iN Demand programming that would be affiliated with New Charter, and we conclude that such an analysis is unnecessary under the circXmstances 7o reliaEly estimate 0alone’s proIits Irom IoreclosXre versXs licensinJ Ze ZoXlG neeG inIormation on the prices charged and profit margins on Starz customers of each MVPD carrying Starz. We consider it likely that, if performed, such an analysis would reach a similar conclusion, in part because the additional programming generally ranks below Discovery programming in ratings surveys. Dr. Salop asserts that Malone lacks an incentive continXeG« Federal Communications Commission FCC 16-59 97 197. The results of our investigation indicate that, because of the relatively limited equity interests that Malone and Advance/Newhouse would have in New Charter relative to their existing equity interests in Discovery, any additional revenue they would gain from subscribers switching to New Charter because they cannot otherwise obtain Discovery programming would be far outweighed by Discovery’s potential loss of licensing and advertising revenues²and ultimately, viewership²from failing to distribute this programming.679 These limited future interests in New Charter lead to an analytical conclusion that differs from that drawn from a similar analysis performed for the Comcast-NBCU transaction, in which, in addition to its own RSNs and popular cable networks, Comcast obtained 100 percent oZnersKip oI 1%C8’s valXaEle proJramminJ inclXGinJ 1%C one oI tKe %iJ )oXr EroaGcast television networks. 198. While the results of our analysis are broadly consistent with the results reached by Dr. Salop, we have improved on his model in a number of ways. These improvements include the introGXction oI a EarJaininJ IrameZorN tKat Ze Eelieve more closely resemEles tKe reality oI 0alone’s anG AGvance1eZKoXse’s inIlXence on Discovery’s Gecisions reJarGinJ licensinJ its proJramminJ.680 In addition, our analysis examines the possibility of Discovery programming foreclosure in all 210 TV markets and utilizes more plausible estimates of expected subscriber diversion resulting from a potential loss of this programming.681 Finally, we improve upon Dr. 6alop’s estimates of expected subscriber value to obtain revised estimates of the potential costs and benefits to a foreclosure strategy.682 While these additions and modifications do not ultimately change our conclusion regarding the lack of a post- transaction incentive to foreclose Discovery programming, we believe that the analysis detailed in Appendix C presents a more thorough and accurate examination of Discovery programming foreclosure than the analysis submitted by the Applicants.683 199. For the same reasons, including the relative equity ratios and low diversion ratios, discussed in the Appendix C, we conclude that Malone and Advance/Newhouse lack the incentive to withhold programming from OVDs. Determining whether it is profitable to withhold programming from a nationally-distributed OVD is more complicated than determining whether it is profitable for an MVPD to withhold its programming from an overlapping and competing MVPD. Malone and/or Advance/Newhouse would forego revenues nationwide whereas New Charter has a limited footprint from which to obtain or retain subscribers. In addition, both Discovery and Starz have expanded their online distribution efforts since the Applicants announced the transaction. As mentioned above, Starz has launched on Amazon Prime and released its own direct-to-consumer OTT service. [BEGIN HIGHLY CONF. INFO.] (Continued from previous page) to influence New Charter to withhold or raise prices for Starz because HBO and Showtime are strong substitutes and thus not many subscribers would switch to New Charter to obtain Starz programming. Salop Decl. at para. 80; see also supra notes 643 & 644. Further, commenters alleging possible harm to competition associated with Starz programming have not provided any supporting analysis. 679 See 6alop Decl at paras     :e concXr ZitK tKe Applicants’ assessment tKat GXe to GiIIicXlty in making assumptions about subscriber expectations and inertia and the effect of the partial ownership interests in Discovery of Malone and Advance/Newhouse, a temporary foreclosure analysis for this transaction would be complex, unreliable and ultimately not helpful in evaluating potential incentives to cause competitive harm. See id. at paras. 67-73. 680 See Appendix C, Section III.C.2.c.(i). 681 See Appendix C, Section III.C.b(v)(a) (utilizing within-DMA diversion rates instead of the nationwide diversion estimates presented by Dr. Salop). 682 See Appendix C, Section III.C.2.b.(v)(b). 683 See generally Appendix C, Section III.C.2.c.(iii)(b), para. 250. Federal Communications Commission FCC 16-59 98 [END HIGHLY CONF. INFO.] .684 Undertaking such efforts and commitments, especially after the Applicants announced the transaction, further demonstrates that neither Malone nor Advance/Newhouse are likely to foreclose Discovery or Starz programming from OVDs as a result of the transaction. We further note that no OVDs claim in this proceeding that New Charter would withhold or raise prices of Discovery or Starz programming for OVDs. 200. We further conclude that neither Malone nor Advance/Newhouse would likely be able to cause New Charter, Discovery, or Starz to withhold or raise prices of their programming. While the ownership and voting interests, and overlapping board memberships of Malone and Advance/Newhouse with Discovery and Starz are sufficient to meet our program access attribution standard, they do not lead inevitably to a conclusion that Malone and Advance/Newhouse can control the distributors or prices for tKis proJramminJ )XrtKer ZKile petitioners proviGe only vaJXe assertions reJarGinJ 0alone’s influence,685 the Applicants and Discovery provide substantial evidence of controls to prevent such influence, including independent director review of program licensing decisions, fiduciary obligations, and conflict of interest rules.686 201. Similarly, petitioners and commenters provide inadequate justification for the program access and arbitration conditions they ask the Commission to impose for Discovery and Starz programming. The Commission has imposed such conditions on cable networks in only two previous transactions and on the basis of considerations not present here. First, in the Liberty Media-DIRECTV transaction, in which Discovery programming was specifically at issue, the Commission found incentive and ability to withhold or discriminate in favor of DIRECTV.687 The Commission imposed the condition because Liberty Media and Malone had attributable interests in and significant control over Discovery. The condition was needed to address the possibility that Advance/Newhouse, which had a 33 percent interest in Discovery and interests in a cable operator, could divest its interest in Discovery, in which case Discovery ZoXlG no lonJer Ee a ³caEle satellite proJramminJ venGor sXEMect to tKe proJram access rXles´688 Such a condition for Discovery and Starz programming is unnecessary here because New Charter will have an attributable interest in Discovery and, as a cable system operator, New Charter will continue to be subject to the program access rules. Further, the relationship between Discovery, Malone, and the Applicants is far more attenuated today than it was at the time of the Liberty Media-DIRECTV transaction, which occurred before Discovery was a publicly traded company. 684 BHN-000326927, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 685 See, e.g., Public Knowledge et al. Petition at 19. 686 Application at 54; Charter Response to Information Request at 109, 112, 113-116; Discovery Response at 1, 3. 687 Liberty Media-DIRECTV Order, 23 FCC Rcd at 3299-3303, paras. 71-83. Liberty Media also was acquiring nation-wide distributor DIRECTV, plus three RSNs in Seattle, Pittsburgh and Denver serving approximately 8.6 million homes and carrying sporting events from the MLB, NFL, NHL and NBA. Id. at 3305, para. 87. The Commission accepteG /iEerty 0eGia’s commitment to aEiGe Ey arEitration conGitions similar to tKose imposeG in the News Corp.-Hughes Order. Id. at 3268, 3305-06, 3306-07, paras. 5, 88, 90. 688 See Liberty Media-DIRECTV Order, 23 FCC Rcd at 3299-3303, paras. 71-83. See also Starz Response at 4. Federal Communications Commission FCC 16-59 99 202. Second, in the Comcast-NBCU transaction, Comcast and NBCU directly owned a broad array of broadcast, RSN, and cable programming.689 The Commission found strong incentives and ability to withhold or raise prices of the affiliated programming and imposed an arbitration condition for all such programming and an additional conditions specifically to protect OVDs.690 Again, several considerations XnGerlyinJ tKe Commission’s Gecision in tKat case are aEsent Kere )irst 1eZ CKarter’s Iar more limiteG affiliated programming would not be completely owned by New Charter, Advance Newhouse, Liberty Broadband, or Malone, so an incentive to withhold or raise prices is limited. Second, while several commenters claim that Discovery and Starz programming is the type that would cause subscribers to switch to New Charter if withheld or made more expensive, 691 the Applicants claim that Discovery and 6tar] proJramminJ is not tKe ³sort tKat concerneG tKe Commission ZKen it revieZeG tKe merJer EetZeen Comcast and NBC-8niversal´692 203. Dr. Salop asserts that subscribers foreclosed from Discovery programming would turn to readily-available substitutes.693 Discovery similarly asserts that subscribers would find substitutes for its programming rather than switch MVPDs to obtain it,694 while Starz asserts that the program access rules are sufficient to ensure access to its programming.695 Our economic analysis, based on the record evidence, demonstrates that Discovery and Starz have [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO] . Determining whether there are adequate substitutes for Discovery and Starz programming in this proceeding, however, is unnecessary because we conclude that neither Malone nor Advance/Newhouse has an economic incentive to cause New Charter to withhold or raise prices of Discovery or Starz programming to MVPDs or OVDs. 204. The additional transactions that commenters claim as support for conditions on Discovery and Starz programming imposed conditions only on RSN or broadcast programming. For example, in the News Corp.-Hughes transaction, the Commission found an incentive and ability to engage in uniform price increases anG imposeG a commercial arEitration conGition on tKe merJeG company’s EroaGcast anG RSN programming.696 In the Adelphia transaction, the Commission imposed an arbitration condition for Comcast’s eiJKt R61s anG 6ports1et 1eZ s@maller proJrammers in particXlar can Ee prevented from exploring new business models and future sources of revenue by such provisions, and even larger programmers may find that complex and interrelated contractual agreements can constrain how they can offer proJramminJ in neZ Zays to vieZers´ ; /etter Irom CKarles HerrinJ 3resiGent HerrinJ 1etZorNs to 0arlene H Dortch, Secretary, FCC, MB Docket No. 15-149, Attach. 1 at 1 (filed Feb. 19, 2016) (Herring Networks Feb. 19, 2016, Ex Parte Letter contenGinJ tKat CKarter’s Xse oI AD0s Kas ³KinGereG inGepenGent proJrammers viGeo competition in the marketplace, including small companies such as SkyAngel and large companies such as Intel and its former On Cue viGeo proGXct anG consXmers´  709 Letter from Charles Herring, President, Herring Networks, Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Nov. 16, 2015) (Herring Networks Nov. 16, 2015, Ex Parte Letter); Herring Networks Dec. 18, 2015, Ex Parte Letter at 2; see also Herring Networks Feb. 12, 2016, Ex Parte Letter, Attach. at  ³CKarter CommXnications Kas IorceG mXltiple inGepenGent proJrammers sXcK as HerrinJ 1etZorNs Inc to accept AD0 claXses´  710 Herring Networks Nov. 16, 2015, Ex Parte Letter at 2; Herring Networks Dec. 18, 2015, Ex Parte Letter at 2. Herring Networks notes that after sending formal notice of termination to Charter and pointing out its concerns with the provision in question, Charter agreed to modify the agreement. Id. 711 Letter from Steven G. Bradbury, Dechert LLP, Counsel for Time Warner Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Jan. 13, 2016) (Time Warner Inc. Jan. 13, 2016, Ex Parte Letter); see also Stop Mega Cable Coalition Feb. 9, 2016, Ex Parte /etter at  arJXinJ tKat 1eZ CKarter coXlG ³>t@Kreaten third-party content proviGers tKat JrantinJ riJKts to OVDs Zill impact tKeir relationsKip ZitK >1eZ CKarter@´ ; WGAW Feb. 10, 2016, Ex Parte /etter at  claiminJ tKat 1eZ CKarter ³does not want content providers, such as television networks, to go over the top . .  anG oIIer content Girectly to consXmers online´ ; DI6H )eE   Ex Parte /etter AttacK at  arJXinJ tKat ³CKarter sKoXlG Ee preventeG Irom e[panGinJ its leverag with which to threaten programmers to dissuade them from licensing their content to Sling TV anG otKer OVDs´ ; Stop Mega Cable Coalition Feb. 24, 2016, Ex Parte Letter at  statinJ tKat 7om RXtleGJe Kas ³issXeG EroaG tKreats to enG carriage of programmers tKat seeN to GistriEXte tKeir content on competinJ O77 platIorms´  HerrinJ 1etZorNs argues that, in part to minimize the possibility of retaliatory behavior, the Commission should impose a condition that requires New Charter to extend carriage to independent programmers that meet certain threshold qualifications. Herring Networks Feb. 12, 2016, Ex Parte Letter, Attach. at 2, 18; Herring Networks Feb. 19, 2016, Ex Parte Letter at 1, Attach. 1 at 1-2. Federal Communications Commission FCC 16-59 103 sXcK riJKts´712 Commenters assert that if the Commission approves the transaction it should prohibit New Charter from restricting the ability of third-party programmers to grant online rights to OVDs, including through the use of MFN provisions.713 Commenters also argue that MFN provisions limit the ability of programmers and other input providers to craft agreements that accommodate the unique needs of new entrants and smaller distributors.714 Cincinnati Bell urges the Commission to ban New Charter from enforcing any MFN provisions in existing Applicant agreements for essential inputs, and thus provide terrestrial (i.e., non-satellite) MVPDs that compete head- to-head with New Charter the flexibility to XniTXely strXctXre tKeir aJreements ZitKoXt triJJerinJ 1eZ CKarter’s 0)1 provisions715 211. As noteG aEove tKe Applicants conceGe tKat ³tKe Xpstream marNet Ior tKe pXrcKase oI video programminJ may Ee national in some respects´716 Nevertheless, the Applicants argue that a monopsony moGel is inapposite to tKe proJramminJ marNet anG tKat 1eZ CKarter’s proMecteG  percent national share of video subscribers would be far too small to trigger such concerns.717 They note that New Charter would be the third-largest MVPD, behind a combined AT&T/DIRECTV (with a 26 percent share) and Comcast (with a 22 percent share). 718 7Ke Applicants IXrtKer note tKat 1eZ CKarter’s sKare would be significantly less than the 30-percent threshold the Commission previously identified in setting its (now vacated) horizontal cable ownership cap. 719 212. 7Ke Applicants also arJXe tKat tKe transaction is ³XnliNely to materially enKance 1eZ CKarter’s EarJaininJ poZer in neJotiations for video programming as compared to Time Warner 712 DISH Petition at 64; see also id. at 68. 713 DISH Petition at 6, 68; see also Herring Networks Feb. 12, 2016, Ex Parte Letter, Attach. at 2, 18; Herring Networks Feb. 19, 2016, Ex Parte Letter at 1; RIDE TV March 14, 2016, Ex Parte Letter at 1. 714 Public Knowledge et al. Petition at 13; Cincinnati Bell Comments at 15. 715 Cincinnati Bell Comments at 16. Cincinnati Bell also urges the Commission to establish a confidential database administered by a third party that would identify for each essential input (including content, equipment, technology, and service agreements) all material economic and non-economic terms and conditions New Charter obtains. Id. at 16-17. Cincinnati Bell argues that such a database would aid competitors in negotiating fair and competitive agreements with providers of essential inputs. Id. 716 Application at 54 n.149. 717 Id. at 54; Opposition at 61-64; Opposition, Charter-TWC-BHN Efficiencies Analysis, Reply Declaration of Michael Katz, Sarin Chair in Leadership and Strategy at the University of California at Berkeley, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at paras. 68-73 (filed Nov. 2, 2015) (Katz Reply Decl.); see also Free State Comments at 17; ITIF Comments at 3-5. 718 Application at 55; Katz Reply Decl. at para. 77; see also Free State Comments at 17. The Applicants also contend that New Charter would be unable to harm OVDs because it would be the largest MVPD in only four of the top 20 DMAs. Application at 47. 719 Application at 56 (citing Comcast Corp. v. FCC, 579 F.3d 1 (D.C. Cir. 2009); The Commission’s Cable Horizontal and Vertical Limits, Fourth Report and Order and Further Notice of Proposed Rulemaking, 23 FCC Rcd 2134 (2008); Time Warner Cable Entm’t Co., L.P. v. FCC, 240 F.3d 1126 (D.C. Cir. 2001)); see also Free State Comments at 17. In the cases the Applicants cite, the harm the Commission sought to address²and that the court considered on review²was whether an MVPD with 30 percent market share would be large enough to deny minimum viable scale to a programmer and thereby reduce competition or diversity in the video programming marNet OXr present concern is not limiteG to ZKetKer 1eZ CKarter’s scale ZoXlG enaEle it to Xnilaterally preclXGe the viability of a proJrammer InsteaG Ze are concerneG Kere ZitK ZKetKer 1eZ CKarter’s si]e ZoXlG enaEle it to exert bargaining power over a programmer such that it could obtain more, or more restrictive, contractual terms that would limit the online distribution of programminJ AccorGinJly Ze Go not IinG 1eZ CKarter’s compliance ZitK tKe Commission’s prior -percent cap Geterminative to TXestions reJarGinJ CKarter’s increaseG EarJaininJ poZer Federal Communications Commission FCC 16-59 104 CaEle´720 The Applicants contend that because their individual footprints generally do not overlap, and because programming is a non-rivalrous good (i.e., its sale to one purchaser does not reduce the amount available for sale to another purchaser), the transaction would not reduce competition among buyers in the upstream video programming market.721 In addition, the Applicants argue that programmers have significant bargaining leverage today, and would continue to have access to numerous distribution options, including online distribution outlets, following the transaction.722 Moreover, Charter argues that, contrary to tKe assertions oI 7ime :arner Inc it is ³entKXsiastic aEoXt tKe rise oI O77s liNe H%O 1oZ´ EecaXse tKey ³Kelp Grive GemanG Ior EroaGEanG service´ anG ³proviGe cXstomer cKoice anG tKXs lessen a proJrammer’s aEility to tie and increase programming prices on an otherwise non-marNet Easis´723 Finally, the Applicants cite various pro-competitive and pro-consumer justifications for ADM and MFN provisions, including greater efficiency in programming negotiations and argue that, to the extent there are concerns about such contracting practices, they are applicable industry-wide and should not be addressed through a transaction proceeding.724 213. Discussion. :e IinG tKat tKe transaction liNely ZoXlG increase tKe Applicants’ incentive and ability to use bargaining leverage in the upstream market to foreclose OVDs from content they seek to license. With additional scale, New Charter likely would be more able than Time Warner Cable today to extract from programmers restrictive contractual provisions that would further restrict the supply of programming to OVDs, thus harming the ability of OVDs to offer consumers more attractive competitive alternatives to New Charter and other traditional pay-TV competitors.725 214. As noted above, we find that the market for buying and selling cable network programming sold on a nationwide basis is national.726 The Applicants argue that even within a national programming market, they do not compete with each other as buyers of programming.727 We disagree. In 720 Application at 57; see also Katz Reply Decl. at paras. 75-85. 721 Application at 57-58. 722 Id.; Opposition at 65; Katz Reply Decl. at paras. 78-82. 723 Charter Feb. 9, 2016, Ex Parte Letter at 3. 724 Opposition at 65-68; Katz Reply Decl. at paras. 111-30. 725 :e Go not reacK a Getermination as to ZKetKer 1eZ CKarter’s increaseG EarJaininJ leveraJe ZoXlG resXlt in a greater ability to negotiate for programming cost reductions. See, e.g., Evans Decl. at paras. 9-12, 16-20, 35-68, 107-18 (offering economic analysis to demonstrate that New Charter would be able to use its increased bargaining leverage post-transaction to negotiate for lower affiliate fees from programmers); Letter from Markham C. Erickson, Counsel for INCOMPAS, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Jan. 27, 2016) (INCOMPAS Jan. 27, 2016, Ex Parte /etter XrJinJ tKe Commission to e[plore ³tKe possiEility oI CKarter MoininJ a video-purchasing cooperative . . . to achieve terms from programmers similar to those that would be possible as a resXlt oI tKe 7ransaction´ anG comparinJ ³I1CO03A6’s IinGinJs reJarGinJ tKe Karm poseG Ey tKe proposeG 7ransaction to tKose IoXnG Ey tKe Commission in tKe A7 7DIR(C7V transaction´ ; CKarter -an   Ex Parte Letter at 1-3; Katz Surreply Decl. at paras. 7- reIXtinJ I1CO03A6’s arJXments anG assertinJ tKat consumers would benefit from transaction-specific programming cost savings); Letter from Markham C. Erickson, Counsel for INCOMPAS, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-7, Reply Declaration of Dr. David S. Evans, Attach., at paras. 3- IileG )eE   (vans Reply Decl oIIerinJ Dr (vans’s responses to Dr .at]’s criticisms oI Kis analysis  As GiscXsseG elseZKere in tKis orGer Ze Go not find that programming cost savings generated by the transaction would result in consumer harm. See Sections V.D, V.G.6 , and VI.B. The Commission previously has found that such savings may represent a transfer of surplus between video programmers and video distributors, and to the extent such savings offset rising programming costs and are passed through to consumers, they could be considered a benefit. See AT&T-DIRECTV Order, 30 FCC Rcd at 9243, para. 291; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20637, para. 211. 726 See supra Section V.E.1. 727 See Application at 57-58. Federal Communications Commission FCC 16-59 105 prior transactions, the Commission has recognized the potential of horizontal consolidation among MVPDs to increase buying power in the video programming market.728 We find that because cable programmers seek distribution for identical (or nearly identical) programming across multiple distributors on a national or regional scale, Time Warner Cable and Charter represent alternative distribution channels for a programmer seeking to reach a significant number of subscribers.729 Accordingly, we find that Time Warner Cable and Charter compete as buyers of programming in the national market (as well as in certain regional markets where both companies have a presence today) and that the transactions therefore would reduce the number of purchasers for programming.730 The loss of Time Warner Cable and Charter as separate distributors likely would reduce competition among the remaining buyers and thereby increase tKe comEineG entity’s EarJaininJ leveraJe relative to proJrammers post-transaction. 215. In addition, evidence in the record indicates that larger MVPDs generally are able to obtain more favorable rates, terms, and conditions than smaller MVPDs.731 For instance, tKe Applicants’ expert, Dr. Michael Katz asserts that larger MVPDs generally pay lower programming fees per channel per subscriber, but concludes that this may not be due solely to increases in bargaining power.732 Dr. David (vans I1CO03A6’s economic e[pert aJrees ZitK Dr .at] tKat larJer 0V3Ds pay less Ior programming, but Dr. Evans places greater emphasis on the increased bargaining power of larger MVPDs in his analysis.733 Dr. Evans, using publicly available data, performs a regression analysis to study the relationship between size and video programming prices and also a statistically significant negative relationship between average video programming cost per subscriber and the number of subscribers.734 Dr. Evans subsequently analyzes monthly programming payments relative to a smaller MVPD, Cablevision, and finds that larger cable companies pay lower programming payments relative to it.735 216. Consistent with these conclusions, the Applicants state that Time Warner Cable, negotiating on behalf of 12.8 million video subscribers, pays approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent less for programming than Charter, which serves 728 See Adelphia-TWC Order, 21 FCC Rcd at 8249, 8253-55 paras. 97- 99, 108-10, 114; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20655-56, paras. 255-56; see also 2010 DOJ/FTC Horizontal Merger Guidelines § 12 at 32 ³0erJers oI competinJ EXyers can enKance marNet poZer onthe buying side of the market, just as mergers of competinJ sellers can enKance marNet poZer on tKe sellinJ siGe oI tKe marNet´  729 See 2010 DOJ/FTC Horizontal Merger Guidelines § 12 at 32-33 (noting that, in evaluating mergers of competing buyers, the antitrXst aJencies ³IocXs on tKe alternatives availaEle to sellers in tKe Iace oI a Gecrease in tKe price paiG Ey a KypotKetical monopolist´  730 See Adelphia-TWC Order, 21 FCC Rcd at 8249, para. 97. 731 See, e.g., Opposition at  assertinJ tKat ³proJramming cost savings, which result from the scale of the merged entity are simply not acKievaEle aEsent tKe merJer´ ; .at] Reply Decl at para  notinJ tKat ³inGXstry participants and financial analysts have found that larger MVPDs generally pay lower programming fees per channel per sXEscriEer tKan Go smaller 0V3Ds´ anG tKat ³>t@Ke inGXstry’s Xse oI si]e-based price MFN clauses also suggests that content owners charge lower (per-channel, per- sXEscriEer content prices to larJer 0V3Ds´ citations omitteG ; see also Adelphia-TWC Order  )CC RcG at  para  ³sXEstantial GiscoXnts are neJotiateG EaseG on tKe nXmEer oI 0V3D sXEscriEers anG otKer Iactors´  732 See Katz Reply Decl. at paras. 14-17; Katz Surreply Decl. at para. 16. Katz contends there are two mechanisms through which a transaction may result in lower programming fees for the combined entity²economies of scale and increased or decreased bargaining position. See Katz Reply Decl. at para. 15. 733 See Evans Decl. at paras. 53-55; see also Evans Reply Decl. at para. 6 (citing Michael L. Katz, An Economic Assessment oI A7 7’s 3roposeG AcTXisition oI DIR(C7V 0% DocNet 1o -90, para. 113 (filed June 11, 2014)). 734 See Evans Decl. at paras. 56-57. 735 See id. at para. 59. Federal Communications Commission FCC 16-59 106 approximately 4.2 million video subscribers. 736 7Ke Applicants assert tKat applyinJ 7ime :arner CaEle’s Jenerally loZer proJramminJ rates to CKarter’s viGeo sXEscriEers post-transaction would generate approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million in cost savings by the third year after closing, or roughly [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per Charter subscriber per month.737 In addition, the Applicants contend that tKese estimates are ³conservative´ EecaXse tKey accoXnt only Ior GiIIerences in scale EetZeen CKarter anG Time Warner Cable and do not assume any additional savings that could be associated with the greater scale of New Charter versus Time Warner Cable.738 217. In addition, internal documents indicate that Time Warner Cable has long recognized that increased size leads to lower rates in negotiations with programmers,739 and that Charter [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .740 Following the transaction, New Charter would negotiate on behalf of approximately 17 million video subscribers, or 17 percent of MVPD subscribers nationwide.741 That is approximately 33 percent more subscribers than Time Warner Cable negotiates for today. With 17 million video subscribers post-transaction 1eZ CKarter’s valXe as a GistriEXtion oXtlet is likely to be such that programmers would be less likely to push back successfully against its demands in programming negotiations. For these reasons, we find that New Charter likely would obtain additional bargaining leverage in programming negotiations as a result of the transaction and would have an increased incentive and ability to use that leverage in ways that harm online rivals. 218. The Applicants argue that the transaction would not significantly improve their bargaining position because programmers already have significant bargaining leverage of their own.742 We disagree 7Ke EarJaininJ leveraJe oI any particXlar proJrammer is irrelevant to CKarter’s cKanJe in 736 See Application at 8, 10, 12; Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed July 10, 2015) (Charter July 10, 2015, Ex Parte Letter); Charter Response to Information Request at 271; Katz Reply Decl. at paras. 18-20. Time Warner Cable negotiates for programming acquisition on behalf of both itself and Bright House. See Application at 12; Advance/Newhouse Response to Information Request at 27. 737 See Charter July 10, 2015, Ex Parte Letter at 1-2; Scott Morton Decl. at para. 23; Charter Response to Information Request at 268-73; Opposition at 25-27; Katz Reply Decl. at paras. 10, 12, 20, 22. Based on the [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] monthly per subscriber programming payment reduction calculated by the Applicants, the total monthly programming payment reduction for Charter would be [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million. New Charter would have approximately 17 million subscribers (4.2 million from Charter plus 10.8 million from Time Warner Cable plXs  million Irom %riJKt HoXse  AccorGinJly 1eZ CKarter’s montKly per sXEscriEer total averaJe proJramminJ payment reduction (i.e., the total monthly programming payment reduction divided by the total number o f subscribers for New Charter) would be approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 738 See Katz Reply Decl. at para. 21; Charter Response to Information Request at 268. 739 See TWC-DOJ -00205019 at 1, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 740 See CHR-DOJ -0000796177 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 741 Application at 54-55. 742 See id. at 57-58; Opposition at 65; Katz Reply Decl. at paras. 78-82. Federal Communications Commission FCC 16-59 107 bargaining leverage as a result of the transaction.743 0oreover tKe Applicants arJXe tKat 1eZ CKarter’s bargaining leverage would be constrained because programmers would have numerous other distribution outlets available.744 While we agree that programmers have available other MVPD and OVD distribution options, some of those options may not provide the unique combination of linear and VOD distribution that programmers find most desirable and that New Charter would be able to offer.745 219. As commenters note, one way for New Charter to use its additional bargaining leverage is by negotiating for contractual provisions that limit the ability of programmers to distribute their programming online.746 Moreover, as noted above, the increased benefits that would flow back to New Charter across its larger footprint would give it an increased incentive to harm online rivals.747 Notably, Time Warner Inc. cites statements made by Charter’s representatives tKat sXJJest 1eZ CKarter ³ZoXlG Ee inclineG to taNe action GirecteG at proJrammers in response to tKe Gevelopment oI µover tKe top’ or µO77’ services ZitK tKe pXrpose anGor eIIect oI sloZinJ GoZn tKe Gevelopment oI O77 options to the Getriment oI consXmers´748 In addition, Herring Networks has submitted into the record one example of a provision in a CKarter contract tKat restricts online GistriEXtion arJXinJ tKat tKe provision ³caXseG tKe network to slow its deployment to OTT devices and avoid excessive advertisement of its services on OTT platIorms´749 DISH alleges further that similar provisions impeded its development and launch of its linear online video service, Sling TV.750 743 Moreover, we note that not all programmers have the same bargaining leverage. Many small, independent, new, and niche networks likely have far less bargaining leverage than established programmers or those owned by a media conglomerate. Nonetheless, the transaction ZoXlG increase CKarter’s EarJaininJ leveraJe relative to all programmers, large and small. 744 See Application at 57-58; Opposition at 65; Katz Reply Decl. at paras. 78-82. 745 For instance, buyers of linear programming are typically limited to the traditional MVPDs (i.e., cable operators, DBS providers, and overbuilders). Although several online services have begun offering linear programming, as we have noted above, these services are nascent and have negligible market share today. In addition, DBS generally offers less VOD programming than cable operators because it is principally a one-way transmission path from the DBS provider to the viewer rather than a two-way system as VOD requires. See, e.g., AT&T-DIRECTV Order, 30 FCC Rcd at 9247, para. 301 (findi nJ tKat DIR(C7V ³lacN>eG@ tKe inIrastrXctXre Ior EroaGEanG Gelivery oI its VOD content anG >Zas@ XnliNely to Kave GevelopeG EroaGEanG on its oZn ZitKoXt partnerinJ ZitK a EroaGEanG proviGer´  746 See DISH Petition at 64-65, 68; Public Knowledge et al. Petition at 12-14; WGAW Reply at 26; Public Knowledge Reply at 5-9; Public Knowledge Feb. 8, 2016, Ex Parte Letter at 1; Stop Mega Cable Coalition Feb. 9, 2016, Ex Parte Letter at 10; WGAW Feb. 10, 2016, Ex Parte Letter at 3-5. 747 See supra Section V.A. 748 Time Warner Inc. Jan. 13, 2016, Ex Parte Letter at 1-2; see also Tom DiChristopher, Over-the-Top HBO Will Not Kill the Cable Bundler: Plepler, CNBC (Nov. 20, 2014), http://www.cnbc.com/2014/11/20/over-the-top-hbo- will-not-kill-the-cable-bundle-plepler.html TXotinJ CKarter 3resiGent anG C(O 7om RXtleGJe ³>a@nyEoGy ZKo sells their content over the top and also expects to continue to exist inside a bundle of services sold to cable or satellite proviGers I tKinN is really GelXGinJ tKemselves´ ; CKarter Communications (CHTR) Thomas M. Rutledge on Q2 2015 Results ± Earnings Call Transcript, Seeking Alpha (Aug. 4, 2015), http://seekingalpha.com/article/ 3396305-charter-communications-chtr-thomas-m-rutledge-on-q2 -2015-results-earnings-call-transcript?part=single TXotinJ CKarter 3resiGent anG C(O 7om RXtleGJe ³to tKe e[tent tKat people Jo a la carte Girect, I think they lower their value to us . .  anG tKey may or may not Ee carrieG in tKe IXtXre as a resXlt oI tKat´ ; CHR-DOJ -00000139683 at 1, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 749 Herring Networks Nov. 16, 2015, Ex Parte Letter at 1-2, 5; Herring Networks Dec. 18, 2015, Ex Parte Letter at 2; see also Herring Networks Feb. 12, 2016, Ex Parte Letter, Attach. at 6-8. 750 See DISH Petition at 64-68. Federal Communications Commission FCC 16-59 108 220. The Applicants argue that contractual provisions such as ADM and MFN provisions have various pro-competitive and pro-consumer justifications. 751 For instance, the Applicants contend that these provisions make for more efficient negotiations, protect their investment in programming, and provide their subscribers with access to more content.752 We find that these purported justifications are likely less applicable to certain types of ADM and MFN provisions when employed by an incumbent cable operator the size of New Charter. In particular, consistent with concerns previously expressed by the Commission and DOJ, we are concerned that, in this instance, potential harms outweigh any pro- competitive justifications with respect to two specific types of provisions: (i) ADM provisions that restrict a proJrammer’s Gistribution of content to consumers online for a fee, including on a subscription basis, for an extended period of time and (ii) unconditional MFN provisions that may dissuade programmers from offering content via one or more online distribution platforms.753 Moreover, the effects of contractual provisions²in particular ADMs²that deny OVDs content are nationwide in scope. Because national programming is licensed to OVDs on a national basis, the affected area is not limited to the footprint of the MVPD that imposed the clause on the programmer. 221. We find that this transaction raises particular concerns with respect to such provisions. With its larger scale, New Charter would see more benefit flow back to it from provisions that go beyond protecting its investment in programming and instead seek to disadvantage its online rivals, making it more likely that New Charter would seek such provisions.754 In addition, its incremental leverage would make it more likely that New Charter would be able to obtain such provisions, as discussed above. Moreover, as employed by New Charter, such provisions would be more likely to have the effect of impeding competition in the downstream video distribution market and reducing the amount of online programming available to consumers. For instance, unconditional MFN provisions that would entitle New Charter to additional content or packaging rights, if triggered, could effectively reduce a proJrammer’s economic incentives to Jrant aGGitional riJKts to an online GistriEXtor755 This is because, under such a provision, a programmer would be required to offer to New Charter, for no incremental consideration, any more favorable rights that it provides to the online distributor.756 *iven 1eZ CKarter’s 751 See Opposition at 65-68; Katz Reply Decl. at paras. 111-30. 752 See Opposition at 65-68; Katz Reply Decl. at paras. 111-30. 753 See Competitive Impact Statement, United States et al. v. Comcast Corp., General Electric Co., and NBC Universal, Inc., No. 1:11-cv-00106 (D.D.C. filed Jan. 18, 2011) (DOJ Comcast-NBCU Competitive Impact Statement) at 35-36 (finding that windowing provisions can be pro- competitive EXt tKat ³>a@s a caEle company Comcast has the incentive to seek exclusivity provisions that would prevent content producers from licensing their content to alternative distributors, such as OVDs, for a longer period than the content producer ordinarily would find economically reasonaEle in orGer to KinGer OVD Gevelopment´ ; Comcast-NBCU Order, 26 FCC Rcd at 4361, Appendix A.IV.B (setting out restrictions on Comcast- 1%C8’s Xse oI certain types oI AD0 anG 0)1 provisions). 754 See, e.g., Herring Networks Feb. 12, 2016, Ex Parte /etter AttacK at  ³%iJ 0V3Ds GemanG 0)1 claXses in tKeir aIIiliation aJreements´  0oreover tKe AD0 provisions oI concern Kere ZoXlG not simply protect tKe valXe of exclusive rights New Charter licenses. ADM provisions that restrict all online transmission (including distribution to paying subscribers), or that require a programmer to meet certain onerous conditions before it can distribute its programming online, permit a programmer to license its content to other incumbent, traditional pay-TV services but not to online subscription services. Accordingly, ADM provisions of this nature target only new entrants that distribute their services to their subscribers over the Internet rather than via a wireline facility or satellite. As noted above, DISH maintains that such provisions delayed the launch of Sling TV. See DISH Petition at 64-68. 755 See, e.g., Herring Networks Feb. 12, 2016, Ex Parte Letter, Attach. at 9. 756 By contrast, conditional MFN provisions are less likely to have such an effect because New Charter would be required to provide the programmer with any incremental consideration the online distributor agreed to in exchange for additional rights. Moreover, we do not find that the potential Karms Irom 1eZ CKarter’s Xse oI XnconGitional continXeG« Federal Communications Commission FCC 16-59 109 size post-transaction, such a disincentive would be particularly strong in this case. To the extent a programmer and an OVD overcome this significant disincentive, New Charter would obtain the same distribution rights as the OVD through its unconditional MFN. This would increase similarity between the content available on New Charter and the OVD, thus lessening product differentiation that would otherwise expand the competitive options for consumers. 222. As discussed above, we find that the transaction would increase the risk that New Charter would use its leverage to negotiate for additional restrictions on online distribution and cause harm in the video distribution market.757 Specifically, the transaction would result in a larger MVPD, and the record here indicates that New Charter could use its increased bargaining leverage to continue to obtain such terms, or negotiate for more restrictions.758 For instance, there is evidence that the Applicants currently seek, and in some instances obtain, ADM and MFN provisions in their programming agreements that tarJet neZ online GistriEXtion moGels a sitXation tKat coXlG Ee maGe Zorse Ey 1eZ CKarter’s Jreater scale post-transaction.759 223. The DOJ, working in close coordination with Commission staff, negotiated a proposed Consent Decree with the Applicants. The Consent Decree prohibits New Charter from enforcing or entering into agreements with programmers that restrict online distribution rights, except under limited circumstances.760 Consistent with past Commission and DOJ actions, the Consent Decree seeks to ensure that New Charter cannot use restrictive contract terms to harm the development of OVDs and, at the same time, preserves its incentives to invest in high quality programming. 761 Having worked with the DOJ to (Continued from previous page) MFNs would be outweighed by any justifications offered by the Applicants, including that such provisions could proviGe 1eZ CKarter’s sXEscriEers ZitK access to aGGitional content or services :e Iind that, even in the absence of unconditional MFN provisions in its contracts with programmers, nothing would preclude New Charter from negotiating for additional content rights or other terms that would enable it to provide more or better services to its subscribers. The existence of an unconditional content MFN in a New Charter contract, however, does make it more difficult for another distributor to obtain rights for content that go beyond what New Charter has received. 757 See Comcast-NBCU Order, 26 FCC Rcd at 4267, para. 73 (concluding that a condition was necessary to address Comcast-1%C8’s ³increaseG leveraJe to neJotiate restrictive online riJKts Irom tKirG parties´ ZKicK coXlG resXlt in harms to competition, consumer choice, diversity, and broadband investment). 758 We note that the Commission examines each transaction based on its own facts, and our findings here are specific to tKe recorG in tKis proceeGinJ Here tKe Iacts Gemonstrate 1eZ CKarter’s increaseG incentive anG aEility to engage in anticompetitive conduct, but the specific facts in another proceeding may compel a different conclusion. See, e.g., Adelphia-TWC Order  )CC RcG at  para  analy]inJ potential Karms ³EaseG on tKe Iacts anG eviGence presenteG in tKe recorG´ ; see also AT&T-DIRECTV Order, 30 FCC Rcd at 9201- para  ³Based on oXr revieZ oI tKe totality oI tKe recorG Ze cannot IinG tKat DIR(C7V Kas Eeen aEle to limit consXmers’ access to distribution of video programming online or that with an additional approximately 6 million U-verse video subscribers the combined entity would be better positioned to impede the ability of other MVPDs or OVDs to attract and retain subscribers. Nor does the record contain evidence that AT&T has pursued or, post-transaction, intends to pXrsXe sXcK a strateJy ZitK respect to proJramminJ contracts´   para  ³Ze Go not Kave a recorG tKat establishes the competitive impact of MFNs sufficient to support a general condition restricting the use of such contractXal provisions´  759 See Herring Networks Nov. 16, 2015, Ex Parte Letter at 5; Herring Networks Dec. 18, 2015, Ex Parte Letter at 2. 760 See Comcast-NBCU Order, 26 FCC Rcd at 4267, para. 73. 761 See id.; DOJ Comcast-NBCU Competitive Impact Statement at 37. We note too that the Commission has issued a Notice of Inquiry seeking comment on the current state of programming diversity and the principal obstacles, including restrictive contractual provisions, which can impede independent programmers from licensing their content to video distributors. See Promoting the Availability of Diverse and Independent Sources of Video Programming, MB Docket No. 16-41, Notice of Inquiry, FCC 16-19 (Feb. 18, 2016). Federal Communications Commission FCC 16-59 110 design the prohibitions adopted as part of the DOJ proposed final judgment, we conclude that we do not neeG to impose IXrtKer conGitions on 1eZ CKarter’s proJramminJ aJreements at tKis time762 G. Other Potential Public Interest Harms and Issues Raised in the Record 1. Fewer Regulatory Benchmarks 224. In tKis section Ze analy]e tKe proposeG transaction’s eIIect on tKe aEility oI competitors anG reJXlators to conGXct comparative or ³EencKmarNinJ´ analyses on tKe practices oI similarly sitXateG companies.763 We conclude that the transaction is not likely to diminish this benchmarking ability. 225. Positions of the Parties. The Applicants argue that the transaction would create no meaningful loss of benchmark competition.764 The Applicants note that their footprints overlap very little and that New Charter would continue to face rigorous competition from legacy telephone companies, DBS companies, wireless companies, and overbuilders after the proposed transaction closes.765 )XrtKermore tKe Applicants note tKat tKe transaction’s maMor eIIect on tKe EencKmarNinJ Iront would be 1eZ CKarter’s neZ aEility to serve as ³a prominent coXnterEalance to Comcast on tKe national staJe´766 226. DI6H’s petition which addresses the issue of benchmarking directly, argues that the proposeG transaction ZoXlG GiminisK tKe Commission’s aEility to accXrately assess competitive activity ZitKin tKe inGXstry DI6H states tKat ³taNinJ tKree innovators oXt oI tKe marNet anG merJinJ tKem into one does not necessarily portenG Zell Ior innovation in tKe inGXstry as a ZKole´767 DISH argues further that while today there are three companies trying three different approaches which are all instructive for 762 Because the Applicants have agreed to an anti-retaliation provision as part of the consent decree resolving the action filed by the United States, we find it unnecessary to adopt an anti-retaliation remedy as suggested by Herring Networks. See Herring Networks Feb. 19, 2016, Ex Parte Letter at 1, Attach. 1 at 1-2; see also RIDE TV March 14, 2016, Ex Parte Letter at 1 (supporting condition proposed by Herring Networks). 763 As the Commission explained in the SBC-Ameritech Order, comparative practices analyses, also referred to as ³EencKmarNinJ´ proviGe valXaEle inIormation reJarGinJ an entity’s netZorNs operatinJ practices anG capaEilities to regulators and competitors seeking, in particular, to promote and enforce the market-opening measures required by the Communications Act and the rapid deployment of advanced services. Applications of Ameritech Corp., Transferor, and SBC Communications Inc., Transferee, Memorandum Opinion and Order, 14 FCC Rcd 14712, 14760-61, para. 101 (1999) ( SBC-Ameritech Order ). Generally speaking, benchmarking analyses help determine industry averages, industry best practices, and industry worst practices. See generally SBC-Ameritech Order, para. 112; Application of GTE Corp., Transferor, and Bell Atlantic Corp., Transferee, For Consent to Transfer Control of Domestic) and International Sections 214 and 310 Authorizations, Memorandum Opinion and Order, 15 FCC Rcd 14032, 14102, para. 134, 14103, para. 139 (2000) ( Bell Atlantic-GTE Order). In previous transaction reviews, the Commission has recognized that a reduction in the number of independently-owned entities can limit the effectiveness of benchmarking. SBC-Ameritech Order, 14 FCC Rcd at 14761, para. 102; Applications of NYNEX, Transferor, and Bell Atlantic Corporation, Transferee, Memorandum Opinion and Order, 12 FCC Rcd 19985, 19994, para. 16 (1997); Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from Southern New England Telecommunications Corporation, Transferor, to SBC Communications, Inc., Transferee, Memorandum Opinion and Order, 13 FCC Rcd 21292, 21302, para. 21 (1998). In these prior mergers, the Commission also concluded that a reduction in major service providers can increase the risk that the remaining firms will collude, either explicitly or tacitly, to conceal information and hinder the benchmarking efforts oI reJXlators anG competitors anG tKat tKis can pose a ³siJniIicant Karm to tKe pXElic interest ´SBC-Ameritech Order, 14 FCC Rcd at 14762, paras. 101, 104. 764 Opposition at 78. 765 Id. 766 Id. at 79. 767 DISH Petition at 39. Federal Communications Commission FCC 16-59 111 the larger market, post-transaction ³tKe marNet loses oXt on tZo potential alternatives´768 DISH also notes the consumer-siGe valXe oI EencKmarNinJ statinJ tKat ³CKarter 7ime :arner CaEle anG %H1 subscribers would also lose a natural and important opportunity for benchmarking their broadband service´ anG tKat EencKmarNinJ alloZs consXmers ³to assess tKe leJitimacy oI tKeir I63’s actions anG policies²from the price they pay for service, to policies that interfere with their ability to receive the content oI tKeir cKoosinJ´769 Ultimately DISH argues that the proposed transaction would free the Applicants Irom tKe necessary ³GisciplininJ Iorce´ oI EencKmarNinJ maNinJ any anticompetitive actions by New Charter more difficult to perceive, let alone deter.770 227. Discussion. We find that the proposed transaction would not likely cause any specific, cognizable harm with respect to benchmarking. In the few areas where the Applicants do have substantive differences²for example, their set-top box policies ²this Order sufficiently addresses concerns about the lack of variety in operational methods and the continued ability of industry participants and the Commission to evaluate best practices. Additionally, as discussed in more detail in the following section, we find no evidence that the proposed transaction increases the likelihood of coordination among remaining firms²a key consideration in benchmarking analysis.771 Overall, the record does not support a finding that the loss of Time Warner Cable and Charter as independent entities, and the creation of a new merged entity, will curtail the benchmarking ability of competitors or regulators. 2. Increased Coordination in the BIAS Market among BIAS Providers 228. This subsection examines the potential for coordinated actions in the BIAS market both at the national level between what would be the largest BIAS providers after the transaction, and in the local markets where New Charter would compete At tKe national level Ze e[amine commenters’ claims that the transaction may increase the ability of Comcast, New Charter, and other large incumbent BIAS providers to engage in coordinated actions that harm consumers.772 Based on our review of the record, we find that the transaction is unlikely to induce more coordinated action at the national or local level that would harm consumers and lead to a lessening of competition for BIAS. 229. Positions of the Parties. The Commission received several comments expressing concern about possible coordination between New Charter and Comcast at the national level in the provision of BIAS. For example, WGAW states that Comcast and New Charter would ³control tKe overZKelminJ majority of the national high-speed BIAS marNet´773 WGAW predicts that this concentration would increase tKe aEility oI Comcast anG 1eZ CKarter to ³set tKe terms oI acess to both sides of the broadband marNet in an anticompetitive manner´774 DISH claims that Comcast and New Charter would control 768 Id. 769 Id. at 63. 770 Id. 771 See infra Section V.G.2 ; see also SBC-Ameritech Order, 14 FCC Rcd at 14761, para. 156. 772 See, e.g., )ree 3ress 3etition at   ³7XrninJ tKe national EroaGEanG marNet into a GXopoly Zill conIer additional market poZer not only on 1eZ CKarter EXt also on Comcast´ ; A7 7 6ervices Inc Comments at  A7 7 Comments ³CaEle companies Kave cKosen not to compete anG insteaG coorGinate to Jain sKareG advantages over rivals, which further industry consolidation will only Iacilitate´  773 WGAW Petition at 4. See also Free Press Petition at 3 (stating that the transaction would give New Charter control of over 20 million BIAS customers and more than 25 percent of the national market for high-speed BIAS; together, New Charter and Comcast would control nearly two-thirds of current BIAS customers and the telecommunications wires connected to nearly eight of ten homes); WGAW Reply at 2- 3. 774 WGAW Petition at 4 . Federal Communications Commission FCC 16-59 112 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of the nation’s KiJK-speed BIAS households775 and would not need to overtly collude to harm OVDs since ³>p@arallel IoreclosXres ZitK one oI tKe tZo IolloZinJ tKe otKer ZoXlG Ee enoXJK Ior an OVD to Ee sKXt off from most of the high-speeG Komes in tKe coXntry´776 According to DISH, the potential effects of coorGination EetZeen Comcast anG 1eZ CKarter ZoXlG Ee ³KiJKly pronoXnceG´ Jiven tKe Earriers to entry and the lack of alternatives in the BIAS market.777 AT&T claims that emerging competition is vXlneraEle to ³coorGinateG e[clXsionary actions Ey caEle´ providers and that this transaction would ³create a seconG caEle Jiant²alongside Comcast²that together would dictate strategy for the entire caEle inGXstry´778 230. CKarter arJXes tKat a ³collXsive GXopoly´ EetZeen 1eZ CKarter anG Comcast is ³ZKolly implaXsiEle´779 AccorGinJ to tKe Applicants’ economist Dr 6cott 0orton ³because of conflicting technological platforms and business plans, New Charter has little ability to collude with Comcast and even less incentive to Go so´780 Charter points to its differences with Comcast²the disparities in program ownership and the different types of access to content delivery (set- top Eo[es on Comcast’s XnIinity platIorm vs 1eZ CKarter’s cloXG-based Spectrum Guide) ²to bolster the conclusion that it would be implausible for Comcast anG 1eZ CKarter ³to arrive at a collXsion strateJy tKat ZoXlG EeneIit tKem EotK´781 Finally, Charter claims that it would lack any realistic means of enforcing a collusive agreement with Comcast in the event the providers decided to collude.782 775 DISH Jan. 20, 2016, Ex Parte Letter at 2. 776 DISH Petition at 3, 27-28. 777 Id. at 31. See also Free Press Petition at 28 (stating that the primary coordinated effect resulting from this transaction that should concern the FCC is increased consolidation in the national BIAS market that facilitates the ability of the largest cable companies to harm OVD competition and to ensure that OVD services remain merely a complementary proGXct insteaG oI a sXEstitXte Ior 0V3D services ; 3XElic .noZleGJe et al 3etition at  ³From the perspective of programmers and Internet content companies, and ultimately consumers, two large national cable companies tKat EeKave in parallel Zays may Ee little Eetter tKan one larJe caEle company´ ; US Telecom Nov. 12, 2015, Ex Parte Letter at 2. 778 AT&T Comments at 2; see also G ranite 7elecommXnications Inc Reply at  *ranite Reply ³7Ke proposeG combination between Charter, TWC and BrightHouse, coupled with the announced wholesale arrangement with Comcast and other cable companies, raises questions regarding competition between and among these companies in all markets. Under traditional competitive analysis, when two or more companies that compete or could compete in multiple markets, where each company possess a significant cost advantage over the other, each firm has an incentive to collude with the other(s) in order to avoid competing in the market where the other company(ies) possess a cost aGvantaJe´ citinJ Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993)). 779 Opposition at 4, 69 (stating that opponents provide no explanation why New Charter would collude with Comcast to harm OVDs). 780 Id. at 70. According to Dr. Scott Morton, the most important factor differentiating the two companies is their ownership of national programming²Comcast is vertically integrated with the programming of NBC Universal, ZKile 1eZ CKarter ³lacNs siJniIicant proJramminJ´ 6cott 0orton Reply Decl at para  0oreover tKe incentives oI Comcast ³ZitK sXcK siJniIicant viGeo proJramminJ interests are Gramatically different than a company, like New Charter, which would have no significant national programming. New Charter will provide consumers with access to the online and cable programming they want without regard to whether it harms a particular producer of programminJ´ Opposition at  781 Opposition at 71. 782 Id.; see also 6cott 0orton Reply Decl at para  ³>:@itKoXt eviGence oI a speciIic mecKanism tKat ZoXlG allow the two firms to reach a collusive agreement, monitor that agreement, and punish any deviations from that continXeG« Federal Communications Commission FCC 16-59 113 231. In response, AT&T submits an analysis from economist Dr. Marius Schwartz, who states that Dr. Scott Morton overstates the difficulty of proving harmful coordination between Comcast and New Charter.783 Dr. Schwartz asserts that the proposed transaction relaxes obstacles to coordinated exclusionary action targeted against independent OVD networks, the scope of which could be significant in the cable industry.784 AccorGinJ to Dr 6cKZart] tKe analysis perIormeG Ey Dr 6cott 0orton ³GiG not purport to address exclusionary conduct against non-cable MVPD and broadband competitors, a goal that caEle companies ZoXlG natXrally sKare´785 232. Discussion of Coordination at the National Level. While several commenters allege New Charter would be well positioned to coordinate with Comcast after the transaction,786 we note that they do not support their claims with evidence of prior tacit or overt coordination in the current marketplace.787 This is instructive because Time Warner Cable and Comcast have been providing BIAS for years as the two largest cable BIAS providers, and commenters identify no specific instances of parallel or coordinated behavior between those two companies with respect to retail residential BIAS practices.788 Although New Charter represents an increase over Time Warner CaEle’s cXrrent sXEscriEersKip789 that increase in size does not, in and of itself, constitute sufficient evidence that New Charter would materially cKanJe 7ime :arner CaEle’s Iormer EeKavior vis-a-vis Comcast. Nor is there evidence in the record that either Charter or Bright House impeded industry coordination such that their removal from the market as (Continued from previous page) agreement, any conclusion that collusion is likely is mere speculation. I have seen no evidence of such a mechanism, anG no commenter Kas iGentiIieG a plaXsiEle collXsive mecKanism´  783 See Schwartz Analysis at 2. 784 See id. 785 Id. at 9. 786 See DISH Reply at 21-22 (stating that the transaction would create a duopoly with Comcast; giving New Charter tKe incentive anG aEility to Karm OVDs anG tKat tKe ³IoreclosXre oI rival OVDs ZoXlG Ee mXtXally EeneIicial as long as rival OVD content continues to compete ZitK tKe GXopolists’ linear viGeo or aIIiliateG OVD services´ ; :*A: Reply at  claiminJ tKat Comcast anG 1eZ CKarter ³ZoXlG Ee aEle to coorGinate actions    simply Ey observing each other, for instance through press reporting. Any action to complicate OVD access to one company’s subscriber base, such as anticompetitive pricing (e.g., bundling, usage-based billing) or restricting OVD access to the video interface or set-top Eo[ coXlG Ee ecKoeG Ey tKe otKer´  787 See, e.g., Letter from Rick Chessen, Senior Vice President Law and Regulatory Policy, National Cable & Telecommunications Association, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Nov. 6,  arJXinJ tKat tKe coXrts Kave maGe clear tKat a cKarJe oI ³coorGinateG e[clXsionary actions´ reTXires evidence, not just speculation, and there is no such evidence in this case). 788 But see DISH Jan. 20, 2016, Ex Parte Letter at 10 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] do not give rise to actual evidence of improper coordination. 789 According to FCC Form 477 BIAS subscriber data from December 2014, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 114 independent firms makes coordination between Comcast and New Charter, or more generally among incumbent cable companies, more likely post-transaction.790 The proposed transaction does not appear to materially alter the competitive landscape in a way that makes these two large incumbents more likely to coordinate than they did before.791 233. While Dr. Schwartz sets forth certain scenarios in which, post-transaction, the high-speed BIAS marketplace possibly becomes ripe for cable company collusion,792 he provides no examples or verifiable predictions of actual cable company collusion. Though Dr 6cKZart] conclXGes tKat ³the absence of past coordinated exclusionary behavior when the industry was more fragmented does not eliminate concerns in a post-merJer environment´793 we find that his predictions of coordinated future exclusionary behavior are speculative. 234. In addition, some commenters argue that coordination is generally easier when there are fewer and more similar players with which to coordinate.794 However, collusion between a pair of BIAS providers in an environment with differentiated competitors795 may be harder to sustain. The large BIAS competitors to Comcast and New Charter differ from both of these cable companies, and in important respects are quite different from each other, 796 thus reducing the likelihood of collusion against all the varying rivals to cable providers. For example, Table 1 in the reply declaration of Dr. Scott Morton shows the relative sizes of Comcast and New Charter as BIAS providers and MVPDs, and compares them to AT&T, DISH, and Verizon. 797 Similarly, the businesses of AT&T, DISH, and Verizon are very distinct 790 Even though DISH claims that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See DISH Jan. 20, 2016, Ex Parte Letter at 10-11. We find that such internal discussions do not rise to the level of improper overt or tacit coordination with Comcast. 791 See American Commitment Comments at 1- ³7Kere is no leJitimate anticompetitive concern  . . New Charter will have fewer total broadband customers than Comcast and will trail both AT&T and Comcast in video market sKare´  As tKe Applicants state tKe transaction Goes not alter 1eZ CKarter’s lacN oI siJniIicant national programming interests or its unique cloud-based Spectrum Guide, two differentiators from Comcast that make it ³implaXsiEle´ Ior tKe tZo companies to collXGe post-transaction. Opposition at 70-71; see also Scott Morton Reply Decl. at paras. 171- notinJ tKat ³neitKer CKarter nor 7:C nor %H1 Kave any Kistory oI collXsion aJainst OVDs´ anG tKat tKe ³lacN oI any Kistory oI collXsion is consistent ZitK collXsion EeinJ an XnGesiraEle strateJy very GiIIicXlt Ior tKese Iirms to acKieve or EotK´  792 )or e[ample in response to Dr 6cott 0orton’s claim tKat no collXsive XnGerstanGinJ coXlG Ee reached between 1eZ CKarter anG Comcast ZitKoXt e[plicit commXnications EetZeen tKe parties Dr 6cKZart] states ³>Z@hile it is true that this particular form of coordination would require some degree of communication, plausible mechanisms can Ee envisioneG´ Schwartz Analysis at 5. Dr. Schwartz, however, does not present examples of signaling, notZitKstanGinJ tKe potential opportXnities presenteG Ey Comcast’s anG 7ime :arner CaEle’s lonJ-standing positions as the largest players in the cable industry. 793 Schwartz Analysis at 8. 794 Id. at 7-8; DISH Jan. 20, 2016, Ex Parte Letter at 8; see also 6cott 0orton Reply Decl at para  ³It is commonly tKoXJKt tKat it is easier Ior symmetric Iirms to reacK a collXsive aJreement´  795 See Application at  ³1eZ Charter will continue to face significant competition from wireline competitors (e.g. , AT&T, Verizon, Frontier, and CenturyLink) across the merged footprint, even apart from other forms of competition (e.g., wireless and satellite providers)); Scott Morton Reply Decl. at 12, Table 1 (citing SNL Kagan subscriber numbers from the second quarter of 2015 for BIAS providers). 796 See Scott Morton Reply Decl. at paras. 138-42. 797 See id. at 12, Table 1; Application at 45, 55 (the largest BIAS providers would be Comcast (22 million subscribers), New Charter (19.4 million), AT&T (16 million), and Verizon (9.2 million), while the largest MVPDs continXeG« Federal Communications Commission FCC 16-59 115 from each other, and from those of Comcast and New Charter. For example, among these companies : only AT&T and Verizon provide mobile phone service; 798 AT&T has a significantly larger MVPD subscriber base (due in large part to its acquisition of DirecTV) compared to Verizon; 799 Verizon has a higher proportion of FTTH²and with it larger capacity on its network²than does AT&T, Comcast, or New Charter;800 and DISH is a pure satellite operator with almost no wireline operations. While each of these three quite different non-cable companies competes head- to-head with Comcast and New Charter, they do so in different locations and using different strategies,801 thus making coordinated action between Comcast and New Charter more difficult against each of these different rival providers. 235. Because of these significant differences between New Charter and its local BIAS competitors, we agree with the Applicants that the record does not support a finding that the transaction will make it materially more likely that New Charter and Comcast will collude on BIAS practices to the detriment of OVD and MVPD competitors. However, we note that if the cable industry continues to consolidate, a transaction may arise where the public would face an increased risk of anticompetitive harm stemming from the transaction, thus causing an increased likelihood of such collusion. 236. Discussion of Coordination at the Local Level. As an initial matter, because the Applicants do not²except in a few de minimis circumstances²compete with each other to offer residential BIAS,802 the proposed transaction would not change the number of BIAS providers available to consumers at their residences. Without a change in concentration in local markets, the transaction is unlikely to increase the likelihood of coordinated action among BIAS providers at the local level.803 CKarter’s internal GocXments tenG to sKoZ [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .804 For example, [BEGIN HIGHLY (Continued from previous page) would be AT&T/DirecTV (26.3 million subscribers), Comcast (22.4 million), New Charter (17.3 million), and DISH (12 million). 798 See Scott Morton Reply Decl. at paras. 138-39. 799 See id. at 12, Table 1. 800 See FiberforAll, Finally a Verizon Fios Availability Map, http://fiberforall.org/fios-map/ (last visited Feb. 18, 2016). 801 In fact, these three non-cable rivals have taken market share from the cable companies in the area of MVPD services, while they are losing share to the cable companies in BIAS, telephone, and high margin business services. See, e.g., Opposition at  ³7elco MVPD subscriber bases have more than doubled since 2010, and SNL Kagan preGicts tKem to JroZ Irom  million as oI  to  million Ey ´ ; CHR-DOJ-00000022862 at 2, 9, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 802 Charter July 2, 2015, Ex Parte Letter at 1-2 (stating that the potential overlap between Charter and Time Warner Cable service areas covers approximately 0.1% of residential BIAS customers). 803 As discussed below, we require New Charter to build out to one million new customer locations outside the Applicants’ cXrrent Iootprints alreaGy serveG Ey KiJK-speed BIAS providers offering speeds of at least 25 Mbps down as a condition to approval of the Application. See infra Section VI.F. As conditioned, we find that the transaction Zill increase competition in tKe local %IA6 marNet over tKe GXration oI 1eZ CKarter’s EXilGoXt tKereEy lessening the likelihood of coordination among BIAS providers. 804 See, e.g., supra para. 80 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] See TWC-FCC-00241137 at 29, [BEGIN HIGHLY CONF. INFO] continXeG« Federal Communications Commission FCC 16-59 116 CONF. INFO.] [ END HIGHLY CONF. INFO.] .805 Further, as Charter notes, its commitment to refrain from data caps and UBP would make it less likely that New Charter could coordinate with its rivals on BIAS pricing.806 As a result, we find that the proposed transaction as conditioned is unlikely to increase the likelihood of coordination among rivals on retail residential BIAS practices in the local market.807 3. Cable Modems 237. Cable modems serve to connect consumer equipment, such as computers, tablets, smartphones, and other Internet-connected devices, to the broadband service offered by cable operators. Cable modems are available to consumers both to lease from operators and to purchase from operators or retailers. Cable operators generally charge a monthly fee to lease a cable modem: Time Warner Cable currently charges ten dollars per month,808 and Bright House charges four dollars per month.809 By comparison, cable modems without wireless routing capabilities generally retail for less than 100 dollars.810 Therefore, for many customers, it is financially advantageous, in the long run, to purchase a cable modem, rather than to lease one from a cable operator. In contrast with Time Warner Cable and Bright House, Charter, under its New Price Packaging (NPP), does not include a line-item charge on customer invoices for cable modems, nor does it offer a rebate or credit when customers use their own modem.811 Charter does, however, charge customers five dollars per month for its home WiFi service, (Continued from previous page) [END HIGHLY CONF. INFO.] . 805 CHR2-DOJ -00000022862 at 5, 7, 10, 13, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 806 See Opposition at ; 6cott 0orton Reply Decl at  para  statinJ tKat asymmetries e[istinJ ZitK CKarter’s rivals include the use of network interconnection fees and data caps; rivals liNe Comcast Kave tKese ZKile ³1eZ CKarter Zill not´ 7Ke commitment to reIrain Irom Gata caps anG 8%3 is ³eviGence tKat 1eZ CKarter Zill not Ee aEle to cooperate´ ZitK its rivals’ strateJies  807 For similar reasons, we are unable to credit claims that cable companies such as New Charter, by facing its telco rivals in more geographic markets, would be more able to coordinate with them. See, e.g., AT&T Comments at 2 (noting that cable companies share common rivals in BIAS, video, and telecommunications services and that these ³JeoJrapKically seJreJateG caEle companies tKereIore Kave incentives to coorGinate tKeir activities to IenG oII tKese common rivals anG Kave GemonstrateG tKe aEility to Go so´  808 Time Warner Cable, What Price will I be Charged to Lease a Modem from TWC/EarthLink?, http://www. timewarnercable.com/en/support/faqs/faqs-internet/internetmodemlease/what-price-will-i- be-charged html (last visited Feb. 24, 2016)  7ime :arner CaEle’s moGem rate increaseG Irom eiJKt Gollars to ten Gollars See, e.g., Don Reisinger, Your Time Warner Cable Bill is Going Up, Fortune (Dec. 22, 2015), http://for.tn/1YyTOum. 809 Advance/Newhouse Response to Information Request at 35. 810 See, e.g., Bestbuy, Wireless & Cable Modems: VOIP Routers and Adapters, http://www.bestbuy.com/ site/networking/cable-dsl-modem-voip/abcat0503013.c?id=abcat0503013 (last visited Mar. 10, 2016) ; B&H.com, http://www.bhphotovideo.com/c/buy/Modems/ci/13107/N/4294542234 (showing numerous high-performance cable modems for less than $100) (last visited Feb. 24, 2016). 811 Charter Response to Information Request at 146, 150. Customers on the legacy plans receive bills with a line- item fee for cable modems if they use a Charter modem. Those customers that use their own modem are not continXeG« Federal Communications Commission FCC 16-59 117 which includes a WiFi router in addition to the modem.812 Time Warner Cable and Bright House also offer similar home WiFi services.813 Charter proposes to extend its pricing plan, and with it, its cable modem policies, to Time Warner Cable and Bright House customers while also permitting those customers to retain their legacy plans, including any modem rental fees.814 238. Positions of the Parties. Zoom Telephonics, Inc. (Zoom), a company that produces, sells, anG services caEle moGems anG otKer commXnications Gevices arJXes tKat CKarter’s caEle moGem policies with respect to pricing violate the Act and Commission regulations, as described below,815 and that extension of the practice to Time Warner Cable and Bright House territories would create a transaction-specific public interest harm.816 Specifically, Zoom compares T ime :arner CaEle’s anG %riJKt HoXse’s practice oI iGentiIyinJ moGem rental Iees separately on tKeir sXEscriEer invoices anG waiving those monthly fees when a consumer uses consumer-oZneG eTXipment ZitK CKarter’s practice that identifies no separate rental fee and no rebate or credit for use of consumer-owned equipment. Zoom concludes that expansion of the Charter practice would discourage subscribers that currently have incentive to use retail equipment from attaching their own modem. Zoom asks the Commission to designate the Application for hearing or impose a condition that would require Charter to separately state its modem fees and to offer modems at an unsubsidized price.817 239. Zoom argues that Section 629 of the Communications Act requires a cable operator to separately itemize and not subsidize the charges for cable modems provided by the cable operator to customers.818 =oom contenGs IXrtKer tKat CKarter’s caEle moGem EillinJ policies violate 6ection  (Continued from previous page) charged the nine dollars a month cable modem rental fee. Charter Response to Information Request at 147, 149. 8nGer CKarter’s 133 moGel aGopteG in -Xne  CKarter offers uniform pricing across its footprint for its services and touts that there are no early termination, E911, and modem rental fees. See Charter Response to Information Request at 234-35; Residential Pricing and Packaging White Paper at 2. 812 Charter, Spectrum In-home WiFi Routers: General Information, http://www.charter net/support/internet/ spectrum-home-wifi-routers-general-information (last visited Feb. 24, 2016). 813 Time Warner Cable leases to customers a wireless gateway modem for ten dollars a month and enables WiFi networking capabilities for an additional charge. See TWCable-DOJ -001238331 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; Zoom Petition at 14, Exhibit I. Bright House also offers a wireless home networking service called Echo Home Networking. Bright House, What is Echo Home Networking?, http://support.brighthouse.com/Article/What-Is-Echo-Home-Networking-3668/ (last visited Feb. 1, 2016). 814 Charter Response to Information Request at 148; Residential Pricing and Packaging White Paper at 3-4. 815 Zoom Petition at 1, 13-28; Zoom Telephonics Inc. Reply at 8-17 (Zoom Reply); see also Letter from Andrew Schwartzman, Counsel for Zoom Telephonics Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Nov. 23, 2015) (Zoom Nov. 23, 2015, Ex Parte Letter). 816 Zoom Petition at 2, 27; Zoom Reply at 2. 817 Zoom Petition at 27-28; Zoom Nov. 23, 2015, Ex Parte Letter at 2; Letter from Andrew Schwartzman, Counsel for Zoom, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2, Attachment A (filed Mar. 28, 2016) (providing draft language for a proposed condition with respect to cable modem pricing and certification). 818 Zoom Petition at 15-16, 17 (citing 47 U.S.C. § 549); Zoom Reply at 10-14; Zoom Nov. 23, 2015, Ex Parte Letter at 1-2; Letter from Andrew Schwartzman, Counsel for Zoom Telephonics Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed March. 23, 2016) (Zoom Mar. 23, 2016, Ex Parte Letter). Zoom adds tKat 6ection  covers caEle moGems anG relies on tKe provision’s leJislative history and Commission precedent. Zoom Petition at 16 (citing H.R. Rept. No. 104-204, pt. 1, at 112 (1995) and Implementation of Section 304 of the Telecommunications Act of 1996, Report and Order, 13 FCC Rcd 14775, 14776, 14784 (1998)). Federal Communications Commission FCC 16-59 118 oI tKe Commission’s rXles819 which requires MVPDs offering navigation devices subject to the provisions of Section 76.923820 to separately state the charges for these devices.821 Section 76.923 refers to equipment necessary to receive the basic cable television service tier. Zoom contends that Section 76.1206 should be read to apply to all rate-regulated MVPDs that offer any equipment for lease, regardless of whether or not the equipment is used to receive the cable television basic tier service. As such, Zoom argues that Section 76.1206 applies to cable modems Charter provides and prohibits the bundling and subsidizing of cable modem charges.822 Zoom maintains that had cable modems been available commercially when Section 76.923 was adopted in 1993, that rule would have explicitly covered the rate regulation of cable modems.823 240. Zoom also argues that Section 706 of the Act grants the Commission authority over pricing issues.824 6ection  Girects tKe Commission to ³taNe immeGiate action to accelerate Geployment of [advanced telecommunications capabilities] by removing barriers to infrastructure investment and by promotinJ competition in tKe telecommXnications marNet´ in tKe event tKat tKe Commission Getermines tKat aGvanceG telecommXnications capaEilities are not EeinJ GeployeG in a ³reasonaEle anG timely fashion´825 Zoom contends that this provision mandates that the Commission create a competitive retail market for equipment, which it argues the Commission recognized in its 2005 Internet Policy Statement.826 =oom contenGs IXrtKer tKat CKarter’s caEle moGem pricing policy violates the antidiscrimination provisions of Sections 201 and 202 of the Communications Act.827 Finally, Zoom asserts tKat CKarter’s EXnGlinJ oI caEle moGem Iees is contrary to tKe pXElic interest828 241. In contrast, other commenters cite the extens ion oI CKarter’s no moGem rental Iee policy to Time Warner Cable and Bright House subscribers as a benefit of the proposed transaction.829 For e[ample One :orlG 6ports GescriEes CKarter’s policy oI not cKarJinJ moGem lease Iees as ³pro- consXmer´ anG e[pects it to continue post-transaction.830 Stop the Cap expresses concern that subscribers may pay higher prices for broadband unless the Commission imposes a condition on New Charter to extend its policy not to charge modem fees beyond three years. 831 Free Press in attacNinJ tKe Applicants’ arguments regarding the purported benefits from its increased scale post-transaction, notes that Time 819 47 CFR § 76.1206. 820 47 CFR § 76.923. 821 Zoom Petition at 18- 21. 822 Id. at 19-20. 823 Id. at 20; Zoom Reply at 9. 824 Zoom Petition at 21-22; Zoom Mar. 23, 2016, Ex Parte Letter at 2. 825 Zoom Petition at 21 (citing 47 U.S.C. § 706). 826 Id. at 22 (citing Internet Policy Statement Appropriate Framework for Broadband Access to Internet over Wireline Facilities, Policy Statement, 20 FCC Rcd 14986 (2005)). 827 Id. at 23. 828 Zoom Petition at 23-26; Zoom Mar. 23, 2016, Ex Parte Letter at 2. 829 See, e.g., City of DeSoto, Texas, Comments at 1; San Gabriel Valley Regional Chamber of Commerce Comments at 1; Americans for Tax Reform Comments at 2; Older Adults Technology Services Comments at 2. 830 Letter from Alexander P. Brown, President and CEO, One World Sports, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149, at 2 (filed Oct. 29, 2015) (One World Sports Oct. 29, 2015, Ex Parte Letter). 831 Stop the Cap Comments at 11. Federal Communications Commission FCC 16-59 119 Warner Cable charged eight dollars (now ten dollars) a month for modem rentals while Charter, a smaller company, charges nothing.832 242. 7Ke Applicants assert tKat =oom’s complaints tarJet cXrrent CKarter practices anG are not related to the transaction.833 The Applicants add that that the Commission rejected a similar argument in AT&T-DIRECTV, finding that a harm arising out of alleged violations of Section 629 and the navigation device rules, the same rules and statute Zoom invokes, was not transaction-specific. 834 The Applicants also contend that Charter cannot be in violation of Section 629 because the statute does not impose substantive requirements; it merely directs the Commission to enact regulations. 835 243. The Applicants contend further that the rules Zoom cites do not apply to cable modems.836 Moreover, according to the Applicants, neither Sections 201, 202, and 706 of the Communications Act, nor the Open Internet Order grant the Commission the authority to regulate cable modems.837 The Applicants add that it would be reasonable for the Commission to permit a cable modem billing policy that provides a modem to subscribers for no charge, while also giving those subscribers ³Jreater transparency aEoXt tKe services tKey are payinJ Ior ZKile simXltaneoXsly enaElinJ third parties to compete at retail Ey oIIerinJ eTXipment ZitK GiIIerent IeatXres´838 Furthermore, the Applicants state, cable operators are analogously permitted to provide subscribers with universal remotes for free with service, while third parties have the option of selling, and subscribers of purchasing, other remotes at retail.839 Charter touts its modem fees policy as customer-friendly, and maintains that Time Warner Cable and Bright House customers would benefit from the extension of this policy as a result of the transaction.840 CKarter notes tKat it aGopteG tKis pricinJ moGel as a Zay to ³reGXce >its@ operational costs anG proviGe Jreater transparency to consXmers´841 244. Zoom responds that its allegations are indeed specific to this transaction because Charter, unlike other cable operators such as Comcast, Cox, Time Warner Cable, and Bright House bundles the price of cable modem rental with the fees for its broadband service.842 Moreover, Zoom argues that the cable modem issues raised herein are distinguished from the general policy arguments raised by TiVo in the AT&T- DIRECTV proceeding as TiVo was seeking an industry-ZiGe remeGy ZKereas =oom’s 832 Free Press Petition at 25 (citing Scott Morton Decl. at para. 21). Free Press does not address =oom’s proposeG condition in its reply. 833 Opposition at 73. 834 Opposition at 73 (citing AT&T-DIRECTV Order, 30 FCC Rcd at 9228, para. 250). The Applicants contend that in tKat proceeGinJ tKe Commission reMecteG 7iVo’s reTXest tKat tKe Commission reTXire AT&T and DIRECTV to comply ZitK 6ection  anG 6ections   anG  oI tKe Commission’s rXles IinGinJ tKat tKe transaction GiG not create a pXElic Karm anG tKat tKe issXes raiseG Ey 7iVo contain ³EroaGer reJXlatory policy questions that are more appropriately aGGresseG in tKe rXlemaNinJ conte[t´ Id. at 73-74 n.288 (citing AT&T- DIRECTV Order, 30 FCC Rcd at 9229, para. 253). 835 Opposition at n.290. 836 Id. at 74-75. 837 Id. at 76. 838 Id. 839 Id. 840 Winfrey Decl. at para. 9. 841 Charter Nov. 3, 2015, Updated Response to Information Request at 4-5. Charter notes that the streamlined and standardized bill created cost savings by reducing the time a customer service representative needed to look up rates, explain charges and other pricing options to customers. 842 Zoom Reply at 3. Federal Communications Commission FCC 16-59 120 reTXesteG relieI ZoXlG aIIect only 1eZ CKarter’s cXstomers843 =oom also arJXes tKat CKarter’s policies are contrary to the public interest standard844 anG tKat CKarter’s reliance on case laZ sXpportinJ its argument that it cannot be found in violation of Section 629 is misplaced.845 245. =oom’s 3etition inclXGeG assertions tKat CKarter’s caEle moGem attacKment practices violated Commission rules and asked the Commission to designate the transaction for hearing or impose a condition requiring the company to adopt reasonable modem certification and attachment policies. =oom’s alleJations asserteG tKat tKe practices violate 6ections 629 and 706 of the Act and Sections  anG  oI tKe Commission’s rXles846 Zoom argues that there was no assurance that Charter would allow existing Time Warner Cable and Bright House customers to attach Zoom modems to the New Charter network post-transaction, creating a transaction-specific harm.847 On April 22, 2016, Charter entered into a Consent Decree with the Media Bureau in which Charter agreed to change its modem certification process by significantly reducing the number of tests necessary for a modem to be certified compliant, as well as the time taken to perform such tests. Charter also agreed to make a settlement payment of $640,000. Charter will submit biannual reports on the status of all modems submitted for testing, and any changes to its testing regime will have to be approved by the Media Bureau. The simplified testing process will make it easier for modems sold by third parties to qualify as compliant with Charter systems. 246. Discussion. While Zoom has presented the Commission with arguments concerning CKarter’s moGem EillinJ policies anG tKe impact tKey may Kave on tKe competitive retail marNet, we need not resolve such contentions here because we find that they are more appropriately addressed in the pending industry-wide rulemaking proceeding on navigation devices. The cable modem pricing policies that Zoom raises in this proceeding are indeed the same types of practices that the rulemaking proceeding seeks to address.848 Moreover, Charter documents evidence that its introductory and regular rates for BIAS, which includes a Charter provided modem, are less expensive than the corresponding Time Warner CaEle %IA6 rates even EeIore aGGinJ 7ime :arner CaEle’s montKly moGem rental Iees849 Charter claims that expanding its lower prices, including its cable modem policy, across the Time Warner Cable and Bright House footprints would benefit the public.850 Charter also states that, in any event, it would allow current Time Warner Cable and Bright House subscribers to keep their current billing plans, including the 843 Id. at 4. 844 Id. at 15- =oom also GiscXsses its concerns reJarGinJ CKarter’s moGem certiIication policy anG reiterates its arguments with respect to the application of Sections 201, 202 of the Communications Act, Section 706 of the Telecommunications Act of 1996, and the Open Internet Order to cable modems. Id. at 5-8, 14. 845 Id. at 11-12. 846 Zoom Petition at 17-  )or a GiscXssion oI =oom’s arJXments reJarGinJ tKe applicaEility oI 6ection  see supra para. 240. 847 Zoom Petition at 5-13; Zoom Reply at 5-8. Time Warner Cable and Bright House currently permit customers to attach Zoom modems to their networks. See Zoom Petition at 5, 7-8, Bright House, Use Own Modem with HIS Service, http://support.brighthouse.com/Article/Use-Own-Modem-With-Hsi-Service-9109/ (last visited Feb. 3, 2016) ; Time Warner Cable, TWC Compatible Modems, http://www.timewarnercable.com/content/dam/residential/ pdfs/support/internet/twc-compatible-modems.pdf (last visited Feb. 3, 2016). 848 Expanding Consumers’ Video Navigation Choices; Commercial Availability of Navigation Devices, MB Docket No. 16-42, Notice of Proposed Rulemaking and Memorandum Opinion and Order, FCC 16-18, at 40-43, paras. 82- 86 (2016) ( Navigation Devices NPRM and MO&O ). 849 See infra Section VI.D. 850 Application at 21. Federal Communications Commission FCC 16-59 121 separate charge for modems.851 Finally, we note that the transaction will have no effect on customers within CKarter’s cXrrent territory 247. The recently adopted Navigation Devices NPRM and MO&O seeks comment on various proposals GesiJneG to increase consXmers’ aEility to cKoose KoZ tKey access tKe mXlticKannel viGeo programming to which they subscribe, and to promote innovation in the display, selection, and use of this programing.852 Relevant to =oom’s complaints reJarGinJ CKarter’s caEle moGem EillinJ practices tKe Navigation Devices NPRM and MO&O seeNs comment on a proposal to revise tKe Commission’s rXles to require all MVPDs to state separately the charge for a leased navigation device, including a cable modem, on a sXEscriEer’s Eill anG to reGXce tKe cKarJes Ey tKat same amoXnt Ior sXEscriEers tKat proviGe tKeir own devices.853 In tKe event tKis rXle cKanJe is aGopteG tKe Commission IXrtKer asNs iI it sKoXlG ³impose a prohibition on cross-suEsiGi]ation oI Gevice cKarJes ZitK service Iees´854 We find that the ongoing navigation devices rulemaking proceeding is sufficient to protect the public interest with respect to New CKarter’s caEle moGem EillinJ anG marNetinJ practices anG accorGinJly Ze decline to adopt the conditions that Zoom requests related to modem billing practices. 855 4. Set-Top Boxes and Other Video Navigation Devices 248. In this section, we address concerns about potential harms resulting from the proposed transaction that relate to a loss of options for subscribers to access cable programming using retail set-top boxes and other video navigation devices 856 purchased from unaffiliated third-party vendors. As discussed further below, several participants in this proceeding argue that the transaction could reduce the number of such options available to New Charter subscribers absent conditions ensuring that the company continXes to enaEle its sXEscriEers’ Xse oI CaEleCARD-compatible navigation devices purchased from third-party manufacturers, retailers, and other vendors that are not affiliated with New Charter. We determine that the transaction is unlikely to result in fewer choices for subscribers if Charter fulfills its commitment to continue to purchase, distribute, and service CableCARDs, and we adopt this commitment as an enforceable condition, with certain modifications described below. 249. Fostering competition in the market for devices consumers use to access multichannel video programming is an important goal of the Commission. As discussed above, Section 629 of the CommXnications Act Girects tKe Commission to aGopt rXles tKat Zill ³assXre tKe commercial availaEility´ of devices that can access MVPD services, from manufacturers, retailers, and other vendors that are not affiliated with an MVPD.857 The Commission first adopted rules to implement Section 629 in 1998 and 851 See Charter Response to Information Request at 148; Residential Pricing and Packaging White Paper at 3-4. 852 Navigation Devices NPRM and MO&O at 2, para. 1 853 Id. at 42, para. 84. The NPRM proposes to revise 47 CFR § 76.1206. The rule as currently written applies the separate billing and anti-subsidization requirements to navigation devices subject to the provisions of 47 CFR § 76.923. Section 76.923, in turn, refers to the rate regulation of equipment and installation that is used to receive the basic service tier. The NPRM seeks comment on whether to expand the separate billing and anti-subsidization requirements to all MVPDs and to all navigation devices, including modems. Id. at 42-43, para. 84, 85. 854 Id. at 42, para. 85. 855 Cf. Applications filed by Qwest Communications International, Inc. and CenturyTel, Inc., Memorandum Opinion and Order, 26 FCC Rcd 4194, 4203-04, para. 18 (2011) (declining to impose conditions related to special access as they were better addressed in current rulemaking). 856 We use the term ³naviJation Gevice´ to reIer to KarGZare soItZare inclXGinJ applications  anG comEinations oI the two that consumers could use to access multichannel video programming and other services offered over multichannel video programming systems. See Navigation Devices NPRM and MO&O at 12-14, paras. 21-22. 857 47 U.S.C. § 549. Federal Communications Commission FCC 16-59 122 those rules require MVPDs to make available a conditional access element 858 separate from the basic naviJation or ³Kost´ Gevice to enaEle XnaIIiliateG entities to manXIactXre and market host devices while allowing MVPDs to protect their networks from harm or theft of service.859 The Commission also aGopteG a rXle commonly reIerreG to as tKe ³inteJration Ean´ ZKicK proKiEiteG 0V3Ds Irom GeployinJ navigation devices that perform both conditional access and other functions in a single integrated device to assure reliance by both cable operators and consumer electronics manufacturers on a common, separated security solution.860 The Commission later adopted standards that largely reflected the terms of a Memorandum of Understanding between cable operators and the consumer electronics industry to establish the technical details of the conditional access element, resulting in the creation of the CableCARD standard.861 A CableCARD is a security device that cable operators supply for insertion into a device. The consumer may purchase the device in the retail market or use a set-top box leased from the cable operator. A CableCARD identifies and authorizes the subscriber and subsequently decodes encrypted digital cable networks. In 2013, the D.C. Circuit in EchoStar vacated the two 2003 Commission Orders adopting the CableCARD standard as the method that all digital cable operators must use to implement the separation of security requirement for navigation devices. 862 The EchoStar decision did not, however, vacate or even address the CableCARD customer support rules that the Commission adopted in 2010.863 In 2014, Congress passed a law that eliminated the integration ban effective December 4, 2015.864 On February 18, 2016, the Commission adopted an order eliminating the reference to the integration ban from our rules, as Congress directed.865 250. Positions of the Parties. Some commenters argue that as a result of this transaction New CKarter’s increaseG scale ZoXlG Jive it Jreater control over consXmers’ viGeo eTXipment anG also tKe ability to raise costs for consumers while restricting competition, including competition from online video.866 Public Knowledge et al. argue that greater consumer harm would result if New Charter does not 858 A conditional access element is a piece of equipment that handles the security functions that allow a set-top box or television set to access subscription video services (e.g., decryption of scrambled content). Implementation of Section 304 of the Telecommunications Act of 1996; Commercial Availability of Navigation Devices; Compatibility Between Cable Systems and Consumer Electronics Equipment, Fourth Further Notice of Proposed Rulemaking, 25 FCC Rcd 4303, 4303, para. 2 & n.3 (2010). 859 Implementation of Section 304 of the Telecommunications Act of 1996; Commercial Availability of Navigation Devices, Report and Order, 13 FCC Rcd 14775 (1998). 860 Id. at 14803, para. 69. 861 Implementation of Section 304 of the Telecommunications Act of 1996; Commercial Availability of Navigation Devices; Compatibility Between Cable Systems and Consumer Electronics Equipment, Second Report and Order and Second Further Notice of Proposed Rulemaking, 18 FCC Rcd 20885 (2003) ( Second Plug and Play Order ), vacated by EchoStar Satellite L.L.C. v. FCC, 704 F.3d 992 (D.C. Cir. 2013). 862 EchoStar, 704 F.3d at 1000. 863 See 47 CFR § 76.1205(b). See also Navigation Devices NPRM and MO&O at 43-45, paras. 87-91 (seeking comment on the continued relevance of that rule in light of EchoStar ). 864 STELA Reauthorization Act of 2014, Pub. L. No. 113-200, § 106, 128 Stat. 2059, 2063-4 (STELAR). 865 Navigation Devices NPRM and MO&O at 45, para. 92. 866 Public Knowledge et al. Petition at 17; see also 3XElic .noZleGJe Reply at  arJXinJ tKat 1eZ CKarter’s increased scale would give it an increased ability to influence the consumer equipment and set-top box market); Letter from Gene Kimmelman, President and CEO, Public Knowledge, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Mar. 14, 2016) (Public Knowledge Mar. 14, 2016, Ex Parte Letter) (arguing that New CKarter’s control over its sXEscriEers’ set-top Eo[es ZoXlG alloZ it to restrict sXEscriEers’ access to online video); /etter Irom Daniel O’Connor Vice 3resiGent 3XElic 3olicy CompXter CommXnications InGXstry Association (CCIA), and John A. Howes, Jr., Legal Fellow, CCIA, to Marlene H. Dortch, Secretary, FCC, MB Docket Nos. 15- 149 and 15-64, at 1 (filed Feb. 11, 2016) (CCIA Ex Parte /etter arJXinJ tKat 1eZ CKarter’s increaseG marNet continXeG« Federal Communications Commission FCC 16-59 123 adequately support the existing CableCARD system. 867 According to Public Knowledge et al., although tKe CaEleCARD reJime Kas not IXlly acKieveG tKe Commission’s statXtory Joal oI IosterinJ a competitive retail market for set-top boxes and similar video equipment, the regime has had some success and has been a valuable technology for some consumers.868 Public Knowledge et al. state that the Commission should not approve the transaction unless New Charter (i) agrees to work cooperatively with the Commission to help implement a new, nationwide standard that would help achieve a competitive market Ior naviJation Gevices anG ii ³aJrees to IolloZ inGXstry Eest practices ZitK respect to CaEleCARD cXstomer anG tecKnical sXpport´869 251. TiVo Inc. (TiVo) and Hauppauge Computer Works, Inc., (Hauppauge) agree that New Charter must adequately support CableCARD devices. In particular, TiVo and Hauppauge each raise as a concern whether New Charter may be relieved of the obligation to provision new CableCARDs to subscribers, citing to a 2013 Media Bureau Order ( 2013 Waiver Order ) granting Charter a temporary waiver of the integration ban.870 Although the waiver has since expired, 871 it was subject to conditions that, among other things, reTXireG CKarter to ³continXe inGeIinitely to sXpport CaEleCARD Gevices anG comply ZitK tKe Commission’s CaEleCARD tecKnical rXles in  C)R ??   anG ´872 However, the 2013 Waiver Order stated that Charter would no longer be required to provision new CableCARDs to subscribers once a third-party Gevice compatiEle ZitK CKarter’s (Continued from previous page) power would increase its incentive and ability to act anticompetitively toward third-party devices that compete with its proprietary set-top boxes); Stop Mega Cable Coalition Feb. 9, 2016, Ex Parte Letter, Attach., 51 Ways Mega Cable Could Sabotage Competition at 2-3 (asserting that New Charter would have the incentive and ability to prevent third-party devices from accessing content through CableCARD or otherwise, and to refuse to authenticate TVE apps on third-party devices that also offer online video apps). 867 Public Knowledge et al. Petition at 17-18. 868 Id. at 17. 869 Id. at 18. Public Knowledge et al. do not identify specific industry best practices for CableCARD customer and technical support. 870 Letter from Henry Goldberg and Devendra T. Kumar, Counsel for TiVo, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Jan. 21, 2016) (TiVo Ex Parte Letter) (citing Charter Communications, Inc., Request for Waiver of Section 76.1204(a)(1) of the Commission’s Rules; Implementation of Section 304 of the Telecommunications Act of 1996; Commercial Availability of Navigation Devices, Memorandum Opinion and Order, 28 FCC Rcd 5212 (MB 2013) ( 2013 Waiver Order) JrantinJ ZitK conGitions CKarter’s reTXest Ior Zaiver of the set-top box integration ban)); Letter from Robert S. Schwartz, Counsel for Hauppauge, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-3 (filed Jan. 14, 2016) (Hauppauge Ex Parte Letter) (citing 2013 Waiver Order  7Ke %XreaX’s Gecision JrantinJ CKarter’s reTXest Ior a tZo-year waiver of the integration ban preceGeG 67(/AR’s enactment 7Ke Zaiver initially Zas set to e[pire on April   EXt Zas sXEseTXently extended through December 31, 2015, pursuant to STELAR. STELAR § 106(c); 2013 Waiver Order, 28 FCC Rcd at 5222, para. 14. 871 See supra note 870. The 2013 Waiver Order indicated that some of the waiver conditions would apply beyond the waiver period. 2013 Waiver Order, 28 FCC Rcd at 5218-20, para. 10 & nn.68, 75. 872 2013 Waiver Order, 28 FCC Rcd at 5218-19, para. 10. Section 76.640 was adopted by the Commission in the Second Plug and Play Order, which was vacated by the D.C. Circuit in the EchoStar decision. See supra note 861. The CableCARD consumer support rules set forth in Sections 76.1205 and 76.1602 were adopted by the Commission in the 2010 CableCARD Order, which was not at issue in EchoStar. Implementation of Section 304 of the Telecommunications Act of 1996 et al., Third Report and Order and Order on Reconsideration, 25 FCC Rcd 14657 (2010) ( 2010 CableCARD Order ). In the 2013 Waiver Order, the Bureau noted that Charter voluntarily agreed to continue compliance with these rules notwithstanding the EchoStar case. 2013 Waiver Order, 28 FCC Rcd at 5218-19, para. 10 & n.64. Federal Communications Commission FCC 16-59 124 downloadable security is available for purchase at retail.873 According to TiVo and Hauppauge, the waiver was granted to Charter in part because its footprint was widely dispersed and the least densely concentrated among the six largest cable operators. 874 Because the transaction would substantially increase the number of subscribers served by Charter, including in some of the most densely populated metropolitan areas, New Charter should not be relieved of CableCARD support and supply obligations, assert TiVo and Hauppauge.875 252. As a result of these circumstances, TiVo and Hauppauge argue that the following conditions are needed to ensure that consumers are able to choose competitive retail set-top boxes in areas served by New Charter: (i) New Charter must continue to provision new CableCARDs to subscribers until no new or existing subscriber has asked New Charter for a CableCARD for a new retail device for 24 consecutive months;876 (ii) New Charter must continue to abide by the terms and conditions of the 2013 Waiver Order, including the obligations to support CableCARDs indefinitely and comply with the CableCARD technical rules in Sections 76.640, 76.1205, and 76.1602 of tKe Commission’s rXles877 to cooperate in a timely manner with any third-party device manufacturer seeking to develop retail devices that will use any downloadable security system New Charter employs, and to offer the hardware, software, specifications, and codes necessary to implement the downloadable security system on an open, royalty-Iree Easis to tKe e[tent sXcK components are ZitKin CKarter’s riJKts to license;878 and (iii) New Charter must ensure that CableCARD devices are able to access all of the linear channels that comprise tKe sXEscriEer’s caEle pacNaJe at an eTXivalent service price879 253. NVIDIA Corporation (NVIDIA) and the Computer & Communications Industry Association (CCIA) request that the Commission impose conditions that relate to authentication of TVE applications on third-party devices.880 NVIDIA claims that Charter does not authenticate certain TVE 873 Pursuant to the terms of those conditions, as specified by the Bureau in the 2013 Waiver Order, Charter would have to submit a declaration to the Bureau, under penalty of perjury, at the point that it wishes to stop provisioning new CableCARDs to subscribers. That declaration would have to attest to and be accompanied by documented evidence demonstrating that (1) a local or online seller has made available for retail purchase, to subscribers tKroXJKoXt CKarter’s entire Iootprint a Gevice Xtili]inJ CKarter’s GoZnloaGaEle secXrity; anG  sXcK a Gevice is available to all Charter subscribers at prices comparable to those charged for retail CableCARD devices. 2013 Waiver Order, 28 FCC Rcd at 5218-20, para. 10 & n.65. To date, Charter has not submitted such a declaration. 874 2013 Waiver Order, 28 FCC Rcd at 5218, para. 9; TiVo Ex Parte Letter at 2; Hauppauge Ex Parte Letter at 2-3. 875 TiVo Ex Parte Letter at 2; Hauppauge Ex Parte Letter at 2-3. As noted above, the 2013 Waiver Order stated that CKarter ³mXst continXe inGeIinitely to sXpport CaEleCARD Gevices anG comply ZitK tKe Commission’s CaEleCARD tecKnical rXles in  C)R ??   anG ´ EXt tKat CKarter ZoXlG no lonJer Ee required to provision new CableCARDs to subscribers once a third- party Gevice compatiEle ZitK CKarter’s downloadable security is available for purchase at retail. See supra notes 872-873 and accompanying text. 876 TiVo Ex Parte Letter at 2; Hauppauge Ex Parte Letter at 3. Alternatively, Hauppauge proposes that the condition require New Charter to continue supplying CableCARDs to subscribers for 10 years. Hauppauge Ex Parte Letter at 3. 877 TiVo Ex Parte Letter at 2; Hauppauge Ex Parte Letter at 3. 878 TiVo Ex Parte Letter at 2. 879 TiVo Ex Parte Letter at 2; Hauppauge Ex Parte Letter at 3. 880 Letter from Markham C. Erickson, Counsel for NVIDIA, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Feb. 17, 2016) (NVIDIA Feb. 17, 2016, Ex Parte Letter); CCIA Ex Parte; Letter from Markham C. Erickson, Counsel for NVIDIA, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Jan. 20, 2016) (NVIDIA Jan. 20, 2016, Ex Parte Letter); see also Public Knowledge Mar. 14, 2016, Ex Parte Letter at 2 (noting 1VIDIA’s claims tKat CKarter is reIXsinJ to aXtKenticate TVE apps on third-party devices and arguing that any potential conditions must address this alleged harm). Federal Communications Commission FCC 16-59 125 apps on Gevices tKat rXn tKe AnGroiG 7V operatinJ system sXcK as 1VIDIA’s 6HI(/D AnGroiG 7V Console (SHIELD TV), but that Charter authenticates these apps on other devices that use different operatinJ systems sXcK as 1VIDIA’s 6HI(/D taElet Gevice or Apple’s i3aG881 NVIDIA and CCIA assert that there is no technical reason that would prevent Charter from authenticating these apps on SHIELD TV, because other MVPDs authenticate these apps on SHIELD TV.882 NVIDIA and CCIA note that Time Warner Cable and Bright House authenticate HBO Go on SHIELD TV and argue that this demonstrates the two companies are more accommodating of third-party devices.883 NVIDIA and CCIA are concerneG tKat iI tKe transaction is approveG 1eZ CKarter miJKt GiscontinXe 7ime :arner CaEle’s policies toward third-party manufacturers.884 NVIDIA and CCIA request that the Commission impose conditions that would prohibit New Charter from restricting, degrading, or otherwise interfering with the use of SHIELD TV and other lawful, non-harmful devices.885 254. The Applicants argue that there is no basis for concern that New Charter would fail to supply and support CableCARDs.886 The Applicants state that Charter alone has over five million set-top boxes in circulation that utilize CableCARDs and that it would acquire millions more as a result of the transaction.887 The Applicants claim that millions of New Charter customers would be unable to access the company’s caEle viGeo service iI 1eZ CKarter Zere to GiscontinXe proviGinJ anG servicinJ CaEleCARDs XseG in 1eZ CKarter’s oZn Gevices anG Gevices tKat sXEscriEers pXrcKase Irom tKirG parties.888 Therefore, the Applicants state, it would Ee in 1eZ CKarter’s interest to ensure the proper functioning of CableCARD devices for the foreseeable future.889 255. With regard to TVE authentication, the Applicants state that NVIDIA incorrectly claims that Charter has blocked access to TVE apps in order to competitively disadvantage SHIELD TV.890 Time Warner Cable states that NVIDIA appears to misapprehend the process that determines MVPD sXEscriEers’ access to proJramminJ via 7V( apps.891 According to Time Warner Cable, a programming 881 NVIDIA Feb. 17, 2016, Ex Parte Letter at 1-2; NVIDIA Jan. 20, 2016, Ex Parte Letter at 1- 1VIDIA’s SHIELD tablet device runs a version of the Android operating system that is designed for mobile devices. NVIDIA Jan. 20, 2016, Ex Parte Letter at 9. According to NVIDIA, Charter has refused to authenticate the following TVE apps on Android TV devices: HBO GO Android TV, Showtime Anytime, FXNOW, Fox Sports Go, Fox NOW, HGTV Watch, Watch Food Network, Watch Travel Channel, and STARZ Play. NVIDIA Feb. 17, 2016, Ex Parte Letter at 1-2; NVIDIA Jan. 20, 2016, Ex Parte Letter at 1-4. 882 NVIDIA Feb. 17, 2016, Ex Parte Letter at 2-3; CCIA Ex Parte Letter at 3-4; NVIDIA Jan. 20, 2016, Ex Parte Letter at 4-9. 883 NVIDIA Jan. 20, 2016, Ex Parte Letter at 7 n.12; CCIA Ex Parte Letter at 2-4. 884 NVIDIA Jan. 20, 2016, Ex Parte Letter at 7 n.12; CCIA Ex Parte Letter at 2-4. 885 NVIDIA Feb. 17, 2016, Ex Parte Letter at 4; CCIA Ex Parte Letter at 2-4; NVIDIA Jan. 20, 2016, Ex Parte Letter at 10. CCIA also asserts that, to the extent that cable companies make downloadable apps available to be used on third-party devices, any non-KarmIXl Gevice tKat CKarter’s cXstomers own should be allowed to access those apps. CCIA Ex Parte Letter at 4. 886 Charter Feb. 9, 2016, Ex Parte Letter at 2. 887 Id. 888 Id. 889 Id. 890 Charter Feb. 9, 2016, Ex Parte Letter at 3; Letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Feb. 11, 2016) (Time Warner Cable Feb. 11, 2016, Ex Parte ). 891 Time Warner Cable Feb. 11, 2016, Ex Parte Letter. Federal Communications Commission FCC 16-59 126 provider must grant the MVPD rights to access tKe proJrammer’s content via its 7V( app.892 For example, the Time Warner Cable states, where Time Warner Cable has been granted the contractual right to GistriEXte content via a proJrammer’s 7V( app 7ime :arner CaEle sKoXlG Ee listeG on tKe menX oI participating MVPDs on any device that is compatible with the app.893 By contrast, the Time Warner Cable states, if it Kas not Eeen JranteG tKe leJal riJKt to aXtKenticate its sXEscriEers’ access via tKe proJrammer’s 7V( app 7ime :arner CaEle ZoXlG not Ee listed as a participating MVPD.894 256. In addition, the Charter notes that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .895 However, Charter claims that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .896 The Applicants assert that contrary to the claims of NVIDIA and CCIA, CKarter anG 7ime :arner CaEle Go not ³ElocN´ access to 7V( apps897 The Applicants state that opponents to the Comcast-Time Warner Cable transaction praised Time Warner CaEle’s leaGersKip in collaborating with programmers and third-party device developers on app development, TVE authentication, and related initiatives.898 The Applicants represent that New Charter would follow that path upon completion of the transaction and that it would seek to offer video programming to its customers anywhere, anytime, and anyplace in order to provide the highest value service to them.899 257. In response 3XElic .noZleGJe states tKat ZKile CKarter’s plan to maNe its viGeo content available on third-party platforms is a more open model than other major MVPDs pursue, this plan does not IXlly alleviate concerns reJarGinJ 1eZ CKarter’s increaseG aEility to inIlXence tKe marNet Ior consumer video equipment. 900 Public Knowledge states that Charter subscribers should be able to use the device of their choice to access the video programming they have paid for, without having to rent equipment from Charter, and that third-party device manufacturers should be able to present video 892 Time Warner Cable Feb. 11, 2016, Ex Parte Letter; see also Charter Feb. 9, 2016, Ex Parte Letter at 3 ³>3@roJrammers tKat create >a 7V(@ app Zill approacK CKarter to implement an aXtKentication proceGXre anG iGentiIy tKe Gevices on ZKicK tKey ZoXlG liNe tKe app to rXn´  893 Time Warner Cable Feb. 11, 2016, Ex Parte Letter. 894 Id. 895 Charter Feb. 9, 2016, Ex Parte Letter at 3. 896 Id. 897 Time Warner Cable Feb. 11, 2016, Ex Parte Letter; Charter Feb. 9, 2016, Ex Parte Letter at 3. Charter states that it has worked diligently to provide its subscribers access to content over various platforms (e.g., iOS, Android) as well as on in-Kome Gevices sXcK as RoNX tKroXJK CKarter’s app CKarter )eE   Ex Parte Letter at 3. 898 Application at 48. 899 Id.; Katz Reply Decl. at para. 112. 900 Public Knowledge Reply at 2, 11-12. Specifically, Charter has indicated that its Spectrum Guide is now available as an app on Roku devices and that it intends to place the app on other third-party devices that meet reasonable technical and security specifications. According to Public Knowledge, this is more than some other video providers have done. Id. at 11-12 (citing Opposition at 72-73). See also CCIA Ex Parte /etter at  ³%ecaXse of competitive limitations in the MVPD market, cable companies like Charter can selectively make their apps available to a limited array of devices that pose little competitive threat to their own [customer premises equipment] ZKile at tKe same time IeiJninJ commitments to cXltivatinJ a tKrivinJ ecosystem´  Federal Communications Commission FCC 16-59 127 content via differentiated user interfaces and offer unique features. 901 Public Knowledge urges the Commission to consider a commitment from Charter to provide access to its video programming in a standards-based manner on third-party devices.902 258. Discussion. We agree with TiVo, Hauppauge, and others that subscribers should retain options for accessing cable video service on retail set-top boxes and other navigation devices purchased from vendors that are not affiliated with an MVPD. We find, however, that for New Charter subscribers the transaction is unlikely to result in fewer alternatives to leasing a set-top box from New Charter if New Charter continues to support retail CableCARD devices and comply with the CableCARD technical rules in Sections 76.1205 and 76.1602 of the Commission’s rXles.903 Although cable operators widely employ CableCARDs in their set-top Eo[es toGay tKe Commission’s rXles no lonJer compel tKem to Go so Despite this, however, Charter has stated that New Charter would continue to purchase, distribute, and service CableCARDs for years to come.904 Similarly, CableLabs has stated publicly that cable operators would continue to support retail CableCARD devices.905 By contrast, the record is devoid of a similar commitment from Time Warner Cable or Bright House. Assuming that New Charter fulfills its commitment in this proceeding to continue purchasing, distributing, and servicing CableCARDs, we believe the transaction will increase the likelihood that Time Warner Cable and Bright House subscribers will retain the option to purchase and use third-party CableCARD-enabled devices as an alternative to leasing a set-top box from New Charter. 259. Because cable operators are not required to use the CableCARD standard to support the separation of security requirement, former Time Warner Cable subscribers who become New Charter subscribers potentially could be left without any alternative to leasing equipment from New Charter. If New Charter implements a solution other than CableCARD for former Time Warner Cable subscribers that complies with the separated security requirement, it could abandon support of CableCARD, to the detriment of its subscribers. The same is true with respect to Bright House and its former subscribers. However, as mentioned above, Charter has stated that it would continue to purchase, distribute, and 901 Public Knowledge Reply at 11-12; see also CCIA Ex Parte /etter at  ³7o tKe e[tent tKat caEle companies maNe downloadable apps available to be used on third-party devices, any non-KarmIXl Gevice tKat CKarter’s cXstomers oZn sKoXlG Ee alloZeG to access tKose apps´ . 902 Public Knowledge Reply at 12; Letter from John Bergmayer, Senior Staff Attorney, Public Knowledge, to Marlene H. Dortch, Secretary, FCC, MB Docket Nos. 15-149 and 15-64 et al. (filed Feb. 2, 2016). 903 We believe that adherence to these standards is particularly important for New Charter because its use of GoZnloaGaEle secXrity to meet 6ection  a  ’s separation oI secXrity reTXirement coXlG leaG 1eZ CKarter to abandon CableCARD support at a time when CableCARD is still a method that retail navigation devices rely on to decrypt cable service. As stated above, the CableCARD consumer support rules set forth in Sections 76.1205 and 76.1602 were adopted by the Commission in the 2010 CableCARD Order, which was not at issue in EchoStar. Charter previously committed to continue compliance with the CableCARD consumer support rules set forth in Sections 76.1205 and 76.1602, notwithstanding the EchoStar decision. See supra note 872. The Navigation Devices NPRM and MO&O seeks comment on whether the consumer support rules in Section 76.1205(b) continue to serve a useful purpose and should be retained following EchoStar notinJ tKat tKe coXrt’s Gecision did not vacate or even address the consumer support rules for cable operators that choose to continue to rely on the CableCARD standard in order to comply with the separated security requirement. 904 Charter Feb. 9, 2016, Ex Parte Letter at 2. 905 Ralph Brown, Chief Technology Officer, CableLabs, Downloadable Security and the Future of CableCARDs, http://www.cablelabs.com/downloadable-security-and-the-future-of-cablecards/ (last visited Feb. 23, 2016) claiminJ tKat caEle operators ³Kave all committeG to sXpportinJ retail CaEleCARD Gevices Ior tKe IoreseeaEle IXtXre´  Federal Communications Commission FCC 16-59 128 service CableCARDs in both proprietary and retail devices, even as it moves toward deployment of Worldbox, which would utilize a downloadable security solution. 906 260. Pending the development and implementation of new standards that would assure a commercial market for competitive navigation devices, we believe it is important that New Charter honor its commitment to continue support of CableCARD so that subscribers continue to have alternatives to leasing equipment from their cable provider. To ensure that New Charter fulfills this commitment, 907 and to provide greater confidence that Time Warner Cable and Bright House subscribers can continue to use retail CaEleCARD Gevices to access caEle viGeo proJramminJ Ze aGopt CKarter’s commitment to continue purchasing, distributing, and servicing CableCARDs as a condition of our approval of this transaction, with certain clarifications that will improve our ability to enforce these conditions. 261. Accordingly, we require that, as a condition of our approval of the transaction, New Charter must continue to provision CableCARDs to any new or existing subscribers that request CableCARDs for use in a third-party device. In addition, New Charter must continue to support CableCARD devices908 and comply with the CableCARD technical rules in Sections 76.1205 and 76.1602 oI tKe Commission’s rXles, including continued support of CableCARD self-installation,909 M-Card,910 switched digital video solutions,911 uniform CableCARD fees,912 and the bring-your-own-box discount 913 906 See supra note 904 and accompanying text. 907 As stateG aEove CKarter’s Xse oI GoZnloaGaEle secXrity to meet tKe separation oI secXrity reTXirement coXlG leaG New Charter to abandon CableCARD support at a time when CableCARD is still a method that retail navigation devices rely on to decrypt cable service. See supra note 903. We note that New Charter intends to deploy :orlGEo[ tKroXJKoXt all oI 1eZ CKarter’s Iootprint [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Charter, White Paper, Additional Evidence Regarding Claimed Benefits of the Transaction, at 16 (Claimed Benefits White Paper), transmitted by John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Dec. 4, 2015). Because Worldbox uses downloadable security instead of CableCARDs, New Charter presumably will no longer utilize CableCARDs to deliver video programming to proprietary set-top Eo[es in sXEscriEers’ Komes once it IinisKes replacinJ its proprietary CableCARD-enabled devices with Worldbox. 908 %y ³sXpport´ Ze mean tKat as part oI tKis conGition 1eZ CKarter mXst continXe to simXlcrypt its linear 4A0- based video service so that third party CableCARD devices remain operable pursuant to: (i) SCTE 40 2011: ³DiJital CaEle 1etZorN InterIace 6tanGarG;´ ii A16I6C7(   ³6ervice InIormation DelivereG OXt-of- %anG Ior DiJital CaEle 7elevision;´ iii A16I6C7(   ³DiJital ViGeo 6ervice 0Xltiple[ anG 7ransport System Standard for Cable Television; (iv) A76C A ³3roJram and System Information Protocol for 7errestrial %roaGcast anG CaEle;´ v 6C7(   ³Host-3OD InterIace 6tanGarG;´ anG vi ANSI/SCTE 41  ³3OD Copy 3rotection 6ystem´ 7o ensXre tKat sXEscriEers are aEle to attacK retail Gevices tKey oZn toheir leased set-top boxes and access their subscription services through those third-party devices, we also require that New Charter continue to include both (i) a DVI or HDMI interface, and (ii) a connection capable of delivering recordable high-definition video and closed captioning data in an industry standard format on all high-definition set- top boxes, except unidirectional set-top boxes without recording functionality, acquired by New Charter for distribution to New Charter subscribers. New Charter must also continue to ensure that such high-definition set-top boxes comply with an open industry standard that provides for audiovisual communications including service discovery, video transport, and remote control command pass-through standards for home networking. 909 See 47 CFR § 76.1205(b)(1). 910 See 47 CFR § 76.1205(b)(2) (requiring MVPDs to provide multi-stream CableCARDs unless subscribers request a single stream CableCARD.). 911 See 47 CFR § 76.1205(b)(4) (requiring MVPDs to provide CableCARD-compatible navigation devices that can tune to switched digital channels.). 912 See 47 CFR § 76.1205(b)(5)(ii)(B)( 1 ). Charter currently offers its subscribers CableCARDs for lease with a fee of $2 per month. Letter from Neal M. Goldberg, Vice President and General Counsel, National Cable & continXeG« Federal Communications Commission FCC 16-59 129 requirement. 914 New Charter must continue compliance with these requirements for seven years after the transaction’s closinJ Gate.915 We find that these conditions will impose minimal burdens, if any, on New Charter and that any potential burdens are outweighed by the substantial benefits for New Charter subscribers. Although the EchoStar decision eliminated the requirement that cable operators use the CableCARD standard to support the separation of security requirement, nearly all cable operators continue to rely on that standard in order to comply with the separated security requirement, which remains in effect. Moreover, as noted above, NCTA and others have stated publicly that cable operators would continue to support third-party CableCARD devices,916 and in this proceeding Charter has stated that New Charter would continue to purchase, distribute, and service CableCARDs for years to come.917 Thus, our decision to adopt conditions requiring New Charter to continue supporting the use of CableCARD devices requires the company to fulfill a commitment that it has already made and that other cable operators have made as well. 262. We decline to impose conditions relating to the availability of MVPD apps on third-party devices and the development of new standards to promote the competitive availability of navigation devices in furtherance of Section 629 of the Act, as suggested by CCIA, Public Knowledge, and others.918 We find that these petitioners raise broader regulatory questions that are more appropriately addressed in (Continued from previous page) Telecommunications Association, to Marlene H. Dortch, Secretary, FCC, CS Docket No. 97-80, Attach., Charter Communications FCC CableCARD Reporting, October 1, 2015 to December 31, 2015, at 1 (filed Jan. 29, 2016 ). 913 See 47 CFR § 76.1602(b)(7), (8). 914 1eZ CKarter’s continXeG compliance ZitK tKese rXles is important to ensXre tKat its cXstomers can continXe tKeir use of retail CableCARD equipment. We note that, pursuant to the 2013 Waiver Order, Charter has already committed to continue compliance with these rules for an unspecified time period notwithstanding the EchoStar decision. 2013 Waiver Order, 28 FCC Rcd at 5218-19, para. 10 & n.64. In addition, the Applicants themselves have stated that New Charter would continue to purchase, distribute, and service CableCARDs for years to come. Charter Feb. 9, 2016, Ex Parte Letter at 2. The Navigation Devices NPRM and MO&O seeks comment on whether the CableCARD consumer support rules in Section 76.1205(b) continue to serve a useful purpose and should be retained following EchoStar. Navigation Devices NPRM and MO&O at 43-45, paras. 87-91. Should the Commission eliminate or modify the consumer support rules set forth in Section 76.1205(b), New Charter will be required to comply only with those rules the Commission retains. However, New Charter must continue compliance with Sections 76.640 and 76.1602 of our rules as stated herein. Once the Commission adopts new rules implementing Section 629 of the Act, New Charter will be required to comply with those rules as well. See generally Navigation Devices NPRM and MO&O. 915 Notwithstanding the seven-year term of this condition, New Charter may submit a request to the Media Bureau to modify or abrogate the requirements to provision CableCARDs to subscribers, support CableCARD devices, and comply ZitK tKe CaEleCARD tecKnical rXles in 6ections  anG  oI tKe Commission’s rXles ZKen 1eZ Charter subscribers are able to purchase a third-party retail device that can access 1eZ CKarter’s viGeo programming pursuant to new rules, if any, that the Commission adopts to implement Section 629 of the Act. New Charter shall, in such request, submit to the Media Bureau a declaration, under penalty of perjury, attesting to and accompanied by documentation demonstrating that local or online sellers have made available for retail purchase, to sXEscriEers tKroXJKoXt 1eZ CKarter’s Iootprint a Gevice tKat can access 1eZ CKarter’s viGeo proJramminJ pursuant to any new rules that the Commission has adopted to implement Section 629 of the Act. 916 See supra note 905 and accompanying text; see also Jeff Baumgartner, Multichannel News, Comcast, TiVo Working On Non-CableCARD Approach to Support Comcast’s Linear TV & VOD Mix on TiVo Boxes Sans Security Modules (July 15, 2014), http://www.multichannel.com/news/tv-apps/comcast-tivo-working-non-cablecard- approach/375989 ³In tKe >)CC IilinJ@ Comcast saiG it KaG liNeZise committeG to continXe proviGinJ anG sXpportinJ CaEleCARDs in retail Gevices notZitKstanGinJ tKe DC CircXit’s EchoStar Gecision´  917 See supra note 904. 918 See CCIA Ex Parte Letter at 4; Public Knowledge et al. Petition at 17-18; Public Knowledge Reply at 11-12. Federal Communications Commission FCC 16-59 130 the rulemaking context. As discussed above, earlier this year the Commission released a Notice of Proposed Rulemaking proposing new rules that are intended to assure a competitive market for equipment that can access multichannel video programming.919 Thus, we expect that many of the regulatory policy issues raised by Public Knowledge and others will likely be addressed in the ongoing rulemaking proceeding.920 Although we conclude that these issues are better addressed in a broader, industry-wide conte[t Ze Eelieve tKat in tKe meantime 1eZ CKarter’s continXeG sXpport oI CaEleCARD Gevices Zill help ensure that subscribers continue to have alternatives to leasing a set-top box from New Charter. 263. We also decline to impose conditions to address concerns expressed in the record about TVE customer authentication on certain devices. NVIDIA and CCIA claim that Charter has refused to authenticate TVE apps on SHIELD TV and other Android TV devices because some subscribers might prefer to use those devices rather than leasing a set-top box from Charter. 921 However, none of the programmers referenced by NVIDIA have individually raised any authentication concerns in the record,922 and neither NVIDIA nor CCIA provide evidence that the programmers at issue requested authentication from Charter or were denied authentication. As the Applicants note, authenticating programmer apps requires t Ke proJrammer’s involvement923 Based on the comments in the record and our separate review of the materials submitted by the Applicants, we find that there is insufficient evidence that Charter refused to authenticate TVE apps on SHIELD TV or other Android TV devices EecaXse tKey compete ZitK CKarter’s Gevices924 Therefore, we find that the transaction is unlikely to result in a public interest harm that warrants a condition relating to TVE customer authentication. 5. Supply, Quality, and Diversity of Video Programming 264. In this section, we consider whether the proposed transaction would increase the Applicants’ incentive or aEility to enJaJe in EeKavior tKat is liNely to reGXce tKe sXpply TXality or diversity of video programming. After considering factors affecting the likelihood of competitive harms to proJrammers Ze e[amine KoZ 1eZ CKarter’s increaseG si]e may conIer Jreater leveraJe ZKen negotiating with programmers and what effects that might have on consumer welfare. We also address concerns raised by programmers, including diverse and independent programmers and public, educational, and governmental (PEG) channels. We conclude that the transaction does not present transaction-specific harms that necessitate the adoption of conditions specifically related to program carriage, program diversity, or PEG channels. a. Carriage Decisions for Diverse, Independent Programmers 265. Background. In order to prevent MVPDs from taking undue advantage of programming vendors, Congress enacted Section 616 of the Act, which Girects tKe Commission to ³estaElisK reJXlations 919 See generally Navigation Devices NPRM and MO&O. 920 See, e.g., id. at 10-11, paras. 16-19 (seeking comment on the process that an MVPD uses to decide whether to allow a retail device to access its services, including whether retail navigation device developers have asked MVPDs to develop applications for their services and been denied). 921 See NVIDIA Jan. 20, 2016, Ex Parte Letter at 9-10 (claiming that Charter blocks certain TVE apps on SHIELD TV, including HBO Go, Fox Now, Fox Sports Go, Home & Garden TV, Food Network, Watch Travel Channel, and STARZ Play); CCIA Ex Parte Letter at 1-4; NVIDIA Feb. 17, 2016, Ex Parte Letter at 1-2; NVIDIA Jan. 20, 2016, Ex Parte Letter at 4-10; see also Public Knowledge Mar. 14, 2016, Ex Parte Letter at 2 (noting NVID IA’s claim tKat Charter refuses to authenticate TVE apps on Android TV devices). 922 See generally Time Warner Inc. Jan. 13, 2016, Ex Parte Letter; Starz Response. 923 Charter Feb. 9, 2016, Ex Parte Letter at 3; Time Warner Cable Feb. 11, 2016, Ex Parte Letter; see also NVIDIA Jan. 20, 2016, Ex Parte /etter at  ³8se oI tKe 7V( app typically is JoverneG Ey contract EetZeen tKe caEle television proJrammer anG tKe 0V3D´  924 See 47 U.S.C. § 309(d). Federal Communications Commission FCC 16-59 131 governing program carriage agreements and related practices between cable operators or other [MVPDs] anG viGeo proJramminJ venGors´925 Accordingly, the Commission established rules governing program carriage and adopted procedures for the review of program carriage complaints as well as appropriate penalties and remedies.926 As reTXireG XnGer tKe statXte tKe Commission’s proJram carriaJe rXles specifically prohibit a cable operator or other MVPD from engaging in three types of conduct: (1) reTXirinJ ³a Iinancial interest in any proJram service as a conGition Ior carriaJe´ of such service;927 (2) coercing a programmer to grant exclusive carriage rights or retaliating against a programmer for refusing to grant such rights;928 and (3) enJaJinJ in conGXct tKat XnreasonaEly restrains ³tKe aEility oI an unaffiliated programming vendor to compete Iairly´ Ey GiscriminatinJ aJainst sXcK venGor ³on tKe Easis of affiliation or non-aIIiliation´929 Notwithstanding our program carriage rules, the Commission has held that certain transactions present additional risks that the rules do not sufficiently alleviate and has imposed additional conditions on the merging parties involved in those transactions.930 266. OXr pXElic interest evalXation necessarily encompasses tKe ³EroaG aims oI tKe CommXnications Act´ ZKicK inclXGe amonJ otKer tKinJs a Geeply rooted policy of promoting a diversity of information sources and services to the public.931 Diversity and localism are longstanding core Commission policy objectives. 932 The overlapping diversity and localism objectives seek to ensure the dissemination of local proJramminJ ³Irom as many GiIIerent soXrces anG ZitK as many Iacets anG colors as possiEle´933 The discussion below addresses the issues raised by commenters concerning the impact of the proposed transaction on diverse, independent video programmers. 267. Positions of the Parties. :*A: asserts tKat 1eZ CKarter’s increaseG scale would enhance its power to deny carriage to programming competitors.934 WGAW further claims that New Charter could advantage Discovery networks by placing unaffiliated channels in less desirable positions within basic tiers.935 The Parents Television Council states that Charter, unlike Time Warner Cable, has 925 47 U.S.C. § 536. Section 616 was added to the Act by the 1992 Cable Act. 926 See Implementation of Sections 12 and 19 of the Cable Television Consumer Protection and Competition Act of 1992; Development of Competition and Diversity in Video Programming Distribution and Carriage, Second Report and Order, 9 FCC Rcd 2642 (1993); see also Implementation of the Cable Television Consumer Protection And Competition Act of 1992; Development of Competition and Diversity in Video Programming Distribution and Carriage, Memorandum Opinion and Order, 9 FCC Rcd 4415 (1994). 7Ke Commission’s proJram carriaJe rXles are set forth at 47 CFR §§ 76.1300-76.1302. 927 47 CFR § 76.1301(a); see also 47 U.S.C. § 536(a)(1). 928 47 CFR § 76.1301(b); see also 47 U.S.C. § 536(a)(2). 929 47 CFR § 76.1301(c); see also 47 U.S.C. § 536(a)(3). 930 See, e.g., Comcast-NBCU Order, 26 FCC Rcd at 4287-88, paras. 121-22. 931 See AT&T-DIRECTV Order, 30 FCC Rcd at 9140, para. 19; Comcast-NBCU Order, 26 FCC Rcd at 4248, para. 23; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20575, para. 26. 932 See Comcast-NBCU Order, 26 FCC Rcd at 4316, 4320, paras. 187, 197 (citing 2002 Biennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, Report and Order and Notice of Proposed Rulemaking, 18 FCC Rcd 13620, 13627, para. 17 (2003); Broadcast Localism, Notice of Inquiry, 19 FCC Rcd 12425 (2004)). 933 See Comcast-NBCU Order, 26 FCC Rcd at 4320, para. 197 (citing Associated Press v. United States, 326 U.S. 1, 28 (1945)). 934 WGAW Petition at 16; see also NAB Reply at 4-5. 935 WGAW Petition at 16-17; WGAW Reply at 12; see also Public Knowledge et al. Petition at 16. Several inGepenGent proJrammers aJree tKat 1eZ CKarter’s increaseG si]e may Ee Getrimental to Giverse inGepenGent continXeG« Federal Communications Commission FCC 16-59 132 supported cable subscribers having greater control over the programming they pay for and urges the Commission to consiGer ³reasonable conditions on the proposed merger that will . . . protect the ability of smaller, independent family-IrienGly proJrammers to serve tKe XniTXe neeGs oI parents anG Iamilies´936 268. Some independent programmers raised concerns that the proposed transaction would result in greater difficulty obtaining carriage or less favorable terms of carriage agreements with New Charter. Entravision Communications Corporation (Entravision) 937 claims that New Charter would control access to 15.5 percent of all MVPD subscribers in the top 20 Latino DMAs and be the dominant MVPD in six critical DMAs, including Los Angeles and three key New York boroughs, allowing it to exercise greater control over Latino programming. 938 This buying power, Entravision claims, would result in lower programming prices paid for content, including Latino networks, ultimately causing less content production and decreased quality and variety of Latino programming. 939 Aspire-UP state that, while Time Warner Cable and Bright House are two of their largest and most committed distributors, Charter does not carry their programing.940 Several commenters criticized tKe Applicants’ commitment to Giversity941 Accordingly, they ask for conditions requiring New Charter to: (1) commit to conditions maintaining the programming diversity of independent channels on the Time Warner Cable and Bright House systems for a limited time period, e.g., five years;942 (2) negotiate in good faith with the independent channels to (Continued from previous page) proJrammers tKat Kave limiteG or no carriaJe on 1eZ CKarter’s system See Entravision Petition at i; Aspire-UP Comments at 3- Commenters’ claims tKat 1eZ CKarter’s increaseG scale ZoXlG alloZ it to neJotiate payments to unaffiliated programmers below market rates or demand contract provisions, see infra Section V.G.5 , that prevent or restrict licensing to OVDs are discussed supra at Section V.F. See, e.g., WGAW Petition at 17. 936 Letter from Timothy F. Winter, President, Parents Television Council, to FCC, MB Docket No. 15-149, at 2, 5-6 (filed Nov. 2, 2015) (Parents Television Nov. 2, 2015, Ex Parte Letter). 937 Entravision filed a request to withdraw its Petition to Deny and its Reply. Entravision Request for Withdrawal of Petition to Deny at 1 (filed Jan. 29, 2016) (Entravision Withdrawal Request). However, in accordance with longstanGinJ practice Ze Zill consiGer tKe merits oI (ntravision’s 3etition anG Reply to ensXre tKe pXElic interest Zill Ee serveG Ey tKe Jrant oI tKis Application notZitKstanGinJ (ntravision’s reTXest to ZitKGraZ See Stockholders of CBS Inc. (Transferor) and Westinghouse Elec. Corp. (Transferee), Memorandum Opinion and Order, 11 FCC RcG    paras    ³consistent ZitK oXr preceGent Ze Zill consiGer tKe merits oI >tKe petitioner’s@ alleJations aJainst tKe applications to insXre tKat the public interest will be served by grant of these applications´ citing Application of Booth American Co. for Renewal of License for Stations WJVA and WRBR(FM), South Bend, Indiana, File Nos. BR-1877 et al., Memorandum Opinion and Order, 58 F.C.C.2d 553, 554 (1976)); see also, e.g., KEGG Communications, Inc., Order to Show Cause Hearing Designation Order and Notice of Opportunity for Hearing, 20 FCC Rcd 5768, 5768 n.1 (2005). 938 Entravision Petition at 10-11. 939 Entravision Petition at 2-3, 9-12; Entravision Reply at 2-7; see also generally Kwoka Analysis; Entravision Reply, Attach., Economic Analysis of the Effects of the Proposed Merger of Charter Communications, Time Warner Cable, and Advance/Newhouse Partnership on Program Providers Serving the Latino Market (Kwoka Reply). For a more GetaileG analysis oI (ntravision’s arJXments see infra Section V.G.5.b(ii) . 940 Aspire-UP Comments at 3-4; see also Letter from Reta Peery, EVP and General Counsel, UP Entertainment, LLC, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (emphasizing the importance of continXeG carriaJe in 7ime :arner CaEle’s 1eZ inJ@ local stations’ competitive stanGinJ anG tKeir aEility to oIIer consXmers a viaEle Iree television vieZinJ option´1097 Similarly, in its Petition to Deny, Entravision asks the Commission to hold its review in abeyance until the completion of its study on the Hispanic television market, ongoing since October 2013.1098 Entravision argues that given the dramatic growth of the Latino television market, the Commission should conclude the study and apply its findings to this and future merger review proceedings.1099 314. Discussion. 1A%’s complaints regarding the Commission’s timely review and modification of the broadcast ownership rules are more appropriately addressed in the quadrennial review proceedings.1100 Those alleged harms pre-date the filing of this Application and are not related to the transaction proposed therein. We therefore deny NAB’s petition.1101 Insofar as NAB is complaining, however, that this transaction²the proposed combination of Charter, Time Warner Cable and Bright House²would cause harm to its members, and to the public interest, that is a proper subject of our review, and we have discussed those alleged harms above.1102 Similarly, we have addressed the issues regarding Latino programming raised by Entravision above.1103 Insofar as Entravision asks us to apply the findings of the yet-unfinished study of the Hispanic television market to future transactions, that is an issue for those proceedings, not this one.1104 :e tKereIore Geny 1A%’s anG (ntravision’s reTXests to KolG our review of the transaction in abeyance. 1096 NAB Petition at 1. 1097 NAB Petition at 4-5, 13-14, 14-18. 1098 Entravision Petition at 5-6. See also Press Release, FCC, FCC Announces New Study Examining Hispanic Television Viewing as Part of Commitment to Encourage Broadcast Diversity (Oct. 24, 2013), https://apps.fcc.gov/ edocs public/attachmatch/DOC-323676A1.pdf. 1099 Entravision Petition at 5-6. 1100 See 2014 Quadrennial Regulatory Review, Further Notice of Proposed Rulemaking and Report and Order, 29 FCC Rcd 4371 (2014); 2010 Quadrennial Regulatory Review, Notice of Proposed Rulemaking, 26 FCC Rcd 17489 (2011); 2006 Quadrennial Regulatory Review, Report and Order and Order on Reconsideration, 23 FCC Rcd 2010 (2008), aff’d in part, vacated in part, remanded, Prometheus Radio Project v. FCC, 652 F.3d 431 (3d Cir. 2011). 1101 See supra Section III (stating that the Commission only addresses transaction-specific issues). See also Applications of Cellco Partnership d/b/a Verizon Wireless and Atlantis Holdings, Memorandum Opinion and Order and Declaratory Ruling, 23 FCC Rcd 17444, 17525, para. 180 (2008); Applications of AT&T Inc. and Centennial Communications Corp., Memorandum Opinion and Order, 24 FCC Rcd 13915, 13969, para. 133 (2009). 1102 See supra Section V.D.3 aGGressinJ 1A%’s concerns reJarGinJ tKe concentration oI viGeo proJramminJ in tKe competitive broadcast television market post-transaction). 1103 See supra Section V.G.5.b(ii) (stating that the Commission declines to define a separate Latino programming market in this transaction); see also supra Section V.G.5.a (discussing potential carriage discrimination for diverse programmers). 1104 Although Entravision has moved to withdraw its petition, we will still evaluate the merits of the petition. See Verizon Wireless-SpectrumCo Order, 27 FCC Rcd at 10708, para. 23; Stockholders of CBS Inc. (Transferor) and continXeG« Federal Communications Commission FCC 16-59 153 VI. ANALYSIS OF POTENTIAL BENEFITS 315. The Applicants claim the proposed transaction would benefit consumers by: (1) e[tenGinJ CKarter’s EroaGEanG-focused, highly pro-customer business model to millions of new customers; (2), deploying the best that each Applicant has to offer in broadband, video and voice technology; (3) delivering superior services at competitive prices; and (4) ensuring these services are at the cutting edge of innovation.1105 The Applicants predict that by the third year after closing, the transaction would generate annual operating cost savings of approximately $800 million per year, arising from programming cost savings and indirect overhead savings.1106 We discuss these claims below. A. Analytical Framework 316. In determining whether approval of a transaction is in the public interest, we evaluate whether the transaction is likely to produce public interest benefits. We apply several criteria in deciding whether each public interest benefit claimed by the Applicants is cognizable. First, each claimed benefit must be transaction-specific. That is, the claimed benefit must be likely to occur as a result of the transaction but unlikely to be realized by other practical means having less anticompetitive effect.1107 317. Second, each claimed benefit must be verifiable. Because much of the information relating to the potential benefits of a transaction is in the sole possession of the Applicants, they have the burden of providing sufficient evidence to support each claimed benefit to enable us to verify its likelihood and magnitude.1108 We will discount or dismiss speculative benefits that we cannot verify.1109 As the Commission explained in the EchoStar-DIRECTV HDO ³EeneIits tKat are to occXr only in tKe distant future may be discounted or dismissed because, among other things, predictions about the more distant future are inherently more speculative than predictions about events that are expected to occur closer to tKe present´1110 318. Third, we calculate the magnitude of benefits net of the cost of achieving them.1111 Fourth, benefits must flow through to consumers, and not inure solely to the benefit of the company.1112 (Continued from previous page) Westinghouse Elec. Corp. (Transferee), Memorandum Opinion and Order, 11 FCC Rcd 3733, 3739, 3741 paras. 8, 14 (1995) ( citing Application of Booth American Co. for Renewal of License for Stations WJVA and WRBR(FM) South Bend, Indiana, File Nos. BR-1877 et al., Memorandum Opinion and Order, 58 F.C.C.2d 553, 554 (1976). 1105 Application at 17. 1106 Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed July 10, 2015); see also Charter Response to Information Request at 267, 290. 1107 See AT&T-DIRECTV Order, 30 FCC Rcd at 9237, para. 273; Liberty Media-DIRECTV Order, 23 FCC Rcd at 3330, para. 140; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20630, para. 189. 1108 See AT&T-DIRECTV Order, 30 FCC Rcd at 9237, para. 274; Liberty Media-DIRECTV Order, 23 FCC Rcd at 3331, para. 140; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20630, para. 190 1109 See AT&T-DIRECTV Order, 30 FCC Rcd at 9237, para. 274; Liberty Media-DIRECTV Order, 23 FCC Rcd at 3331, para. 140; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20630, para. 190. 1110 EchoStar-DIRECTV HDO, 17 FCC Rcd at 20630-31, para. 190. See AT&T-DIRECTV Order, 30 FCC Rcd at 9237, para. 274. 1111 See AT&T-DIRECTV Order, 30 FCC Rcd at 9237, para. 275; Liberty Media-DIRECTV Order, 23 FCC Rcd at 3331, para. 140; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20630, para. 190. 1112 See AT&T-DIRECTV Order, 30 FCC Rcd at 9237, para. 275. Federal Communications Commission FCC 16-59 154 For example, we will more likely find marginal cost reductions to be cognizable than reductions in fixed cost because reductions in marginal cost are more likely to result in lower prices for consumers.1113 319. We apply a ³sliGinJ scale approacK´ to evalXatinJ EeneIit claims 8nGer tKis sliGinJ scale approach, where potential harms appear both substantial and likely, the Applicants’ Gemonstration of claimed benefits must show a higher degree of magnitude and likelihood than the Commission would otherwise demand. On the other hand, where potential harms appear less likely and less substantial, we will accept a lesser showing. 320. As discussed below, we recognize that the transaction offers certain benefits as a result of efficiencies associated with modest reductions in programming payments. This conclusion is supported by the economic analysis and documentary evidence discussed below. However, these reductions in programming payments constitute a public interest benefit only to the extent they are passed on to consumers in the form of lower prices. We attribute minimal, and in some instances, no weight to the other public interest benefits claimed by the Applicants. 6ome oI tKe Applicants’ aGGitional claimeG benefits such as residential broadband speed upgrades or network buildout to residential customers are not transaction-specific. Others, such as the conversion of Time Warner Cable and Bright House systems to all-digital and innovation in video devices, are not verifiable as the Applicants have not provided sufficient evidence to enable the Commission to verify their likelihood or magnitude. These claimed benefits are, thus, only minimally credited as public interest benefits of the transaction. Furthermore, because we find that the transaction will likely cause public interest harms, we impose conditions both to prevent transaction-specific harms and to guarantee consumer benefits that will ensure that the transaction is in the public interest. B. Reduced Programming Acquisition Costs 321. The Applicants claim that the transaction would lead to programming payment reductions.1114 After evaluating the record, we conclude that there likely would be some reduction in programming cost as a result of the transaction, and that New Charter likely would pass through some of these savings to consumers. We attribute only the portion of programming payment reductions that New Charter will likely pass onto consumers as a public interest benefit. Further, we find that it is unlikely that Charter could have achieved these same programming payment reductions absent the transaction through a buying cooperative. 322. Positions of the Parties. According to the Applicants, New Charter likely would be able to lower its per-sXEscriEer proJramminJ payments Ey taNinJ aGvantaJe oI 7ime :arner CaEle’s loZer programming costs.1115 They argue that part of that reduction in programming payments would likely be passed through to subscribers in the form of lower prices, and that part of the cost savings would provide New Charter with capital to support the deployment of advanced broadband services.1116 Some 1113 See id. at 9237-38, para. 275; News Corp.-Hughes Order, 19 FCC Rcd at 611, para. 317; EchoStar-DIRECTV HDO, 17 FCC Rcd at 20631, para. 191. 1114 Charter July 10, 2015, Ex Parte Letter at 1-2; Scott Morton Decl. at para. 23; Charter Response to Information Request at 268, 272-273; Katz Reply Decl. at para. 10. 1115 Katz Reply Decl. at para. 10; Charter Response to Information Request at 268, 272-273. See also Charter July 10, 2015, Ex Parte Letter at 1-2; Scott Morton Decl. at para. 23; Charter Oct. 27, 2015, Updated Response to Information Request at 80. The Applicants claim that even after accounting for these cost savings, they expect that programming payments would continue to increase for New Charter. See Charter July 10, 2015, Ex Parte Letter at 1. 1116 Scott Morton Decl. at para. 23; Opposition at 25-27; Katz Reply Decl. at paras. 12, 40-59. See infra Section VI.F for a discussion on residential buildout. Federal Communications Commission FCC 16-59 155 commenters agree that reduced programming costs would ultimately benefit subscribers.1117 The Applicants estimate that programming payment reductions resulting from the transaction would be at least [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million by the third year after closing.1118 323. To support their claims, the Applicants submitted a programming payment reduction analysis by Dr. Katz. He concludes that the proposed transaction would result in lower programming costs and that these would generate incentives for New Charter and its competitors to offer lower quality- adjusted prices for video services. 1119 Dr .at] estimates tKe reGXctions in 1eZ CKarter’s proJramminJ costs as a result of the transaction using both a ³top-GoZn anG a ³Eottom-Xp´ methodology, and then estimates the rate of pass through of these reductions to consumers.1120 For both types of analyses, he assXmes tKat CKarter ZoXlG Ee aEle to step into 7ime :arner CaEle’s proJramminJ aJreements ZKen its contracts expire, but does not include any reductions from N eZ CKarter’s Jreater si]e1121 324. For the ³top-GoZn´ analysis, Dr. Katz begins with the total average programming payment reduction analysis the Applicants previously submitted and makes adjustments to convert this estimate to reflect marginal cost savings.1122 Further, Dr. Katz adjusts the marginal cost programming payment reGXction to accoXnt Ior 7ime :arner’s KiJKer penetration oI Easic viGeo service yielGinJ a monthly per-subscriber marginal cost programming payment reduction of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1123 1117 See ITIF Comments at 5; Letter from Village of Spring Lake, MI, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Oct. 27, 2015); Letter from Ray Scot, State Senator from Colorado, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Jan. 20, 2016). 1118 7Ke Applicants state tKat tKis estimate is EaseG on 7ime :arner CaEle’s total proJramminJ costs anG pXElicly available video customer data adjusting to account for differences between Charter and Time Warner Cable. These proJramminJ payment reGXctions Go not assXme any eIIects relateG to 1eZ CKarter’s Jreater scale CKarter -Xly  2015, Ex Parte Letter at 2; Charter Response to Information Request at 268-272; Opposition at 25, 27. See also Katz Reply Decl. at paras. 19-21. The Applicants estimate that for the first year (2016) that the total programming payment reduction would be approximately [BEGIN HIGHLY CONF. INFO.] [E ND HIGHLY CONF. INFO.] each year thereafter. See Katz Reply Decl. at para. 20 n.18. 1119 Katz Surreply Decl. at para. 4. 1120 Katz Reply Decl. at paras. 10, 18-36; Katz Surreply Decl. at para. 8. 1121 .at] Reply Decl at paras    Dr .at] maNes aGGitional assXmptions aEoXt CKarter’s aEility to step into 7ime :arner CaEle’s contracts inclXGinJ  in tKe instances in ZKicK CKarter cXrrently oEtains more IavoraEle rates than Time Warner Cable tKe leJacy CKarter systems ZoXlG continXe to pay CKarter’s; anG  leJacy 7ime Warner Cable systems would continue to pay the rates determined by current Time Warner Cable contracts for the duration of the contract. Katz Reply Decl. at para. 28. 1122 Katz Reply Decl. at paras. 10 n.4, 18-24; see also Charter July 10, 2015, Ex Parte Letter at 2; Charter Response to Information Request at 271-273; Katz Surreply Decl. at para. 15. To derive a marginal programming payment cost savings, Dr. Katz removes any programming in which the contract is a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for either Applicant. This adjustment reduces the per- subscriber programming payment reduction to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See Katz Reply Decl. at paras. 23-24; Katz Surreply Decl. at para.15. 1123 .at] Reply Decl at paras   Dr .at] also claims tKat 1eZ CKarter’s EXsiness plan assXmes tKat programming cost per video subscriber for current Charter customers would grow at a compound annual growth rate (CAGR) of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Katz Reply Decl. at para  AccorGinJ to Dr .at] CKarter proMects tKat 7ime :arner CaEle’s proJramminJ costs ZoXlG increase at the same rate, and therefore Dr. Katz claims that this implies that the programming payment reductions per subscriber would also grow at the same CAGR. Katz Reply Decl. at para. 25. Federal Communications Commission FCC 16-59 156 325. Dr. .at]’s ³Eottom-Xp´ analysis estimates tKe amoXnt CKarter’s  proJramminJ e[penses ZoXlG Iall XsinJ tKe terms oI 7ime :arner CaEle’s contracts1124 Dr. Katz then makes certain adjustments to account for the fact that the two companies do not have identical programming lineups, tiers, and coverage areas.1125 Dr. Katz notes other factors that should be taken into account, including monetary transfers that may affect programming costs.1126 Dr .at]’s bottom-up analysis estimates a monthly per-subscriber marginal cost programming payment reduction of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , a savings rate of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent.1127 326. Dr. Katz concludes that New Charter would pass through approximately 50 to 60 percent of the marginal cost savings,1128 totaling [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million per year.1129 He bases his conclusion on various economic models, which yield qualitatively similar results. First, Dr. Katz notes that several well-known, canonical models of consumer demand yield pass-through rates that exceed 50 percent; this result holds both for the case in which the firm whose costs have changed is a monopolist (o r more Jenerally treats its competitors’ prices as fixed) and for the case in which firms sell differentiated products and engage in simultaneous- move price also NnoZn as ³%ertranG´ competition1130 Dr. Katz then considers two versions of a logit 1124 Katz Reply Decl. at para. 26. Dr. Katz excludes contracts with fixed or lump sum payments because it would be difficult to develop a measure of marginal costs from these types of contracts. See Katz Reply Decl. at para. 31; Katz Surreply Decl. at para. 15. 1125 Katz Reply Decl. at para. 29. The Katz Reply Declaration does not detail how these issues are taken into consideration and what if any adjustments were made to account for them. 1126 Id. at para. 30. Dr. Katz concludes that it is difficult to assess to what degree any additional cost savings from these factors can be converted to marginal cost savings so these adjustments were not applied. Id. 1127 Id. at paras. 10, 32, 133-161. Dr. Katz claims that his estimates are conservative because: (1) there is likely to be growth in the base on which savings would be earned; (2) he assumes that Time Warner Cable would remain in its contracts even iI CKarter’s rates are loZer; anG  Ke Goes not maNe cKanJes to accoXnt Ior any proJramminJ cost reduction per subscriber that may accrue to a larger firm. See id. at paras. 31-36. 1128 Katz Reply Decl. at paras. 7, 40; Katz Surreply Decl. at paras. 9, 16. Dr. Katz contends that an industry-wide merger to monopoly would give rise to different competitive effects than those in the proposed transaction, and he is unaware of any harms that may arise in the programming market as a result of this transaction. See Katz Surreply Decl. at para. 32. 1129 Katz Reply Decl. at paras. 10, 65; Katz Surreply Decl. at para. 7. Dr. Katz initially estimated the lower bound of the programming payment pass-through at [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million, but subsequently lowered it to [BEGIN HIGHLY CONF. INFO.] [ END HIGHLY CONF. INFO.] million using corrected data. See Katz Surreply Decl. at para. 7 n.10. 1130 Katz Reply Decl. at para. 42-44. Federal Communications Commission FCC 16-59 157 demand model,1131 the parameters of which he estimates using market data from SNL Kagan.1132 Both versions predict pass-through rates above 50 percent.1133 327. Finally, Dr. Katz considers a model in which a supplier sells output at a common price in several different markets and realizes a marginal cost reduction in only a subset of these markets, to accoXnt Ior 1eZ CKarter’s pricinJ strateJy KavinJ EotK local anG national elements1134 This analysis indicates that pass-through would still occur and, using a linear demand function coupled with other assumptions, Dr. Katz finds that the firm would pass on half of its cost savings to consumers.1135 328. To support his modeling work, Dr. Katz points to an econometric analysis of the cable television industry by )orG anG -acNson anG CKarter’s oZn e[perience as eviGence tKat 1eZ CKarter would pass on a portion of its programming payment reductions.1136 Dr. Katz discusses three different mechanisms by which Charter previously raised its prices in response to programming cost increases: (1) passing through retransmission consent cost increases; (2) increasing the monthly set-top boxes lease fees; and (3) changing the quality-adjusted prices for video service by, for example, dropping networks to reduce programming expenditures. 1137 Dr. Katz estimates Charter passed through retransmission cost increases by approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, corresponding to an overall content cost pass-through rate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Including increases in set-top box fees in his calculations results in a programming payment increase pass-through rate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent.1138 Dr. Katz concludes that it is difficult or possibly 1131 In a stanGarG loJit GemanG moGel a consXmer’s Xtility satisIaction can Ee vieZeG as tKe sXm oI tZo parts tKe Iirst is common to all consXmers anG is calleG tKe ³mean Xtility´ a IXnction oI tKe price service TXality anG otKer product and demographic characteristics). The second part is an idiosyncratic preference term, which captures the fact that individuals vary in their preferences for different products in random ways. This idiosyncratic component, which is unobserved by the econometrician, gives the model the flexibility to account for differences in consumer choices. AT&T-DIRECTV Order, 30 FCC Rcd 9131, para. 23; see also, e.g., Kenneth E. Train, Discrete Choice Methods with Simulation (Cambridge Univ. Press 2009). 1132 Katz Reply Decl. at para. 46 n.43. 1133 Id. at paras. 42-44, 167- 7Ke GiIIerentiateG %ertranG moGel also ZoXlG resXlt in tKe Iirm’s rivals loZerinJ their prices, benefiting consumers. See Katz Reply Decl. at para. 44. Differentiated Bertrand competition is when each Iirm sets tKe prices tKat ma[imi]e its proIits Jiven tKe otKer Iirms’ prices AT&T-DIRECTV Order, 30 FCC Rcd 9131, Appendix C, para. 29. See generally Tirole, Jean, The Theory of Industrial Organization 203 (2003). Dr. Katz then calculates a pass-through rate using a logit demand formula both at the local and national levels because 1eZ CKarter’s pricinJ strateJy ZoXlG Kave local anG national elements anG IinGs a pass-through rate of 58 to 62 percent. At the local level, Dr. Katz applies the logit demand formula to market data at the zip code level and then aggregates up to project the average rate that Charter would pass through programming payment reductions. The logit demand model requires data on the share of the outside good, and Dr. Katz uses two estimates for the share of the outside good. The first approach assumes that the share of the outside good is zero everywhere and the second approach utilizes DMA-level data on non-pay households. Katz Reply Decl. at paras. 10, 45-48. 1134 Katz Reply Decl paras. 48, 163-166. 1135 Id. at para. 48. A linear demand function is graphed as a straight line showing the relationship between the price of a good and the quantity of that good consumers are willing to pay at a certain price. See Mansfield, Edwin, and Gary Yohe, Microeconomics: Tenth Edition (2000) at 28. 1136 Katz Reply Decl. at paras. 49-55; Katz Surreply Decl. at para. 16. Dr. Katz cites to George S. Ford and John D. Jackson, Horizontal Concentration and Vertical Integration in the Cable Television Industry, Review of Industrial Economics, (1997) 12:501-518 (Ford and Jackson (1997)). Dr. Katz also cites to work by Gregory Crawford and Ali Yurukoglu and to a 2009 FCC report on cable industry prices. See Katz Reply Decl. at para. 50. 1137 Katz Reply Decl. at paras. 51-54. 1138 Id. at paras. 51-52. Federal Communications Commission FCC 16-59 158 impossible to determine a specific pass-through from these actions, but they are consistent with Charter passing through cost increases.1139 Therefore, Dr. Katz contends that a projected pass-through of 50 to 60 percent is consistent ZitK CKarter’s oEserveG EeKavior1140 329. Some commenters argue that reductions in programming costs as a result of the transaction are not public interest benefits because they would not be passed on to consumers1141 or that the reduction in costs may cause competitive harm.1142 There is disagreement both about the size of the reductions and about the magnitude of the pass-through rate. For example, DISH argues that New CKarter’s increaseG EarJaininJ poZer ZoXlG resXlt in programming cost reductions in addition to those claimed by the Applicants.1143 Cincinnati Bell argues that programming cost reductions would be significant,1144 whereas Free Press claims that any programming cost savings resulting from the transaction would be miniscule.1145 330. Some commenters argue that Dr. Katz inappropriately bases his pass-through rate analysis on CKarter’s cost increases EXt tKat there is no evidence that programming payment reductions would be passed on at the same rate.1146 NAB argues that New Charter has no incentive or legal requirement to pass through program savings to consumers. 1147 331. Hawaiian Telcom argues that the cost reductions would lead to anticompetitive results. It claims that New Charter would use the increased differential between its programming costs and those of small MVPDs in Hawaii to engage in a predatory pricing.1148 In particular, Hawaiian Telcom argues that New Charter would selectively pass through programming payment reductions in the short run to drive out competition in competitive markets and then raise prices everywhere.1149 1139 Id. at para. 51. 1140 Id. at para. 52. 1141 Free Press Petition at 2; WGAW Petition at 38; DISH Reply at 31; see also Public Knowledge Reply at 8 (questioning pass-through rates); Entravision Reply at 3-4 (arguing downstream competition insufficient to incent pass-through). 1142 COMPTEL Petition at 8-11; INCOMPAS Reply at 9-10; Cincinnati Bell Comments at 19; NTCA Jan. 29, 2016, Ex Parte Letter at 2 (stating that even if programming cost savings were passed through to consumers, the horizontal combination would significantly harm competition); Public Knowledge et al. Petition at 14-16; DISH Jan. 20, 2016, Ex Parte Letter at 2. For a discussion of potential competitive harms that may arise see supra Sections V.G.5.b and V.G.6 . Public Knowledge argues that the Commission should consider whether programming payment reductions result from real efficiencies and not from anticompetitive leverage. Public Knowledge et al. Petition at 14-16. 1143 DISH Petition at 54. 1144 Cincinnati Bell Comments at.11- 13; Cincinnati Bell Reply at 2-3. Cincinnati Bell claims that these programming payment reductions would hurt smaller MVPDs. Cincinnati Bell Comments at 13. See also supra Section V.G.6 . 1145 )ree 3ress 3etition at  )ree 3ress arJXes tKat ZKile CKarter’s per sXEscriEer proJramminJ payments e[ceeG tKose oI 7ime :arner CaEle tKe Jap is closinJ )ree 3ress also contenGs tKat CKarter’s per sXEscriEer proJramminJ costs increaseG at a sloZer rate tKan 7ime :arner CaEle’s )ree 3ress 3etition at -24. 1146 Entravision Reply at 4 n.11; Public Knowledge Reply at 8; INCOMPAS Reply at 7; DISH reply at 31. 1147 NAB Reply at 2-4. 1148 Hawaiian Telcom Comments at 19. According to Hawaiian Telcom, New Charter would raise prices in markets where it faces competition, in order to drive its competitors out of the market, while maintaining prices in markets where it faces less or no competition. See Hawaiian Telcom Comments at 19. 1149 Hawaiian Telcom Comments at 20. Federal Communications Commission FCC 16-59 159 332. I1CO03A6 arJXes tKat tKe Applicants’ claimeG proJramminJ payment reGXctions would be a result of increased bargaining power.1150 INCOMPAS agrees, however, that New Charter would likely pass through programming payment reductions to customers but doubts the amount of the pass-through.1151 INCOMPAS submitted the expert report of Dr. David Evans, who agrees with Dr. Katz that the average total cost of video programming for New Charter would be reduced because Charter ZoXlG step into 7ime :arner CaEle’s contracts EXt also arJXes tKat a IXrtKer reGXction ZoXlG resXlt Irom 1eZ CKarter’s increaseG EarJaininJ poZer1152 Based on a regression analysis, Dr. Evans calculates that, as a result of the transaction, CKarter’s proJramminJ payments ZoXlG Ee reGXceG Ey [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent (compared to what it pays today) and Time :arner CaEle’s anG %riJKt HoXse’s payments ZoXlG Ee reGXceG Ey [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent (compared to what they pay today). 1153 333. Dr. Evans agrees with Dr. Katz that, as a general matter, Charter would pass on marginal cost savings,1154 EXt Goes not IinG Dr .at]’s pass-through analysis persuasive. Dr. Evans also claims that New Charter would use its increased margins from a reduction in programming payments to lower prices in limited local areas.1155 Dr (vans claims tKat Dr .at]’s loJit GemanG anG %ertranG competition pass- through analyses are flawed because they rely on a model that assumes New Charter sells a single product at a single price, rather than several products, including a bundled offering.1156 Further, Dr. Evans argues that Dr. Katz provides no econometric evidence that the logit demand model or the Bertrand competition 1150 COMPTEL Petition at 7, 11-12; INCOMPAS Dec. 4, 2015, Ex Parte Letter at 1; Evans Decl. at paras. 10, 16- 19, 35, 53 n.47, 107; INCOMPAS Jan. 27, 2016, Ex Parte /etter at  I1CO03A6 claims tKat Dr .at]’s IinGinJs in tKe A7 7DIR(C7V transaction sXpport I1CO03A6’s position tKat tKe instant transaction ZoXlG resXlt in 1eZ Charter having greater market power over programmers. See INCOMPAS Jan. 27, 2016, Ex Parte Letter at 2. 1151 INCOMPAS Jan. 15, 2016, Ex Parte Letter at 3; INCOMPAS Jan. 27, 2016, Ex Parte Letter at 2-3; see also Evans Decl. at para. 129. INCOMPAS in its Reply raises a question as to whether programming payment reductions would be passed on and even if they were it does not address potential harms to broadband competition. INCOMPAS Reply at 7-8; see also INCOMPAS Dec. 4, 2015, Ex Parte Letter at 2; NTCA Jan. 29, 2016, Ex Parte Letter at 2. 1152 Evans Decl. at para. 107. Dr. Evans also agrees with otKer Iactors in Dr .at]’s analysis Id. Dr. Evans contenGs tKat Dr .at]’s analysis Goes not taNe into accoXnt tKat 1eZ CKarter ZoXlG Ee aEle to neJotiate loZer prices per subscriber, and that his analysis indicates that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Evans Decl. at para. 61. He also argues that Dr. Katz underestimates the bargaining leverage New Charter would have by failing to analyze additional programming payment reductions due to 1eZ CKarter’s increaseG scale (ntravision arJXes tKat CKarter steppinJ into 7ime :arner CaEle’s contracts is not a cost savings but rather a transfer of surplus that the Commission does not recognize as a public interest benefit. Kwoka Reply at paras. 11-12; Entravision Reply at 3. 1153 Evans Decl. at paras. 58, 62. Dr. Evans claims that the average total programming savings calculated by Dr. Katz and the Applicants is larger and generally consistent with the difference calculated from his regression. Evans Decl. at para. 60. The average total cost savings is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per sXEscriEer per montK anG Dr (van’s estimate is [B EGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per subscriber per month. Dr. Evans uses the total average cost reduction rather tKan Dr .at]’s top-down marginal cost reduction to estimate savings after New Charter renegotiates its agreements. 1154 Evans Decl. at para. 107. 1155 Id. at para. 129; see also INCOMPAS Jan. 27, 2016, Ex Parte Letter at 3 n.6. 1156 Evans Decl. at paras. 119-122, 126. Dr. Evans also argues that Charter uses promotional discounts that vary across local areas and this is not captureG Ey Dr .at]’s analysis See Evans Decl. at para. 119. Dr. Katz argues that Dr. Evans has not provided any meaningful analysis of how bundling matters to the rate of pass-through of programming payment reductions. See Katz Surreply Decl. at para. 18. The logit demand is a simplified form of the nested logit model used in the assessment of AT&T/DIRECTV. See Katz Surreply Decl. at para. 18 n.41. Federal Communications Commission FCC 16-59 160 model accurately portrays how MVPDs compete.1157 Dr. Evans also contends that the 50 percent pass- through rate from Ford and Jackson would not apply because it is a study from 1994 before video was bundled with broadband and voice services.1158 334. Further Dr (vans claims tKat Dr .at]’s analysis oI CKarter’s retransmission cost pass- through is inconsistent with his logit formulation and other studies cited by Dr. Katz because there is no reason the two pass-through rates should be different.1159 Further, Dr. Evans argues that Dr. Katz has not proven that set-top box price increases are tied to increases in video programming costs. 1160 Dr. Evans then contends that Dr. Katz made an arbitrary calculation that happens to yield a number close to the one he derived from the logit simulation.1161 Finally, Dr. Evans argues that Dr. Katz could have tested the Jeneral proposition oI passinJ tKroXJK cost increases Ey e[amininJ tKe Applicants’ pricinJ EeKavior anG in particular that his general proposition predicts that Time Warner Cable should charge significantly lower prices than Charter because its programming cost are significantly less.1162 335. Dr. Katz counters that claims that New Charter would not pass on a portion of programming payment reductions contradict economic principles.1163 Further, Dr. Katz contends that commenters are incorrect that the level of competition in the video distribution industry is insufficient to cause cost savings to be passed through because even a monopolist faces incentives to pass on marginal cost savings to subscribers.1164 Dr. Katz also argues that several commenters raise concerns that programming payment reductions would make New Charter a stronger competitor, confusing harms to competitors with harms to competition, and that this indicates these commenters expect a significant pass- through to occur.1165 1157 Evans Decl. at paras. 121-122. Dr. Katz argues that the Commission concluded in the AT&T/DIRECTV Order that a nested logit model and a Bertrand pricing model were appropriate for analyzing the industry. See Katz Surreply Decl. at para. 18. 1158 Evans Decl. at paras. 20 n.14, 124. Dr. Katz argues that he cited Ford and Jackson (1997) as corroboration to the point that it is reasonable to use a pass-through rate of approximately 50 percent in this industry. See Katz Surreply Decl. at para. 26 n.52. Dr. Evans contends that Ford and Jackson (1997) concludes that consumer welfare would be reduced because the benefits from a partial pass-through are outweighed by the costs of reduced competition from barriers to entry. Evans Decl. at paras. 21 n.17, 125, citing Ford and Jackson (1997). See also INCOMPAS Jan. 15, 2016, Ex Parte Letter at 2-3. Dr. Evans claims Ford and Jackson (1997) does not support Dr. .at]’s conclXsion tKat loZer viGeo proJramminJ costs Ior larJe GistriEXtors increases ZelIare anG in Iact sKoZs tKat a merger would decrease consumer welfare. Evans Decl. at para. 125. 1159 Evans Decl. at para. 126. Dr. Evans states that the pass-through rate of retransmission fees was more than [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. 1160 Id. at para. 127. 1161 Id. 7o reacK tKis estimate Dr .at] comEineG CKarter’s viGeo price increases caXseG Ey risinJ retransmission costs with programming cost increases that he claimed were passed on in the form of higher set-top box fees. Id. 1162 Id. at para. 128. 1163 Katz Reply Decl. at paras. 57, 59. The economic principle that profit maximizing prices depend in part on marginal costs and in turn that changes in marginal costs generally lead to changes in profit maximizing prices. See id. at para. 57. Dr. Katz also argues that economic theory does not generally predict that a firm competing in a concentrated market would likely pass on less of the cost savings than a firm in a more competitive market. See id. at para. 59. 1164 Id. at para. 58. 1165 Id. at paras. 60-63; Katz Surreply Decl. at para. 20. Federal Communications Commission FCC 16-59 161 336. Dr. Katz also responds that Hawaiian Telcom does not present evidence that predatory pricing would be likely in this case.1166 Dr. Katz argues that Dr. Evans, presents no analysis to support his claim that New Charter would engage in limited price reductions to harm competition.1167 Further, Dr. Katz contends that economic theory shows that New Charter would have incentives to pass on marginal cost savings in any local market, and that a firm operating in multiple markets would rationally choose to pass through different proportions of cost savings in the face of varying levels of competition.1168 337. INCOMPAS also argues that New Charter could achieve its claimed programming payment reductions through a video programming purchasing cooperative1169 anG tKat tKe Applicants’ Gismissal oI tKis iGea is inconsistent ZitK 7ime :arner CaEle’s cooperative pXrcKasinJ aJreement ZitK Bright House.1170 The Applicants argue that buying cooperatives may achieve cost savings if the buyers demand similar products, but Charter and Time Warner Cable negotiate complex agreements for different programming lineups, and therefore have different licensing priorities.1171 They also state that in 2009 Charter made an effort to create a buying cooperative, but the members found it difficult to reach an agreement among themselves because of differences between their interests.1172 338. INCOMPAS alternatively requests the Commission to require New Charter to establish a cooperative that would include the Applicants and small MVPDs.1173 INCOMPAS argues that a cooperative would mitigate harm to local residential BIAS by providing a structure that would incentivize smaller 0V3Ds to compete aJainst incXmEent 0V3Ds inclXGinJ in 1eZ CKarter’s Iootprint1174 339. Discussion. :e IinG tKat tKe Applicants’ proJramminJ costs may Ee reGXceG as a resXlt of the proposed transaction, but we decline to attribute this possibility as a benefit unless the savings are likely to accrue to consumers. While we acknowledge that the analysis by Dr. Katz and his staff generally appears reasonable, we do not have access to the underlying data and cannot verify his calcXlations In Jeneral Ze IinG EotK Dr .at]’s ³top-GoZn´ analysis anG Kis ³Eottom-Xp´ analysis to be reasonable and conservative methods to derive an estimate of marginal cost savings. We also find, KoZever tKat some oI Dr .at]’s assXmptions may leaG to Eiases in tKe estimates.1175 1166 Katz Reply Decl. at para. 64. 1167 Katz Surreply Decl. at para. 17. Dr. Katz also argues that Dr. Evans has not provided any evidence that the largest MVPDs, which generally have lower programming payments have used those savings to limit local competition. See id. 1168 Id. 1169 INCOMPAS Reply at 4-5, 10-12; INCOMPAS Jan. 27, 2016, Ex Parte Letter at 2. 1170 INCOMPAS Reply at 11-12. INCOMPAS also claims that a buying cooperative would promote additional broadband infrastructure investment in the Charter and Time Warner Cable footprints by equalizing video programming payments which they claim is a primary hurdle to building new broadband networks. INCOMPAS Reply at 12. 1171 Katz Reply Decl. at paras. 37-38; Katz Surreply Decl. at para. 10. 1172 Katz Reply Decl. at para. 39; Katz Surreply Decl. at para. 10 n.19, para. 11. 1173 INCOMPAS Jan. 27, 2016, Ex Parte Letter at 2. 1174 Id. 1175 For example, Dr. Katz assumes that Charter can retain any favorable contracts it currently enjoys but switch to the terms received by Time Warner Cable when those rates are more favorable immediately upon closing. In the recent AT&T-DIRECTV transaction, however, the Applicants contended that the reductions in programming costs they anticipated would be phased in over several years. AT&T-DIRECTV Order, 30 FCC Rcd at 9244, para. 288. Federal Communications Commission FCC 16-59 162 340. We analyzed anonymized video programming data submitted by the Applicants in response to tKe Commission’s InIormation anG Data ReTXest1176 Our analysis found that for the networks for which tKe Applicants sXEmitteG Gata CKarter’s proJramminJ payments are KiJKer tKan 7ime :arner CaEle’s.1177 Next, calculating both a simple and a weighted average for each program, we found that for [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of the reported netZorNs CKarter’s proJramminJ payments are Jreater tKan 7ime :arner CaEle’s1178 Our analysis of the ratio of total per subscriber programming payments across all reported networks also shows a significant spike in the ratio in [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1179 We then calculated the difference in the simple average and the weighted average ratio for 34 of the 36 networks for the two time periods [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1180 We found that the ratio for the simple average and the weighted average for [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] is higher for more than [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of the networks.1181 341. We also agree with Dr. Katz that New Charter would likely pass through some portion of the programming payment reductions to consumers; KoZever Ze IinG tKat Dr .at]’s estimate oI -60 percent may be overstated. As Dr. Evans points out, eacK oI Dr .at]’s approacKes is not ZitKoXt IlaZs For example, we agree with Dr. Evans that the industry study cited by Dr. Katz, which relied on data from 1994, does not reflect the current MVPD marketplace.1182 We also find that certain estimates are based on assXmptions tKat are not IXlly e[plaineG or veriIieG )or e[ample Dr .at] attriEXtes all oI CKarter’s set- top-box increases to programming cost increases without analysis or documentation. Further, Dr. Katz states that Charter dropped networks from its packages to lessen the effect of rising programming costs but did not provide any information on which channels were dropped, how much they cost, or whether these were less valuable networks for which Charter did not pay per sub fees. 342. We disagree with Dr. Katz that the pass through rate should necessarily be the same for an increase in programming payments and a reduction in programming payments. Firms may choose to not fully pass on cost increases to their customers for various reasons, just as they may not fully pass on 1176 Charter Oct. 23, 2015, Updated Response to Information Request, Attach. E. The anonymized data submitted reflects all networks that at least 90 percent of expanded video subscribers for both Charter and Time Warner Cable. The Applicants submitted the data for 36 networks according to the template and instructions for Attach. E. Id. 1177 See Appendix C, Section III.B, Figures 20-21 & Table 28. 1178 )or tKe averaJe across tKe time perioG CKarter’s proJramminJ payments are KiJKer Ior [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of the 36 networks. For the weighted average across the time perioG CKarter’s proJramminJ payments are KiJKer Ior [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of the 36 networks. See Appendix C, Section III.B., Table 28. 1179 See Appendix C, Section III.B., Figure 20. 1180 Two networks were excluded from our calculations because they were not carried by both Charter and Time Warner Cable [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1181 For the simple average, approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of the networks had an increase ratio of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent for the weighted average. Further, there are two networks with an increased ratio between the two time periods of over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. See Appendix C, Section III.B., Table 28. 1182 In 1994, DBS was not a significant competitor and telephone companies were not providing video services. See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Third Annual Report, 12 FCC Rcd 4358, 4376-81, 4395-96, paras. 36-41, 68-69 (1997). Moreover, Ford and Jackson focused on the basic tier only. Ford and Jackson (1997) at 507. Federal Communications Commission FCC 16-59 163 cost decreases.1183 There is no evidence in the record that price increases and price decreases are passed on equally in the provision of MVPD services. Given possible asymmetries in the pass-through of programming payment increases or reGXctions Ze place little ZeiJKt on tKe maJnitXGe oI CKarter’s pass- through oI retransmission anG otKer content cost increases as an estimate oI tKe transaction’s pass-through of programming payment reductions. 343. We disagree with INCOMPAS that Charter could achieve these programming payment reductions without the transaction. While Time Warner Cable’s neJotiations ZitK proJrammers Go include distribution to Bright House, the relationship between only two MVPDs, one large and one small, is very different than the cooperative envisioned by INCOMPAS. Moreover, there is no evidence in the record that wide disparities in interests between MVPDs described by Dr. Katz that were present in 2009²including disparities in business models, cost structures, network configurations, operational strateJies anG ³corporate personalities´²are no longer present. 344. 1or Go Ze conclXGe tKat I1CO03A6’s proposeG EXyinJ cooperative to Ee appropriate relief here. Even assuming that programmers would agree to negotiate with such a buying cooperative, I1CO03A6’s proposal ZoXlG raise sXEstantial antitrXst issXes EecaXse 1eZ CKarter ZoXlG Ee negotiating on behalf of its direct competitors for a major input into their MVPD services. Although the negotiations might lead to lower costs for the competitors, it could also prevent them from competing against Charter by offering different channel line ups or video packages (e.g., slim bundles). Finally, the Commission has not previously required applicants to share the benefits of their transaction with their competitors. For all of these reasons, we decline to impose the condition sought by INCOMPAS. 345. Finally, we disagree with those commenters who argue that the reductions in programming payments New Charter would likely achieve constitute public interest harms and find no evidence in the record to support their assertions. In particular, as discussed above, we do not find credible that the programming payment reductions would result in other MVPDs paying more for acquiring programming. We conclude that the transaction does not make it more likely that the Applicants would engage, as some commenters allege, in a strategy of passing through programming payment reductions to selective markets for the purpose of harming competition or that New Charter is more likely to engage in predatory pricing.1184 Finally, we do not find it credible that programmers would materially reduce their investment in the quality or quantity of programming because the cost reductions represent a minimal proportion of programmer revenues.1185 346. For the reasons stated above, we find that New Charter would be likely to achieve cost savings from a reduction in its programming costs, and we find that it is likely that a portion of the 1183 Both in this and the AT&T/DIRECTV transactions, pass-through from programming payments is less than 100 percent. See AT&T-DIRECTV Order, 30 FCC Rcd at 9178-79, para. 123; supra para. 341. The economic literature has found for some industries that price increases are passed on faster than price decreases and vice versa. See, e.g., Sam Peltzman, Prices Rise Faster than They Fall, 108 Journal of Political Economy 466, 466-502 (2000). 1184 Predatory pricing occurs when a firm first lowers its price to drive its rivals out of the market as well as to deter entry, and then raises its price once its rivals exit the market in order to recoup its losses. Generally, for a pricing strateJy to Ee consiGereG ³preGatory´ tKe price mXst Ee EeloZ some measXre oI tKe Iirm’s costs See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 117 (1986); see also Brooke Group Ltd. V. Brown & Williamson Tobacco Co., 509 U.S. 209, 222-24 (1993); ABA Section of Antitrust Law, Antitrust Law Developments (6 th ed. 2007) at 272, 274-81. Hawaiian Telcom argues that New Charter would use its programming payment pass-through to lower prices but it does not allege that New Charter would be pricing below costs. Hawaiian Telcom Comments at 19-20. Based on a review of the record, we do not find that New Charter is likely to price below its own costs. Pricing aggressively is often the essence of competition and pricinJ EeloZ a competitor’s costs Jenerally Goes not violate the antitrust laws or the public interest. See Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986); Brooke Group, 509 U.S. at 223. 1185 See supra Section V.G.5 . Federal Communications Commission FCC 16-59 164 programming payment reductions would be passed through to consumers, but at a rate less than that estimated by Dr. Katz. As the Commission has found previously,1186 to the extent a change in video programming costs of this nature is a transfer of surplus between video programmers and video distributors, it generally is not a public interest benefit.1187 Therefore, we credit only the portion of programming payment reductions that are passed onto consumers as a benefit of the transaction. C. Conversion of Time Warner Cable and Bright House to All-Digital Service, and Related Increased Residential Broadband Speeds and Improved Video Services 347. The Applicants state that, as a benefit of the transaction, New Charter would transition the Time Warner Cable and Bright House cable systems to all-digital within 30 months after the close of the transaction.1188 1eZ CKarter also commits to e[tenGinJ CKarter’s Internet speeGs anG pricinJ plans to those territories as their systems there are converted to all-digital.1189 Subscribers to the Time Warner Cable and Bright House systems that are already all-digital at the time of closing of the proposed transaction would Ee oIIereG CKarter’s speeGs anG pricinJ plans ZitKin one year1190 The Applicants contend that the conversion to an all-digital network across the entire New Charter footprint would free up spectrum that would then be available to upgrade broadband speeds.1191 As systems are converted to all-GiJital 1eZ CKarter commits to GeployinJ 6pectrXm *XiGe CKarter’s cloXG-based user interface system; :orlGEo[ CKarter’s I3-enabled set-top box; 1192 and an advanced mobile video application that should be available in those areas.1193 The Applicants further contend that an increase in HD and VOD offerings would come as a result of the all-digital transition.1194 Upon a review of the record, and for reasons further discussed below, we ascribe minimal weight to the claimed benefits associated with the proposed conversion to all-digital and the proposed increase of high definition and VOD offerings. Although we agree that the transaction may hasten the conversion, the Applicants have not met their burden of showing the magnitude of this benefit. Moreover, because we find that the Applicants have not demonstrated that the proposed broadband speed increases are transaction-specific, we do not find that they represent a cognizable public interest benefit of the transaction. 1. Conversion to an All-Digital Network 348. Positions of the Parties. Although Time Warner Cable and Bright House are upgrading their systems from analog to digital, they have not yet completed their conversion. The Applicants claim that New Charter would transition these remaining systems to an all-digital network faster than Time 1186 See AT&T-DIRECTV Order, 30 FCC Rcd at 9131, para. 291. 1187 EchoStar-DIRECTV HDO, 17 FCC Rcd at 20637, para. 211. 1188 Application at 19, 21-22, 24-25; Winfrey Decl. at paras. 12, 43; Opposition at 6, 23; Charter Response to Information Request at 294; Claimed Benefits White Paper at 8-  7Ke Application notes tKat ³systems servinJ fewer than 1 percent of homes may not be taken all-digital due to the challenges in interconnecting to the remaining 1eZ CKarter netZorN´ Application at  n; CKarter Response to InIormation ReTXest at  1189 CKarter’s loZest cXrrent EroaGEanG speeG tier is  0Eps ZKicK it claims to oIIer at a loZer price tKan otKer providers. Application at 19-20, 22; Winfrey Decl. at paras. 8, 44; Charter Response to Information Request at 294. 1190 Application at 19, 21-22; Winfrey Decl. at paras. 8, 44; Charter Response to Information Request at 293 n.200. 1191 Application at 24. 1192 Id. at 25-27; Charter Response to Information Request at 295; Winfrey Decl. at para. 13; see also Claimed Benefits White Paper at 14, 16. 1193 Charter Response to Information Request at 294. 1194 Application at 3, 10, 19; Winfrey Decl. at para. 43; Opposition at 23; Claimed Benefits White Paper at 9; see also Charter Response to Information Request at 305-306. Federal Communications Commission FCC 16-59 165 Warner Cable and Bright House would have done.1195 New Charter intends to upgrade [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of Time Warner Cable and %riJKt HoXse’s non-digital customers within [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1196 The Applicants argue that the effort to convert the Time Warner Cable and Bright House networks to all-digital would ³e[peGite tKe offering of advanced technology, benefitting both Time :arner CaEle’s anG %riJKt HoXse’s existing subscribers, and facilitating competition within their marNets´1197 349. The Applicants state that Bright House is all-digital in [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of its footprint,1198 and [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1199 The Applicants add that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1200 The Applicants also note that while Time Warner Cable plans to convert 75 percent of its footprint to all-digital this year under its TWC Maxx initiative, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1201 350. Some commenters agree that the commitment to convert the acquired systems to all- digital is a benefit of the transaction.1202 Other commenters, however, argue that the digital conversion would occur without the proposed transaction.1203 )or e[ample )ree 3ress arJXes tKat ³given the existing market trajectory and declining costs coupled with higher-revenue opportunities, it is highly likely that [Time Warner Cable] would upgrade its remaining systems soon [after completing the upgrade to 75 percent oI its systems@´1204 DI6H cKaracteri]es tKe Applicants’ commitments as ³XnremarNaEle´1205 It 1195 Application at 24-25; Claimed Benefits White Paper at 8-9. 1196 Claimed Benefits White Paper at 7-8. 1197 Application at 24-25; Winfrey Decl. at para. 12; Charter Response to Information Request at 294. 1198 Application at 24. 1199 Claimed Benefits White Paper at 8 n.16. 1200 Id. 1201 Application at 24 n.62; Time Warner Cable Response to Information Request at 142-43. Time Warner Cable has [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO .] . Time Warner Cable Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Nov. 19, 2015) (Time Warner Cable Nov. 19, 2015, Updated Response to Information Request). 1202 Free State Comments at 12; TheBlaze Comments at 2- /iNeZise ARRI6 *roXp Inc contenGs tKat CKarter’s plan to invest in an all-digital system in Time Warner Cable and Bright House footprints would benefit customers by allowing analog bandwidth to be reclaimeG ³Ior more HD cKannels more VOD oIIerinJs anG otKer aGvanceG viGeo services´ ARRI6 Comments at -2. 1203 WGAW Petition at 40-41; Stop the Cap Comments at 3, 5, 7, 12-13. Maui County Community Television, Inc. asks, among other things, that Charter commit to upgrading the systems in Maui, Molokai, and Lanai. Maui County Community Television, Inc. Reply at 3. 1204 Free Press Reply at 21; see also MFRConsulting Reply at 23 (arguing tKat 7ime :arner CaEle’s Gecision not to make the investments necessary to more rapidly transition its systems to an all-digital network is not related to its lack of scale). Federal Communications Commission FCC 16-59 166 argues that Time Warner Cable planned to make these upgrades absent the transaction,1206 pointing to documents in the record for support.1207 Specifically, DISH disputes that Time Warner Cable [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1208 DI6H also arJXes tKat %riJKt HoXse’s all-digital plans are underway and suggests that the proposed transaction may actually delay those plans.1209 351. Time Warner Cable responGs tKat DI6H’s alleJations tKat it planned to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] are untrue as they rely on documents that are taken out context and do not reflect Time Warner CaEle’s decision-making processes.1210 The documents, according to Time Warner Cable, are merely GraIts or laEeleG ³illXstrative´ It contenGs DI6H Iails to note tKat 7ime :arner CaEle’s planninJ process involves beginning with an aggressive budgetary plan that would liNely Ee ³ratcKeteG EacN´ as competing projects are prioritized. Accordingly, the documents on which DISH relies are merely ³notional´ anG Go not reIlect GeIinitive plans Ior a  percent conversion oI its systems1211 Time Warner argues that it always intended TWC Maxx to be a three-year plan to reach 75 percent of its footprint by the end of 2016.1212 (Continued from previous page) 1205 DISH Petition at 34. 1206 Letter from Pantelis Michalopoulos and Stephanie A. Roy, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 4 (filed Jan. 4, 2016) (DISH Jan. 4, 2016, Ex Parte Letter). 1207 DISH Reply at 24-25. DISH argues that multiple Time Warner Cable documents indicate that absent the planned merger, Time Warner Cable would upgrade its remaining footprint by [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . DISH Reply at 25 n.81 (citing TWCable-FCC-000006594, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ); see also DISH Jan. 4, 2016, Ex Parte Letter at 1-5. 1208 DISH Jan. 4, 2016, Ex Parte Letter at 3 (citing Time Warner Cable Nov. 19, 2015, Updated Response to Information Request at 2). DISH relies on multiple Time Warner Cable documents, including TWCable- DOJ - 000016902 at 8, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWCable-DOJ -000161698 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1209 Letter from Andrew M. Golodny, Counsel for DISH, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, at 1-3 (filed Nov. 30, 2015) (DISH Nov. 30, 2015, Ex Parte Letter). DISH contends that Bright House planned its all-digital conversion [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. at 2 (citing BHN-000597597, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ). DISH adds that Bright House plans to spend [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO .] . Id. at 2 (citing BHN-000328545 at 3, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ). 1210 Letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Jan. 15, 2016) (Time Warner Cable Jan. 15, 2016, Ex Parte Letter). 1211 Id. at 2-5. 1212 Id. at 2-3. As discussed in paragraph 349, supra, Time Warner Cable has stated that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 167 352. Discussion. We find that both Time Warner Cable and Bright House have been continuing to upgrade their systems to an all-digital network. While the transaction may hasten the all- GiJital XpJraGes oI 7ime :arner CaEle anG %riJKt HoXse’s systems tKe Applicants Kave not quantified the value of all-digital upgrades in a manner that would allow us to compare them to what would likely occur absent the transaction. We therefore ascribe minimal weight to this benefit. 353. Although we find that the Applicants have failed to quantify this claimed benefit, we also IinG XnpersXasive DI6H’s arJXment tKat tKe XpJraGe to all-digital systems would occur at the same pace without the transaction. We do not find that the Time Warner Cable documents cited by DISH [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . For example, the same document which DISH contends shows that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1213 354. Similarly, the Bright House document DISH cites indicates that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1214 While there is some evidence that suggests that Bright House [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1215 355. On the other hand, the Applicants have not demonstrated a structural impediment preventing Time Warner Cable and Bright House from making future upgrades nor that these companies would lack the incentive, ability, or competitive pressure to do so. It is understandable that in the context of the pending transaction [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . We agree that the transaction likely will bring these all-digital upgrades and the corresponding benefits at a somewhat faster pace than Time Warner Cable and Bright House would otherwise do on their own. Therefore, we recognize that the transaction likely provides a benefit with respect to the complete digitization of the acquired systems. This potential benefit is difficult to quantify, however, because the Applicants have failed to show the e[tent to ZKicK 1eZ CKarter’s XpJraGinJ tKe acTXireG systems ZoXlG outpace Time Warner Cable and %riJKt HoXse’s liNely eIIorts in tKe aEsence oI tKe proposeG transaction 1213 See DISH Jan. 4, 2016, Ex Parte Letter at 3 (citi ng TWCable-FCC-000006604, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ). 1214 DISH Nov. 30, 2015, Ex Parte Letter at 2 (citing BHN-000597597, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ). 1215 BHN-000938913, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 168 2. Residential BIAS Speed Upgrades 356. In tKis section Ze evalXate tKe Applicants’ claims tKat as a resXlt oI tKe transaction 1eZ Charter would have an increased incentive to incur larger fixed cost investments to increase broadband speeds.1216 We agree that some measure of additional investment in broadband infrastructure may result Irom tKe Applicants’ commitment to oIIer plans ZitK minimXm GoZnload speeds of 60 Mbps throughout 1eZ CKarter’s Iootprint HoZever Applicants Kave not met tKeir EXrGen in GemonstratinJ tKat tKe investments necessary to increase minimum download speeds to 60 Mbps are verifiable and quantitatively significant. Applicants have not established that the proposed speed improvements are transaction- specific. We are thus unable to find a cognizable public interest benefit with respect to investments leading to broadband speed upgrades. 357. Positions of the Parties. The Applicants claim that Charter is committed to being the Internet ³speeG leaGer´1217 anG tKat as a conseTXence oI 1eZ CKarter’s increaseG scale it would have an increased incentive to incur larger fixed cost investments because those costs would be spread among a larger pool of subscribers, and thus the per-subscriber cost of such investments would be lower.1218 The Applicants argue that increased investments in fiber, software, and hardware would increase New CKarter’s EroaGEanG speeGs1219 and that such investments could not have been made by the stand-alone entities.1220 The Applicants IXrtKer state tKat CKarter’s ³e[pertise e[perience anG commitment to oIIerinJ consXmers KiJKer stanGarG speeG EroaGEanG´ would ³µe[peGite’ tKe oIIerinJ oI aGvanceG tecKnoloJy´ ZitKin its network.1221 358. The Applicants argue that the transition to an all-digital system discussed in the previous section would allow New Charter to free up spectrum for broadband, enabling base speed tiers of 60 or  0Eps tKroXJKoXt tKe 1eZ CKarter’s Iootprint ZitKin 30 months of closing.1222 Charter states that it is evaluating a number of avenues to achieve these broadband speeds, including [BEGIN HIGHLY CONF. INFO.] 1216 Scott Morton Decl. at paras. 8-10; Application at 24-25. 1217 Charter Response to Information Request at 7. 1218 Scott Morton Decl. at paras. 8-10. 1219 Id. at para. 24. 1220 Id. at para. 10. 1221 Application at 24-25 (citing Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from MediaOne Group, Inc., Transferor, to AT&T Corp., Transferee, Memorandum Opinion and Order, 15 FCC Rcd 9816, 9887-88, para. 166 (2000) ( AT&T-MediaOne Order ) ). 1222 Application at 21-22, 24; Claimed Benefits White Paper at 10. The Applicants speculate that speed upgrades would bring consumer benefits of $1.15 billion per year based on a $22 per month consumer surplus drawn from an academic paper on UBP. Claimed Benefits White Paper at 10-11 (citing Aviv Nevo, John L. Turner, and Johnathan : :illiams ³8saJe-Based Pricing and Demand for ResiGential %roaGEanG´ at 7aEle  :orNinJ 3aper OctoEer 2015) forthcoming in Econometica  7Ke Applicants’ IiJXre assXmes speeG increases Irom  0Eps to  0Eps at the same prices for existing Time Warner Cable and Bright House customers. Id. at 11 n.22. We do not credit this claimed benefit, however, for three reasons. First, the cited paper does not purport to evaluate the consumer surplus resXltinJ Irom speeG XpJraGes Ior tKe Applicants 6econG tKe Applicants’ sXEscriEer inpXt is overinclXsive as it assumes that every existing all-digital customer with Time Warner Cable and Bright House would receive a speed upgrade within twelve months. Claimed Benefits White Paper at 11 n.22. However, Applicants claim that existing subscribers would only be offered the new minimum 60 Mbps plan, and they offer no predictions as to how many would take the new plan. See Residential Pricing and Packaging White Paper at 4. Third, the Applicants do not claim tKat pricinJ on 1eZ CKarter’s  0Eps plan Zill Ee tKe same as existing sub-60 Mbps plans, as assumed by tKe paper’s moGel anG Kave not otKerZise TXantiIieG tKe sXrplXs ZKicK ZoXlG accrXe to 1eZ CKarter or its customers as a result of the new plan offerings. See infra Section VI.D. Federal Communications Commission FCC 16-59 169 [END HIGHLY CONF. INFO.] .1223 The Applicants state that New Charter would continue to deploy Time Warner CaEle’s  0Eps 7:C Maxx service in certain areas in accord with existing plans. 1224 Time Warner Cable states that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1225 Time Warner Cable also states that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1226 The Applicants argue that high-speed offerings from their wireline BIAS competitors would ³pXt pressXre on 1eZ CKarter to perIorm´ ZitK respect to speeG increases1227 359. The Competitive Enterprise Institute (CEI), The International Center for Law & Economics (ICLE), and TechFreedom, in joint comments, argue that the transaction would allow New Charter to offer at least 60 Mbps or 100 Mbps downstream to over 99 percent of the households it serves, anG tKat tKereIore ³many oI tKe  million Americans ZKo sXEscriEe to >7ime :arner CaEle’s@ EroaGEanG service Zill enMoy Iaster Internet access at loZer prices´1228 They contend that broadband improvements might occur more slowly for many consumers if the transaction is not approved because larger firms like New Charter are better positioned to make costly long term investments.1229 360. DI6H arJXes tKat tKe Applicants’ proposal to oIIer minimXm  0Eps GoZnloaG speeGs ZitKin tKree years oI closinJ is ³proEaEly less amEitioXs tKan ZKat >7ime :arner CaEle@ Kas planned to acKieve Ey itselI ZitKoXt tKe merJer´1230 DI6H IXrtKer arJXes tKat CKarter’s oIIer to ErinJ Ease speeG tiers from 15 Mbps to 60 or 100 Mbps is not a benefit because both Time Warner Cable and Bright House already offer speeds in excess of 60 Mbps, and they could increase base speed to 60 Mbps without the proposed transaction.1231 Additionally, DISH states that implementing a base speed tier of 60 Mbps is not 1223 Charter Response to Information Request at 7. 1224 Application at ; :inIrey Decl at para 7ime :arner states tKat it Kas ³increaseG Internet Gata speeGs eleven times´ Eetween July 24, 2013 and July 24, 2015, not including speed increases associated with the Maxx program. Time Warner Cable Response to Information Request at 13. 1225 Time Warner Cable Updated Response to Sept. 21, 2015, Information Request, transmitted by letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Nov. 9, 2015). Time Warner states that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. Internal documents cited by Time Warner Cable demonstrate that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Time Warner Cable Updated Response to Sept. 21, 2015, Information Request, Exh. 73- 01 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] at 1. 1226 Time Warner Cable Response to Information Request at 8. 1227 Application at 23-24. The Applicants cite selected offerings from CenturyLink, AT&T, and Verizon FiOS as eviGence oI a ³virtXoXs cycle oI competition tKat Kas Eeen pXsKinJ EroaGEanG speeGs Xp across tKe EoarG´ Id. 1228 Competitive Enterprise Institute, International Center for Law & Economics, and TechFreedom Comments at 2 (CEI et al. Comments). 1229 Id. at 3 (arguing that as a result of the transaction, New Charter would be able to spread its fixed costs across a larger customer base, thereby accelerating broadband speed upgrades). 1230 DISH Petition at 5-6; see also WGAW Petition at 40- 41. 1231 DISH Petition at 35. Federal Communications Commission FCC 16-59 170 a benefit to the public because the plan upgrade precludes subscribers from purchasing slower, less expensive broadband plans that may more precisely fit their desired price and speed. 1232 361. Discussion. We find that the Applicants have not met their burden of demonstrating that the transaction would likely lead to increased broadband speeds in the Time Warner Cable and Bright House networks. The Applicants do not quantify what investments would be necessary to reach this level of deployment²or that these speed upgrades are necessarily tied to the all-digital upgrade.1233 Charter has stated that New Charter would consider [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , but Goes not oIIer Getails on KoZ tKese strateJies GiIIer Irom 7ime :arner CaEle’s existing investment plans. The record reveals that [BEGIN HIGHLY CONF. INFO.] [ END HIGHLY CONF. INFO.] .1235 The Applicants do not explain why Bright House and Time Warner Cable lack the scale to undertake the fixed cost capital investments needed to upgrade their BIAS speeds. Nor do they specify why the existing competitive landscape faced by Bright House and Time Warner provide insufficient incentive to undertake the speed upgrades promised in the Application. Though the record does not establish that Time Warner Cable or Bright House otherwise has plans to establish 60 Mbps speed minimums throughout their service areas, the Applicants have not identified any impediments to Time Warner Cable and Bright House implementing similar upgrades absent the proposed transaction. 3. Improved Video Benefits 362. The Applicants contend that an increase in HD and VOD offerings would come as a result of the all-GiJital transition in 7ime :arner CaEle’s anG %riJKt HoXse’s systems1236 The Applicants aGG tKat neZ CKarter ZoXlG also EXilG on tKe strenJtKs oI all tKree companies Ey oIIerinJ CKarter’s Spectrum Guide, Worldbox CPE, and an integrated video mobile application that would include the best features from each company.1237 New Charter also plans on deploying two-way boxes on each incremental residential outlet instead of using one-way digital terminal adapters. While this approach 1232 DISH Reply at 25-26. 1233 Cf. BHN-000597597, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO. ]. 1234 See, e.g., Time Warner Cable Response to Information Request at 8 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1235 See supra Section VI.C.1. As discussed above, Time Warner Cable [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Time Warner Cable Response to Information Request, Exh. 3i-03 at 2. In non-TWC Maxx markets, Time Warner Cable [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. 1236 Application at 3, 10; Opposition at 23; Claimed Benefits White Paper at 9. Application at 19; Winfrey Decl. at para. 43; Opposition at 23; Claimed Benefits White Paper at 9; see also Charter Response to Information Request at 305-306. 1237 Application at 25-26. The claimed benefits associated with Spectrum Guide, Worldbox and the proposed integrated video application are discussed infra in Sections VI.H and VI.I. Federal Communications Commission FCC 16-59 171 may cost more, Charter argues that this approach would proviGe its cXstomers ZitK ³a more roEXst viGeo product oIIerinJ´1238 We received few comments regarding these claims.1239 363. Discussion. The Commission has recognized that the deployment of improved video services is a recognized public interest benefit.1240 Here, however, the Applicants have failed to quantify the extent of this benefit and we find that it is minimal. Evidence in the record shows that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1241 Therefore, any benefit from the increase in VOD offering would appear to apply only to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF INFO.] . While the evidence also indicates that New Charter would provide customers with [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , there is no indication that it is due to the transaction. Accordingly, we ascribe no weight to these claimed benefits. D. Uniform Broadband Pricing and Marketing 364. :e noZ evalXate tKe Applicants’ claim tKat tKe aGoption oI CKarter’s EroaGEanG pricinJ anG marNetinJ practices tKroXJKoXt 1eZ CKarter’s Iootprint constitXtes a pXElic interest benefit. We acknowledge that post-transaction some Time Warner Cable and Bright House customers may receive offers for faster broadband service at lower prices. However, the Applicants have not quantified post- transaction customer cost savings or specifieG tKe perioG oI time tKat CKarter’s cXrrent pacNaJes Zill Ee offered. Therefore, we credit only a minimal public interest benefit with respect to the Applicants’ proposed uniform pricing and marketing commitments. 365. Positions of the Parties. The Applicants have committed to market broadband services consistent ZitK CKarter’s cXrrent pacNaJinJ anG pricinJ strateJies ZitKin  montKs oI closinJ in e[istinJ Time Warner Cable and Bright House all-digital service areas.1242 7Ke Applicants claim tKat CKarter’s broadband offerings are less expensive for consumers than comparable offerings from Time Warner Cable and Bright House.1243 1238 Charter Response to Information Request at 305. 1239 Stop the Cap argues that the transaction would result in an all-digital video option for Time Warner Cable customers that currently can watch analog channels without the use of a set-top box, which would result in additional costs for the customers. Stop the Cap Comments at 13. 1240 See AT&T-DIRECTV Order, 30 FCC Rcd at 9246-9247, para. 301; Adelphia-TWC Order, 21 FCC Rcd at 8312, para. 256; AT&T-MediaOne Order, 15 FCC Rcd 9816, 9886, para.160. 1241 CHR2-DOJ -00000066980 at 2, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See also CHR2-FCC- 00000048793 at 10-11, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1242 Application at 19- In service areas ZKere 7ime :arner CaEle anG %riJKt HoXse’s netZorNs are not yet all- digital, New Charter commits to making the same offers available once the systems are converted to all-digital, with full conversion to be completed within 30 months of closing. Id. The Applicants state that, due to the challenges in interconnecting to the remaining New Charter network, a portion (less than 1%) of New Charter that is not interconnected to the New Charter network may not be taken all-digital and would be offered lower speeds. Id. at 3 nn.3-4. 1243 Id. at 2-3. Federal Communications Commission FCC 16-59 172 366. 6ome commenters Geny tKat tKe Applicants’ XniIorm EroaGEanG pricinJ anG marNetinJ commitment is a benefit of the transaction.1244 )or e[ample DI6H arJXes tKat CKarter’s nationZiGe standalone broadband pricing is not less expensive than existing Time Warner Cable offerings. 1245 DISH oEserves tKat CKarter’s least e[pensive EroaGEanG²its 60 Mbps tier²initially costs $39.99 per month, but increases incrementally to $59.99 per month over two years of service, 1246 while Time Warner CaEle’s plans in 7:C 0a[[ areas Kave introGXctory rates Ior  0Eps service Ior  per montK  Mbps service for $34.99 per month, 10 Mbps service for $29.00 per month, and 3 Mbps service for $14.99 per month. 1247 DISH concludes that post-transaction, Time Warner Cable customers would end up paying either approximately the same price for a slower service, or a higher price for a speed that they may not require. 1248 AGGitionally some commenters claim tKat tKe loss oI 7ime :arner CaEle’s ³(veryGay /oZ 3rice (/3 ´ %IA6 tier at  per montK Ior  0Eps GoZnstream 0Eps Xpstream service is contrary to the public interest.1249 They generally argue that post-transaction, Time Warner CaEle’s more aIIorGaEle EroaGEanG options would be eliminated, to the detriment of low-income and senior consumers.1250 Some commenters urge the Commission to require New Charter to price and offer services uniformly through each DMA so that it cannot use discriminatory pricing to stifle competition where it faces a terrestrial competitor.1251 367. The Applicants respond that having nationally uniform pricing and packaging for each tier of service and bundles of services ³promotes eIIicient operations anG marNetinJ oI services tKroXJKoXt CKarter’s Iootprint´1252 Specifically, the Applicants claim tKat tKe EeneIits inclXGe ³>E@roaG consistent knowledge of our services and prices across all employees; sales and support representatives need master only one set of packages and pricing to service customers nationwide; billing is more simple with fewer variations; and economies of scale in marketing and advertising tactics.´1253 Charter also notes that it has some flexibility to offer specific promotions, resulting in favorable pricing both locally and 1244 See, e.g., DISH Reply at 14-15, 25-; 6top tKe Cap Comments at  ³CKarter’s XpJraGe proposal is, in fact, generally inferior to what Time Warner Cable is accomplishing on its own. We strongly recommend the Commission careIXlly consiGer ZKetKer CKarter’s proposal is as trXly compellinJ as tKey claim´  1245 DISH Reply at 14 (arguing that for Time Warner Cable and Bright House customers who migrate to the new plans ³tKe price oI 1eZ CKarter’s neZ minimXm speeG is clearly liNely to Ee higher than the price of the old minimXm speeG´  1246 Id. 1247 Id. 1248 Id. at 26 (citing to Time Warner Cable, High-Speed Internet Plans and Packages, http://www.time warnercable.com/en/plans-packages/internet/internet-service-plans.html (last visited Nov. 10, 2015)). 1249 DISH Reply at 14-15; see also WGAW Petition at 37- ; 6top tKe Cap Comments at  ³Charter has no plans to continXe 7ime :arner CaEle’s  (veryGay /oZ 3rice Internet service²a very important offer for low income residents and senior citizens who are unable to afford the nearly $60 regular price both companies charge for their 50 or 60 Mbps tiers. Time Warner Cable offers this $14.99 tier without preconditions, restricted qualifiers, contracts, or limits on what types of services can be bundled with it.´  1250 See, e.g., Stop the Cap Comments at 7. 1251 Cincinnati Bell Comments at 18-19; see also Hawaiian Telcom Comments at 19-20. 1252 Residential Pricing and Packaging White Paper at 2. 1253 Id. Charter claims that extending its pricing and packaging methodology to New Charter would result in such pXElic interest EeneIits as ³>7ime :arner CaEle@ anG >%riJKt HoXse@ sXEscriEers Zill enMoy simpliIieG montKly prices and will remain free from contracts which can result in early termination fees or usage-EaseG EillinJ´ Id. at 3. Federal Communications Commission FCC 16-59 173 nationwide.1254 At tKe enG oI any promotional perioG CKarter claims tKat 1eZ CKarter’s promotional pricing would gradually transition to its national uniform retail rates.1255 Further, Charter has committed that New Charter would not force existing Time Warner Cable and Bright House customers to change their current service and pricing plans post-transaction.1256 368. Discussion. :e acNnoZleGJe tKat CKarter’s prices Jenerally appear loZer than the prices offered by the other Applicants for comparable services. But, the Applicants have not attempted to TXantiIy tKe EeneIits ZKicK ZoXlG accrXe to tKe pXElic Irom e[tenGinJ CKarter’s pricinJ anG pacNaJes or committed to offering these packages for a definite period of time, so, we ascribe minimal weight to this claimed benefit. 369. As Ze GiscXss aEove 1eZ CKarter’s proposeG stanGalone EroaGEanG tier oI  0Eps GoZnstream Ior  per montK is one oI tKe inGXstry’s loZer introGXctory stanGalone broadband offers in the market for its speed level.1257 :e GisaJree ZitK DI6H’s cKaracteri]ation tKat CKarter’s prices Ior stanGalone service are KiJKer tKan 7ime :arner CaEle’s prices1258 DI6H’s Girect comparison EetZeen a single Time Warner Cable market and CKarter’s EroaGEanG oIIerinJs Goes not Gemonstrate tKat CKarter’s nationZiGe prices are KiJKer CKarter’s introGXctory stanGalone EroaGEanG oIIerinJ is EotK cKeaper anG faster than the introductory price Time Warner Cable appears to offer in most areas for its comparable offerings.1259 6imilarly %riJKt HoXse’s introGXctory EroaGEanG prices appear KiJKer tKan CKarter’s introductory price for its 60 Mbps service.1260 1254 Id. at  ³)or e[ample CKarter oIIers introGXctory promotions Ior stanG- lone broadband and video as well as EXnGleG triple anG GoXEle play oIIerinJs´  1255 Id. 1256 Id. at 4. 1257 See supra paras. 90-91; CHR2-FCC-00000002925, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See also Charter, Combined TV, Internet & Phone for the Best Deal, https://www.charter.com/browse/content/packages (last visited Feb. 17, 2016). 1258 See DISH Reply at 26 (citing to Time Warner Cable, High-Speed Internet Plans and Packages, http://www. timewarnercable.com/en/plans-packages/internet/internet-service-plans.html (last visited Nov. 10, 2015)). 1259 7ime :arner CaEle’s introGXctory stanGalone EroaGEanG prices are  per montK Ior  0Eps service $54.99 per month for 30 Mbps service, $44.99 per month for 20 Mbps service, $34.99 per month for 15 Mbps service, $29.99 per month for 6 Mbps service, and $14.99 per month for 2 Mbps service. See Time Warner Cable, High-Speed Internet Plans and Packages, http://www.timewarnercable.com/en/plans-packages/internet/internet- service-plans html (last visited Feb. 17, 2016). Some Time Warner Cable and Bright House customers may realize additional savings when modem fees are taken into account. Charter does not charge an additional fee for modem rental. Application at 3, 22. Time Warner Cable charges subscribers an additional $10 per month for a standard modem. Time Warner Cable, What Price Will I Be Charged to Lease a Modem from TWC/EarthLink?, http://www.timewarnercable.com/en/support/faqs/faqs-internet/modem-info/internetmodemlease/what-price-will-i- be-charged.html (last visited Feb. 17, 2016). Bright House charges its subscribers [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per month for a standard modem. Charter Response to Information Request, Exhibit 87-  0oGem Iees are siJniIicant EecaXse as noteG Ey RoE 0arcXs 7ime :arner CaEle’s Chairman and CEO, as of only 12% of its customers purchase and use their own modems as of Q2 2015, which implies tKat  oI 7ime :arner CaEle’s Internet cXstomers pay a modem rental fee. See Time Warner Cable (TWC) Earnings Report: Q2 2015 Conference Call Transcript (Jul. 30, 2015), http://www.thestreet.com/story/13239330/1/. 1260 See Bright House, Offers, http://brighthouse.com/shop/internet.html (last visited Feb. 17, 2016). Bright House has five tiers of broadband service at the following 12-month introductory prices: $202 per month for 300 Mbps downstream (only available in Florida); $107 per month for 200 Mbps service; $92 per month for 100 Mbps service; $77 per month for 50 Mbps service; and $57 per month for 25 Mbps service. Id. Federal Communications Commission FCC 16-59 174 370. 7ime :arner CaEle anG %riJKt HoXse cXstomers ZKo miJrate to 1eZ CKarter’s post- transaction offerings EaseG on CKarter’s cXrrent pacNaJes may enjoy some price reductions for their broadband services. A comparison oI CKarter’s prices Ior EXnGles inclXGinJ EroaGEanG service sXJJests tKat CKarter’s introGXctory anG racN rate EXnGle prices are Jenerally loZer tKan 7ime :arner CaEle’s rates.1261 )or e[ample CKarter’s introGXctory price Ior its  0Eps EroaGEanG service EXnGleG ZitK viGeo service is $79.98 per month. 1262 7ime :arner CaEle’s introGXctory price Ior its EXnGle oI a sloZer  Mbps broadband service with video is more expensive at $89.99 per month. 1263 Bright House offers a bundle including 25 Mbps broadband and video service for an introductory price of $79 per month, which, though approximately the same price, has a significantly slower broadband service than is inclXGeG in CKarter’s EXnGle1264 Charter’s racN rate prices²the equivalent of an MSRP for communications services²also tenG to Ee loZer tKan 7ime :arner CaEle’s anG %riJKt HoXse’s racN rates.1265 Therefore, we find that some Time Warner Cable and Bright House consumers may benefit should they transIer to CKarter’s pricinJ strXctXre1266 371. Nevertheless, the Applicants leave some objections raised by commenters unanswered. )or e[ample tKe Applicants Go not responG to DI6H’s claims tKat tKe elimination oI loZer speeG tiers Kas the potential to harm some classes of consumers for which 60 Mbps download speeds are in excess of what they require. Also, the Applicants have not quantified the expected savings Time Warner Cable and Bright House customers would experience should they migrate to the new Charter-based offerings post- transaction. Without a verifiable metric to determine the alleged savings, we are unable to evaluate the extent of the benefit. There is also no indication in the record for how long the Applicants intend to maintain the pricing and speeG cKaracteristics oI CKarter’s cXrrent oIIerinJs1267 372. Absent more detailed showings on the quantity of consumer savings and a commitment to oIIer CKarter’s e[istinJ EroaGEanG pacNaJes Ior a GeIinite perioG oI time Ze are XnaEle to Getermine the magnitude of any public interest benefit. Further, the Applicants have not demonstrated that the post- closing competitive environment is likely to induce New Charter to maintain its current packaging and pricinJ strateJies across 1eZ CKarter’s Iootprint anG tKerefore, the actual value of such packaging and pricing strategies remains uncertain. 0oreover Ze IinG valXe in CKarter’s aEility to set its oZn pricinJ policy anG reMect commenters’ reTXest to aGopt tKis speciIic pricinJ policy as a conGition to tKe transaction. Accordingly, we ascribe minimal weight to the claimed benefit, recognizing both positive and mitigating factors. 1261 See, e.g., CHR2-FCC-00000002925 at 11 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1262 Charter, Combined TV, Internet & Phone for the Best Deal, https://www.charter.com/browse/content/packages (last visited Feb. 17, 2016). 1263 Time Warner Cable, TV, Internet & Phone Plans, http://www.timewarnercable.com/en/plans-packages/cable- internet.html?cic721 (last visited Feb. 17, 2016). 1264 Bright House, Offers, https://shop.brighthouse.com/web/guest/home (last visited Feb. 17, 2016). 1265 See CHR2-FCC-00000002925 at 11 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1266 See Residential Pricing and Packaging White Paper at 3. 1267 See id. at 3-4. Because the Commission has forborne from its price regulation authority as to BIAS, we consider only voluntary pricing commitments. See 2015 Open Internet Order, 30 FCC Rcd 5601, 5841-45, paras. 497-505. Federal Communications Commission FCC 16-59 175 E. Increased Competition to Serve Commercial Customers 373. We find that the proposed transaction would likely benefit competition by enabling New Charter to provide service through a single network to business customers that have locations across the standalone service areas of each Applicant. We also find that the transaction would likely increase competition for certain business customers by reGXcinJ ³double marginalization´ anG that increased sales opportunities might lead New Charter to increase investment in commercial and enterprise network facilities. The Applicants, however, have provided insufficient evidence to quantify the purported benefits. 374. Positions of the Parties. Time Warner Cable, Charter and Bright House provide commercial Internet, voice, Ethernet, backhaul and varied managed, hosting and cloud computing services to their business services customers.1268 The Applicants claim that the proposed transaction would increase enterprise services competition in several ways. First, they assert that the transaction would enable New Charter to provide business services via a single network, a single set of technical standards, and a single point of contact for customer support, which are valuable benefits that customers prefer.1269 They also argue that as separate companies, they could not provide these services and compete as effectively as would New Charter. 1270 The Applicants state that in order to serve a multi-location customer, at least [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of the company’s sites mXst Ee ZitKin tKeir Iootprint 7Key estimate that after the transaction New Charter would be able to serve [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] new multi-site firms and that these firms ZoXlG EeneIit Irom 1eZ CKarter’s promotional pricing.1271 375. Second, the Applicants state that the transaction would eliminate ³double marginalization ´which would lower the price of service to customers who had locations in the service areas of more than one of the Applicants.1272 Third, the Applicants state that New Charter would compete more effectively against telecommunications carriers than the Applicants individually could through partnersKips GXe to 1eZ CKarter’s e[panGeG JeoJrapKic reacK1273 Finally, in order to increase such 1268 Time Warner Cable provides general business Internet services over hybrid-fiber coax, with speeds from 10 Mbps downstream/1 Mbps upstream to 50 Mbps downstream/5 Mbps upstream in all markets, and up to 300 Mbps downstream/20 Mbps upstream in select markets, and offers mid-sized and enterprise customers its Ethernet services, which allow customers to connect their locations and data centers across different geographic regions. Time Warner Cable Response to Information Request, Exhibit 3j-06 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Time Warner Cable also provides managed hosting and cloud computing services through its NaviSite subsidiary, and cell tower backhaul services. Application at 11-12. Charter provides its medium-sized business customers with Ethernet, voice and fiber Internet service, with speeds of up to 10 Gbps, and in addition, offers large businesses custom fiber networks and trunking services. Charter also offers high-capacity data connectivity services to wireless and wireline carriers, ISPs, and other competitive carriers on a wholesale basis. Charter Response to Information Request at 17-18. Bright House offers video, voice, data and cloud-based services to small and medium businesses and in addition provides fiber-based telecommunication services to midmarket and carrier customers, including cloud-based hosted voice, managed security, and cell backhaul to wireless carriers. See supra para. 17. 1269 Application at 35. 1270 Id. at 4, 35-36; Scott Morton Decl. at para. 20. 1271 Claimed Benefits White Paper at 1-7. 1272 See, e.g., Viscusi, W., J. Vernon and J. Harrington, Jr., Economics of Regulation and Antitrust 221-223 (3d ed., 2000). 1273 Scott Morton Decl. at para. 20. Federal Communications Commission FCC 16-59 176 competition, the Applicants committed that New Charter will invest $2.5 billion to build out enterprise networks in areas within its footprint during the four years following the close of the transaction.1274 376. Some commenters agree tKat tKe proposeG transaction ZoXlG increase 1eZ CKarter’s ability to compete for enterprise customers.1275 Granite Telecommunications Inc. (Granite), however, arJXes tKat EecaXse CKarter anG 7ime :arner CaEle’s netZorNs are oIten aGMacent tKey cXrrently compete Ey e[panGinJ tKeir netZorNs into eacK otKer’s territories to serve mXlti-site customers with facilities locateG in EotK oI CKarter anG 7ime :arner CaEle’s Iootprints1276 DISH argues that opportunities exist for Charter and Time Warner Cable to overEXilG into eacK otKer’s territories anG tKat permitting the Applicants to merge would remove the potential for such expansion to occur. 1277 With respect to tKe Applicants’ commitment to invest $2.5 billion in building out N eZ CKarter’s enterprise networks, DISH argues that there is substantial evidence that most, if not all, of the claimed investment and buildout was already planned and would likely occur with or without the transaction.1278 Both Granite and AT&T argue that New Charter would have the opportunity and incentive to collude with other cable operators, rather than compete for multi-location enterprise customers and that the transaction would facilitate further collusion.1279 377. Discussion. The Commission has previously concluded that an expanded footprint may increase a Iirm’s aEility to compete Ior mXlti-location customers for business services that have operations EeyonG tKe Iirm’s pre-transaction service area.1280 We agree with the Applicants that the proposed transaction would likely benefit competition for business services by enabling New Charter to provide service through a single network. Businesses that prefer a ³one stop sKoppinJ´ e[perience would IinG 1eZ CKarter’s service more attractive anG 1eZ CKarter’s XniIieG tecKnical stanGarGs ZoXlG improve its operating efficiency. We also agree that the transaction would lead New Charter to charge these multi- location customers lower prices that the Applicants would be able to offer in the absence of the proposed transaction, due to the elimination of double marginalization. Finally, we agree that increased sales opportunities may likely lead New Charter to increase its deployment of commercial and enterprise netZorN Iacilities 1eZ CKarter’s EroaGer reacK anG Jreater scale ZoXlG liNely increase tKe Iirm’s incentive and ability to meet its commitment to invest $2.5 billion within four years, thereby improving 1eZ CKarter’s netZorN anG increasinJ competition 1274 Application at 18, 37; Winfrey Decl. at paras. 27, 37; Opposition at 3, 6, 27; Charter Response to Information Request at 330-331; Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1-2 (filed Dec. 22, 2015) (Charter Dec. 22, 2015, Commerical and Residential Buildout Ex Parte Letter). 1275 According to CEI, ICLE and TechFreedom, the transaction would generate cost savings in part due to the enhanced scale of the combined entity, which would increase the return on investment in infrastructure, and create incentives for the company to spend more on building better broadband networks. CEI et al. Comments at 2-3. Free State Foundation submits that increased competition for inter-regional and nationwide enterprise broadband is one oI tKe transaction’s main EeneIits )ree 6tate Comments at  1276 Granite Reply at 2-3. 1277 DISH Petition at 58-62. 1278 Id. at 34. 1279 AT&T Comments at 1. 1280 See Applications Filed for the Transfer of Control of Insight Communications Company, Inc. to Time Warner Cable Inc., Memorandum Opinion and Order, 27 FCC Rcd 497, 508, para. 24 (WCB, IB, WTB 2012); see also Applications Filed for the Transfer of Control of tw telecom inc. to Level 3 Communications, Inc., Memorandum Opinion and Order, 29 FCC Rcd 12842, 12847, para. 14 (WCB, IB 2014). Federal Communications Commission FCC 16-59 177 378. We find, however, that the benefits are not as large as the Applicants claim, and that they have provided insufficient evidence to verify the basis for their benefit estimates. For example, while we aJree ZitK tKe Applicants’ assertion tKat tKe enterprise seJment ZoXlG EeneIit GXe to 1eZ CKarter’s aEility to cover ³Gisparate locations´1281 tKis appears inconsistent ZitK tKe Applicants’ statement tKat small businesses would receive the benefits and that NeZ CKarter’s small anG meGiXm EXsiness proGXcts would give the firm a competitive advantage.1282 0oreover tKe comEination oI tKe Applicants’ separate networks brings a benefit only for those customers that have multiple locations across those separate networNs; otKerZise tKe transaction ZoXlG Kave no eIIect on tKe Applicants’ aEility to serve tKose customers. While we agree that the combination of the infrastructure, skills, and investment of each firm would in principle make New Charter more efficient, we find that the Applicants have not demonstrated that these benefits would be substantial and we find it difficult to quantify such a benefit. 379. The Applicants describe the purported benefits to multi-site businesses of varying sizes, and separately, for medium-sized and enterprise-sized business, that they claim would result from the transaction.1283 With respect to multi-site firms of varying sizes, the Applicants calculate that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] new firms would have sufficient site coverage, i.e., at least [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of their sites covered. They state that these firms would be able to be served by New CKarter anG ZoXlG EeneIit Irom 1eZ CKarter’s promotional pricing.1284 The Applicants also estimate that those eligible medium-si]eG anG enterprise EXsinesses ZKo siJn Xp Ior promotional ³GisrXptive´ pricinJ on unbundled enterprise fiber service with a speed of up to 100 Mbps would achieve [BEGIN HIGHL Y CONF. INFO.] [END HIGHLY CONF. INFO.] per year in savings.1285 However, the Applicants do not provide support for their estimates, neither the number of customers who would be eligible for this pricing nor the percentage that would take it.1286 Nor do they state how long the promotional rates would remain in effect. 380. In aGGition tKe Applicants’ claimeG EeneIits may Ee less in tKose reJions ZKere tKey operate in adjacent markets. For example, Charter and Time Warner Cable each operate adjacent systems in Dallas-Fort Worth, and the Applicants claim that combining their systems would allow them to compete more efficiently.1287 However, the Applicants fail to examine the extent to which they already 1281 Application at 4, 35; Winfrey Decl., para. 24. Time Warner Cable defines the enterprise segment as businesses with at least 500 employees. 1282 Claimed Benefits White Paper at 2-4 (claiming that of the new customers New Charter would be able to serve post-transaction approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent have 11 to 50 employees, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent have 51 to 100 employees, and [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent have 101 to 500 employees. Applicants do not provide information on the number of employees for the remaining [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of these new multi-site businesses, nor do they indicate whether these are enterprise or small businesses). We note that while Time Warner Cable serves business customers that are significantly larger than those served by Charter or Bright House, the Applicants do not explain how the varying customer sizes affect their determination of the claimed benefits. Charter GeIines its ³larJe EXsiness´ cXstomers to Kave ³ employees´ In  CKarter estimateG its EXsiness opportXnity in the small, medium, large, and wholesale carrier segments to be, respectively, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Charter Response to Information Request, Exhibit 3(j)-3 at 3. 1283 Claimed Benefits White Paper at 1-7. 1284 Id. at 2, 4. 1285 Id. at 4-7. 1286 See id. at 4-7. 1287 Application at 33-34. Federal Communications Commission FCC 16-59 178 compete with each other for enterprise customers or whether they could today profitably build into the otKer’s territory in orGer to serve mXlti-site enterprise customers. 381. Finally, we reject arguments that the participation of cable companies (including Charter and Time Warner Cable) in partnership arrangements to serve multi-location enterprise business customers is evidence that the proposed transaction would lead to collusion.1288 These commenters have not provided support for these allegations, including whether the cable companies, in fact, compete with each other outside their own territories. As discussed above,1289 collusion is less likely where firms offer various services, on different terms and across different geographies.1290 Moreover, to the extent the transaction allows New Charter to compete more effectively for commercial customers, the transaction will add vibrant new competition and output to the market and tend to undermine industry coordination. F. Network Buildout to Residential Customers 382. The Applicants have committed to building out to one million additional customer locations within four years of closing. After evaluating the record, we do not credit the proffered residential buildout as a transaction-specific benefit, as the Applicants would likely have completed such a build absent the proposed transaction. Nevertheless, we find that the public would benefit from additional residential buildout²in unserved areas and areas served by only one high-speed provider²by New Charter. Buildout into unserved areas would provide a substantial public interest benefit by providing high-speed BIAS to otherwise unserved consumers. Overbuilding in areas served by only one firm providing high-speed BIAS will spur competition, leading to lower prices and greater choice for consumers. Therefore, as a condition to our approval of the proposed transaction, we require that New Charter build out to a total of two million new customer locations, as specified below and in Appendix B. 383. Positions of the Parties. 7Ke Applicants Kave committeG to e[tenG 1eZ CKarter’s wireline facilities to pass one million additional customer locations within four years of closing.1291 The Applicants claim that the proposed transaction would enaEle 1eZ CKarter to ³more eIIectively maNe significant fixed- cost investments Ey spreaGinJ tKose investments over a larJer cXstomer Ease´1292 thereby enabling the combined entity to more aggressively build out their network than as independent companies.1293 The Applicants contend that under normal operating procedures, they do not plan residential build several years in advance1294 but expand their networks organically in response to market 1288 See AT&T Comments at 1, 2, 5; Granite Reply at 3, 5. 1289 See supra Section V.G.2 . 1290 Cf. supra, para. 374 & n. 1268 (describing the different business services the Applicants offer and where they offer services). 1291 Application at 18; Winfrey Decl. at para. 38; Opposition at 3, 6; Charter Dec. 22, 2015, Commercial and Residential Buildout Ex Parte Letter at 1. To formulate the commitment, the Applicants estimated the number of customer locations served by each company and multiplied these estimates by the estimated growth rates that were extrapolated from growth rates between December 31, 2013 and the present. Charter Response to Information Request at 13. 1292 Winfrey Decl. at para. 16. 1293 Charter Dec. 22, 2015, Commercial and Residential Buildout Ex Parte Letter at 2. The Applicants claim that their residential EXilGoXt commitment is possiEle EecaXse oI 1eZ CKarter’s improveG economies oI scale anG increaseG penetration e[pecteG tKroXJK 1eZ CKarter’s proGXct oIIerinJs 1294 Charter Response to Information Request at 13. The Applicants claim that they not make budgetary decisions [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Charter Dec. 22, 2015, Commercial and Residential Buildout Ex Parte Letter at 2. Federal Communications Commission FCC 16-59 179 demand.1295 Thus, by committing to a specific buildout figure on a fixed timeline, they claim that their proffered commitment constitutes a transaction-specific benefit. 384. 6everal commenters Geny tKat tKe Applicants’ resiGential EXilGoXt commitment is a public interest benefit. DISH argues that the Applicants, collectively, would have conducted an analogous buildout absent the proposed transaction.1296 DISH contends that the natural expansion of the three firms would, in fact, exceed the proposed 1 million additional customer locations passed, 1297 and that network fill-in within exis tinJ Iootprints represents ³loZ KanJinJ IrXit´ tKat sKoXlG not Ee creGiteG as a public interest benefit.1298 385. OtKer commenters contenG tKat tKe Applicants’ commitment is GeIicient EecaXse it Iails to address extending service to unserved and underserved areas, and they propose various conditions to promote deployment to high-cost and rural locations.1299 Stop the Cap proposes that the Commission condition the transaction on New Charter adopting universal service deployment obligations within all of Time Warner CaEle’s anG %riJKt HoXse’s IrancKise areas as a means oI promotinJ rXral EroaGEanG deployment.1300 The California Emerging Technology Fund (CETF) voices concern over the high cost of broadband deployment in rural, remote and Tribal areas and asks that the Commission condition approval of the proposed transaction on New Charter deploying wireline broadband to ten unserved or underserved areas in California.1301 386. Discussion. We find that the Applicants have not demonstrated that their proffered commitment to build out to an additional one million customer locations within four years is a benefit of the transaction. The Applicants estimate that without the transaction, they would separately build out to approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] customer locations over the next forty-eight months, using a conservative annual growth rate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent.1302 This natural growth 1295 Charter Response to Information Request at 13. 1296 DISH Petition at 34; DISH Reply at 27; DISH Nov. 6, 2015, Ex Parte Letter at 3; DISH Dec. 2, 2015, Ex Parte /etter at  DI6H contenGs tKat tKe Applicants’ natXral JroZtK rates ZoXlG in Iact e[ceeG tKe proposeG one million additional customer locations passed. 1297 DISH Reply at 27. DISH also provides additional documentary evidence that Bright House in a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . DISH Nov. 30, 2015, Ex Parte Letter at 2 (citing BHN- 00419643, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ). 1298 DISH Petition at 37. 1299 See Stop the Cap Comments at 16; California Emerging Technology Fund Comments at 5, 25 (CEFT Comments); California Emerging Technology Fund Reply at 12 (CEFT Reply). 1300 See Stop the Cap Comments at 12 (proposing that a condition requiring New Charter to adopt universal service obligations within each Applicants’ IrancKise areas Ee maGe availaEle to any consXmer or EXsiness ZitKin tKe geographic boundaries of an existing franchise area, and that service would be provided upon request with no constrXction or otKer Iees reJarGless oI tKe cXstomer’s Gistance Irom the existing plant or ROI formula). 1301 CETF Comments at 5, 25; CEFT Reply at 12. 1302 Charter predicts, based on existing customer locations passed data multiplied by historical growth rates realized between December 31, 2013 and the present, that it would add over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] customer locations in the four years after the closing of the transaction. Charter Response to Information Request at 13; see also Charter Response to Information Request, Exhibit 3(f)-1, 48 Month Consolidated Line Extension Analysis at 1 (Residential Buildout Analysis). Charter calculated that Time Warner Cable would, in the ordinary course of business in the four years after closing, build to approximately [BEGIN continXeG« Federal Communications Commission FCC 16-59 180 estimate actually [BEGIN HIGHLY CONF. INFO.] [E ND HIGHLY CONF. INFO.] the Applicants’ proIIereG commitment so Ze IinG no reason to creGit tKe commitment as a transaction- specific, public interest benefit.1303 387. Nevertheless, we find that that the public would benefit from increased residential buildout, post-transaction. As we have noted above, consumers lack competitive alternatives for high- speed BIAS in most of the country.1304 Residential buildout to areas in which only one firm provides high-speed BIAS would introduce new competition to the local BIAS market, leading to lower prices and greater choice for consumers.1305 Likewise, buildout to unserved areas would confer a substantial public interest benefit by providing high-speed BIAS to otherwise unserved populations. 388. Therefore, we impose a modified version oI tKe Applicants’ resiGential EXilGoXt commitment as a condition to the transaction. We require that New Charter pass, deploy, and offer BIAS capable of providing at least a 60 Mbps download speed to at least two million additional mass market customer locations within five years of closing.1306 Of that total, New Charter must build to at least one million new customer locations outside of its footprint where any provider other than New Charter offers 25 Mbps or faster BIAS.1307 To ensure the public benefits from this condition, New Charter may not use funds from the Connect America Fund to satisfy any part of this buildout requirement. 1308 We find that (Continued from previous page) HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] customer locations. Residential Buildout Analysis at 1. Based on historical data, Time Warner Cable states that it builds out to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Time Warner Cable Response to Information Request at 11. Charter also calculated that Bright House would build out an additional [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] customer locations over the same period. Residential Buildout Analysis at 1. 1303 In Iact Ze IinG tKat tKe Applicants’ JroZtK IiJXres liNely XnGerestimate tKe resiGential EXilGoXt Ior tKe individual Applicants that would occur absent the transaction. For example, Time Warner Cable, alone, built out to an additional [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] customer locations between December 31, 2013 and December 31, 2014, representing a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent annualized increase in customer locations passed. Residential Buildout Analysis at  7ime :arner CaEle’s EXilGoXt Ior  IolloZeG an even sKarper EXilGoXt traMectory²with an additional [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO] customer locations passed in just the first half of 2015. Id. Similarly, Bright House continues to [BEGIN CONF. INFO.] [END CONF. INFO.] to new customer locations, building out to [BEGIN CONF. INFO.] [END CONF. INFO.] new customer locations in 2014 and budgeting for [BEGIN CONF. INFO.] [END CONF. INFO.] in 2015. Advance/Newhouse Response to Information Request, Exh. 3 at 1337. 1304 See supra note 118; Appendix C, Section II.A.1, Table 1. 1305 See AT&T-DIRECTV Order  )CC RcG at  para  notinJ tKat A7 7’s EXilG oXt plans ZoXlG Kave a ³positive eIIect on competition´ ; Comcast-NBCU Order  )CC RcG at  para  notinJ tKat ³accelerat>eG@ private-sector Geployment oI aGvanceG services´ ; 2015 Broadband Progress Report, 30 FCC Rcd at 1383-85, paras. 15-16. 1306 See Appendix B, Section V.2. This condition contains interim buildout targets and reporting obligations which must be met at pre-determined intervals for the condition to be fulfilled. Id. 1307 Our public interest standard extends to evaluating whether a proposed transaction would enhance competition rather than merely preserve existing competition. See supra para. 29 & note 69; see also AT&T-DIRECTV Order, 30 FCC Rcd at 9141, para. 21. We find that requiring residential buildout to customer locations already served by existing high-speed BIAS providers will enhance local competition in fulfillment of this statutory goal. 1308 As Ze Kave previoXsly IoXnG ³private-sector investment in broadband . . . is critical to ensuring a healthy and innovative broadband ecosystem and to encouraging new products and services that benefit American consumers and businesses of every si]e´ Applications Filed by Frontier Communications Corporation and Verizon continXeG« Federal Communications Commission FCC 16-59 181 this condition, which guarantees additional build-out to new customer locations in excess of New CKarter’s estimateG natXral JroZtK rate Zill promote competition anG tKe availaEility oI KiJK-speed BIAS to the benefit of the public. Moreover, the concrete competitive benefits stemming from this condition outweigh any harms, in the unlikely event they occur, with respect to broadband pricing.1309 389. We decline to adopt the specific conditions proposed by Stop the Cap and CETF regarding deployment. The buildout requirement we impose today establishes a balanced framework for expanding EroaGEanG Geployment anG availaEility :e IinG tKat 6top tKe Cap’s proposal ZoXlG Ee overly EXrGensome anG at oGGs ZitK tKe Commission’s e[istinJ approacK to ensXrinJ tKe EroaGEanG Geployment to high-cost areas of the country where there is no private sector business case to serve residential consumers. Absent more granular data on the number and cost characteristics of unserved locations, we are not inclined to impose a condition on New Charter to serve any consumer or business within its franchise area without regard to the cost to deploy to any specific location. Additionally, we reject C(7)’s recommenGation tKat 1eZ CKarter Ee reTXireG to estaElisK neZ service in particXlar commXnities in California.1310 We find that New Charter will be in the best position to determine the specifics of its buildout plan²within the parameters we establish²and should retain flexibility in choosing locations for its new build.1311 More detailed buildout requirements could work to undermine the competitive intent of our condition. G. Expanded Deployment of WiFi Access Points 390. Positions of the Parties. The Applicants assert that the proposed transaction would enaEle 1eZ CKarter to ³increase competition in its service areas Ey maNinJ Zireless a larJer piece oI its broadband strateJy´1312 The Applicants state that New Charter would establish out-of-home WiFi networks.´1313 These would facilitate ³out-of-home WiFi usage on mobile devices, ´and allow ³consumers to choose lower data plans when shopping among mobile carriers.´1314 The Applicants also contend that the transaction would enable New Charter to be a new entrant in the mobile wireless market by offering mobile products through increased WiFi deployment, the deployment of licensed spectrum or a mobile virtual network operator (MVNO) arrangement ²and likely through some combination of these.1315 The Applicants contend that increased scale would enable additional investment and commit tKat ZitKin IoXr years oI closinJ tKe proposeG transaction 1eZ CKarter ZoXlG Geploy ³over  oXt- of-home WiFi access points.´1316 The Applicants contend that absent the transaction they would not (Continued from previous page) Communications, Inc. for Assignment or Transfer of Control, Memorandum Opinion and Order, 25 FCC Rcd 5972, 5993, para. 53 (2010); see Telecommunications Act of 1996, Preamble, Pub. L. No. 104-104, 110 Stat. 56 (1996). None of the applicants currently receive any federal high-cost universal service support, so this condition applies to any future awards of Connect America funding during the five-year build-out term. 1309 See supra Section V.B.2.b. 1310 See CETF Comments at 5, 25; CEFT Reply at 12. 1311 Flexibility in determining build locations is warranted because the build fulfilling this condition may not be financed using federal universal service support, such as CAF. See supra para. *immediately preceding para*; Appendix B. 1312 Application at 27. See also Winfrey Decl. at para. 15; Scott Morton Decl. at para. 13. 1313 Application at 27. See also Winfrey Decl. at paras. 15, 39. 1314 Application at 27. 1315 Claimed Benefits White Paper at 11. See also Opposition at 25. 1316 Application at 18; Winfrey Decl. at paras. 39; Charter Response to Information Request at 302. Federal Communications Commission FCC 16-59 182 deploy WiFi Access Points on such a widespread basis.1317 They also state that New Charter would ³evalXate tKe merits oI leveraJinJ in-Kome roXters as pXElic :i)i access points´1318 391. A number of commenters express support for tKe Applicants’ commitment to EXilG 300,000 out-of-home WiFi access points, noting that expanding WiFi access would help consumers by providing wider Internet access.1319 However, DISH and MFRConsulting argue that the Applicants have failed to demonstrate that their WiFi expansion plans are transaction-specific. 1320 DISH argues that continXinJ ZitK %riJKt HoXse’s anG 7ime :arner CaEle’s e[istinJ rate oI access point Geployment ZoXlG result in [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] additional WiFi access points in the next 48 months. 1321 AT&T urges the Commission to carefully examine the Applicants’ potential memEersKip in tKe CaEle :i)i ConsortiXm arJXinJ tKat tKe consortiXm Kas threatened the development of a consumer friendly mobile video e[perience not only Ey ³e[clXGinJ competitors Irom tKe netZorN´ EXt also Ey ³restrictinJ competitors Irom servinJ moEile viGeo cXstomers using LTE-8nlicenseG tecKnoloJies´1322 392. Discussion. We find that the Applicants have not met their burden of showing that New CKarter’s :i)i EXilG-out is a transaction-specific benefit. Rather, the record shows that the Applicants have deployed WiFi networks and plan to continue deployment of additional WiFi access points even in the absence of the transaction. Further, both Time Warner Cable and Bright House are also members of the Cable WiFi alliance, which allows its memEers’ sXEscriEers to use the public WiFi networks of all of its members.1323 Time Warner Cable indicates that its out-of-home public WiFi network, TWCWiFi, includes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] hotspots as of September, 2015, and that it will have added approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] WiFi access points by year-end 2015.1324 In addition, Time Warner Cable indicates that it plans to add an additional [BEGIN HIGHLY CONF. INFO.] [END 1317 Opposition at 25; Scott Morton Reply Decl. at paras. 205, 208. See also Claimed Benefits White Paper at 11-12. 1318 Application at 28. 1319 See, e.g., Letter from Mark Scheffel, State Senator, CO to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Oct. 13, 2015); Letter from Patrick Waterman, City Manager, Hudsonville, MI to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Oct. 2, 2015); San Luis Obispo Chamber of Commerce Comments at 1; Letter from Elliott Rothman, Mayor, Pomona, CA to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Sept. 30, 2015). 1320 DISH Petition at 34, 37, 41; DISH Nov. 30, 2015, Ex Parte Letter at 4; MFRConsulting Reply at 14. DISH claims that Time Warner Cable has already deployed more than 100,000 hotspots and is part of a consortium that today has more than 400,000 hotspots collectively, and that Bright House has expanded and plans to continue to expand its WiFi deployment even without the transaction. See DISH Petition at 34, 37, 41; Letter from Stephanie A. Roy, Counsel for DISH Network to Marlene H. Dortch, Secretary, FCC, MB Docket No, 15-489 at 4 (filed Nov. 30, 2015). MFRConsulting claims that deployment of additional WiFi access points or bidding for spectrum licenses is not liNely Jiven 1eZ CKarter’s GeEt 0)RConsXltinJ Reply at  -27. See also supra Section V.G.8 for a GiscXssion oI 1eZ CKarter’s GeEt loaG 1321 DISH Reply at 28. 1322 AT&T Comments at 3-  :e IinG tKat A7 7’s arJXment is less relevant to consiGer in tKis conte[t in vieZ oI our conclusion that there is not sufficient evidence for us to conclude that deployment of additional WiFi access points would be a transaction-specific benefit. See infra paras. 392, 395. 1323 Time Warner Cable Response to Information Request at 9; Advance/Newhouse Response to Information Request at 7. 1324 Time Warner Cable Nov. 19, 2015, Updated Response to Information Request at 3; see also Time Warner Cable Response to Information Request at 9, 124; Time Warner Cable Nov. 4, 2015, Updated Response to Information Request at 10. Federal Communications Commission FCC 16-59 183 HIGHLY CONF. INFO.] access points in 2016.1325 Internal company documents show that Time :arner CaEle’s :i)i access points are EeinJ ZiGely accessed by consumers with, for example, over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] unique users in December, 2014.1326 393. Bright House has deployed approximately 53,000 publicly available WiFi access points mounted either at outdoor locations or indoors at the premises of small-to-medium businesses (SMBs). 1327 Bright House indicates that it plans to add approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] outdoor and indoor business public WiFi access points per month for the foreseeable future with or without the transaction.1328 Company documents show that, as of 6eptemEer  %riJKt HoXse’s pXElic :i)i netZorN KaG over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] unique users. 1329 394. Charter currently provides out-of-home WiFi in approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] SMB locations in the St. Louis market.1330 Charter [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1332 WKile CKarter’s oXt-of- home WiFi deployment is at an earlier stage, internal company documents show that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1333 Additional record evidence also suggests that the WiFi expansion Charter claims as a EeneIit oI tKe transaction is alreaGy a part oI CKarter’s e[istinJ EXsiness plan.1334 While not currently a member of the Cable WiFi alliance, Charter is pursuing membership, irrespective of the transaction.1335 1325 Time Warner Cable Nov. 19, 2015, Updated Response to Information Request at 3. 1326 See TWCCable-DOJ -0000013713, [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INF O. ] . 1327 Advance/Newhouse Response to Information Request at 61. 1328 Advance/Newhouse Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Steven J. Horvitz, Counsel for Bright House to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Nov. 2, 2015). 1329 Advance/Newhouse Response to Sept. 21, 2015, Information Request, Exhibit 42(b) [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] at 1. 1330 Charter Response to Information Request at 242. 1331 Cf. Charter Response to Information Request, Exhibit 89-4 ( [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INF O. ] ); CHR2-FCC-00000017512 ( [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO .] ). 1332 Charter Response to Information Request at 242. 1333 See CHR2-DOJ -00000261896 at 4, [BEGIN HIGHLY CONF. I NFO. ] [END HIGHLY CONF. INF O. ] . 1334 See CHR2-FCC-00000048809, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1335 Charter Response to Information Request at 242 n.194. Federal Communications Commission FCC 16-59 184 395. :e also IinG tKat tKe Applicants Kave not GemonstrateG tKat 1eZ CKarter’s potential entry into the wireless market is a transaction-specific benefit. Documents in the record demonstrate CKarter’s interest in [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1336 The evidence shows that Time Warner Cable also [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1337 This evidence suggests that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Further, ZKile CKarter Jenerally contenGs tKat 1eZ CKarter’s larJer scale will justify increased investment in wireless services, it fails to provide sufficient detail to enable the Commission to verify its claims. The Applicants have neither provided sufficient evidence for us to determine why the transaction would make a combined entity more inclined to purchase spectrum, nor that their entry into the wireless market is likely, nor that the Applicants could not pursue entry through other strategies, including becoming MNVOs, on their own without the transaction. H. Deployment of a Mobile Video Application 396. Positions of the Parties. The Applicants assert that the proposed transaction would enaEle 1eZ CKarter to Geploy an ³aGvanceG moEile viGeo application tKat would combine the best features of the pre-transaction companies’ apps into one inteJrateG app´1338 The Applicants state that the application ZoXlG inclXGe tKe ³6pectrXm *XiGe Xser interIace on GemanG anG µGoZnloaG-to-Jo’ IXnctionality anG tKe nearly  live cKannels on 7ime :arner CaEle 7V’s application creatinJ an µenKanceG’ cXstomer e[perience Ior cXrrent CKarter 7ime :arner CaEle anG %riJKt HoXse cXstomers in Zays tKat coXlG not Ee acKieveG EXt Ior tKe transaction´1339 The Applicants state the mobile video application would include additional features, more out-of-home content access, TV control, and advanced search and discovery.1340 397. The Applicants contend that the transaction would speed development of the application by allowing New Charter to leverage resources and infrastructure across the combined company. They also contend that, by integrating the existing features of the pre- transaction companies’ apps 1eZ CKarter ZoXlG Ee aEle to ³IocXs Gevelopment eIIorts anG investments´ on neZ IeatXres tKat ZoXlG improve tKe customer experience. 1341 They state that, in developing the application, New Charter would take aGvantaJe oI tKe ³in-home on-GemanG riJKts tKat >CKarter@ alreaGy licenses EXt Goes not Xse´1342 The Applicants expect to incur costs obtaining these rights, 1343 but also assert that New Charter would ³Ee aEle to spread investment costs associated with the mobile video application more efficiently across a larger sXEscriEer Ease´1344 1336 See CHR2-DOJ -00000075345, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1337 See TWCable-DOJ -000021838 at 21, [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INF O. ] . 1338 Application at 26; Winfrey Decl. at para. 14. 1339 Application at 26-27; Winfrey Decl. at para. 14. 1340 Charter Response to Information Request at 324- 325. 1341 Id. at 323. 1342 Id. at 314. 1343 Id. 1344 Id. at 323. See also infra Section VI.K for a discussion of fixed costs. Federal Communications Commission FCC 16-59 185 398. WGAW argues that the development of an integrated application should not be viewed as a potential benefit of the transaction because it ZoXlG ³actXally eliminate tKe very liNely possiEility oI competitive entry into tKe otKers’ marNets limitinJ IXtXre competitors anG innovation´1345 Public .noZleGJe arJXes tKat tKe Applicants’ commitment Goes not Jo Iar enoXJK to protect tKe pXElic interest EecaXse ³CKarter sXEscriEers sKoXlG Ee aEle to access tKeir viGeo proJramminJ on the device of their choice²not MXst on tKose Gevices tKat CKarter Kas GeciGeG to maNe an app Ior´1346 399. Discussion. While the transaction may lead to the deployment of an improved mobile video application, we ascribe minimal weight to this benefit. Evidence in the record shows that Charter, Bright House, and Time Warner Cable have all deployed mobile applications that allow consumers to watch content on a wide variety of live and on-demand channels.1347 Time Warner Cable and Bright House also are considering ways to continue to enhance the features of their mobile apps to benefit their subscribers.1348 Taken together, the evidence shows that today, in the absence of the transaction, each Applicant’s sXEscriEers alreaGy may Kave access to moEile viGeo applications tKat proviGe access to some live and on-demand video content and features such as remote DVR programming. Given the capabilities of the existing applications, we find tKat any aGGeG EeneIit tKat ZoXlG resXlt Irom 1eZ CKarter’s KasteneG deployment of an advanced mobile video application is likely to be minimal. Moreover, we find insufficient evidence in the record to conclude that each Applicant could not improve their mobile video applications without the transaction. I. Video Device and User Interface Innovation 400. In Section V.G.4 , we discussed comments alleging harm in the sale of video devices. Here Ze analy]e tKe Applicants’ claim tKat tKe transaction ZoXlG ErinJ improveG viGeo Gevices anG Xser interfaces, specifically Ey GistriEXtinJ CKarter’s :orlGbox set-top box and Spectrum Guide user interface system to Time Warner Cable and Bright House subscribers. Because the Applicants have failed to provide a credible estimate of the claimed benefits or demonstrate why the benefits are transaction- specific, we do not credit the roll out of Spectrum Guide or Worldbox as a public interest benefit. 1349 1345 WGAW Petition at 37. 1346 Public Knowledge et al. Petition at 11-12. 1347 Charter Response to Information Request at 323-325; Advance/Newhouse Response to Information Request at 7; Time Warner CaEle Response to InIormation ReTXest at  CKarter’s application proviGes appro[imately  out-of-home on-demand titles, over 40 live TV channels, and enables subscribers to play content when not connected to a network. Charter Response to Information Request at 324. Documents in the record show that %riJKt HoXse’s application %H7V [BEGIN HIGHLY CONF. INFO.] [ END HIGHLY CONF. INFO.] . See BHN-000215531, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Time Warner Cable offers TWC TV which provides subscribers with access to over 300 live TV channels and over 16,000 on-demand choices in-home. Subscribers can also access video out-of-home, with access to ³Go]ens oI live 7V cKannels´ anG ³tKoXsanGs´ oI on-demand programs. TWC TV allows subscribers to tune their set top box and program their DVRs remotely through their devices. See Time Warner Cable, TWC TV® App, https://www.timewarnercable.com/en/tv/features/twc-tv html (last visited Apr. 1, 2016). 1348 Time Warner Cable Response to Information Request at 15; BHN-000215531 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INF O. ] ; TWCable-DOJ -001335082 at 19-20, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1349 See also infra Section VI.K. Federal Communications Commission FCC 16-59 186 401. Positions of the Parties. The Applicants state that New Charter would provide Time Warner Cable anG %riJKt HoXse sXEscriEers ZitK CKarter’s neZ :orlGEo[ set-top box and cloud-based Spectrum user interface system.1350 According to the Applicants, Worldbox is an innovative set-top box that uses a downloadable security system with an advanced digital video recorder (DVR) and time- and space-shifting capabilities.1351 CKarter’s 6pectrXm *XiGe Xses a cloXG-based technology that delivers a customizable, interactive experience, and does not require installation of a new set-top box. 1352 In addition, the Applicants expect that the Spectrum Guide application would function on a wide range of devices and seamlessly integrate cable video and OTT content.1353 The Applicants argue that Time Warner Cable and Bright House have chosen a hardware-centric approach to set-top boxes and that to update their subscribers to the latest technology they would have to develop a product similar to Spectrum *XiGe anG replace eacK KoXseKolG’s set-top box. 1354 The Applicants contend that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1355 402. The Applicants claim that they would deploy Spectrum Guide initially to all-digital systems and continue as systems are digitized,1356 over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] period.1357 Charter estimates the consumer benefit from Spectrum Guide is one dollar per television per month, approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] annually.1358 Further, the Applicants claim that Worldbox would be deployed to the whole New Charter footprint [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1359 1350 Application at 25-26; Charter Response to Information Request at 140. 1351 Application at 26; Winfrey Decl. at para. 13; Opposition at 23; Scott Morton Reply Decl. at para. 72; Claimed Benefits White Paper at 12. 1352 Application at 25; Winfrey Decl. at para. 13; Opposition at 23; Scott Morton Reply Decl. at para. 72; Claimed Benefits White Paper at 12. Spectrum Guide can also be updated from the cloud. See Charter Response to Information Request at 13-15, 139-40, 317- 19. 1353 Application at 25; Winfrey Decl. at para. 13; Charter Response to Information Request at 10-11, 15, 140-141, 314-315, 318-319; Scott Morton Reply Decl. at paras. 31, 36, 43-46, 72-73; Benefits White Paper at 12-13. Charter Kas initiateG 6pectrXm *XiGe’s inteJration into RoNX iO6 anG AnGroiG Gevices See Opposition at 23 n.82. [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See Application at 25. Content is available through the Spectrum Guide on these devices to current Charter customers only. See Scott Morton Reply Decl. at para. 41. 1354 Scott Morton Reply Decl. at para. 74. 1355 Claimed Benefits White Paper at 13. 1356 Application at 25; Charter Response to Information Request at 141. 1357 Claimed Benefits White Paper at 13-14. The Applicants initially committed to rolling out Spectrum Guide to the acquired systems as those systems were converted to all-digital. Application at 25; see also Charter Response to Information Request at 294, 3 19. 1358 Claimed Benefits White Paper at 16. 1359 Id. at  7Ke Applicants initially stateG tKat it KaG KopeG to Geploy :orlGEo[ ³as TXicNly as possiEle´ CKarter Response to Information Request at 313, 320. Federal Communications Commission FCC 16-59 187 403. Some commenters agree that CKarter’s deployment of Spectrum Guide and Worldbox to Time Warner Cable and Bright House customers are public interest benefits.1360 Conversely, Stop the Cap arJXes tKat ZKile CKarter’s cXrrent set-top box lease fee is less than the national average, 1361 it may increase with the introduction of more advanced equipment, such as Worldbox. 1362 Public Knowledge et al. argue that New Charter would have greater scale and control over a larger number of set-top boxes, therefore stifling innovation in set-top box standards and resulting in harms to consumers. 1363 404. Discussion. The Commission regards a robust and competitive video device market to be a benefit to consumers.1364 However, the Applicants have not demonstrated that Time Warner Cable and Bright House subscribers could not obtain services and products similar to the Worldbox and Spectrum Guide from their cable company in the future if the transaction did not proceed, nor why Time Warner Cable or Bright House Networks could not procure advanced devices and user guides from hardware or software suppliers. While we recognize the potential for additional innovation through the Applicants’ development of cloud-based technology, the benefit to the video device marketplace is difficult to quantify, and there is no basis in the record to do so. Accordingly, we ascribe no weight to this potential benefit. J. Generalized Claims Related to Reduced Barriers to Innovation 405. Positions of the Parties. The Applicants argue that the increased scale of the transaction would spur increased investment and innovation by spreading fixed-cost investments over a larger customer base.1365 The Applicants claim that due to a lack of scale, both Charter and Time Warner Cable have delayed investment in various products and services.1366 They further claim that economies of scale would enable New Charter to be Eetter aEle to IolloZ Xp anG enKance tKe inGiviGXal company’s recent innovations,1367 enabling New Charter to serve its customers with its own innovations.1368 The Applicants 1360 ARRIS Comments at 2; Herring Networks Comments at 2; Free State Comments at 12; Cisco Comments at 4-5. According to Cisco, further developments include remote DVR for IP video in the home and upgrades to enhance streamed video traffic. See Cisco Comments at 4-5. 1361 CKarter’s cXrrent 67% lease Iee is .99; the national average is $7.34. Stop the Cap Comments at 13. 1362 The Applicants have not disclosed how much New Charter would charge customers for its Worldbox set-top box. Stop the Cap Opposition at 13. 1363 Public Knowledge et al. Petition at 17; Public Knowledge Reply at 2, 11-12. Stop the Cap expresses concern that New Charter would raise their set-top box lease fees with the introduction of Worldbox. Stop the Cap Opposition at 11. According to internal documents, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See CHR2-DOJ -00000225246, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . However, Stop the Cap fails to linN CKarter’s pXrporteG lease Iee increase to a transaction-specific harm; therefore Ze Jive 6top tKe Cap’s concerns no weight. 1364 See First Navigation Device Report and Order, 13 FCC Rcd at 14776, para. 2. 1365 Application at 28-30; Winfrey Decl. at paras. 16, 17; Scott Morton Decl. at paras. 7-10, 28; Opposition at 7-8; Scott Morton Reply Decl. at paras. 198-200; Charter Response to Information Request at 305-06, 320-21, 333. 1366 Scott Morton Decl. at para. 14-15; Opposition at 7-8; Scott Morton Reply Decl. at paras. 207-08; Charter Response to Information Request at 304, 307. 1367 See Application at 30; Winfrey Decl. at para. 19. 1368 Winfrey Decl. at para. 18. According to the Applicants, without [BEGIN HIGHLY CONF. INFO.] continXeG« Federal Communications Commission FCC 16-59 188 also contend that New Charter would be better able to attract a top-tier research and development (R&D) team with more full-time employees and better facilities, and be better able to play an important role in developing standards for standard-setting bodies.1369 The Applicants also argue that increased scale would make them a better partner for innovative services.1370 The Applicants claim it may not be economical for innovators to develop products and services for three separate platforms, but by partnering with New Charter they could develop a single product for a larger scale and the fixed cost would be spread over a larger customer base.1371 406. Some commenters agree that the transaction would foster innovation and investment.1372 DISH, however, argues that combining two sets of cable assets does not necessarily result in a lower cost per subscriber, or that any generated cost savings would be passed on to consumers.1373 In addition, DISH claims that reducing the number of innovating companies from three to one would likely reduce the overall amount of innovation.1374 407. Discussion. We find that the Applicants have not met their burden of proving that the transaction would foster more innovation. The Applicants present a theoretical argument that increased scale would result in additional innovation and investment,1375 focusing on the increased scale that New Charter would experience, but they do not sufficiently address why Time Warner Cable ²by far the largest of the three Applicants²does not already possess sufficient scale to support innovation. 0oreover ZKile Ze aJree ZitK tKe Applicants’ e[ample tKat tKe Ii[eG cost per subscriber of Spectrum Guide would have been siJniIicantly less iI 7ime :arner CaEle’s anG %riJKt HoXse’s sXEscriEers had been taken into account, Charter nonetheless undertook this innovation without the increase in scale. The Applicants have not provided evidence that with an increased scale this innovation would have occurred on a shorter time frame or would have included additional features. 408. Further, the Applicants have provided insufficient evidence that the transaction would allow New Charter to better attract top R&D employees, increase in-house innovation, or make them better partners to third party innovators. Finally, while the Applicants have claimed that there are benefits to innovators in having one instead of three different platforms to innovate for, the reduced number of firms also would reduce the number of opportunities for some innovators, particularly those that do not (Continued from previous page) [END HIGHLY CONF. INFO.] . See Charter Response to Information Request at 304-05. 1369 Application at 29; Winfrey Decl. at para. 18; Opposition at 23; Charter Response to Information Request at 321- 33. 1370 Application at 32; Winfrey Decl. at para. 22; Scott Morton Decl. at para. 28; Charter Response to Information Request at 320-21, 332-33. 1371 Application at 32-33; Winfrey Decl. at para. 22; Scott Morton Decl. at para. 28. 1372 Herring Networks Comments at 2; TheBlaze Comments at 2; ARRIS Comments at 1-2; Cisco Comments at 5-6, 7; ITIF Comments at 7-8. 1373 DISH Petition at 34-39; DISH Reply at 31. 1374 DISH Petition at 39-40. 1375 We note that while there is theoretical economic literature that finds a relationship between scale and innovation, see A. Dixit, R. Pindyck, & S. Sigbjørn, A Markup Interpretation of Optimal Investment Rule, 109 The Economic Journal 179-89 (1999), the empirical literature finds an ambiguous relationship. See, e.g., Joseph Schumpeter, Capitalism, Socialism, and Democracy (1942); Aghion, Phillipe, Nick Bloom, Richard Blundell, Rachel Griffith, & Peter Howitt, Competition and Innovation: an Inverted-U Relationship, 120(2) Quarterly Journal of Economics 701- 28 (2005); Michael Katz & Howard Shelanski, Mergers and Innovation, 74(1) Antitrust Law Journal 50-54 (2007). Federal Communications Commission FCC 16-59 189 find scale to be important. Therefore, it is not clear from the record whether this transaction would increase innovation or benefit innovators. For all of these reasons, we conclude that the Applicants have not demonstrated that their claims of increased innovation from the increased size of New Charter are cognizable public benefits. K . Generalized Claims Related to Lowered Costs 409. Positions of the Parties. The Applicants claim that, as a result of the transaction, New Charter would generate $800 million in annual cost savings by the end of the third year after closing. 1376 According to the Applicants, these cost savings would result in numerous benefits that would not be achieved without the transaction²including expansion of out of home WiFi access points, development of new mobile applications, and expanded access to digital service. 1377 Charter claims that indirect overhead costs would account for approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million of these cost savings.1378 These overhead and operating expense synergies reflect the reduction of duplicative facilities and procurement benefits resulting from increased scale.1379 410. Charter first estimated these indirect overhead cost savings by evaluating whether Time Warner Cable would need to significantly increase corporate overhead, regional management overhead, and related indirect costs if it acquired Charter. 1380 CKarter IoXnG tKat 7ime :arner CaEle’s e[istinJ inIrastrXctXre coXlG sXpport CKarter’s assets ZitKoXt tKe aGGition oI neZ leaGersKip or aGministrative positions. Therefore, New Charter could generate synergies that are approximately the s i]e oI CKarter’s current overhead and indirect cost base.1381 Charter also estimated these savings by [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1382 Charter classifies these indirect overhead cost savings as primarily fixed-cost savings. 1383 1376 Application at 31; Charter July 10, 2015, Ex Parte Letter at 1; Charter Response to Information Request at 166. This figure includes programming payment reductions. See supra Section VI.B. The Applicants also claim additional cost savings comprised of field operation costs and customer care costs that are not included in the $800 million claimed cost savings. Charter Response to Information Request at 298. 1377 Charter Response to Information Request at 310- 11. 1378 New Charter expects to generate [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per year in personnel cost synergies resulting from reductions in overhead and management functions such as finance, human resources, information technology, and product development. The remaining [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] is expected to result from reduction in overhead and other operating expenses. Id. at 272-273. The Applicants project that New Charter would achieve full indirect overhead synergies in two to three years following the close of the transaction. Charter estimates one-time costs of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See id. at 292. 1379 Charter Response to Information Request at 273. 1380 Id. at 274. 1381 Id. at 273-74. 1382 Id. at 272-73. 1383 Id. at 302. The Applicants note that these costs are not directly related to the number of customers served or other measures of output. Federal Communications Commission FCC 16-59 190 411. In addition to fixed cost savings, the Applicants also claim marginal cost savings due to increased scale.1384 The Applicants cite Worldbox as a specific example. The Applicants claim that savings from deploying Worldbox would occur because the overall cost of Worldbox is less than Time :arner CaEle’s set-top box. 1385 By deploying Worldbox, the Applicants claim that New Charter would save approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per box. 1386 The Applicants anticipate that this price differential would result in marginal cost savings of at least [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million and that 50-60 percent of these cost savings would be passed on to customers,1387 resulting in a benefit of between [ BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million and [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million.1388 412. Some commenters claim overhead costs savings and greater economies of scale would benefit consumers by enabling New Charter to invest in upgrading its broadband network.1389 Other commenters arJXe tKat tKe Applicants’ claimeG cost savinJs are vaJXe non-transaction-specific, and trivial compareG to 1eZ CKarter’s overall e[penGitXres or siJniIicantly smaller tKan CKarter claims1390 Others commenters argue that the cost savings are unlikely to be passed through to customers.1391 413. Discussion. While the Applicants may achieve certain cost savings and efficiencies as a result of the transaction, we ascribe minimal weight to these claimed benefits. With respect to indirect overhead cost savings, the Applicants provide a fairly detailed explanation of the methodology used to determine these cost savings. However, these indirect overhead cost savings are largely fixed costs. As previously stated, we generally find reductions in fixed cost to be less cognizable than reductions in marginal costs because the former are less likely to result in benefits (such as lower prices) for consumers.1392 1384 Application at 28, 31; Winfrey Decl. at paras. 16, 20; Scott Morton Decl. at paras. 8, 21; Opposition at 25. For example, the Applicants state that increased scale would enable the firm to purchase inputs such as co-axial cable, construction services, and modems at large volumes thereby realizing volume discounts. Scott Morton Dec. para. 21; Scott Morton Reply Decl. at para. 215. 1385 Scott Morton Decl. at para. 22; Scott Morton Reply Decl. at para. 37; Claimed Benefits White Paper at 17. 1386 Scott Morton Decl. at para. 22; Scott Morton Reply Decl. at para. 37. The cost of Worldbox plus platform fees is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.]  7Ke cost oI 7ime :arner CaEle’s set top Eo[ plXs CaEleCARD is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See Scott Morton Decl. at para. 22; Scott Morton Reply Decl. at para. 37; Claimed Benefits White Paper at 17. 1387 Claimed Benefits White Paper at 18 (citing Katz Reply Decl. at para. 55). 1388 Claimed Benefits White Paper at 18-19. The Applicants contend that cost savings would benefit consumers either in expected pass-through of savings or in the form of increased working capital to support the deployment of advanced broadband services. Scott Morton Decl. at para. 21; Opposition at 26-27; Scott Morton Reply Decl. at para. 215. 1389 Free State Comments at 12. 1390 See, e.g., Free Press Reply at 4, 7 (citing a Charter press release stating that cost savings would be $500 million in the first year); Greenlining Institute Petition at 15; Free Press Petition at 24, 22 (Free Press also noted that the Applicants have not committed to improving customer service or any other tangible customer benefits); MFRConsulting Reply at 16-17. 1391 DISH Reply at 31; Entravision Reply at 3-4; Free Press Petition at 52 (arguing benefits would inure to the merged firm not customers due to lack of competition in the market). 1392 See supra Section VI.B; see also News Corp.-Hughes Order, 19 FCC Rcd at 611, para. 317; EchoStar- DIRECTV HDO, 17 FCC Rcd at 20631, para. 191; AT&T-DIRECTV Order, 30 FCC Rcd at 9237-38, para. 275. Federal Communications Commission FCC 16-59 191 414. The Applicants also argue that adopting Charter’s more eIIicient cXstomer service anG call center operating strategy would result in service transactions cost savings by significantly reducing 1eZ CKarter’s costs associateG ZitK IielG operations anG cXstomer care1393 However, the Applicants do not quantify these cost savings and therefore we are unable to credit these potential cost savings as a benefit of the transaction. 415. Finally, while the Applicants claim there would be additional marginal cost savings resulting from increased scale and volume discounts, they do not undertake a comprehensive analysis to quantify these savings. Instead, the Applicants limit their analysis to a single example: potential savings from deploying Worldbox to Time Warner Cable and Bright House subscribers post-transaction. While the Worldbox and associated platform fees may cost less than the set-top boxes and CableCARD deployed by Time Warner Cable and Bright House, the differences in installation and maintenance costs EetZeen :orlGEo[ anG 7ime :arner CaEle’s set-top boxes were not included in the analysis. Taking this difference into account may increase or decrease the purported cost savings. As we found in Section VI.B above, a portion of marginal cost savings would likely be passed onto subscribers and, to the extent such pass-through occurs, we recognize it as a public interest benefit.1394 We note again, however, that we find that Dr. Katz likely overstated the pass-through rate.1395 L. Improved Service for Regional and National Advertisers 416. Positions of the Parties. The Applicants claim that in DMAs that currently do not have advertising interconnects, individual advertising customers who wish to reach Charter and Time Warner Cable subscribers currently must make separate purchases from both companies.1396 They further state that New Charter would offer advertisers in these DMAs the opportunity to reach both sets of subscribers in a single transaction.1397 The Applicants are unable to estimate the savings for advertisers from this ability, but speculate that advertisers would benefit by eliminating the incremental costs of transacting with two entities as opposed to one.1398 The Applicants believe it is likely that the transaction costs presently associated with coordinating advertising campaigns across multiple MSOs have the effect of reGXcinJ tKe potential marNet Ior CKarter’s aGvertisinJ services altKoXJK it Kas no speciIic Gata supporting this belief.1399 417. The Applicants also state that due to the greater scale and more rationalized footprint resulting from the transaction, New Charter is more likely to invest in developing more advanced advertising services, such as addressable advertising and dynamic ad insertion for VOD.1400 Charter intends to [BEGIN HIGHLY CONF. INFO.] 1393 According to Charter, in the past three years it has reduced its transactions cost per customer and its overall cost to service customers as a percentage of revenues, and anticipates that deploying the same strategy post-transaction would result in additional cost savings. Charter Response to Information Request at 297- 98. 1394 See supra para. 346. 1395 See supra para. 341. Moreover, Dr. Katz notes that Charter has increased set-top-box fees to cover proJramminJ cost increases anG tKXs tKe price increases CKarter Kas imposeG Zere not EaseG solely on tKe Gevice’s marginal costs. See Katz Reply Decl. at para. 53. Therefore, after Worldbox is deployed, New Charter subscribers may not see a reduction in their set-top Eo[ Iees alonJ ZitK 1eZ CKarter’s reGXction in marJinal costs 1396 Charter Response to Information Request at 250. These include [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1397 Id. 1398 Id.; see also Scott Morton Reply Decl. at para. 219. 1399 Charter Response to Information Request at 250- 51. 1400 Winfrey Decl. at para. 30. Federal Communications Commission FCC 16-59 192 [END HIGHLY CONF. INFO.] .1401 These services, according to the Applicants, would provide advertisers with more cost- effective methods of reaching targeted audiences.1402 Moreover, they claim that the introduction of advanced advertising platforms would increase the quantity and quality of avails. 1403 418. NAB argues that the transaction would result in a larger, regionally consolidated MVPD participating in interconnects with multiple other MVPDs.1404 Thus, New Charter would be able to compete more vigorously for advertising than would a broadcast television station which is prohibited Irom enterinJ into ³even a sinJle´ Moint sales aJreement Ior tKe sale oI aGvertisinJ1405 Hence, according to NAB, the transaction would undermine economic sXpport Ior tKe pXElic’s Iree 7V service1406 419. The Applicants respond tKat tKe transaction’s JeoJrapKic inteJration ie increaseG local and regional density, would increase competition in enterprise and advertising markets as well as provide New Charter with operating efficiencies.1407 7Key reMect 1A%’s concerns tKat tKe transaction would result in levels of geographic concentration that would Karm 1A%’s memEers1408 To the contrary, the Applicants counter, increased competition in advertising markets is a public benefit.1409 420. Discussion. We ascribe minimal weight to the claimed benefits to regional or national advertisers. The Applicants appropriately focus on the benefits advertisers may experience in metropolitan areas that lack an advertising interconnect because the transaction could reduce transaction costs and deliver advertisers other benefits that advertising interconnects often provide advertisers. As the Applicants admit, however, they are ³XnaEle to TXantiIy tKe savinJs or EeneIits to aGvertisers´1410 So although some benefits may accrue, we are unable to determine their magnitude. M. New Charter’s Ability to Market Itself 421. Positions of the Parties. The Applicants contend that the transaction would allow it to better market its own services to potential customers.1411 The Applicants claim that expanded geographic 1401 Charter Response to Information Request at 251. 1402 Winfrey Decl. at para. 31. 1403 Charter Response to Information Request at 251. In the Application, the Applicants note that Time Warner Cable is one of several cable firms that co-own NCC Media, a media advertising firms that sells video and online advertising to local, regional and national customers. Time Warner Cable sells advertising independently as well as via NCC Media. Application at 12. 1404 NAB Petition at iii. 1405 Id. 1406 Id. 1A%’s concern reJarGinJ potential limitations on EroaGcasters’ Moint sales aJreements -6As is misplaceG in tKe instant transaction 7Kese issXes are more appropriately aGGresseG ZitKin tKe conte[t oI tKe Commission’s multiple ownership and JSA proceedings. See supra Section V.G.9 . 1407 Opposition at 43, 52. 1408 Id. at 78. 1409 Id. at 78. Dr. Scott Morton states that the post-transaction Iirm’s increase in geographic scope would make the per subscriber advertising cost of mass media fall, which would increase competition among rivals and benefit customers. Scott Morton Reply Decl. at paras. 218-19. 1410 Charter Response to Information Request at 250. 1411 Winfrey Decl. at para. 31. Thus, currently, Charter [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Scott Morton Reply Decl. at para. 217. Federal Communications Commission FCC 16-59 193 rationalization following the transaction would make mass media advertising methods a more feasible option in numerous DMAs where today Charter passes a relatively low percentage of homes.1412 The Applicants claim tKat ³Ey maNinJ tKe company more visiEle to consXmers increaseG mass meGia advertising would create competitive pressure on other MVPDs to improve their services and reduce their prices´1413 422. Discussion. The transaction may result in increased marketing campaigns by New Charter compared with the Applicants today. Increased marketing may cause other MVPDs to face additional competitive pressure, which will inure to the benefit of consumers. The Applicants, however, have failed to provide information sufficient to allow the Commission to determine the benefit to consXmers Irom 1eZ CKarter’s increaseG aGvertisinJ anG Ze tKereIore do not ascribe minimal weight to the claimed benefit. N. Other Potential Public Interest Benefits 1. Cybersecurity 423. Positions of the Parties. 7Ke Applicants assert tKat tKe transaction ZoXlG ³enaEle 1eZ Charter to take advantage of the best cybersecurity practices employed by Charter, [Time Warner Cable], anG %riJKt HoXse´1414 7o acKieve tKis ³CKarter intenGs tKat top cybersecurity personnel from the three merJinJ companies Zill collaEorate to iGentiIy µEest oI EreeG’ cyEersecXrity practices tKat tKe neZ Company can adopt on an enterprise-ZiGe Easis´1415 Time Warner Cable likewise asserts that the ³transaction Zill alloZ New Charter to improve its policies and processes by expanding threat intelligence capaEilities anG tKe Geployment oI netZorN protection systems tKroXJKoXt a EroaGer netZorN´1416 )XrtKer tKe Applicants claim tKat tKe ³company’s comEineG scale Zill leaG to enhanced intelligence gathering, information sharing, and threat dissemination capabilities that will improve security and reliaEility across tKe netZorN´1417 424. :itK reJarG to CKarter’s cXrrent cyEersecXrity measXres CKarter claims tKat it ³Kas adopted and is in the process of implementing the National Institute of Standards and Technology (NIST) Cybersecurity Framework throughout the company and is adopting a number of CSRIC IV recommendations, including those recommendations that align and adapt the NIST framework to the 1412 Charter Response to Information Request at 277; see also Scott Morton Reply Decl. at para. 216 (arguing that New Charter would be more likely to spend resources using mass marketing after the transaction because each advertisement would reach a larger number of subscribers or potential subscribers). The Applicants demonstrate tKat CKarter’s mass meGia aGvertisinJ eIIorts are aIIecteG Ey tKe nXmEer oI Komes it passes in a Jiven television market area. For e[ample in tKe 6t /oXis area ZKere CKarter’s Iootprint passes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of homes, it primarily uses television advertising, whereas in Los Angeles, where it passes just [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of homes, it tends to use radio advertising more frequently. See Charter Response to Information Request at 277. Once the transaction closes, Charter claims that New Charter would reach [BEGIN HIGHLY CONF. INFO.] [E ND HIGHLY CONF. INFO.] percent of homes within Los Angeles, which would make television the most efficient way of advertising to prospective subscribers in that television market. Id.; see also Scott Morton Reply Decl. at para. 217. 1413 Charter Response to Information Request at 280. 1414 Id. at 255; Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 at 2-4 (filed Dec. 15, 2015) (Charter Dec. 15, 2015, Ex Parte Letter). 1415 Charter Response to Information Request at 255. 1416 Time Warner Cable Response to Information Request at 130. 1417 Id. Federal Communications Commission FCC 16-59 194 caEle inGXstry´1418 CKarter inclXGes cyEersecXrity as part oI its ³Jovernance IrameZorN´ to ³ensXre . . . that senior management and the board of directors are regularly briefed about cybersecurity issues and can maNe inIormeG Gecisions aEoXt tKem´1419 CKarter states tKat it also Kas an ³orJani]ation GeGicateG solely to tKe secXrity oI its netZorN anG services´ ZKicK inclXGes tKe implementation oI ³tKreat anG risN management processes; security and event monitoring capabilities; detailed incident response plans; and otKer aGvance Getection prevention anG protection capaEilities´1420 as well as insider-threat monitoring and mitigation practices and tools.1421 Finally, Charter states it remains active in multiple industry- speciIic cyEersecXrity ZorNinJ JroXps anG enJaJes ZitK IeGeral Jovernment oIIicials to ³Neep aEreast oI GevelopinJ cyEer tKreats anG trenGs´1422 425. 7ime :arner CaEle states tKat it also is ³in tKe process oI implementinJ´ tKe 1I67 Cybersecurity Framework.1423 Time Warner Cable states that it closely coordinated with the Commission anG inGXstry orJani]ations to Kelp Gevelop tKe )rameZorN anG playeG a ³leaG role in inteJratinJ tKe )rameZorN into tKe commXnication sector´1424 Further, Time Warner Cable claims that it manages a ³[ (nterprise RisN Operations Center´ ³GeGicateG to sXpportinJ cXstomer-facing security risks, inclXGinJ assistinJ cXstomers ZitK cyEer tKreats´1425 Finally, Time Warner Cable provides cybersecurity updates to the Board of Directors, including the Audit Committee.1426 426. %riJKt HoXse states tKat it ³cXrrently employs inGXstry-standard physical, technical and aGministrative saIeJXarGs to protect its netZorNs anG its cXstomers’ inIormation´1427 Bright House claims that it provides cybersecurity updates to management, including briefings regarding cybersecurity incidents.1428 Bright House represents that it has formed the Security Governance Council, which 1418 Charter Dec. 15, 2015, Ex Parte Letter at 3. See 1ational InstitXte oI 6tanGarGs anG 7ecKnoloJy ³)rameZorN Ior ImprovinJ Critical InIrastrXctXre CyEersecXrity´ )eE  014) (NIST Cybersecurity Framework), http://www.nist.gov/cyberframework/upload/cybersecurity-framework-021214.pdf C6RIC IV reIers to tKe )CC’s Communications Security, Relaibility and Interoperability Council, Working Group 4. 1419 Charter Dec. 15, 2015, Ex Parte Letter at 3; see also Charter CHR2-FCC-00000079947 at 13-14, ³CKarter Security Program, Executive Steering Committee 8pGate´ Charter Communications (Aug. 28, 2015). The senior manaJement inclXGes tKe ³6ecXrity ([ecXtive 6teerinJ Committee´ tKat encompasses CKarter’s cKieI e[ecXtive officer, chief operating officer, general counsel, and other key business units’ manaJement. 1420 Charter Dec. 15, 2015, Ex Parte Letter at 2- GiscXssinJ CKarter’s GistriEXteG Genial oI service DDo6 attacN protection program). See also Charter CHR2-DOJ -00000659560 at 3, 4, ( [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1421 Charter Dec. 15, 2015, Ex Parte Letter at 2. 1422 Charter Response to Information Request at 255. See also CHR2-DOJ -00000651021 at 4, [BEGIN CONF. INFO.] [END CONF. INFO.] ). 1423 Time Warner Cable Response to Information Request at 131. 1424 Id. 1425 Id. 1426 See TWCable-DOJ -000690978 at 4 & Exhibit C, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 1427 Advance/Newhouse Response to Information Request at 64. 1428 See Letter from Steven J. Horvitz, Counsel to Advance/Newhouse, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed May 3, 2016) (Advance/Newhouse May 3, 2016, Ex Parte Letter); BHN-000410907, [BEGIN HIGHLY CONF. INFO.] continXeG« Federal Communications Commission FCC 16-59 195 includes C-suite/senior VP level participation to gain executive visibility and spread awareness on information security risks, which receives updates about cybersecurity related breaches, trends, and training.1429 In addition, Bright House has a dedicated security team who reports to the CIO1430 and states tKat it Kas ³GeployeG GistriEXteG Genial oI service DDo6 Getection anG mitiJation secXrity controls to minimi]e tKe impact oI a DDo6 attacN´1431 To protect customers in the service footprint, Bright House claims that it has deployed robot network (BOTNET) sensors; and to protect its websites, has deployed Web Application Firewalls (WAF). 1432 427. CKarter states tKat it Kas alreaGy EeJXn tKe process oI ³iGentiIy>inJ@ µEest-of-the-Eest’ cyEersecXrity practices at eacK company´ ZitK tKe collaEoration oI tKe top cybersecurity personnel from the three merging companies1433 and has identified various programs from Charter and Time Warner Cable that New Charter would implement.1434 Moreover, Charter represents that New Charter also plans to continue to utilize the NIST Cybersecurity Framework and recommended standards,1435 and that it plans to establish a corporate governance structure that ensures that the New Charter board and manaJement are ³actively enJaJeG in oversiJKt anG implementation oI tKe company’s cyEersecXrity proJram´1436 428. Discussion. The Applicants contend that the public would benefit from increased security brought about by the combined cybersecurity expertise of the three companies spread across a larger footprint. No commenter raised objections to the transaction based on cybersecurity issues. 429. :e Kave previoXsly IoXnG tKat ³privacy anG netZorN secXrity are amonJ tKe Iactors tKat can aIIect tKe TXality anG reliaEility oI EroaGEanG services´ anG Kave pleGJeG to ³continXe in oXr eIIorts to promote broadband deployment and availability, and in general, ensure that the transition to new technologies proceeds in a manner that does not diminish the privacy and network security protections´1437 As previously observed, mergers pose risks because of the transition from one set of management to another and because the new combined entity may face interoperability and coordination challenges that may create new vulnerabilities for the systems.1438 At the same time, we have not adopted (Continued from previous page) [END HIGHLY CONF. INFO.] ; BHN-000962713, [BEGIN CONF. INFO.] [END CONF. INFO.] . 1429 Advance/Newhouse May 3, 2016, Ex Parte Letter; Advance/Newhouse Response to Information Request at 279 (describing governance and organization). See also BHN-000508428, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ). 1430 Advance/Newhouse Response to Information Request, Exhibit 45 at 279, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] (filed Oct. 13, 2015); Advance/Newhouse May 3, 2016, Ex Parte Letter. 1431 Advance/Newhouse Response to Information Request at 62-63. 1432 Id. 1433 Charter Dec. 15, 2015, Ex Parte Letter at 3. 1434 Id. at 4 ( [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .) 1435 Id. 1436 Id. 1437 2015 Broadband Progress Report, 30 FCC Rcd at 1438-39, paras. 105-106. 1438 See AT&T-DIRECTV Order, 30 FCC Rcd at 9276, para. 387. Federal Communications Commission FCC 16-59 196 a prescriptive regulatory approach to cybersecurity; instead, we expect companies to proactively manage and enhance their cyber risk management posture. 430. Charter currently maintains an active cybersecurity program that is made a priority to various leadership and decision-making levels. Charter has started to discuss cybersecurity plans with its Time Warner Cable and Bright House counterparts, although integration work remains. During the transitional period for New Charter, however, Charter states that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1439 7Ke Applicants’ plans to adopt and implement the NIST Cybersecurity Framework and statement that it will collaborate to iGentiIy ³Eest oI EreeG´ cyEersecXrity practices are important steps in cyber risk management. 431. We agree with the importance New Charter places on cyber risk management, however, given the importance of cybersecurity in the communications ecosystem, the size of the proposed transaction, and the complexities of integrating three distinct operating units into New Charter, we do not find sufficient information in the record to conclude that the cyber risk posture of New Charter is better tKan tKat oI tKe Applicants inGiviGXally As sXcK Ze Go not recoJni]e 1eZ CKarter’s cyEersecXrity program as a public interest benefit of the proposed transaction. In fact, we find that the objective network goals outlined by New Charter will introduce heightened cybersecurity risks during the integration period that will require proactive measures to reduce risk, in order to ensure that consumers are not exposed to higher levels of cyber risk for both their data and transactions. Increased complexity while in a transition state, changes in the cybersecurity workforce, the establishment of trust relationships between networks, and the continued evolution of tools used to attack networks together suggest a significantly raised cyber risk environment during the integration period.1440 432. In light of these considerations, we believe that reporting to the Commission is appropriate in order to help ensure that any harm is appropriately mitigated. We thus adopt a condition requiring New Charter to submit a confidential filing 1441 to tKe Commission’s 3XElic 6aIety anG Homeland Security Bureau within three months of the close of the transaction describing its plans for managing the increased cybersecurity risks during the transition period. Companies are in the best position to manage their own cyber risks; this documented strategy²not a checklist but a description of corporate security realignment²Zill serve as a KelpIXl JXiGepost Ior 1eZ CKarter’s comEineG cybersecurity initiatives during the transition. The plans will also help assure the Commission that New Charter is actively considering its security posture during the challenging integration period. We note that this approach is consistent with past Commission use of filed plans as a mechanism to ensure accountability1442 and provides a means oI JXiGinJ a company’s strXctXre Ior risN manaJement1443 We 1439 Charter Dec. 15, 2015, Ex Parte Letter at 4. 1440 See Ruth Liew, Cyber Risk Poses Increased Threat in Mergers and Acquisitions, Financial Review (Aug. 31, 2015), http://www.afr.com/technology/cyber-risk-poses-increased-threat-in-mergers-and-acquisitions-20150831- gjbdli ; Kacy Zurkus, Inherited Risk: The Downside of Mergers and Acquisitions, CSO (Sep. 17, 2015) http://www.csoonline.com/article/2984627/business-continuity/inherited-risk-the-downside-of-mergers-and- acquisitions html ; Anita Hartman, SANS Institute, Security Considerations in the Merger/Acquisition Process, 2002, https://www.sans.org/reading-room/whitepapers/casestudies/security-considerations-merger-acquisition-process- 667. We note that a recent data breach at Time Warner Cable compromised customer emails and passwords. See Stephanie Mlot, PCMagazine, Time Warner Cable Warns Users of Possible Data Breach (Jan. 7, 2016), http://www.pcmag.com/article2/0,2817,2497611,00.asp. 1441 The Applicants may seek confidential treatment of this report pursuant to section 0.459 of our rules, 47 C.F.R. 0.459. 1442 Wireless E911 Location Accuracy Requirements, Fourth Report and Order, 30 FCC Rcd 1259, 1271, para. 37 (2015). 1443 See NIST, Framework for Improving Critical Infrastructure Cybersecurity Version 1.0 (Feb. 12, 2014), http://www.nist.gov/cyberframework/upload/cybersecurity-framework-021214.pdf. The NIST Cybersecurity continXeG« Federal Communications Commission FCC 16-59 197 impose this condition to ensure that New Charter is actively considering its approach to cyber risk manaJement anG reGXcinJ tKe vXlneraEility oI consXmers’ Gata GXrinJ tKe inteJration perioG 2. Diversity Practices 433. Positions of the Parties. The Applicants pledge that New Charter would incorporate and EXilG Xpon 7ime :arner CaEle’s Eest practices ZitK respect to Giversity anG inclXsion Ior sXppliers anG corporate governance.1444 They indicate that such practices would include attracting, retaining and promoting a skilled workforce; increasing engagement with minority, women, veteran, and disabled- owned businesses; and developing leadership to ensure accountability meeting diversity and inclusion goals.1445 434. The Applicants state that minority, women, veteran and disabled-owned businesses can sXpply 1eZ CKarter ZitK tKe ³KiJK TXality´ materials anG proJramminJ its cXstomers GemanG1446 The Applicants point to 7ime :arner CaEle’s e[istinJ sXpplier Giversity enJaJement activities, as part of its supplier diversity initiatives.1447 Additionally, the Applicants claim that New Charter plans to actively collaborate with national and local supplier organizations whose members consist of vendors that are owned by minorities, disabled persons, and veterans; and maintain profiles of these groups for the pXrpose oI tracNinJ 1eZ CKarter’s spenG ZitK all sXcK venGors1448 435. For New Charter employees, the Applicants state that company leadership would ensure accountability to meeting diversity and inclusion goals.1449 Also, the Applicants claim that New Charter ZoXlG looN to 7ime :arner CaEle’s ([ecXtive InclXsion CoXncil ZKicK reJXlarly convenes senior management to report to the Chief Executive Officer on progress towards achieving diversity and inclusion priorities, as a means to spur employment Giversity across 1eZ CKarter’s EXsiness1450 436. Further, the Applicants explain that an additional best practice would be focused on attracting, retaining, and promoting a skilled workforce that reflects its diverse customer base.1451 In doing so, the Applicants claim that New Charter would work through partnerships with educational (Continued from previous page) )rameZorN resXlteG Irom (O  ZKicK GirecteG 1I67 to ³to leaG tKe development of a framework to reduce cyEer risNs to critical inIrastrXctXre´ ([ec OrGer 1o   )R  -41 (Feb. 12, 2013). 1444 Winfrey Decl. at para. 33. 1445 Id. 1446 Application at 41; see also Winfrey Decl. at para. 33. 1447 Application at 41. 1448 Charter Response to Information Request at 290. 1449 Application at 41. Charter states that New Charter would develop and disseminate a comprehensive diversity and inclusion policy, hire a senior leader to oversee workplace diversity and inclusion initiatives, provide training to its leaders to underscore the benefits of a diverse workforce and the expectation that they foster a culture of inclusion, and establish and support workplace affinity groups that reflect the diversity of the workforce and the communities New Charter serves. Charter Response to Information Request at 289. Through active memberships in and support of organizations that assist with the vocational and professional development of minorities, women, disabled persons, the LGBT community, and veterans, the Applicants claim that New Charter would engage in broad outreach to the communities in which it operates to attract, hire, train and retain diverse talent. Id. 1450 Application at 41. 1451 Id. at 40; see also Winfrey Decl. at para. 33. Federal Communications Commission FCC 16-59 198 institutions, nonprofits, and with the veterans and disability communities.1452 Additional efforts, the Applicants claim ZoXlG involve 7ime :arner CaEle’s (mployee 1etZorN 3roJram to provide New Charter employees significant opportunities to build skills, knowledge, and achieve professional goals.1453 437. DISH Network counters that the diversity and inclusion promises of the Applicants are not transaction-specific, and can be accomplished at any time, without the benefit of the transaction.1454 0oreover *reenlininJ arJXes tKat none oI tKe Applicants’ commitments reJarGinJ Giversity inclXsion customer-friendly contracting and jobs are meaningful. 1455 438. Discussion. The Applicants have not demonstrated that the claimed benefits could not be adopted by the transaction parties without the transaction. Accordingly, we ascribe no weight to claimed diversity practices benefits in our analysis of the transaction.1456 3. Labor Practices 439. Positions of the Parties. The Applicants commit to increase customer care through domestic investment and in-sourced jobs, 1457 and claim that New Charter would bring thousands of overseas Time Warner Cable jobs back to the United States. 1458 They explain that many, if not most of the overseas jobs would be brought in-house, where the Applicants would provide significant training, benefits, and opportunities for advancement, which would add to the skill level and economic fabric of local communities.1459 440. Charter employees fill approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent oI CKarter’s call center MoEs1460 Also, Charter describes plans to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .1461 The total nXmEer oI aGGitional call center MoEs ³Zill easily Ee in tKe tKoXsanGs´ accorGinJ to CKarter altKoXJK it also notes that it has not yet determined the precise number of additional employees that would be 1452 Application at 40. Partnership organizations would include, e.g., Women in Cable Telecommunications (WICT), the National Association for Multi-Ethnicity in Communications (NAMIC), and the Betsy Magness Leadership Institute. Id. 1453 Id. at 41. The Applicants state that these practices have helped Time Warner Cable earn consistent recognition as a ³top place´ to ZorN Ior minorities anG Zomen Ey orJani]ations sXcK as Diversity Inc tKe HXman RiJKts Campaign and NAMIC, among others. Id. 1454 DISH Petition at 37. 1455 *reenlininJ InstitXte 3etition at  7Ke Applicants Iail in *reenlininJ InstitXte’s vieZ to MXstiIy KoZ tKe transaction would benefit communities of color, especially in the Los Angeles area which includes 71.4 percent persons of color and 60 percent who speak a language other than English. Id. 1456 See AT&T-DIRECTV Order, 30 FCC Rcd at 9282, para. 389; News Corp.-Hughes Order, 19 FCC Rcd at 623- 624, para. 357. 1457 Application at 41; see also Winfrey Decl. at para. 35. 1458 Winfrey Decl. at para. 35. 1459 Application at 42; see also Winfrey Decl. at para. 35. The Applicants maintain that these new jobs would also Kelp to Gevelop tKe Applicants’ oZn KiJK-skilled, well-paid workforce devoted to delivering improved customer service across the country. Id. 1460 Charter Response to Information Request at 287. 1461 Id. Charter estimates that Time Warner Cable and Bright House currently out-source [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO . ] and [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] call center jobs offshore, respectively. Id. Federal Communications Commission FCC 16-59 199 necessary to perIorm tKe ZorN oI 7ime :arner CaEle’s anG %riJKt HoXse’s cXrrently oXtsoXrceG employees.1462 By the end of 2015, Charter expects to employ [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] installation and service technicians constituting [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of its field technicians, and to have 96 percent of service visits done by in-house field technicians.1463 Charter commits that New Charter would continue this in-sourcing strategy with respect to field technician positions within the Time Warner Cable and Bright House footprints.1464 441. Jim Boyd, Florida House of Representatives, states that his constituents have benefited from the placement of a new Bright House call center in Manatee County and the hiring of some 160 new employees.1465 Several additional commenters look forward to the job creation opportunities posed by the grant of the transaction.1466 442. DI6H 1etZorN coXnters tKat CKarter’s claims aEout producing additional jobs run counter to its claims about the cost savings to be generated by the transaction.1467 DISH argues that the proposeG KirinJ oI ³tKoXsanGs´ oI call center employees anG tecKnicians 1eZ CKarter would be offset by the elimination of jobs, which are intended to produce savings efficiencies. 1468 The Greenlining Institute aJrees aGGinJ tKat tKe Applicants’ assertions reJarGinJ MoE increases are too vaJXe to ensXre tKat tKe claimed benefits would mitigate the harm caused by job eliminations and reductions in benefits. 1469 443. Discussion. As part of its public interest analysis, the Commission historically has considered employment-related issues such as job creation, commitments to honor union bargaining contracts, and efficiencies resulting from workforce reduction.1470 Although, in past transactions, the Commission has found that labor issues are often not transaction-specific and/or are best addressed by 1462 Id. 1463 Id. at 288. 1464 Id. 1465 Letter from Rep. Jim Boyd, Florida House of Representatives, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Nov. 5, 2015) at 1; but see MFRConsulting Reply at 22-23 (asserting that, if closing outsource centers and bringing jobs back to the U.S. is a good idea for New Charter, then it is similarly a good idea for Time Warner Cable). See also Greenlining Institute Reply at 4. 1466 Letter from Rep. Mike Cierpiot, Missouri House of Representatives, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Aug. 14, 2015); Letter from Michael Urbis, President, McMillan Economic Development Corporation, Ewen, Michigan, to Tom Wheeler, FCC Chairman, MB Docket No. 15-149 (filed Oct. 6, 2015); Letter from Sen. Judy Emmons, Michigan State Senate, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Nov. 5, 2015); Letter from Arnie Roblan, State Senator, Oregon, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed July 30, 2015); Letter from Craig Goldman, District 97, Texas State House of Representatives, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Jan. 25, 2016); Letter from Brian Maienschein, Assembly, 77th District, Assembly, California Legislature, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Jan. 21, 2016); Letter from Rose Licht, Manager, Bridgeport Charter Township, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Jan. 26, 2016). 1467 DISH Petition at 40. 1468 Id.; see also DI6H Reply at  ³>e@ven Zere CKarter to create as many as  neZ 86 call center MoEs Charter has failed to explain the extent to which these call center jobs are offset by the [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO . ] ´  1469 Greenlining Institute Petition at 14. 1470 See, e.g., Sprint-Nextel Order, 20 FCC Rcd at 14029-30, paras. 168-69; Comcast-NBCU Order, 26 FCC Rcd at 4330, para. 224. Federal Communications Commission FCC 16-59 200 state agencies, the NLRB, and the EEOC,1471 when applicants can demonstrate that a number of U.S. jobs will be created as a result of a proposed transaction, the Commission will consider this as part of its public interest analysis. As with all claimed benefits, the Applicants have the burden of proof regarding transaction-specificity, quantification, and verification. 1472 444. We recognize the considerable support in the record for the Applicants’ pleGJe to ErinJ back to the U.S. thousands of call center positions which are currently outsourced abroad. We applaud the Applicants’ IorZarG-looking plans to enhance employment opportunities in the communities they will serve. On the whole, however, the Applicants’ intentions in tKis reJarG are vaJXe :e also aJree ZitK commenters ZKo note tKat tKe Applicants’ KirinJ commitments rXn coXnter to the cost-saving efficiencies and synergies claimed as benefits of the transaction. We therefore conclude that the Applicants have failed to demonstrate that their proposed labor practices constitute a verifiable benefit of the transaction. 4. Low-Income Broadband Offerings 445. Positions of the Parties. The Applicants claim that New Charter would build on Bright HoXse’s EroaGEanG proJram Ior loZ-income consumers by making a broadband offering available with higher speeds and expanded eligibility while continuing to offer the service at a significant discount, and would begin making the offer available within six months after the transaction closes and offer it across the New Charter footprint within three years of closing.1473 446. Several commenters write in support of the Applicants’ plans Ior implementinJ %riJKt HoXse’s low-income broadband option, noting among other things, the limited financial means of thousands of Americans to connect to their communities and the world through technology.1474 These commenters believe the provision of an expanded low- income EroaGEanG option EaseG on %riJKt HoXse’s Connect2Compete broadband program is a public benefit of the transaction and strongly encourage the Commission to grant the transaction based on this and other commitments proposed by the Applicants in their Application.1475 1471 Comcast-NBCU Order, 26 FCC Rcd at 4329-30, para. 223. 1472 See, e.g., Sprint-Nextel Order, 20 FCC Rcd at 14029-30, paras. 168-69 (explaining the standard and noting that it had not been met in that case). The Applicants typically ask us to consider job reduction as a cost-reducing efficiency, consistent with general business practices in which transactions lead to the elimination of positions that are no longer required post-merger. Not surprisingly, to date, there are no example s oI Applicants’ meetinJ tKe standard and receiving credit for creating transaction-specific jobs. 1473 Application at 20; see also Charter Response to Information Request at 294. 1474 See, e.g., Letter from Representative Michael Butler, Missouri House of Representatives, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Sept. 7, 2015); Letter from Gregory F.X. Daly, Collector of Revenue, City of St. Louis, Missouri, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Sept. 18, 2015; Letter from Michael P. Wurm, Executive Director, Truckee Meadows Boys & Girls Club (Reno, Nevada), to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (undated). 1475 See, e.g., Letter from Arnie Roblan, State Senator, Salem, Oregon, to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed July 30, 2015) (citing the significant economic hardship of Oregon rural families and how tKe Applicants’ commitment oI retXrninJ MoEs Irom aEroaG ZoXlG Kelp Iamilies seeNinJ MoEs  See also Letter from Laurene Gramling Lambach, Pres. and CEO, SET Ministry, Inc., to Tom Wheeler, Chairman, FCC, MB Docket No. 15- IileG 6ept   at  notinJ tKat many 0ilZaXNee citi]ens are ³trappeG in poverty´ anG tKe loZ- income broadband initiative as promised by the Applicants would reach a continJent oI consXmer tKat ³typically cannot aIIorG EroaGEanG´ ; /etter Irom 6tacie %ytZorN ([ecXtive Director 0anistee Area CKamEer oI Commerce (Michigan), to Tom Wheeler, Chairman, FCC, MB Docket No. 15-149 (filed Nov. 4, 2015) at 1 (stating that residents who live in the more rural parts of the county are potential beneficiaries of the proposed low-income EroaGEanG oIIerinJ; notinJ tKat  percent oI tKe coXnty’s popXlation lives EeloZ tKe poverty line ; ConnecteG continXeG« Federal Communications Commission FCC 16-59 201 447. Coalition for Broadband Equity (CBE) 1476 asserts that both Time Warner Cable and Charter lag behind several other cable operators in the provision of affordable Internet access programs for K-12 children enrolled in federal school lunch programs and asks the Commission to condition its approval of the Application on: (1) an affordable Internet service tier or program for all low-income households; and (2) ambitious, accountable participation goals, supported by a major marketing commitment.1477 448. The California Emerging Technology Fund (CETF) 1478 proposes that New Charter offer, for at least three years or until 80 percent of the eligible persons in the underserved targeted communities are connected, a standalone wireline broadband offering at $10 per month. 1479 CETF submits that this commitment should include a 45 percent national goal for New Charter to reach the eligible persons in the targeted underserved communities within three years in its service areas and continue to offer the option until 80 percent of the targeted population is connected.1480 Greenlining notes that the Applicants indicate in their Application that the low-income broadband service may not be available throughout New CKarter’s Iootprint Ior at least si[ montKs²and in some locations, not for as long as three years.1481 (Continued from previous page) Nation Comments at 2 (stating that provision of a low-cost adoption program that is targeted to the low-income non- adopting population has the potential to deliver considerable public interest benefits). 1476 CBE is an organization consisting of 21 local government agencies, libraries, educational institutions and community groups in Cleveland, Akron, Dayton and Youngstown, Ohio; Cuyahoga, Greene and Lorain Counties, OH; Milwaukee, WI; Winston-Salem, NC; Kansas, MO and Kansas, KS. All of CBE member communities are totally or partially locateG ZitKin 7ime :arner CaEle’s service territory anG as sXcK ZoXlG Ee Girectly impacteG Ey any transfer of Time Warner Cable to Charter. Coalition for Broadband Equity Comments at 1 (CBE Comments). 1477 CBE Comments at 4; Coalition for Broadband Equity Reply at 2 (CBE Reply). CBE suggests eligibility for the low-income broadband program be the same as the eligibility criteria for Lifeline; a monthly fee of $9.95 per month; annual and 5-year program participation goals (including one million sign-ups over 5 years); a $50 million investment in marketing and new customer support for the broadband program; and, lastly, outreach, training, and literacy programs for underserved communities conducted in partnership with community-based organizations. Id. at 2-3; see also OTI Comments at 7-8 (seeking pricing similar to the Lifeline program). CBE adds that Time Warner Cable has also either failed to make monetary contributions to programs intended to spur broadband adoption (following its purchase of Adelphia cable systems) or has withdrawn its participation in other such community-based efforts. CBE Comments at 5 n.1. 1478 The California Emerging Technology Fund (CETF) is a non-profit organization dedicated to closing the digital divide. CETF Comments at 2. 1479 CETF Comments at 3. CETF submits that the offering should be available to all low-income households, seniors over age 65, persons with disabilities and returning veterans. Id. CETF warns that overly restrictive business rules for the proposed low-income broadband program, such as limiting eligibility to low-income families that have not subscribed to Bright House Internet service within the last 90 days and have no outstanding bills or unreturned equipment, serves to disqualify the very target population that the program seeks to assist. CETF Reply at 8. 1480 CETF Comments at 3; see also CETF Reply at 4. According to CETF, New Charter should also capitalize an independent fund to assist community-based organizations with digital literacy and outreach regarding the low- income broadband program. CETF Reply at 4. CETF proposes that a fund of $285,000 would be adequate to reach 45 percent of all eligible low-income households at a rate of $275 per household. CETF Reply at 4. 1481 Greenlining Institute Petition at 9 (citing Application at 14-15). Further, they assert that the commitment for the enhanced and expanded low-income broadband program lacks the required specificity to ensure that the benefits would result. Id. at 9, 15 n.61; see also Letter from Shawn Sheridan to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 20 (filed Dec. 28, 2015) (filer describing himself as indigent with a monthly gross income 300 percent beloZ tKe national poverty line anG statinJ tKat Applicants’ loZ-income EroaGEanG oIIer ³Zas only extended to those who receive a free school lunch and seniors who commonly do not utilize computers or smart phones . . . how would the Transaction be of benefit to me"´  Federal Communications Commission FCC 16-59 202 449. DI6H claims tKat ³tKere is notKinJ stoppinJ´ tKe Applicants Irom implementinJ a loZ- income broadband option now if they choose to do so.1482 Free Press challenges the Applicants’ notion tKat %riJKt HoXse’s loZ-income broadband offering, Connect2Compete, is a suitable plan for increasing EroaGEanG Geployment on tKe JroXnGs tKat %riJKt HoXse’s proJram Kas strict eliJiEility reTXirements appears to limit the enrollment window to one month a year; and only allows customers to sign up by phone.1483 Free Press argues that a program that offers discounted broadband to a tiny subset of low- income customers is insufficient to offset the harms posed by the transaction.1484 450. On December 22, 2015, Charter filed an ex parte letter describing plans for a low-income broadband program if the transaction is approved.1485 The plan would provide a standalone broadband service 30/4 Mbps for $14.99 per month, available to households with a child enrolled in the National School Lunch Program (NSLP) receiving either free or reduced lunch, or at least one senior citizen (65 or older) receiving Supplemental Security Income (SSI). 1486 Enrollment would be open year-round as opposed to a seasonal enrollment period tied to the K-12 school year.1487 The new broadband program would be implemented within six months of the close of the transaction and would be available across the entire New Charter footprint within three years of closing.1488 Charter outlined several consumer eligibility criteria for the low-income broadband program including requirements that: (1) outstanding debt owed to New Charter (service or equipment) must be settled; and (2) eligible households may not have subscribed to New Charter broadband services in the previous two months. Assuming the criteria are met, customers currently receiving the Connect2Compete broadband service from Bright House would also be able to enroll in the new low-income broadband program when it becomes available in their service area.1489 451. Charter estimates that [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO .] households in 1eZ CKarter’s Iootprint ZoXlG Ee eliJiEle to sXEscriEe to tKis EroaGEanG service based on participation in NSLP.1490 Charter estimates an additional [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO .] households would be eligible to subscribe to the service based on age (65 or older) and receipt of SSI. 1491 Based on the foregoing current data, a total of 1482 DI6H 3etition at  DI6H reIers to 7ime :arner CaEle’s ³(veryGay /oZ 3rice´ EroaGEanG oIIerinJ oI  Mbps at $14.99 per month available to all subscribers. Id. at 38. DISH observes that Time Warner Cable has an ongoing low-cost broadbanG option ZitK no eliJiEility reTXirements anG %riJKt HoXse’s loZ-cost broadband offering appears difficult to subscribe to, is open for enrollment during limited time periods, and is not well- advertised. Id. at  n DI6H GescriEes %riJKt HoXse’s low-cost broadband option as offering 2 Mbps down and 512 kpbs up. Id.; see also OTI Comments at 7- TXestioninJ ZKetKer tKe Applicants’ proIIereG loZ-income broadband offer is a transaction-specific benefit). 1483 Free Press Reply at 23. 1484 Id. Moreover, accorGinJ to )ree 3ress tKe Applicants’ plans to aGopt %riJKt HoXse’s loZ-income broadband program is not a suitable replacement for a low-cost EroaGEanG option sXcK as 7ime :arner CaEle’s cXrrent Everyday Low Price for broadband ($14.99). Id. 1485 See Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, at 1 (filed Dec. 22, 2015) (Charter Dec. 22, 2015, Low-Income Broadband Ex Parte Letter) (stating New Charter would not impose an additional charge for modem rental). 1486 Charter Dec. 22, 2015, Low-Income Broadband Ex Parte Letter at 1. 1487 Id. at 2 n.4. 1488 Id. at 1 n.1. 1489 Id. at 2 n.4. 1490 Id. at 6, Table 1. 1491 Id. at 6, Table 1. Federal Communications Commission FCC 16-59 203 [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO .] households throughout the New Charter footprint would be eligible to receive low-cost broadband service.1492 Charter ascribes a total potential benefit from the low-income broadband service of approximately [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO .] billion annually, of which [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO . ] billion, or [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO .] percent is the result of new broadband subscribership and [BEGIN HIGHLY CONF. INFO .] [END HIGHLY CONF. INFO .] percent is associated with lower prices for households that currently subscribe to a different broadband service.1493 452. Discussion. :e IinG tKat CKarter’s proposeG loZ-income broadband program is not a transaction-specific benefit. We agree with DISH that any of the Applicants could offer a low-income broadband program absent the transaction.1494 Indeed, Bright House already offers such a program.1495 Nevertheless, we find that the public would benefit from programs designed to bridge the digital divide. There is ample evidence that a significant portion of Americans have yet to avail themselves of the benefits of full connectivity.1496 In this regard, we note that many lower income households utilize mobile phones to access the Internet rather than a home Internet connection, thereby limiting the range of tasks or functions they can perform online.1497 Furthermore, we agree that a more robust low-income broadband commitment with accountability mechanisms will help address the digital needs of these consumers.1498 453. TKereIore ratKer tKan creGit CKarter’s DecemEer proposal for a low-income broadband program as a benefit, we impose a moGiIieG version oI CKarter’s proposal as a condition to the transaction.1499 We impose this condition in order to ensure that the public benefits of the transaction oXtZeiJK tKe potential Karms 7Kis conGition aXJments CKarter’s DecemEer proposal Ey making enrollment more straightforward for a broad base of low income subscribers. The condition also 1492 Id. at 6, Table 1. Charter adds that some 2.31 million (or 44 percent) of what would be eligible households under the new low-income broadband program do not currently subscribe to a broadband service. Id. at 9. 1493 Id. at 9. Charter adds that the actual net benefits from the low-cost service ZoXlG GepenG on tKe ³taNe rate´ associated with the offering. Thus, if 25 percent of eligible households choose to sign up for the service, the net annual benefits would be approximately [BEGIN HIGHLY CONF. INFO . ] [END HIGHLY CONF. INFO.] million. Id. at n.26. 1494 See DISH Petition at 37. 1495 See EveryoneOn, Eligibility, http://everyoneon.org/eligibility (last visited Mar. 12, 2016). 1496 See 2016 Broadband Progress Report, FCC 16-6, para. 39; Remarks of Chairman Tom Wheeler, Forum on ³DiJital (TXity 7ecKnoloJy anG /earninJ in tKe /ives oI /oZer-Income )amilies´ 1eZ America )oXnGation :asKinJton DC )eE   ³ZKen Ze talN aEoXt GiJital eTXity Ze neeG to rememEer tKat Ze’re talNinJ a key part oI tKe ansZer to many oI oXr nation’s Jreatest cKallenJes²issues like income inequality, job creation, economic JroZtK 86 competitiveness´  See also John B. Horrigan & Maeve Duggan, Pew Research Center, Internet, Science & Tech, Home Broadband 2015 (Dec. 21, 2015) (finding that 69 percent of Americans indicate that not having a home high-speed Internet connection would be a major disadvantage to finding a job, getting health information or accessing other key information with 33 percent citing cost as the major reason for not having home broadband aces), http://pewrsr.ch/1Ik2m6z. 1497 See See also John B. Horrigan & Maeve Duggan, Pew Research Center, Internet, Science & Tech, Home Broadband 2015 (Dec. 21, 2015) http://pewrsr.ch/1Ik2m6z. 1498 See, e.g., Victoria Rideout and Vikki Katz, Opportunity for All? Technology and Learning in Lower-Income Families (Feb. 3, 2016), http://www.joanganzcooneycenter.org/wp-content/uploads/2016/01/jgcc opportunity forall.pdf/ (finding that 42 percent of those without home Internet access reported the cost was the main reason they lacked access; based on a national survey of 1,200 low-income parents of school-age children and in-person interviews in communities in Colorado, California and Arizona). 1499 See Appendix B, Section VI. Federal Communications Commission FCC 16-59 204 incorporates multiple enforcement mechanisms and holds New Charter accountable for achieving specific enrollment figures at regular intervals. VII. REMEDIES 454. 7Ke Commission’s revieZ oI a proposeG transaction entails a tKoroXJK e[amination oI the potential public interest harms and any verifiable, transaction-specific benefits, including any commitments made by the Applicants to further the public interest. As part of this process, the Commission may impose additional remedial conditions to address potential harms likely to result from the proposed transaction or to help ensure the realization of any promised potential benefits.1500 If, on balance, after taking into consideration these additional remedial conditions, the potential benefits associated with the proposed transaction outweigh any remaining potential harms, the Commission will find that the proposed transaction serves the public interest. 455. As described above, we find that the transaction as proposed would likely cause public interest harms but may also produce modest public interest benefits. Under our sliding-scale approach, we conclude based on this record that the potential benefits are insufficiently large, specific, and imminent to outweigh all likely potential harms. We have imposed, however, several conditions, which in aGGition to remeGies stemminJ Irom tKe Applicants’ Consent Decree ZitK tKe DO- allow us to find that the proposed transaction overall would be in the public interest. As discussed in detail below and in Appendix B, we find that, in light of the conditions and other remedies, the public interest benefits of the proposed transaction outweigh the likelihood of significant public interest harms, such that overall, the proposed transaction is in the public interest. 456. Settlement-Free Interconnection and Related Disclosure Requirements. We find that 1eZ CKarter’s sKare oI ZireG nationZiGe %IA6 sXEscriEers anG its control of interconnection traffic will give it sufficient power in the interconnection market to raise prices, and to cause harm to video competition by impairing rival OVDs. To prevent harms and to protect OVD competition, we determine tKat conGitions are necessary :e conGition tKe transaction on a moGiIieG version oI tKe Applicants’ oIIer of settlement-free interconnection. 457. Data Caps and Usage-Based Pricing. In addition, we find that the transaction increases the risk that the combined entity will use its BIAS to engage in practices, such as data caps and discriminatory usage-based prices that favor its MVPD and online video services over competing online video content and OVDs. Based on the evidence in the record, we conclude that a condition is necessary to address any increased incentive New Charter will have to use these practices to hinder the development of OVDs as a competitive option to its own video offerings. Accordingly, as a condition of this transaction, we prohibit the combined entity from imposing data caps or usage-based prices for its residential BIAS. 458. Supporting and Provisioning CableCARDs. We find that it is in the public interest to ensure that consumers have options for accessing cable video services on retail set-top-boxes. We adopt a conGition tKat ensXres 1eZ CKarter Zill IXlIill CKarter’s stateG commitment to continXe to pXrcKase, distribute, and service CableCARDs so that its subscribers continue to have alternatives to leasing equipment from their cable provider. 459. Programming Agreements. We find that the transaction would increase the risk that New Charter would obtain from programmers additional restrictions against online distribution and cause 1500 Verizon Wireless-SpectrumCo Order, 27 FCC Rcd at 10739-40, para. 111; AT&T-Centennial Order, 24 FCC Rcd at 13929, para. 30. With respect to remedying harms, the Commission has held that it will impose conditions only to remedy harms that arise from the transaction (i.e., transaction-specific harms) and that are related to the Commission’s responsiEilities XnGer tKe CommXnications Act anG relateG statXtes AT&T-Verizon Wireless Order, 25 FCC Rcd at 8747, para. 101. Federal Communications Commission FCC 16-59 205 consumer harm in the video distribution market. Based on the evidence in the record, we conclude that a remedy is necessary. We have worked with the DOJ to prohibit, for seven years, New Charter from entering or enforcing contractual terms that inhibit distribution of content online. 460. Residential Build-Out Commitment. The Applicants have committed to expanding broadband deployment to unserved areas. We adopt as a condition of this transaction a requirement that the Applicants’ e[panG %IA6 Geployment in orGer to soliGiIy pXElic interest EeneIits anG to ensXre tKat the public benefits outweigh any public interest harms. Specifically, New Charter will expand its existing BIAS networks to two million more residences. This condition is intended to encompass all of the Applicants’ pre-transaction planned deployment, projected deployment absent the transaction, and any additional deployment that is profitable as a result of the transaction. 461. Discounted Broadband Services Offer. While we find that the increased availability of high-speed broadband service is a potential benefit of the transaction, we also conclude that the public interest requires us to ensure that the current selection of broadband services are not the only competitive choices for low-income subscribers who may not be able to afford such services. Accordingly, we will require as a condition of this transaction that the combined entity make available an affordable, low-price standalone broadband service to certain low-income consumers in the comEineG entity’s Iootprint 462. Cybersecurity. In addition to the conditions and remedies described above, we recognize that disparate operational systems with wide variation in their current cybersecurity approaches creates a greatly increased cybersecurity risk environment, particularly during the transition period. We therefore adopt a reporting condition that requires New Charter to describe its plans for managing this risk during its transition period. 463. Reporting and Outside Compliance Officer. These conditions serve an important role in securing the public interest benefits and mitigating the potential public interest harms of this transaction. AccorGinJly to ensXre tKat 1eZ CKarter complies ZitK tKe OrGer’s conGitions Ze reTXire tKat 1eZ Charter retain both an internal company compliance officer and an independent, external compliance oIIicer tKat Zill report anG monitor respectively tKe comEineG entity’s compliance in accorGance ZitK the terms of this Order. Enforcement responsibilities remain the sole province of the Commission. VIII. BALANCING POTENTIAL PUBLIC INTERST HARMS AND BENEFITS 464. After careful examination and analysis, we find that the public interest benefits that are likely to accrue to consumers are sufficient to support the grant of the Application. We acknowledge that the merger of the Applicants, and in particular their BIAS businesses, raise significant competitive concerns. We therefore impose conditions intended to prevent the likely public interest harms from arising and that guarantee significant public interest benefits. Thus, on balance, we find that there is sufficient evidence on this record for us to conclude that the Applicants have met their burden of demonstrating that the likely public interest benefits outweigh the likely public interest harms, such that we are able to approve the proposed transaction. IX. CONCLUSION 465. We have reviewed the proposed transaction, the Application of Charter, Time Warner Cable, and Advance/Newhouse, and related pleadings and other submissions. We conclude that the Applicants are fully qualified and that the public interest benefits promised by the proposed transaction are sufficient to support the grant of the Application, pursuant to the public interest. X. ORDERING CLAUSES 466. Accordingly, having reviewed the Application and the record in this matter, IT IS ORDERED, pursuant to Sections 4(i) and (j), 303(r), 214(a), 214(c), 309, and 310(d) of the Communications Act, as amended, 47 U.S.C. §§ 154(i), 154(j), 303(r), 214(a), 214(c), 309, 310(d), that the Application for Consent to the Transfer of Control of various Commission licenses and authorizations from Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership to Federal Communications Commission FCC 16-59 206 New Charter, as set forth in Appendix A, IS GRANTED to the extent specified in this Memorandum Opinion and Order and subject to the conditions specified herein, including Appendix B. 467. IT IS FURTHER ORDERED that the above grant shall include authority for New Charter, consistent with the terms of this Memorandum Opinion and Order, to acquire control of: (a) any licenses and authorizations issued to Charter, Time Warner Cable, or Bright House, or their subsidiaries, GXrinJ tKe Commission’s consiGeration oI tKe Application anG tKe perioG reTXireG Ior consXmmation oI the transaction following approval; (b) any applications that have been filed by Charter, Time Warner Cable, or Bright House, or their subsidiaries, and that are pending at the time of consummation; and (c) licenses that may have been inadvertently omitted from the Application that are held by Charter, Time Warner Cable, and Bright House. 468. IT IS FURTHER ORDERED that the conditions incorporated herein shall continue to apply until they expire by their own terms as expressly stated or as otherwise provided in Appendix B. 469. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and (j), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 309, 310(d), that the Petitions to Deny filed by the Alliance for Community Media and the Alliance for Communications Democracy, COMPTEL, DISH Network Corporation, Entravision Communications Corporation, Free Press, Lincolnville Networks, Inc., Tidewater Telecom, Inc., and Unitel, Inc., Public Knowledge, Common Cause, Consumers Union, and Open Mic, the Greenlining Institute, the Writers Guild of America, West, Inc., and Zoom Telephonics, Inc. and all similar petitions ARE DENIED. 470. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and (j), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 309, 310(d), that the requests that the Application be denied or held in abeyance pending the completion of other proceedings raised in the Petition to Hold in Abeyance of the National Association of Broadcasters and the Petition to Deny of Entravision Communications Corporation and all similar petitions and requests ARE DENIED. 471. IT IS FURTHER ORDERED that this Memorandum Opinion and Order SHALL BE EFFECTIVE Xpon release in accorGance ZitK 6ection  oI tKe Commission’s rXles 47 CFR § 1.103. FEDERAL COMMUNICATIONS COMMISSION Marlene H. Dortch Secretary Federal Communications Commission FCC 16-59 207 APPENDIX A List of Licenses and Authorizations to be Transferred CHARTER LICENSES AND AUTHORIZATIONS Part 78 – Cable Television Relay Service (CARS) File No. Licensee Call Sign CAR-20150630AA-09 CC VIII Operating, LLC KQQ -26 CAR-20150630AB-09 CC VIII Operating, LLC WLY-689 CAR-20150630AC-09 CC VIII Operating, LLC WLY-669 CAR-20150630AD-09 Charter Cable Partners, LLC WLY-637 CAR-20150630AF-09 Bresnan Communications, LLC WHZ -634 CAR-20150630AG -09 Bresnan Communications, LLC WHZ -748 CAR-20150630AH-09 Bresnan Communications, LLC WLY-332 CAR-20150630AI-09 Bresnan Communications, LLC WLY-861 CAR-20150630AJ -09 Bresnan Communications, LLC WLY-914 CAR-20150630AK-09 CCO SoCal I, LLC WAM-603 CAR-20150630AL-09 CCO SoCal I, LLC WAM-609 CAR-20150630AM-09 CCO SoCal I, LLC WHZ -899 CAR-20150630AN-09 CCO SoCal I, LLC WSA-52 CAR-20150630AO-09 CCO SoCal I, LLC WSJ -78 CAR-20150630AP-09 CCO SoCal I, LLC WGV -505 CAR-20150630AQ -09 CCO SoCal I, LLC WHZ -511 CAR-20150630AR-09 CCO SoCal I, LLC WHZ -662 CAR-20150630AS-09 CCO SoCal I, LLC WHZ -764 CAR-20150630AT-09 CCO SoCal I, LLC WBW-21 CAR-20150630AU-09 Falcon Cable Systems Company II, LP WHZ -856 CAR-20150630AV-09 Falcon Cable Systems Company II, LP WHZ -645 CAR-20150630AW-09 Falcon Cable Systems Company II, LP WLY-695 CAR-20150630AX-09 Falcon Cable Systems Company II, LP WHZ -632 CAR-20150630AY-09 Falcon Community Venture I, LP WAY-753 CAR-20150630AZ -09 Falcon Community Venture I, LP WHZ -908 CAR-20150630BA-09 Falcon Community Venture I, LP WLY-441 CAR-20150630BB-09 Falcon Community Venture I, LP WLY-446 CAR-20150630BC-09 Falcon Video Communications L.P. WGJ -868 CAR-20150630BD-09 Rifkin Acquisition Partners, LLC WGZ -305 Parts 27, 87, 90 and 101 – Private Wireless Licenses File No. Licensee Lead Call Sign 0006844362 Charter Communications Operating, LLC WQRJ765 0006846098 Bresnan Communications, LLC WNKK403 0006844566 CC Michigan, LLC WQLA501 0006845163 Charter Communications, LLC KLP528 0006844904 CCO SoCal I, LLC WQKG921 0006845110 Falcon Cable Systems Co. II, LP WQKG920 0006845141 Plattsburgh Cablevision Inc. KVE945 0006845195 Charter Communications, LLC WQTA660 0006854019 Charter Communications, Inc. WQRA689 Federal Communications Commission FCC 16-59 208 Part 63 – Domestic Section 214 Authority Blanket Domestic Section 214 Authority Charter Fiberlink ± Alabama Charter Fiberlink CA-CCO Bresnan Broadband of Colorado Charter Fiberlink CT-CCO Charter Fiberlink ± Georgia Charter Fiberlink ± Illinois Charter Fiberlink LA-CCO Charter Fiberlink MA-CCO Charter Fiberlink ± Michigan Charter Fiberlink CC VIII Charter Fiberlink CCO Charter Fiberlink MS-CCVI, LLC Charter Fiberlink ± Missouri Bresnan Broadband of Montana Bresnan Digital Services Charter Fiberlink ± Nebraska Charter Fiberlink NV-CCVII Charter Fiberlink NH-CCO Charter Fiberlink NY-CCO Charter Fiberlink NC-CCO Charter Fiberlink OR-CCVII Charter Fiberlink SC-CCO Charter Fiberlink ± Tennessee Charter Fiberlink TX-CCO Bresnan Broadband of Utah, LLC Charter Fiberlink VT-CCO Charter Fiberlink VA-CCO Charter Fiberlink WA-CCVII Bresnan Broadband of Wyoming Part 63 – International Section 214 Authorizations File No. Authorization Holder Authorization Number ITC-T/C-20150625-00159 CC Fiberlink, LLC ITC-214-20030127-00070 ITC-T/C-20150625-00158 CCO Fiberlink, LLC ITC-214-20060309-00144 ITC-T/C-20150625-00157 CCVII Fiberlink LLC ITC-214-20060309-00145 ITC-T/C-20150625-00156 Charter Fiberlink CC VIII, LLC ITC-214-20090313-00122 ITC-T/C-20150625-00154 Bresnan Digital Services, LLC ITC-214-20061117-00525 Federal Communications Commission FCC 16-59 209 TIME WARNER CABLE LICENSES AND AUTHORIZATIONS Part 78 – Cable Television Relay Service (CARS) File No. Licensee Call Sign CAR-20150630BE-09 Oceanic Time Warner Cable, LLC WAE-470 CAR-20150630BF-09 Oceanic Time Warner Cable, LLC WAE-478 CAR-20150630BG -09 Oceanic Time Warner Cable, LLC WAX-743 CAR-20150630BH-09 Oceanic Time Warner Cable, LLC WBM-742 CAR-20150630BI-09 Oceanic Time Warner Cable, LLC WBM-744 CAR-20150630BJ -09 Oceanic Time Warner Cable, LLC WLY-376 CAR-20150630BK-09 Oceanic Time Warner Cable, LLC WLY-402 CAR-20150630BL-09 Oceanic Time Warner Cable, LLC WLY-415 CAR-20150630BM-09 Oceanic Time Warner Cable, LLC WLY-713 CAR-20150630BN-09 Time Warner Cable Pacific West LLC KB-60101 CAR-20150630BO-09 Time Warner Cable Pacific West LLC KD-55007 CAR-20150630BP-09 Time Warner Cable Pacific West LLC WAE-606 CAR-20150630BQ -09 Time Warner Cable Pacific West LLC WHZ -293 CAR-20150630BR-09 Time Warner Cable Pacific West LLC WHZ -301 CAR-20150630BT-09 Time Warner Cable Pacific West LLC WLY-662 CAR-20150630BU-09 Time Warner Cable Pacific West LLC WLY-893 CAR-20150630BV-09 Time Warner Cable Midwest, LLC KD-55034 CAR-20150701AA-09 Time Warner Cable Northeast LLC KB-60127 CAR-20150701AB-09 Time Warner Cable Northeast LLC KD-55003 CAR-20150701AC-09 Time Warner Cable Northeast LLC KD-55027 CAR-20150701AD-09 Time Warner Cable Northeast LLC KD-55031 CAR-20150701AE-09 Time Warner Cable Northeast LLC WLY-609 CAR-20150701AF-09 Time Warner Cable Northeast LLC WLY-852 CAR-20150701AG -09 Time Warner Cable New York City LLC KD-55028 CAR-20150701AH-09 Time Warner Cable Southeast LLC KD-55024 CAR-20150701AI-09 Time Warner Cable Southeast LLC KD-55026 CAR-20150701AJ -09 Time Warner Cable Southeast LLC WLY-235 Federal Communications Commission FCC 16-59 210 Parts 87, 90 and 101 – Private Wireless Licenses File No. Licensee Lead Call Sign 0006842582 Oceanic Time Warner Cable LLC WQQS791 0006842587 Time Warner Cable Enterprises LLC WQJU341 0006842589 Time Warner Cable Midwest LLC WPAJ330 0006842592 Time Warner Cable New York City LLC WPOB447 0006842596 Time Warner Cable Northeast LLC KP3939 0006842599 Time Warner Cable Pacific West LLC KBL655 0006842601 Time Warner Cable Southeast LLC KTK417 Part 25 – Satellite Communications Licenses File No. Licensee Call Sign SES-T/C-20150701-00438 Time Warner Cable Southeast LLC E020012 E020045 E070058 E070059 E070060 SES-T/C-20150701-00439 Time Warner Cable Northeast LLC E020046 E020162 E030142 E040258 E040450 E050253 SES-T/C-20150701-00440 Time Warner Cable Texas LLC E120088 E140111 SES-T/C-20150701-00441 Time Warner Cable Midwest LLC E020130 E040257 SES-T/C-20150701-00442 Time Warner Cable New York City LLC E010308 SES-T/C-20150701-00443 Oceanic Time Warner Cable LLC E080200 Federal Communications Commission FCC 16-59 211 Part 63 – Domestic Section 214 Authority Blanket Domestic Section 214 Authority Time Warner Cable Business LLC DukeNet Communications, LLC Time Warner Cable Information Services (Alabama), LLC Time Warner Cable Information Services (Arizona), LLC Time Warner Cable Information Services (California), LLC Time Warner Cable Information Services (Colorado), LLC Time Warner Cable Information Services (Hawaii), LLC Time Warner Cable Information Services (Idaho), LLC Time Warner Cable Information Services (Illinois), LLC Time Warner Cable Information Services (Indiana), LLC Time Warner Cable Information Services (Kansas), LLC Time Warner Cable Information Services (Kentucky), LLC Time Warner Cable Information Services (Maine), LLC Time Warner Cable Information Services (Massachusetts), LLC Time Warner Cable Information Services (Michigan), LLC Time Warner Cable Information Services (Missouri), LLC Time Warner Cable Information Services (Nebraska), LLC Time Warner Cable Information Services (New Hampshire), LLC Time Warner Cable Information Services (New Jersey), LLC Time Warner Cable Information Services (New Mexico), LLC Time Warner Cable Information Services (New York), LLC Time Warner Cable Information Services (North Carolina), LLC Time Warner Cable Information Services (Ohio), LLC Time Warner Cable Information Services (Pennsylvania), LLC Time Warner Cable Information Services (South Carolina), LLC Time Warner Cable Information Services (Tennessee), LLC Time Warner Cable Information Services (Texas), LLC Time Warner Cable Information Services (Virginia), LLC Time Warner Cable Information Services (Washington), LLC Time Warner Cable Information Services (West Virginia), LLC Time Warner Cable Information Services (Wisconsin), LLC Part 63 – International Section 214 Authorizations File No. Authorization Holder Authorization Number ITC-T/C-20150702-00164 TWCIS HoldCo LLC ITC-214-20030117-00043 ITC-T/C-20150702-00165 Insight Midwest Holdings, LLC ITC-214-20040723-00514 Federal Communications Commission FCC 16-59 212 BRIGHT HOUSE LICENSES AND AUTHORIZATIONS Part 78 – Cable Television Relay Service (CARS) File No. Licensee Call Sign CAR-20150701AK-09 Bright House Networks, LLC KA-80616 CAR-20150701AL-09 Bright House Networks, LLC KD-55009 CAR-20150701AM-09 Bright House Networks, LLC KD-55011 CAR-20150701AN-09 Bright House Networks, LLC WHZ -396 CAR-20150701AO-09 Bright House Networks, LLC WHZ -652 Parts 87, 90 and 101 – Private Wireless Licenses File No. Licensee Lead Call Sign 0006834557 Bright House Networks, LLC KBR969 Part 25 – Satellite Communications Licenses File No. Licensee Call Sign SES-T/C-20150702-00448 Bright House Networks, LLC E060061 E060137 E060138 E070009 E980521 E990035 Part 63 – Domestic Section 214 Authority Blanket Domestic Section 214 Authority Bright House Networks, LLC Bright House Networks Information Services (Alabama), LLC Bright House Networks Information Services (California), LLC Bright House Networks Information Services (Indiana), LLC Bright House Networks Information Services (Florida), LLC Bright House Networks Information Services (Michigan), LLC Part 63 – International Section 214 Authorizations File No. Authorization Holder Authorization Number ITC-T/C-20150625-00155 Bright House Networks Information Services (Florida), LLC ITC-214-20090525-00246 Federal Communications Commission FCC 16-59 213 APPENDIX B Conditions I. INTRODUCTION To address the potential harms posed and confirm certain benefits offered by the transaction and the Applicants, the Company will be subject to certain Conditions imposed by the Commission. The Conditions set forth in this Appendix B shall not preclude the Company from undertaking reasonable network management or complying with the requirements under the Digital Millennium Copyright Act. II. DEFINITIONS ³Company´ or ³CKarter´ or ³1eZ CKarter´ means i CKarter %riJKt HoXse 1etZorNs anG 7ime Warner Cable, both individually and collectively; (ii) any affiliate or subsidiary directly or indirectly controlled by New Charter, Charter, Bright House Networks, and Time Warner Cable;1 or (iii) the combined entity of the Applicants as of the Closing Date; and (iv) any successor- in-interest of New Charter, Charter, Bright House Networks, and Time Warner Cable. ³%roaGEanG Internet Access 6ervice´ or ³%IA6´ Zill Kave tKe meaninJ Jiven Ey  C)R ?  a  ³ClosinJ Date´ means tKe Gate on ZKicK tKe acTXisitions anG merJers among and between Charter, Bright House Networks, and Time Warner Cable occur. ³([ecXtive OIIicers´ means an e[ecXtive oIIicer oI tKe Company as GeIineG Ey  C)R ? E-7. ³Interconnection AJreement´ means an aJreement to e[cKanJe Internet traIIic Eetween the Company and an Interconnection Party. ³Interconnection 3arty´ means any person tKat interconnects ZitK tKe Company at an Interconnect Exchange Point. ³Interconnect ([cKanJe 3oint´ means a pKysical location ZKere GiIIerent netZorNs connect to e[change Internet traffic. ³0ass marNet´ means a ³service marNeteG anG solG on a stanGarGi]eG Easis to resiGential cXstomers small businesses, and other end-Xser cXstomers sXcK as scKools anG liEraries´ See Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, 5683, para. 189 (2015) (citations omitted). ³0V3D´ means a 0XlticKannel ViGeo 3roJramminJ DistriEXtor as tKat term is GeIineG in  C)R ? 76.1200(b). ³3erson´ means any natXral person, corporate entity, association, partnership, joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. ³3oint oI 3resence´ or ³3O3´ means an Interconnect Exchange Point designated by the Company. ³ViGeo 3roJramminJ´ means proJramminJ proviGeG Ey or Jenerally consiGereG comparaEle to programming provided by, a television broadcast station or cable network, regardless of the medium or method used for distribution, and includes but is not limited to: programming prescheduled by the 1 Notwithstanding any of the above, the Conditions set forth in this Appendix B shall not apply to any Person in which the Company has less than a majority ownership interest if that Person does not provide BIAS or MVPD services. Federal Communications Commission FCC 16-59 214 programming provider (also known as scheduled programming or a linear feed); programming offered to viewers on an on-demand, point-to-point basis (also known as VOD or PPV); short programming segments (also known as clips); programming that includes multiple video sources (also known as feeds, including camera angles); programming that includes video in different qualities or formats (including high-definition, 3D and 4K); and films. III. SETTLEMENT-FREE INTERCONNECTION CONDITION 1. Introduction. 7Kis ConGition ensXres tKat tKe Company Zill IXlIill CKarter’s commitment to oIIer interconnection between its IP network and other large IP networks, including backbone Internet providers, content delivery networks (CDNs), and edge providers. After a thorough review of the recorG Ze IinG tKat tKe transaction Zill liNely increase eGJe proviGers’ interconnection costs anG New Charter will gain the ability to harm online video distributors. In order to protect edge providers from transaction-specific harms we adopt this Condition. We further find that granting the Application subject to the interconnection-specific Condition set forth here, which renders the Applicants’ commitments meaninJIXl anG enIorceaEle is in tKe pXElic interest 2. Conditions. a. Commencing on the Closing Date, and ending on the seventh anniversary of the Closing Date, or as otherwise adjusted by the Commission under the terms of this Appendix B, the Company shall enter into an Interconnection Agreement consistent with the terms set forth in Attachment 1 with any Person that qualifies under the terms of Attachment 1. b. The Company shall post Attachment 1 on a publicly accessible webpage, available without charge to a Person viewing it, associated with its networks operations group. c. Individual Contracting. Nothing in this Condition precludes the Company and a Person from voluntarily entering into an Interconnection Agreement with different terms than elaborated in this Condition. However, any such Interconnection Agreement with a Person that qualifies under the terms set forth in Attachment 1 shall: i. Not contain terms that are materially less favorable to the Interconnection Party than the correlating terms set forth in Attachment 1; ii. Not lower the data transfer growth rates specified in the ³6Xspension´ portion oI AttacKment  ie ³10% or more in any calendar month compared to any prior calendar month; or at least 8% per month over a rolling 6 month period; or 5.9% over a rolling 6 month period for a company whose traffic constitutes 30% or more oI tKe total traIIic in tKe Gominant Girection on 1eZ CKarter’s 1etZorN )´; iii. 3ermit ³any portion oI tKat incremental traIIic tKat Zas previoXsly EeinJ GelivereG to 1eZ CKarter Ey tKirG parties´ to Ee e[empt Irom calcXlatinJ tKe Gata transfer growth rate inclXGinJ tKe rates in tKe ³6Xspension´ portion oI Attachment 1, and permit that in the event that the Interconnection Party begins conveying data to or from New Charter that was previously conveyed to or from New Charter by a third party, the parties shall account for this additional data transIer as tKe InterconnectinJ 3arty’s oZn Ior tKe pXrposes oI measXrinJ JroZtK rates during subsequent measuring periods; and iv. Not limit the relief available to the Interconnection Party in the event of a breach, except that an Interconnection Agreement may include standard contractual provisions limiting the types of damages available for breach of contract (e.g., by limiting the availability of consequential, incidental, general, indirect, or punitive damages). Federal Communications Commission FCC 16-59 215 d. Points of Presence. The Company may designate additional Points of Presence, but shall not remove any Points of Presence from the list contained in Attachment 1. e. Enforcement. i. Any Person seeking an Interconnection Agreement with the Company who is aggrieved by a failure by the Company to comply with this Condition, including the terms of Attachment 1, may seek redress from the Commission.2 ii. In the event that a dispute arises between the parties to an Interconnection Agreement to a contract entered into pursuant and subject to this Condition, that dispute shall be addressed to a court of competent jurisdiction or as otherwise provided in said Agreement. 3. Reporting. Within ninety (90) days after the Closing Date, and quarterly thereafter, the Company shall submit until the seventh anniversary of the Closing Date, or as otherwise adjusted by the Commission XnGer tKe terms oI tKis AppenGi[ % ³Interconnection ReportinJ 3erioG´ a GetaileG report that sets forth the following information: a. All Interconnection Parties that have reached Interconnection Agreements with the Company under the terms of this Condition; b. Information for each Interconnect Exchange Point, which shall include, as of the date that is the last day of the calendar quarter preceding the Report: i. Each Interconnection Party interconnected with the Company at that Interconnect Exchange Point; ii. For each Interconnection Party, the aggregate link capacity between the Company and each Interconnection Party at that Interconnect Exchange Point; iii. For each Interconnection Party, traffic exchange, in each direction, as measured by the 95th percentile method; and iv. For each port through which traffic is exchanged with an Interconnection Party, the percentage time within the reporting period that the port was over 75% capacity in the dominant direction. c. Reports shall be filed in machine readable format, and shall include, at a minimum, the following information, in a similar format as shown below: 2 For example, Persons seeking redress may file with the Commission a Petition for Declaratory Ruling pursuant to 47 CFR § 1.2 or a Section 208 formal complaint pursuant to 47 CFR §§ 1.720-1.736, as appropriate. There may also be instances where Persons may avail themselves of the Open Internet procedures for formal complaints, 47 CFR §§ 8.12-8.17, which govern, inter alia, certain Internet traffic exchange disputes ( see Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, 5713 para. 252 (2015)). Federal Communications Commission FCC 16-59 216 Chicago POP Interconnection Party A: 10G (Jan. 1, 2015 to Mar. 30, 2015) Month Upstream Downstream Jan. 2015 1.53 Gbps 5.71 Gbps Feb. 2015 1.62 Gbps 5.92 Gbps Mar. 2015 1.75 Gbps 6.17 Gbps Interconnection Party B: 240 G (Jan. 1, 2015 to Mar. 15, 2015) 300 G (Mar. 16, 2015 to Mar. 30, 2015) Month Upstream Downstream Jan. 2015 2.53 Gbps 165.5 Gbps Feb. 2015 3.27 Gbps 175.2 Gbps Mar. 2015 3.41 Gbps 180.3 Gbps d. In addition, for the duration of the Interconnection Reporting Period, the Company shall sXEmit annXally to tKe Commission’s OIIice oI *eneral CoXnsel a report Irom tKe Independent Compliance Officer addressing whether the Company has complied with this Condition. The first such report shall be submitted no later than ninety (90) days after the date that is one year after the Closing Date. 4. Disclosure of Internet Interconnection Agreements. Commencing on the Closing Date and ending on the seventh anniversary, or as otherwise adjusted by the Commission under the terms of this Appendix B, that date, absent any extension under the terms of this Appendix B, the Company shall comply with the following: a. The Company shall submit all Interconnection Agreements within thirty (30) days of execution, in accordance with the filing and service requirements set forth in Section IX.5 Kerein entereG Ior tKe e[cKanJe oI Internet traIIic EetZeen tKe Company’s netZorN tKat carries Broadband Internet Access Service traffic and the Interconnection Party, at Interconnect Exchange Points located within the United States, unless the aggregate capacity of the interconnection links between the Company and an Interconnection Party is less than 30 Gbps. b. Within thirty (30) days of the Closing Date, in accordance with the filing and service requirements set forth in Section IX.5 herein, the Company shall submit all existing aJreements Ior tKe e[cKanJe oI traIIic EetZeen tKe Company’s netZorN tKat carries Broadband Internet Access Service traffic and an Interconnection Party, at Interconnect Exchange Points located within the United States, unless the aggregate capacity of the interconnection links between the Company and an Interconnection Party is less than 30 Gbps. Federal Communications Commission FCC 16-59 217 IV. DATA CAPS AND USAGE-BASED PRICING CONDITION 1. Introduction. We find that as a result of the transaction, the Company will have an increased incentive to discriminate against online video distributors which could have the effect of harming video competition. One manner to limit such access is the imposition of data caps and usage- based allowances at levels intended to blunt competition from online video distributors. The purpose of this Condition is to address the incentive and ability to use data caps and other usage based practices against video content delivered to customers through wired BIAS. The Condition eliminates the risk that that the Company will use its BIAS to engage in practices that favor its own or affiliated video content. 2. Conditions. Commencing on the Closing Date, and ending on the seventh anniversary of the Closing Date, or as otherwise adjusted by the Commission under the terms of this Appendix B, the Company shall not offer any fixed mass market BIAS plans that subject mass market BIAS customers to data caps or any other usage-based pricing mechanisms. Nothing herein shall require the Company to provide, or continue to provide, a residential BIAS plan to a business operating from a property zoned for commercial use (e.g., enterprise customers and restaurants). Usage-based pricing mechanisms include, but are not limited to, the following actions: a. charging fixed mass market BIAS customers different prices based on the amount of data consumed; b. preventing fixed mass market BIAS customers from consuming data beyond a certain threshold; c. imposing additional fees on fixed mass market BIAS customers who consume data beyond a certain threshold; d. requiring fixed mass market BIAS customers who have consumed data beyond a certain threshold to upgrade to a higher priced service product, except that this Condition IV.2.d. shall not apply to a fixed mass market BIAS customer who, after an opportunity to discuss with the Company, is reasonably found by the Company to be: 1) not primarily using its BIAS to consume edge provider traffic in the downward direction; and either 2) running a server to upload or exchange large volumes of traffic in a manner that is not consistent with residential use; or 3) using, and/or enabling others to use, a BIAS data plan to operate any type of business or commercial enterprise (indicia of commercial usage include, without limitation, sending and receiving high volumes of symmetrical traffic and not consuming traffic in a typical residential manner where the majority of traffic travels in downward direction); or e. impairinJ or otKerZise GeJraGinJ tKe speeG or TXality oI tKe cXstomer’s Ii[eG mass market BIAS connection once the customer surpasses a certain data consumption threshold or consumes a certain amount of data.3 3. Reporting. For the duration of this Condition, the Company shall submit a report in accordance with the filing and service requirements set forth in Section IX.5 herein on a semi-annual basis, with the first such report to be submitted within six (6) months after the Closing Date. Each such report will include the following: 3 For avoidance of doubt, nothing in this Section IV shall be construed to prevent the Company from taking any action consistent with reasonable network management or to comply with the requirements under the Digital Millennium Copyright Act. Federal Communications Commission FCC 16-59 218 a. a description, including any terms and conditions, of any data caps or usage-based pricing mecKanism proposeG to any oI tKe Company’s ([ecXtive OIIicers or Directors or planned by the Company; and b. any other reasonable information the Independent Compliance Officer determines is reasonably necessary to report as required by this Condition. V. RESIDENTIAL BUILD-OUT CONDITION 1. Introduction. The Applicants have offered to invest in residential broadband facilities. The purpose of this Condition is to ensure the promised public benefits as a result of such investment will inure to consumers. This Condition also provides an opportunity for increased competition from services that rely on wired BIAS to deliver video by creating more customer locations or more service options that can receive higher speed broadband service. 2. Condition. a. Within five (5) years of the Closing Date, in accordance with the timing requirements set forth in subparts 2.a.(i) through 2.a.(v) below and the composition requirements in subpart 2.b, the Company shall pass, deploy and offer BIAS capable of providing at least a 60 Mbps download speed to at least 2 million additional mass market customer locations,4 such as those occupied by residences, home offices, and very small businesses (and excluding locations occupied by large enterprises and institutions other than schools and libraries), than the Company passes as of the monthly Closing Date for each Applicant for the month prior to which the Closing Date occurs: i. By twelve (12) months after the Closing date the Company shall expand its Broadband Internet Access Service to at least 150,000 of the aforementioned customer locations; ii. By December 31, 2017, the Company shall expand its Broadband Internet Access Service to at least 400,000 of the aforementioned customer locations; iii. By December 31, 2018, the Company shall expand its Broadband Internet Access Service to at least 800,000 of the aforementioned customer locations; iv. By December 31, 2019, the Company shall expand its Broadband Internet Access Service to at least 1.2 million of the aforementioned customer locations; v. By December 31, 2020, the Company shall expand its Broadband Internet Access Service to at least 1.6 million of the aforementioned customer locations; and vi. Within five (5) years of the Closing Date the Company will complete the aforementioned deployment to all 2 million customer locations. b. The aforementioned 2 million additional mass market customer locations shall include at least  million mass marNet cXstomer locations KereinaIter ³oXt-of-Iootprint locations´ where: i. at least one other BIAS provider offers, before or within 12 months of the Company’s Geployment at sXcK location  0Eps or Iaster aGvertiseG service in the downward direction to the same mass market customer location; and 4 For purposes oI tKis OrGer anG tKese ConGitions ³cXstomer locations´ exclude enterprise customers and broadband-connected locations such as gates, ATMs, and elevators. Federal Communications Commission FCC 16-59 219 ii. the customer location is in an area where the Company does not have existing facilities as of the Closing Date. c. A mass market customer location is passed for purposes of this Condition where the Company does, or could, within a typical service interval (7 to 10 business days), without an extraordinary commitment of resources, provision two-way data transmission to and from the Internet capable of a download speed of at least 60 Mbps. d. A mass market customer location is considered to be in an area where the Company does not have existing facilities as of the Closing Date under subpart 2.b.ii. when it is located in a census block that the Applicants did not list as a census block in their respective December 2015 Form 477 filings (including corrective filings submitted as of the Closing Date) in which the Company did, or could have, within a typical service interval (7 to 10 business days), without an extraordinary commitment of resources, provision two-way data transmission to and from the Internet. e. 7Ke Commission’s OIIice oI *eneral CoXnsel Zill also creGit neZly passeG mass marNet customer locations in other census blocks as being in an area where the Company does not have existing facilities as of the Closing Date if the Company demonstrates that: i. tKe neZly passeG mass marNet cXstomer location lies EeyonG tKe Company’s nodes deployed as of the Closing Date; and ii. the nodes deployed as of the Closing Date are incapable of supporting 60 Mbps service in the downward direction to the newly passed mass market customer location because the nodes deployed as of the Closing Date are located too far from the newly passed mass market customer location to make 60 Mbps service possible (but no t iI tKis inaEility is GXe to tKe noGes’ capacity or Gensity limitations or where node-splitting would enable the provision of 60 Mbps service in the downward direction from the location of any node deployed as of the Closing Date). f. The Company may not use receive or reTXest any Connect America )XnGs ³CA)´ Ior the investments required to satisfy, in whole or in part, the deployment of the additional 2 million mass market customer locations required under this buildout Condition or for operating expenses for such locations after such are deployed. Specifically, 2 million geocoded locations reported for purposes of these Conditions cannot be counted towards satisfying any CAF requirements. 5 g. The Company may not use the acquisition of other BIAS providers to satisfy, in whole or in part, the deployment of the additional 2 million mass market customer locations required under this Condition, except that for mass market customer locations that would otherwise qualify as out-of-footprint locations, the Commission will credit no more than 250,000 mass market customer locations towards the out-of-footprint locations requirement of subpart 2.b. when the Company acquires BIAS providers and upgrades them to 60 Mbps or faster service in the downward direction if the relevant passings of those BIAS providers meet the following requirements at the time of purchase: (i) they are not capable of providing speeds of at least 25 Mbps in the downward direction; (ii) they compete against one or more wireline BIAS providers offering at least 25 Mbps in the downward direction; and (iii) they would be unlikely to be upgraded by the acquired 5 7Kis ZoXlG inclXGe EXt is not limiteG to any oI tKe Connect America )XnG ³CA)´ proJrams as Zell as any other 8niversal 6ervice )XnG ³86)´ proJrams tKat tKe Commission may implement at a IXtXre Gate Federal Communications Commission FCC 16-59 220 BIAS provider to offer 60 Mbps or faster service in the downward direction by 2020 due to technical or financial limitations. 3. Reporting. The Company shall submit a report in accordance with the filing and service requirements set forth in Section IX.5 herein on a semi-annual basis that describes its compliance with this Condition, with the first such report to be submitted six (6) months after the Closing Date in a Iormat anG containinJ Gata IielGs approveG anGor selecteG Ey tKe Commission’s OIIice of General Counsel, which shall include at least the following, in electronic format: a. The number of additional new mass market customer locations to which Broadband Internet Access Service has been deployed on a monthly basis during the reporting period ending as of June 30 for reports submitted in the second half of each year and ending as of December 31 for reports submitted in the first half of each year; b. The number of additional new out-of-footprint locations to which Broadband Internet Access Service has been deployed on a monthly basis during the reporting period; c. A CSV (comma separated values) file or other form approved by the Commission staff providing for each location to which Broadband Internet Access Service has been deployed in satisfaction of this Condition, including information identifying: i. for mass market customer locations: (A) latitude and longitude; (B) alternative address and/or location information; (C) unit or apartment identifier where applicable; (D) the date the Company passed the location and began to offer BIAS capable of providing at least a 60 Mbps download speed; and (E) 15-digit census block code; ii. additionally for out-of-footprint locations: (A) the identity of the other BIAS provider offering 25 Mbps or faster advertised service in the downward direction to the same mass market customer location; (B) the maximum advertised downstream bandwidth speed that each of the other BIAS providers offer; and (C) iI tKe otKer %IA6 proviGer EeJins to oIIer service aIter tKe Company’s deployment to the out-of-footprint location, then the date the other BIAS provider began offering or advertising 25 Mbps or faster service in the downward direction; iii. additionally for out-of-footprint locations where the Company seeks credit pursuant to subpart 2.e: (A) the location, capacity, and density of all nodes deployed as of the Closing Date ZitKin a set raGiXs to Ee GetermineG Ey tKe Commission’s OIIice oI General Counsel, of any new mass market customer location to which BIAS has been deployed or, if there are no such nodes, the closest node deployed as of the Closing Date. d. GIS data for the mass market customer locations, the out-of-footprint customer locations, and the nodes reTXireG to Ee iGentiIieG pXrsXant to tKis ConGition’s reportinJ requirements; Federal Communications Commission FCC 16-59 221 e. Any explanatory notes as required; f. Any otKer inIormation tKe InGepenGent Compliance OIIicer or tKe Commission’s OIIice of General Counsel determines is reasonably necessary to report on compliance with this Condition; and g. In tKe Iirst sXcK report tKe Company’s -Xne  anG DecemEer  )orm  IilinJ and the number of existing mass market customer locations as of the Closing Date for each Applicant for the month prior to which the Closing Date occurs where the Company offers Broadband Internet Access Service. 4. Enforcement. Failure to comply with this Condition may result in: a. extension of all of the Conditions set forth in this Appendix B until completion of the required buildout; b. a 5% increase in the total number of mass market customer locations that must be passed for each year an incremental target listed in subparts 2.a.(i) through 2.a.(vi) is missed; and c. a 5% increase in the minimum number of out-of-footprint locations that must be passed for each year an incremental target listed in subparts 2.a.(i) through 2.a.(vi) is missed. VI. DISCOUNTED BROADBAND SERVICES OFFER 1. Introduction. We find it is in the public interest to ensure that a bundle of video and broadband services is not tKe consXmer’s only competitive cKoice anG tKis protection may Ee particXlarly important for low-income subscribers who may not be able to afford bundled services. Thus, we impose this Condition to ensure an affordable, low-price standalone broadband service is available to low-income consXmers in tKe Company’s Zireline Iootprint 2. Condition. a. Within six (6) months of the Closing Date, the Company shall begin offering a reduced price broadband service to low income families to make broadband access more aIIorGaEle to tKem tKe ³DiscoXnteG %roaGEanG 6ervices OIIer´ anG ZitKin a year oI tKe closinJ Gate Zill oIIer tKis service tKroXJK tKe Company’s Iootprint ZKere  0Eps wireline BIAS is technically available. The Company shall offer year-round, with no limitations imposed on enrollment periods or terms, fixed Broadband Internet Access Service with download speeds of at least 30/4 Mbps and a cable modem to any Eligible (nrollee ZKo Goes not Kave an (liJiEility Restriction in tKe Company’s footprint for no more than $14.99 per month. The Company shall submit a written filing with the Commission, within five (5) months of the Closing Date, specifying those markets (including all Charter, Time Warner Cable and Bright House Networks footprints) where 30/4 Mbps wireline Broadband Internet Access Service is not technically available. As part of this offer, the Company shall offer an in-home Wi-Fi router at a price no higher than $5.00 per month, offer a free-self-installation kit, and waive customary router installation and activation fees.6 b. ³(liJiEle (nrollee´ is a potential enrollee meetinJ tKe ³(liJiEility ReTXirements´ oI either (i) having at least one child who participates in the National School Lunch Program 6 The Company may charge installation fees to the extent that an Eligible Enrollee requests on-site assistance from the Company, either for installation or other technical assistance with the service. In homes where self-installation is not available, the Company will waive the installation fee. Federal Communications Commission FCC 16-59 222 ³16/3´  sXEMect to annXal recertification; or (ii) being a senior age 65 or older receivinJ 6Xpplemental 6ecXrity Income ³66I´ proJram EeneIits sXEMect to annXal recertification. c. ³(liJiEility Restrictions´ are KavinJ i oXtstanGinJ GeEt Ior tKe Company’s services tKat was incurreG ZitKin one  years prior to tKe enrollee’s reTXest Ior service XnGer tKe DiscoXnteG %roaGEanG 6ervices OIIer; ii sXEscriEeG to tKe Company’s )i[eG Broadband Internet Access Services within sixty (60) calendar days prior to requesting services under the Discounted Broadband Services Offer; or (iii) outstanding debt that is incXrreG Ior tKe DiscoXnt %roaGEanG 6ervices OIIer anG tKat is sXEMect to tKe Company’s ordinary debt collection procedures. d. The Company shall offer the discounts set forth in this Condition for at least four (4) years from the commencement of the Discounted Broadband Services Offer. For qualifying households that sign up for the Discounted Broadband Services Offer during the final year of the Discounted Broadband Services Offer, the Company shall provide service pursuant to the Discounted Broadband Services Offer for at least twelve (12) months. i. After three (3) years from the commencement of the Discounted Broadband Services Offer, the Company may increase the monthly fee for the Discounted Broadband Services Offer by no more than $3 (i.e., charging no more than $17.99 per month). e. Qualifying households shall be provided a self-installation kit free of charge and shall not be required to pay modem fees, WiFi router activation fees, or installation fees (unless installation reTXires a tecKnician’s visit on-site). 7 f. For the period during which this Condition is in effect, the Company shall clearly and conspicuously market the Discounted Broadband Services Offer, including but not limited to, undertaking the following actions: i. 3roviGinJ on tKe Company’s consXmer-facing homepage a link to a webpage devoted to describing the Discounted Broadband Services Offer; and ii. Ensuring that prior to interacting with prospective customers, and on an annual Easis tKereaIter a tarJeteG set oI tKe Company’s cXstomer service representatives is trained to inform consumers of the availability of the Discounted Broadband Services Offer, including pricing, and terms and conditions as described in this Condition. g. The Company shall establish and maintain a dedicated phone number prospective participants can call in order to verify eligibility for the Discounted Broadband Services Offer and, subject to confirmation, to register for the program if eligible. h. The Company shall submit a written report in accordance with the filing and service requirements set forth in Section IX.5 herein on a semi-annual basis that includes a Gescription oI tKe Company’s compliance ZitK tKe ConGition ZitK tKe Iirst sXcK report to be submitted twelve (12) months after the Closing Date. The Company Compliance OIIicer sKall reJXlarly tracN tKe proJram’s implementation anG Iile tKe semi-annual report. The report must be signed by this officer and shall include the following, as of the date of the report: 7 Eligible Enrollees may, but shall not be required to, rent a Wi-Fi router from the Company at a price of no higher than $5.00 per month. Eligible Enrollees may also purchase a Wi-Fi router at their own expense. Federal Communications Commission FCC 16-59 223 i. the total number of households enrolled and receiving service in the Discounted Broadband Services Offer on a monthly basis; and ii. the total number of estimated households eligible to participate in the Discounted Broadband Services Offer on a monthly basis. i. The Company shall enroll participating households into the Discounted Broadband Services Offer as follows: i. at least 25,000 households enrolled and receiving service by the end of the 12th month after the Closing Date; ii. at least 100,000 households enrolled and receiving service by the end of the 18th month after the Closing Date; iii. at least 225,000 households enrolled and receiving service by the end of the 24th month after the Closing Date; iv. at least 475,000 households enrolled and receiving service by the end the 36th month after the Closing Date; and v. at least 525,000 households enrolled and receiving service by the end the 48th month after the Closing Date. j. The Company, on its own initiative, may eliminate or relax the Eligibility Restrictions. k. If the Company fails to meet the applicable enrollment and participation goal in any reporting period, then the Company, in its semi-annual report, shall enumerate those steps it plans to take to meet the enrollment requirements. 3. Enforcement. a. If the Company fails to meet an enrollment target identified in subpart 2.i., then on the first such failure, the Company shall expand eligibility in the Discounted Broadband Services Offer to include as potential enrollees those living in a household where at least one inGiviGXal participates in tKe 6Xpplemental 1Xtrition Assistance 3roJram ³61A3´  subject to annual recertification. b. If the Company fails to comply with the Discounted Broadband Services Offer Condition identified herein (except for the first failure to meet an enrollment target identified in subpart 2.i.), then such a failure may result in the extension of the terms, in their entirety, of the Discounted Broadband Services Offer Condition for an additional period of time that is no more than the lenJtK oI tKe perioG oI tKe Company’s non-compliance with the Condition. VII. CONTINUED SUPPORT OF CONSUMER-OWNED DEVICES CONDITION 1. Purpose. This Condition is intended to ensure that New Charter subscribers will retain options for accessing cable video programming on retail set-top boxes and other navigation devices purchased from vendors that are not affiliated with an MVPD. Pending the development and implementation of new standards that will assure a commercial market for competitive navigation devices, we believe it is important that New Charter honor its stated commitment to continue to Federal Communications Commission FCC 16-59 224 purchase, distribute, and service CableCARDs so that its subscribers continue to have alternatives to leasing equipment from their cable provider. 8 2. Condition. Subject to 2.a.-e. of this Condition, the Company shall continue to provide CableCARDs to any new or existing subscriber that requests a CableCARD for use in a third- party retail device. Subject to 2.a.-e. of this Condition, the Company shall continue to support CableCARD devices. a. )or pXrposes oI tKis ConGition ³sXpport´ means tKat tKe Company sKall comply ZitK tKe following requirements: i. The Company shall continue to simulcrypt its QAM-delivered linear video programming so that all third-party CableCARD devices remain operable pursuant to the following standards:9 (A) 6C7(   ³DiJital CaEle 1etZorN InterIace 6tanGarG´ proviGeG however that with respect to Table B.11, the Phased Noise requirement sKall Ee minXs G%H] anG all proviGeG tKat tKe ³transit Gelay Ior most Gistant cXstomer´ reTXirement in 7aEle % is not manGatory; (B) A16I6C7(   ³6ervice InIormation DelivereG OXt-of-Band for DiJital CaEle 7elevision´ proviGeG KoZever tKat tKe reIerenceG 6oXrce Name Subtable shall be provided for Profiles 1, 2, 3; (C) A16I6C7(   ³DiJital ViGeo 6ervice 0Xltiple[ anG 7ransport 6ystem 6tanGarG Ior CaEle 7elevision´ proviGeG tKat 1. for each digital transport stream that includes one or more services carried in-the-clear, such transport stream shall include virtual channel stream in-band in the form of ATSC Document A% ³A76C 6tanGarG 3roJram anG 6ystem InIormation Protocol for Terrestrial %roaGcast anG CaEle Revision % ´ when available from the content provider: a. The data shall, at a minimum, describe services carried in the transport stream carrying the PSIP data itself; b. PSIP data describing a 12-hour time period shall be carried for each service in the transport stream. This 12- hour period corresponds to delivery of the following event information tables: EIT-0, -1, -2, -3; c. The format of event information data shall conform to A76C DocXment A % ³A76C 6tanGarG 3roJram and System Information Protocol for Terrestrial %roaGcast anG CaEle Revision % ´ incorporateG Ey reference see Section 76.602); d. Each channel shall be identified by a 1- or 2-part channel number and a textual channel name; and 8 See Letter from Samuel L. Feder, Counsel for Charter Communications, Inc., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 2 (filed Feb. 9, 2016). 9 CableCARDs cannot decrypt Internet protocol (IP)-delivered video programming, and this Condition is not intended to prevent the Company from migrating channels to IP. Federal Communications Commission FCC 16-59 225 e. The total bandwidth or PSIP data may be limited by the cable system to 80 kilobytes per second for a 27 MBits multiplex and 115 kilobytes per second for 38.8 MBits multiplex. 2. when service information tables are transmitted out-of-band for scrambled services: a. The data shall, at a minimum, describe services carried within the transport stream carrying the PSIP data itself; b. A virtual channel table shall be provided via the extended channel interface from the POD module. Tables to be included shall conform to ANSI/SCTE 65  ³6ervice InIormation Delivered Out-of-Band for DiJital CaEle 7elevision; ´ c. Event information when present shall conform to A16I6C7(   ³6ervice InIormation DelivereG Out-of-%anG Ior DiJital CaEle 7elevision; ´ d. Each channel shall be identified by a 1- or 2-part channel number and a textual channel names; and e. The channel number identified with out-of-band signaling information data should match the channel identified within-band PSIP data or all unscrambled in- the-clear services; (D) 6C7(   ³Host-POD Interface StandarG´; (E) A16I6C7(   ³3OD Copy 3rotection 6ystem´; anG ii. The Company shall comply with the CableCARD requirements set forth in 6ections  anG  oI tKe Commission’s rXles inclXGinJ EXt not limited to, continued support of CableCARD self-installation (47 CFR § 76.1205(b)(1)), M-Card (47 CFR § 76.1205(b)(2)), switched digital video solutions (47 CFR § 76.1205(b)(4)), uniform CableCARD fees (47 CFR § 76.1205(b)(5)(ii)(B)( 1)), and the bring-your-own-box discount requirement (47 CFR § 76.1602(b)(7), (8)). 10 b. The Company shall include both (i) a DVI or HDMI interface, and (ii) a connection capable of delivering recordable high-definition video and closed captioning data in an industry standard format on all high-definition set-top boxes, except unidirectional set- top boxes without recording functionality, acquired by the Company for distribution to its subscribers. In addition, the Company shall ensure that such high-definition set-top boxes comply with an open industry standard that provides for audiovisual communications including service discovery, video transport, and remote control command pass-tKroXJK stanGarGs Ior Kome netZorNinJ 7Ke Company’s compliance ZitK E oI tKis ConGition sKall Ee limiteG to CKarter’s pre-transaction footprint as it exists on the Closing Date. 10 In orGer to ensXre tKat tKe Company’s sXEscriEers can continXe to Xse retail CableCARD equipment as an alternative to leasing equipment from it, the Company shall comply with CableCARD requirements set forth in sections  anG   C)R ??   irrespective oI tKe DC CircXit’s Gecision in EchoStar Satellite LLC v. FCC, 704 F.3d 992 (D.C. Cir 2013). Federal Communications Commission FCC 16-59 226 c. The CableCARD support requirements in this Condition shall expire seven (7) years after the Closing Date. The CableCARD provisioning requirements shall expire four (4) years after the Closing Date. d. Notwithstanding Section 2.c. of this Condition, this Condition shall expire when (i) the Company’s sXEscriEers are aEle to pXrcKase a tKirG-party retail device that can access the Company’s viGeo proJramminJ pXrsXant to any neZ or moGiIieG rXles tKe Commission adopts to implement Section 629 of the Communications Act of 1934, as amended, and (ii) the Company submits to the Media Bureau a declaration in MB Docket No. 15-149, under penalty of perjury, attesting to and accompanied by documentation demonstrating that at least one manufacturer, retailer, or other vendor not affiliated with any multichannel video programming distributor has made available for purchase, to sXEscriEers tKroXJKoXt tKe Company’s entire Iootprint a Gevice tKat can access mXlti- channel video programming and other services offered by the Company pursuant to any new or modified rules the Commission adopts to implement Section 629 of the Communications Act of 1934, as amended. Additionally, notwithstanding Section 2.c of this Condition or the above, this Condition shall expire if the Commission: i) eliminates the rules set forth in Sections 76.640, 76.1205, and 76.1602; or ii) modifies the rules set forth in Sections 76.640, 76.1205, or 76.1602 and expressly exempts the Company from this Condition. If the Commission modifies the rules set forth Sections 76.640, 76.1205, or 76.1602 and does not expressly exempt the Company from this Condition, this ConGition sKall Ee GeemeG moGiIieG in a manner consistent ZitK tKe Commission’s modifications of such rules. e. This Condition GeIines tKe Company’s oEliJations in lieX oI tKe reTXirements concerninJ provisioning and supporting CableCARDs in the Memorandum Opinion and Order, Charter Communications, Inc., Request for Waiver of Section 76.1204(a)(1) of the Commission’s rules et al., 28 FCC Rcd 5212 (MB 2013). The remaining obligations of that waiver remain applicable to systems owned by Charter as of the Closing Date. VIII. CYBERSECURITY SECURITY PLANS COMMITMENT 1. Introduction. CKarter Kas oXtlineG a ³Eest oI EreeG´ approacK to manaJinJ tKe merJeG entity’s cybersecurity operations. While we are encouraged by the strategic goals of this approach, we find that the cybersecurity posture of the Company is especially important given the scale and complexity of the transaction. Integrating disparate operational systems with wide variation in their current cybersecurity approaches creates a greatly increased risk environment, particularly during the transition state when workforce changes and the establishment of trust relationships between networks have the potential to increase vulnerabilities. Given these factors, we adopt a condition to reduce cybersecurity vulnerabilities during the transition (or integration period) as described below. 2. Condition. a. Within ninety days (90) of the Closing Date, absent any extension under the terms of this Appendix B, the Company shall document and submit a written confidential filing 11 describing its security plan for cyber risk management for the transition period, i.e., when it is inteJratinJ tKe Applicants’ netZorNs to tKe Commission’s 3XElic 6aIety anG Homeland Security Bureau. 11 7Ke Applicants may seeN conIiGential treatment oI tKis report pXrsXant to 6ection  oI tKe Commission’s rules, 47 CFR 0.459. Federal Communications Commission FCC 16-59 227 b. 7Ke 3XElic 6aIety anG HomelanG 6ecXrity %XreaX sKall Xse tKe Company’s secXrity plan and any related information, whether submitted in writing, orally, or electronically collectively tKe ³Company’s inIormation´ solely to revieZ tKe Company’s cyEer risN manaJement eIIorts GXrinJ tKe transition anG sKall not Xse tKe Company’s inIormation in any Commission enforcement action or directly as record evidence in any rulemaking.12 In addition, the Public Safety and Homeland Security Bureau shall keep confidential and maintain tKe secXrity oI tKe Company’s inIormation; protect tKe Company’s inIormation from public disclosure under FOIA to the extent of the Public Safety and Homeland 6ecXrity %XreaX’s aEility XnGer Commission rXles; limit access to tKe Company’s information to relevant officials in the Public Safety and Homeland Security Bureau; not Gisclose or Jive access to tKe Company’s inIormation to any otKer %XreaX or OIIice oI the Commission, to any other federal, state, or local agencies, or to any other person or entity; anG Gestroy tKe Company’s inIormation aIter tKe 3XElic 6aIety anG HomelanG 6ecXrity %XreaX Kas XseG it Ior tKe limiteG pXrpose oI revieZinJ tKe Company’s eIIorts to manage cybersecurity risk during the transition, consistent with any applicable record retention rXles 1otKinJ in tKis ConGition sKall Ee GeemeG to restrict tKe Commission’s discretion to adopt generally applicable rules or policies with respect to cybersecurity otherwise consistent with law or to apply such rules or policies to the Company. IX. COMPLIANCE PROGRAM AND REPORTING 1. Company Compliance Officer. Within thirty (30) calendar days after the Closing Date, the Company shall designate a senior corporate manager with the requisite corporate and organizational authority to serve as a Company Compliance Officer and to discharge the Company’s GXties ZitK respect to tKe ConGitions speciIieG in tKis AppenGi[ % 7Ke person designated as the Company Compliance OIIicer sKall Ee part oI tKe Company’s CKieI Compliance Office. In addition to the general knowledge of the Communications Laws necessary to discharge his or her duties under this Order, the Compliance Officer shall have specific knowledge of the Company’s operations reIerreG to in tKese ConGitions prior to assXminJ tKe duties required by this Appendix B. 2. Company Implementation and Compliance Plan. The Company agrees that it shall, within sixty (60) calendar days after the Closing Date, develop and implement an Implementation and Compliance Plan designed to ensure its implementation of and compliance with the Conditions specified in this Appendix B, establishing, inter alia, mechanisms to provide, on an ongoing basis, adequate notice and training to all Company personnel involved with the activities covered by the Conditions in this Appendix B. This Implementation and Compliance Plan shall be provided to the Independent Compliance Officer for review upon the Independent Compliance OIIicer’s selection 3. Independent Compliance Officer. a. Within ninety (90) days of the Closing Date, an Independent Compliance Officer shall be identified, whose selection is acceptable to the Company and approved by the Commission’s OIIice oI *eneral CoXnsel II tKe Company anG tKe Commission’s OIIice of General Counsel do not agree on the selection of an Independent Compliance Officer 12 7Kis statement is not intenGeG to restrict tKe Commission’s Giscretion in enforcing statutes and rules based upon information gathered through independent investigations, separate and distinct from information presented to the limited group of Public Safety and Homeland Security Bureau staff reviewing the report. Federal Communications Commission FCC 16-59 228 within ninety (90) days, then the Co mmission’s OIIice oI *eneral CoXnsel sKall select tKe Independent Compliance Officer. b. The Company shall engage the Independent Compliance Officer at its own expense to perform the duties set forth herein, including an evaluation of the adequacy of the Company’s compliance ZitK tKe ConGitions anG sKall GesiJnate tKe Commission as a third-party beneficiary to the engagement. The terms of the engagement shall be subject to approval Ey tKe Commission’s OIIice oI *eneral CoXnsel c. The Independent Compliance Officer and any persons retained by the Independent Compliance Officer to effectuate this Appendix B may not (i) have had any employment or familial relationships with the Company within the past two (2) years; (ii) have been employed by or affiliated with any competitor of the Company within the past two (2) years; (iii) have been an employee of the Commission within the past two (2) years; (iv) have submitted any comments or otherwise participated in this transaction proceeding or have been employed by or affiliated with any entity that has submitted any comments or otherwise participated in this transaction proceeding within the past two (2) years; or (v) have any conflict of interest related to the duties of the Independent Compliance Officer that could prevent him or her from performing his or her duties in a fair and unbiased manner. In addition, for a minimum of two (2) years after the end of the Independent Compliance OIIicer’s enJaJement tKe InGepenGent Compliance OIIicer sKall not Ee employed by, or have any business relationship with, the Company. d. The Independent Compliance Officer shall have the power and authority to review and evalXate tKe Company’s Implementation anG Compliance 3lan anG any relateG materials and recommend to the Company changes to address any perceived deficiencies in the Plan. Any such recommendations shall be included in the Independent Compliance OIIicer’s Compliance Reports e. The Independent Compliance Officer shall prepare and submit, in accordance with the filing and service requirements set forth in Section IX.5. herein, a Compliance Report ZitKin si[ty  Gays oI receivinJ tKe Company’s reports reTXireG XnGer tKese Conditions. Each such Compliance Report shall include a detailed description of the Company’s eIIorts during the relevant period to comply with the Conditions and will specifically meet the reporting requirements for the Conditions set forth herein. The Independent Compliance Officer shall provide a final copy of all Compliance Reports to tKe Company’s Compliance Officer at least seven (7) days before the report is submitted to the Commission, so that the Company may prepare a request for confidential treatment if necessary. f. The Company shall have thirty (30) days from submission of the Compliance Report to the Commission to comment on and/or object to the Compliance Report and must submit such comments and/or objections in accordance with the filing and service requirements set IortK in 6ection I; Kerein 7Ke Company’s comments anGor oEMections hall be accompanied by a statement explaining the basis for its response and shall comply with Section 1.16 of the Rules and be subscribed to as true under penalty of perjury in substantially the form set forth therein.13 g. If the Independent Compliance Officer in the reasonable exercise of his or her responsibilities discovers or receives evidence that suggests to the Independent Compliance Officer that the Company is materially violating or materially failing to 13 47 CFR § 1.16. Federal Communications Commission FCC 16-59 229 comply with a Condition, the Independent Compliance Officer shall promptly bring that Giscovery anGor eviGence to tKe attention oI tKe Company anG tKe Commission’s OIIice of General Counsel. h. The Independent Compliance Officer shall not have the authority to direct the Company to make changes to the Implementation anG Compliance 3lan tKe Company’s eIIorts to comply ZitK tKe ConGitions speciIieG in tKis AppenGi[ % or tKe Company’s EXsiness practices or policies. The Commission (and its Bureaus and Offices in their delegated authority) retains all rights to determine if a violation has occurred and to take whatever action it deems appropriate. The Independent Compliance Officer also shall not have the authority to participate in the business activities or management of the Company. The Independent Compliance OIIicer’s poZers sKall Ee limiteG to tKose in tKis compliance program and reporting section. i. The Company shall reasonably assist the Independent Compliance Officer in the performance of the duties of the Independent Compliance Officer set forth in this Order. The Company shall take no action to interfere with or to impede the Independent Compliance OIIicer’s accomplisKment oI Kis or Ker GXties 7Ke InGepenGent Compliance Officer, and any person retained by the Independent Compliance Officer, may, in connection with the reasonable exercise of his or her responsibilities, subject to the Company’s privileJe riJKts on reasonaEle notice to tKe Company GXrinJ normal EXsiness hours, and in coordination with the Company Compliance Officer: i. Interview any Company personnel for any purpose reasonably related to the InGepenGent Compliance OIIicer’s GXties; any sXcK intervieZ Zill Ee sXEMect to the reasonable convenience of such personnel and the Company will make such personnel available; ii. Have such access to the facilities of the Company as is reasonably required by tKe InGepenGent Compliance OIIicer’s GXties; iii. Have full and complete access to and inspect and copy any document, email, contract, and any other information in the possession, custody, or control of the Company reasonaEly relateG to tKe InGepenGent Compliance OIIicer’s GXties; anG iv. Require the Company to provide compilations of documents, data, or other inIormation reasonaEly relateG to tKe InGepenGent Compliance OIIicer’s GXties and to submit reports to the Independent Compliance Officer containing such material, in such form as the Independent Compliance Officer may reasonably direct. j. Any objections by the Company to actions by the Independent Compliance Officer must be conveyed in writing to the Commission’s OIIice oI *eneral CoXnsel anG to tKe Independent Compliance Officer within thirty (30) calendar days after the action giving rise to the objection or else such objection may be considered waived at the discretion of tKe Commission’s OIIice of General Counsel. Any such objections will be resolved by the Commission’s Office of General Counsel within thirty (30) days. The Company need not comply with any request or action of the Independent Compliance Officer that is subject to an objection lodged with the Commission until the Office of the General Counsel resolves the objection. k. The Independent Compliance Officer may hire such persons on reasonable terms and costs as are reasonaEly necessary to IXlIill tKe InGepenGent Compliance OIIicer’s GXties, ZitK prior notice anG sXEMect to tKe approval oI tKe Commission’s OIIice oI *eneral Counsel. The Independent Compliance Officer shall serve at reasonable costs and expense and any persons hired to assist the Independent Compliance Officer shall serve Federal Communications Commission FCC 16-59 230 at the cost and expense of the Company, on such terms and conditions as the Commission’s OIIice oI *eneral CoXnsel reasonaEly approves anG sKall Ee sXEMect to tKe execution of customary confidentiality agreements acceptable to the Company. The compensation of the Independent Compliance Officer and any persons hired to assist the Independent Compliance Officer shall be on reasonable and customary terms commensXrate ZitK tKe inGiviGXals’ e[perience anG responsiEilities anG consistent ZitK reasonable expense practices. The Independent Compliance Officer shall submit a montKly e[pense report in reasonaEle Getail to tKe Company anG tKe Commission’s Office of General Counsel, with the first such report to be submitted within thirty (30) days after the selection of the Independent Compliance Officer, describing the total amounts expended. l. 7Ke Commission’s OIIice oI *eneral CoXnsel may at any time on reasonaEle JroXnGs require the Company to replace the Independent Compliance Officer with a substitute Independent Compliance Officer selected by the same selection process as used in the initial selection. m. The Company may not refuse to pay the Independent Compliance Officer without first receivinJ approval oI tKe Commission’s OIIice oI *eneral CoXnsel II the Company determines that the Independent Compliance Officer has ceased to act or failed to act diligently or in a cost-eIIective manner it may sXEmit a reTXest to tKe Commission’s Office of General Counsel proposing corrective actions to be taken by the Independent Compliance Officer, including, without limitation, adjustments of amounts charged by the Independent Compliance Officer or the selection of a substitute Independent Compliance Officer. n. 7Ke InGepenGent Compliance OIIicer’s enJaJement Zill continue as long as the Conditions in this Appendix B are in effect. o. To the extent that this Condition permits or requires the Independent Compliance Officer to make requests of, or otherwise communicate with the Company, the Independent Compliance Officer shall first direct such communications²including, but not limited to, any reTXests Ior GocXments access to tKe Iacilities access or access to tKe Company’s personnel²to tKe Company’s Compliance OIIicer ZKo sKall Ee oEliJateG to responG within a day. p. Nothing in this Condition shall be construed to effectuate a waiver of any and all privileges that apply, including but not limited to the attorney-client privilege or the work product doctrine, and under no circumstances shall the Independent Compliance Officer have the right to request documents or information protected by any applicable privilege. Likewise, the Company shall not be required to provide any materials to the Independent Compliance OIIicer EeIore tKe Company’s coXnsel Kas Eeen Jiven a reasonable opportunity to review those materials and withhold those materials deemed to be shielded from disclosure under any applicable privileges. In the event that the Company has taken reasonable steps to prevent the disclosure of privileged materials and in an inadvertent production of privileged materials occur, the Company may request the privilege document may be returned to the Company and the Independent Compliance Officer permanently destroy and disregard that information. The Independent Compliance Officer shall comply with any such request provided it is made by the Company, in writing, within a reasonable time after the Company discovers the inadvertent production. The Company shall have the right to have counsel present for any interview the Independence Compliance Officer conducts with any Company personnel. 4. Company Obligation to Report Noncompliance. The Company shall report, in accordance with the filing and service requirements set forth in Section IX.5. herein, any material noncompliance Federal Communications Commission FCC 16-59 231 with the Conditions of this Order within fifteen (15) calendar days after discovery of such noncompliance. Such reports shall include a detailed explanation of: (i) each instance of material noncompliance; (ii) the steps that the Company has taken or will take to remedy such noncompliance; (iii) the schedule on which such remedial actions will be taken; and (iv) the steps that the Company has taken or will take to prevent the recurrence of any such noncompliance. 5. Confidentiality and Filing and Service Requirements. Any and all materials submitted to the Commission by any party pursuant to these Conditions, unless otherwise provided in this AppenGi[ % sKall Ee IileG in tKe appropriate GocNet ZitK tKe Commission’s 6ecretary’s OIIice with an electronic copy submitted via email to the addresses listed below. The Commission recognizes that information submitted pursuant to these Conditions is likely to include material that is confidential which should not be routinely available for public inspection pursuant to 5 U.S.C. § 552(b)(4); 18 U.S.C. § 1905; and 47 CFR § 0.457(d) . Parties may request confidential treatment under 47 CFR § 0.459. Parties submitting such confidential material shall provide an explanation of why the material should be considered confidential with both an unredacted (with conIiGential material marNeG anG a reGacteG version oI any sXEmission to tKe Commission’s 6ecretary’s OIIice ZitK electronic copies sXEmitteG via email to tKe aGGresses listeG EeloZ (a) Wireline Competition Bureau: Adam Copeland (or his successor) With a copy submitted electronically to Adam.Copeland@fcc.gov. (b) Office of General Counsel: Owen M. Kendler (or his successor) With a copy submitted electronically to Owen.Kendler@fcc.gov. (c) Chief, Enforcement Bureau: Jeffrey Gee (or his successor) Investigations and Hearings Division Enforcement Bureau With a copy submitted electronically to Jeffrey.Gee@fcc.gov. (d) Independent Compliance Officer: To be selected. X. ENFORCEMENT In addition to the enforcement provisions identified elsewhere in this Appendix B, any material failure to comply with any Condition identified in this Appendix B may result in: 1. An appropriate forfeiture penalty under applicable law; 2. Extension of the duration of any Condition; and 3. Any other appropriate sanctions and remedies allowed under the Communications Laws, including, but not limited to, an award of damages for the benefit of consumers for any harm incurred, issuance of cease-and-desist orders, modification of the Conditions, and issuance of an order requiring appropriate remedial action. The enforcement and compliance programs established in these Conditions are intended to supplement tKe Commission’s XsXal enIorcement anG investiJative poZers ZKicK remain IXlly applicaEle anG Go not replace such powers. Federal Communications Commission FCC 16-59 232 XI. VIOLATIONS Any violation of any of these Conditions shall be a violation of the Order. XII. TERM These Conditions shall remain in effect for seven (7) years beginning on the Closing Date, except as otherwise stated in this Appendix B or as provided below. If, during the three (3) months after the fourth anniversary of the Closing Date, the Company petitions to shorten the term of the Conditions contained in Section III (Settlement-Free Interconnection) or Section IV (Data Caps and Usage-Based Pricin g Condition) to five (5) or more years, then the Wireline Competition Bureau shall, nine (9) months prior to the fifth anniversary of the Closing Date, seek public comment on whether the Company has demonstrated that those Conditions are no longer in the pXElic interest anG Zill rXle on tKe Company’s petition on or before the fifth anniversary of the Closing Date. Federal Communications Commission FCC 16-59 233 ATTACHMENT 1 Charter Communication's IP Interconnect Offer and Requirements Charter Communications, Inc. (Charter) and New Charter will interconnect its IP network on a settlement-free basis with those applicants delivering data to New Charter customers pursuant to customer-initiated Internet sessions that meet the traffic measurement criteria set forth below for at least 3 consecutive months. Interconnection and any subsequent capacity augments under this offer will be XnGertaNen at no cKarJe to eitKer party Ior traIIic e[cKanJe Irom one anotKer anG Irom one anotKer’s customers. Each party will maintain sufficient capacity to support New Charter customer-initiated Internet sessions consistent ZitK tKis oIIer inclXGinJ 3araJrapK  anG tKe paraJrapKs entitleG ³1etZorN 3lanninJ anG AXJmentinJ Capacity´ anG ³6Xspension´ EeloZ To apply for such interconnection, an e-mail must be sent to interconnection@charter.com specifying anticipated traffic volumes per point of interconnection. This agreement applies to all interconnection relationships meeting tKe Interconnection ReTXirements as GeIineG EeloZ involvinJ 1eZ CKarter’s networks, including any newly acquired networks. This offer applies to IP interconnection only. Traffic exchanged under this offer may include edge provider, transit, and CDN traffic. Except where the applicant has maintained interconnection with Charter, Time Warner Cable, or Bright House Networks for the prior 6 months, New Charter may require a trial connection with any party seeking interconnection under this offer for not more than 6 months. Interconnection Requirements for Interconnection Party To qualify under this IP Interconnect Offer, the applicant: 1. Must interconnect at 8 or more of the New Charter points of presence in the cities listed below:1 Atlanta, GA Los Angeles, CA Seattle, WA Ashburn, VA Minneapolis, MN Tampa, FL Chicago, IL New York, NY Dallas, TX San Jose, CA 2. 0Xst aGvertise roXtes consistent ZitK ³sKortest e[it roXtinJ´ Xnless EotK parties aJree in ZritinJ to honor the following traffic management attributes (where provided by both parties): MED (Multi Exit Discriminator), AS Path length, and Standard BGP communities. 3. Must use the same ASN at each interconnection point, except that if either party is involved in an acquisition, multiple ASNs may be supported during the integration process so long as the same does not require the other party to carry traffic in an excessively inefficient manner, such as between continents. 4. Must maintain a minimum aggregate traffic exchange of 30 Gbps (95th percentile) with AS20115 in the dominant direction as measured on a monthly basis (Interconnection Requirements). 5. Must maintain a professional Network Operations Center staffed 24x7x365. 6. Must maintain consistent global routing announcements at all New Charter POPs. 1 New Charter may add additional POPs to the list. Such additions do not increase the number of required POPs above 8. Federal Communications Commission FCC 16-59 234 7. Must not implement a "gateway of last resort" or default route directed at AS20115. 8. Must demonstrate and enforce strict filtering policies to prevent improper announcements. 9. Must advertise routes, including customer routes, but exclude all transit or third party routes. 10. Must provide IPv4 unicast routes up to /24 netmask or IPv6 Unicast routes up to /48 netmask. 11. Must use BGP version 4 with BGP authentication keys. 12. Must not abuse the interconnection relationship by doing any of the following: a. Resetting next hop b. Reselling, bartering, trading or giving either routes or next hop to third parties (non- customers) c. Leaking routes to third parties (non-customers) d. Sending inconsistent prefixes inside of a single interconnection region (in number, origin, or other attributes) unless agreed to in writing e. Sending inconsistent prefixes are allowed for a party that has island/regional networks without the capacity to transport between those islands/regions, as long as those inconsistent prefixes are not utilized to manage traffic between those islands/regions or otherwise in a manner that disrupts the network management practices and techniques employed by New Charter. The use of inconsistent prefixes requires that a party must maintain a minimum traffic exchange of 10Gbps (95th percentile) at each New Charter POP with AS20115 in the dominant direction as measured on a monthly basis. 13. Must register routes or send advance notice of dramatic changes in announcements. 14. Must agree to actively cooperate in resolving items in the following: a. Security violations b. Denial of service attacks c. Network abuse d. Downed interconnection sessions, interfaces, or circuits e. Disrupted, damaged, or flapping interconnection sessions f. Similar/related infrastructure and security issues 15. Must utilize RADB or mirrored IRR resources and shall be configured with max prefix limits, allowing 25% headroom, based upon registered/announced routes. 16. Must agree not to offer or sell any IP transit service providing only AS20115. New Charter agrees not to offer or sell any services providing applicant-only routes. Network Planning and Augmenting Capacity The interconnection party agrees to meet with or report to New Charter on a periodic basis to participate in planning network status reviews and forecasting network traffic. Either New Charter or the interconnection party can require that the capacity at any interconnection point: (i) be upgraded if aggregate port utilization in either direction at the interconnection point exceeds 70% of the available capacity at the interconnection point for 3 or more consecutive hours per day for 3 or more consecutive days during the preceding 30 day period, or (ii) to be reduced if port utilization falls below 30% of the available capacity at that interconnection point for 6 consecutive months (each measured using the 95th percentile method). Each party shall be required to accomplish any required augmentation Federal Communications Commission FCC 16-59 235 or reGXction ZitKin  Gays oI tKe otKer party’s reTXest proviGeG tKat in any calenGar montK neitKer party shall be obligated to add an amount of ports at any interconnection point that is larger than 10% of the amount of ports in place between both parties at that location in the prior calendar month (rounded up to the nearest whole number of 10G ports). Neither party shall charge the other for any required augments. If after the effective date either party or one of its affiliates closes an acquisition and the entity acquired Zas e[cKanJinJ I3 traIIic ZitK tKe otKer party’s internet netZorN prior to tKe closinJ oI tKe transaction i each party shall cooperate to migrate the ports of the acquired entity to the AS of the acquiring entity within a reasonable period of time as necessary to accommodate an efficient transition pursuant to the acTXirinJ entity’s netZorN arcKitectXre anG manaJement plans; and ii) the agreement entered into pursuant to this offer shall govern the combined ports of the acquired entity and the acquiring entity after completion of such transaction. Suspension New Charter reserves the right to suspend any interconnect agreement in the event that an Abnormal Growth Event occurs. An Abnormal Growth Event occurs when: 1) there is a net increase in the 95 th percentile Gata transIer rate into or oXt oI 1eZ CKarter’s netZorN oI  or more in any calenGar montK compared to any prior calendar month; or at least 8% per month over a rolling 6 month period; or 5.9% over a rolling 6 month period for a company whose traffic constitutes 30% or more of the total traffic in tKe Gominant Girection on 1eZ CKarter’s 1etZorN anG  1eZ Charter reasonably believes that such traffic will materially impair the performance of the network or materially compromise the security of network infrastructure or users on the network. In the event that the Interconnection Party begins conveying data to or from New Charter that was previously conveyed to or from New Charter by a third party tKe parties sKall accoXnt Ior tKis aGGitional Gata transIer as tKe Interconnection 3arty’s oZn Ior tKe purposes of measuring growth rates during subsequent measuring periods. The parties shall not count in the growth rate any portion of that incremental traffic that was previously being delivered to New Charter by third parties. Upon the occurrence of an Abnormal Growth Event, New Charter will provide as soon as reasonably possible information to the Interconnection Party sufficient to explain the basis for its reasonable belief and the parties shall meet as soon as reasonably possible in order for the peering party to provide New Charter with detailed information regarding the circumstances giving rise to the Abnormal Growth Event and to present a plan to eliminate, mitigate, or otherwise address the Abnormal Growth Event. A suspended agreement will resume upon a reasonable showing that the Abnormal Growth Event has been resolved. Consistent with the terms of this offer, either party may also take reasonable measures in order to protect the security of its Internet network, including measures consistent with its acceptable use policy, provided that such acceptable use policy does not conflict with the terms of this offer. In order to assure efficient exchange of Internet traffic over the Interconnect Exchange Points, each party shall deliver Internet traffic (i) received by it from the other party, or (ii) destined to the other party, in each instance to the intended destination with no lower priority or service quality than any other similarly sitXateG Internet traIIic inclXGinJ tKat oI tKe party’s aIIiliates 1otKinJ Kerein sKall restrict eitKer party from imposing usage restrictions on its own customers and/or assisting its customers in imposing customer-requested usage restrictions; provided, however, that other than to protect the security of its network or in order to comply with the Digital Millennium Copyright Act, neither party shall block or tarJet speciIic content or applications on tKe otKer party’s netZorN (itKer party may roXte Internet traIIic to tKe otKer party’s Internet netZorN tKroXJK tKirG parties proviGeG tKat it Kas tKe contractXal riJKt to Go so with such third parties or is required to do so in accordance with applicable law. Nothing in this offer shall require either party to continue the exchange of traffic with any third party, nor restrict either party Federal Communications Commission FCC 16-59 236 from negotiating or enforcing the terms and conditions relating to the exchange of traffic with a third party. Packet Error and Network Management New Charter reserves the right to implement reasonable traffic management techniques as may be necessary to eliminate or minimize bandwidth waste associated with misdirected, mis-transcoded, or undeliverable packets. Furthermore, nothing in this offer shall be deemed to abrogate or otherwise limit 1eZ CKarter’s riJKts XnGer applicaEle laZ to implement reasonaEle netZorN manaJement practices Interconnection Agreement Termination New Charter reserves the right to terminate its interconnection agreement with any party who materially breaches its agreement after the party (i) has been given written notice of the breach and fails to cure it within 10 days of the written notice and (ii) has obtained and transitioned traffic to sufficient capacity from a third party, except in no event is New Charter required to continue under this offer more than 20 days after New Charter would otherwise be entitled to terminate it for material breach. Incremental traffic growth of less than 5 Gbps per month does not constitute a material breach or grounds for termination or suspension. New Charter reserves the right to terminate any interconnection agreement immediately if necessary to comply with any applicable law, regulation or government order. Term New Charter reserves the right to change this interconnection offer prior to June 30, 2023, to accommodate changes: (i) that are necessary to comply with any applicable law, or (ii) resulting from a cKanJe in laZ tKat miJKt renGer 1eZ CKarter’s compliance ZitK tKe terms oI any interconnection aJreement impracticaEle or impossiEle II tKe )eGeral CommXnication Commission ³)CC´ or tKe )CC’s :ireline Competition %XreaX removes or eliminates the Settlement-Free Interconnection ConGition ³tKe ConGition´ Irom tKe )CC’s OrGer approvinJ tKe merJer oI CKarter 7ime :arner CaEle Inc. and Bright House Networks, LLC, then New Charter may terminate this policy upon the Condition’s removal or elimination. Enforceability Either party to the interconnection relationship may enforce rights or obligations established by this offer or related interconnection agreement in a court or agency of competent jurisdiction. Federal Communications Commission FCC 16-59 237 APPENDIX C Economic Appendix TABLE OF CONTENTS Heading Paragraph # I. INTRODUCTION .................................................................................................................................. 1 II. BROADBAND SERVICES ................................................................................................................... 4 A. Market Power in Supplying Eyeballs .............................................................................................. 4 1. Number of Competitors Faced by the Applicants and New Charter ......................................... 6 2. Broadband Subscriber Shares .................................................................................................... 8 3. Predicted Prices for Charter and Time Warner Cable by Competitive Footprint .................... 11 B. Interconnection .............................................................................................................................. 20 1. Interconnection Statistics and Trends ...................................................................................... 25 a. Capacities and Utilization by Mode of Interconnection ................................................... 25 b. Traffic Ratio Trends .......................................................................................................... 29 2. Predictive Analysis of Interconnection Rates .......................................................................... 32 3. Potential Harm from Reduction in Streaming Quality ............................................................ 45 a. Congestion Data Analysis ................................................................................................. 46 b. VOD Revenue Analysis .................................................................................................... 58 C. OVD Entry and Cable Broadband Churn ...................................................................................... 72 1. Applicant Churn Analysis by Competitive Footprint .............................................................. 74 a. Churn Reason Categories .................................................................................................. 77 b. Broadband Areas with a FTTP or FTTN Competitor ....................................................... 83 c. Regression Analysis .......................................................................................................... 85 2. Long-Run Churn versus Short-Run Churn .............................................................................. 93 III. MVPD SERVICES ............................................................................................................................... 97 A. MVPD Video Subscriber Shares ................................................................................................. 102 B. MVPD Programming Payments .................................................................................................. 106 C. Programming Foreclosure ............................................................................................................ 109 1. RSNs ...................................................................................................................................... 109 a. Introduction ..................................................................................................................... 109 b. Permanent Foreclosure and Nash Bargaining for SportsNet/Deportes and SportsNet LA .................................................................................................................. 117 (i) Critical Departure Rates ........................................................................................... 118 (ii) Expected Departure Rates ........................................................................................ 123 (iii) Empirical Analysis ................................................................................................... 129 (a) Assumptions and Data ....................................................................................... 131 (b) Results ................................................................................................................ 137 (iv) Empirical Analysis of SportsNet LA Actual Departure Rates ................................. 148 (a) Difference-in-Differences Analysis ................................................................... 148 (b) Revisiting Foreclosure Analysis ........................................................................ 156 (v) Programming Price Effects ...................................................................................... 167 2. Discovery Communications .................................................................................................. 174 a. Introduction ..................................................................................................................... 174 (i) Background .............................................................................................................. 177 (ii) Modeling Approach and Estimation ......................................................................... 179 b. Stakeholders Negotiate on Behalf of Discovery ............................................................. 184 (i) Variable Definitions ................................................................................................. 185 (ii) Transaction-Specific Change in Affiliate Fees ......................................................... 186 Federal Communications Commission FCC 16-59 238 (a) Pre-Transaction .................................................................................................. 187 (b) Post-Transaction ................................................................................................ 197 (iii) Expected Departure .................................................................................................. 200 (iv) Critical Departure ..................................................................................................... 203 (v) Empirical Analysis ................................................................................................... 205 (a) Nationwide vs. Market-Level Estimation .......................................................... 207 (b) Calibration and Model Sensitivity ..................................................................... 210 (c) Results ................................................................................................................ 214 c. Discovery 1eJotiates /everaJinJ tKe 6taNeKolGers’ (TXity Interests ............................ 224 (i) Model ....................................................................................................................... 224 (ii) Departure Rates ........................................................................................................ 234 (a) Expected Departure ............................................................................................ 234 (b) Critical Departure .............................................................................................. 237 (iii) Results ...................................................................................................................... 240 (a) Incentive to Foreclose ........................................................................................ 241 (b) Price Effects ....................................................................................................... 244 (iv) Critical Ownership Necessary for Foreclosure ......................................................... 247 I. INTRODUCTION 1. This Appendix presents the economic analysis undertaken by the Commission to evaluate the potential harms from the proposed transactions between Charter Communications, Inc. (Charter), Time Warner Cable, Inc. (Time Warner Cable), and Bright House Networks (Bright House) (collectively the Applicants and post-transaction New Charter). This Appendix considers certain economic analyses submitted into the record1 as well as additional analyses to support our conclusions on the likelihood of competitive harms that may result from this transaction. 2. The Appendix is divided into two broad service areas ²Broadband Services and Multichannel Video Programming Distributor (MVPD) Services. In the Broadband Services section we analyze the number of competitors faced by the Applicants and broadband subscriber shares. Next, we employ a reJression moGel to e[amine ZKetKer CKarter’s anG 7ime :arner CaEle’s prices vary Ey tKe competition they face. Further, we analyze whether the transaction would provide New Charter an increased incentive or ability to harm online video distributors (OVDs) and other edge providers by raising quality-adjusted interconnection prices to OVDs and other edge providers, through some combination of price increases and/or by reductions in the quality of interconnection access. Finally in 1 The Applicants submitted a number of economic analyses. See Application, Declaration of Fiona M. Scott Morton, transmitted by letter from John L. Flynn, Counsel for Charter, and Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed June 25, 2015) (Scott Morton Decl.); Charter, Time Warner Cable and Advance/Newhouse, White Paper, Analysis of Video Programming Foreclosure Issues Involving Time Warner Cable SportsNet and SportsNet LA at para. 1, Steven C. Salop, Robert Stillman, Jerrod R Welch and Serge Moresi (RSN Foreclosure Analysis White Paper), transmitted by letter from Samuel Feder, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed December   ; Opposition ³6tatement oI Dr )iona 6cott 0orton re tKe 0erJer oI CKarter 7:C anG %H1´ transmitteG by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 IileG 1ov   6cott 0orton Reply Decl  Opposition ³Analysis oI ViGeo 3roJramminJ )oreclosXre IssXes InvolvinJ Dr -oKn 0alone anG AGvance1eZKoXse 3artnersKip´ Reply Declaration oI 6teven C 6alop RoEert Stillman, Jarrod R. Welch and Serge Moresi, transmitted by letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 (filed Nov. 2, 2015) (Salop Reply Decl.). Letter from Pantelis Michalopoulos, Counsel for DISH Network Corp., to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attachment, Analysis of Internet Churn: Time Warner Cable, Inc., Bright House Networks and Charter Communications (Zarakas Decl.) (filed Jan. 2016). Federal Communications Commission FCC 16-59 239 tKis section Ze analy]e tKe Applicants’ claims tKat tKey e[perience cKXrn as a resXlt oI tKe competitive environment using both short-run and long-run churn data. 3. In evaluating MVPD services, we first analyze video subscriber shares and then we analyze the anonymized programming payment data submitted by the Applicants. In this section, we also analyze whether New Charter would find it profitable to withhold its regional sports networks (RSNs) Irom otKer 0V3Ds :e also consiGer ZKetKer -oKn 0alone’s 0alone anG AGvance1eZKoXse’s Partnership (Advance/Newhouse) ownership shares in both Discovery Communications Inc. (Discovery) and New Charter would make foreclosure of Discovery programming a profitable strategy. II. BROADBAND SERVICES A. Market Power in Supplying Eyeballs 4. We are concerned with the effects of potential market power by New Charter on OVDs EecaXse OVDs oIIer consXmers cKoices tKat may eitKer complement tKe consXmer’s 0V3D services or compete directly with at least some of the services provided by MVPDs. Some commenters contend that New Charter would possess the incentive to unilaterally impose anticompetitive policies that would harm OVDs.2 The Commission has previously found that broadband Internet service providers (BIAS providers) have incentives to disadvantage the operations of third party Internet-based services that compete with their own services.3 This harm may manifest in a number of ways. BIAS providers which offer MVPD services may seek to protect this business segment by disadvantaging OVDs through the use of data caps, usage-based pricing, or discriminatory bundling practices.4 Also, BIAS providers with sufficiently large subscriber bases may be able to extract high interconnection fees from edge providers to access their local networks. 5. Due to these concerns, in this section we consider various metrics to analyze the likelihood that New Charter would have an increased incentive or ability to harm OVDs. First, we evaluate the number of BIAS providers by speed tier that the Applicants face individually and New Charter would face post-transaction. Our analysis of homes passed finds that New Charter would be the sole BIAS provider for approximately two thirds of its footprint. Next, we consider the increase to the Applicants’ EroaGEand subscriber share by speed tier resulting from the transaction. Our subscriber share analysis IinGs tKat at  meJaEytes per seconG 0Eps anG  0Eps tKat eacK oI tKe Applicants’ sKares within their footprints are greater than [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent anG Ior 1eZ CKarter’s Iootprint more tKan [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Finally, we undertake a regression analysis to estimate the percent GiIIerences in CKarter’s anG 7ime :arner CaEle’s preGicteG prices ZKen tKey Iace GiIIerent competitive constraints OXr reJression analysis IinGs tKat EotK CKarter’s anG 7ime :arner CaEle’s predicted prices are affected by the competition they face as well as the technology. Collectively, these analyses support the proposition that New Charter likely will have an incentive to harm OVDs. 1. Number of Competitors Faced by the Applicants and New Charter 6. We examine the number of BIAS providers at various download speeds nationwide and throughout the Applicants’ service Iootprints comparinJ tKe state oI tKe marNetplace EeIore anG aIter tKe 2 See, e.g., Petition to Deny of Writers Guild of America West, Inc., MB Docket No. 15-149, at 18 (filed Oct. 13, 2015) (WGAW Petition) ; Public Knowledge Reply at 1; Petition to Deny of DISH Network, MB Docket No. 15- 149, at 26 (filed Oct. 13, 2015) (DISH Petition). 3 Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, 30 FCC Rcd 5601, 5662, para. 140 (2015); 47 CFR § 8.2(a) (defining broadband Internet access service). 4 See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 14-16, Sixteenth Annual Report, 30 FCC Rcd 3253, 3352-53, para. 215 (2015) ( Sixteenth Video Competition Report ). Federal Communications Commission FCC 16-59 240 proposed transaction. Table 1 presents the number of BIAS providers nationally, by percentage of housing units passed, at a variety of speeds. The shares of homes passed are calculated using census block-level Geployment Gata Irom tKe Commission’s DecemEer  )CC )orm 5 For speeds of at least 25 Mbps down,6 55 percent of housing units have at most only one BIAS provider capable of delivering this speed. For speeds of at least 50 Mbps down, the highest speed tier shown in the table, that number rises to 59 percent. 7. Table 1 also presents the number of BIAS providers for existing Charter, Time Warner Cable, and Bright House service footprints,7 by percentage of housing units with either 0, 1, 2 or 3 or more BIAS providers at a variety of speeds and for the proposed footprint of post-transaction New Charter.8 For speeds of at least 25 Mbps down, Charter is the sole BIAS provider in 73 percent of its footprint; Time Warner Cable is the sole BIAS provider in 64 percent of its footprint; and Bright House is the sole BIAS provider in 34 percent of its footprint, and New Charter would be the sole BIAS provider in 66 percent of its footprint. Table 1 Number of BIAS Providers at Different Speeds Nationwide Charter Footprint Time Warner Cable Footprint Bright House Footprint New Charter Footprint Any Speed 3 + 14% 19% 19% 16% 18% 2 69% 75% 76% 80% 76% 1 12% 6% 5% 4% 5% 0 5% 0% 0% 0% 0% 3 + 9% 11% 11% 13% 11% At Least 10 Down 2 59% 62% 65% 71% 65% 1 24% 27% 23% 16% 24% 0 8% 0% 0% 0% 0% At Least 25 Down 3 + 3% 3% 3% 10% 3% 2 31% 24% 32% 56% 30% 1 55% 73% 64% 34% 66% 0 12% 0% 0% 0% 0% At Least 50 Down 3 + 2% 2% 3% 5% 2% 2 23% 17% 22% 32% 21% 1 59% 77% 67% 63% 70% 0 16% 5% 8% 0% 7% Source: December 2014 Form 477 Deployment Data 5 December 2014 Form 477 deployment data is available for download at https://www.fcc.gov/general/broadband- deployment-data-fcc-form-477 (last visited Mar. 15, 2016) (December 2014 Form 477 Deployment Data). A census block is the smallest geographic unit for which the Census Bureau tabulates decennial census data. There are 11,166,336 blocks designated in the 2010 Census, and they range in population from zero to several hundred. See 86 CensXs %XreaX ³ CensXs 6Xmmary )ile  ± 2010 Census of Population and Housing, Technical DocXmentation´ at  0arcK   http://www.census.gov/prod/cen2010/doc/sf1.pdf#page=504 . 6 See 2015 Broadband Progress Report and Notice of Inquiry on Immediate Action to Accelerate Deployment, 30 FCC Rcd 1375, 1381, para. 13 (2015) ( 2015 Broadband Progress Report ). 7 A %IA6 proviGer’s Iootprint Ior pXrposes oI tKis analysis is GeIineG as tKe set oI all CensXs %locNs in ZKicK tKe provider passes at least one residential subscriber. 8 For purposes of this analysis we define BIAS providers as offering the following technologies: digital subscriber line (DSL), DOCSIS cable, fiber to the node (FTTN), and fiber- to-the home (FTTH). It excludes BIAS providers who are not facilities-based or who focus on non-residential customers. Federal Communications Commission FCC 16-59 241 2. Broadband Subscriber Shares 8. Next we consider how the transaction would affect broadband subscriber shares. In this section, we look at national and within footprint subscriber shares for the Applicants individually and for New Charter. Table 2 below provides national broadband subscriber shares by speed tier for the Applicants individually pre-transaction and New Charter post-transaction.9 These figures are of particular interest EecaXse in Jeneral eGJe proviGers’ EeneIit Irom tKe aEility to reacK cXstomers on a nationwide basis.10 The data are provided by speed tier and total. Table 3 provides similar data for within-footprint subscriber shares. 9. )or pXrposes oI tKis sXEscriEer sKare analysis a %IA6 proviGer’s footprint is defined as the set of all Census tracts11 in which the BIAS provider has at least one residential subscriber. Thus, the total nXmEer oI EroaGEanG sXEscriEers ZitKin a particXlar %IA6 proviGer’s Iootprint inclXGes all broadband subscribers in Census tracts in which the BIAS provider serves at least one subscriber. Given tKat a %IA6 proviGer’s netZorN neeG not entirely cover all CensXs tracts ZitKin its Iootprint its percentage of subscribers within its footprint is likely to understate the actual share of households within the territory that it serves. As of December 2014, Charter had approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] residential broadband subscribers, or a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent subscriber share nationwide and an in-footprint share of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Time Warner Cable had approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] residential broadband subscribers as of December 2014, or a nearly [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent share nationwide and an in-footprint share of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Bright House had approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] residential broadband subscribers as of December 2014, or approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent share 9 The speed tiers used in Table 2 and Table 3 are: 10 Mbps down; 25 Mbps down; and 50 Mbps; and All. See Media Bureau Makes Available Broadband Subscriber Data Relevant To Review Of Proposed Charter-Time Warner Cable-Advance/Newhouse Transactions, Public Notice, 30 FCC Rcd 12748, 12752, Exh. 1-2 (MB 2015) ( 477 Data PN ). 10 Because broadband subscribers purchase access to the entire Internet, it is reasonable for an edge provider to assume, as part of its business model, that it would have access to all broadband subscribers nationwide²or, in other words, that any broadband subscriber in the country would have the option to Xse tKe eGJe proviGer’s services Furthermore, given that many data-intensive and performance-sensitive edge provider products are characterized by positive network externalities (e.g., multiplayer games and live video chat applications) or high fixed costs (e.g., licenseG streaminJ viGeo content  XnIettereG access may even Ee necessary Ior an eGJe proviGer’s viaEility 7KXs a %IA6 proviGer may Kave tKe aEility to Ioreclose an eGJe proviGer II tKe eGJe proviGer’s service is a sXEstitXte Ior another service provided by the BIAS provider (as may be the case with online video distributors, whose services may be substitutes for MVPD services), then the BIAS provider may also have the incentive to foreclose the edge proviGer As tKe %IA6 proviGer’s sXEscriEersKip increases ie tKe %IA6 proviGer ³commanGs more eyeEalls´  both the ability and incentive to foreclose a competing edge provider may increase. See also Competitive Impact Statement, United States v. AT&T, No. 1:00-cv-01176 (D.D.C. 2000 ). 11 7Ke Commission collects %IA6 proviGers’ resiGential sXEscriEersKip Gata tKroXJK tKe )CC )orm  ZKicK contains information on the number of broadband subscribers in each census tract by technology, and by specific download/upload speeds. See generally 47 C.F.R. §§ 1.7000-1.7002 (Form 477 Data ). Census Tracts are small, relatively permanent statistical subdivisions of a county or equivalent entity. Census tracts generally have a population size between 1,200 and 8,000 people, with an optimum size of 4,000 people. A census tract usually covers a contiguous area; however, the spatial size of census tracts varies widely depending on the density of settlement. See United States Census Bureau, Geographic Terms and Concepts – Census Tract, https://www.census.gov/geo/reference/gtc/gtc ct.html (last visited Mar. 12, 2016). Federal Communications Commission FCC 16-59 242 nationwide and an in-footprint share of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. 10. :e IinG tKat sXEscriEer sKares are more concentrateG ZitKin EotK tKe Applicants’ anG 1eZ CKarter’s Iootprint Ior eacK oI tKe speeG tiers )or e[ample Ior tKe  0Eps tier pre-transaction, Charter, Time Warner Cable, and Bright House respectively had subscriber shares of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, but [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent within their respective footprints. For New Charter, its nationwide subscriber share for the 25 Mbps speed tier would be [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent and within its footprint [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Table 2 National Counts and Shares of Consumer Connections by Speed Tier December 2014 [BEGIN HIGHLY CONF. INFO.] Speed Tier (max download speed) Pre-Transaction Post-Transaction Charter Time Warner Cable Bright House New Charter [END HIGHLY CONF. INFO.] Source: 477 Data PN Table 3 Within-Footprint Shares of Consumer Connections by Speed Tier December 2014 [BEGIN HIGHLY CONF. INFO.] Speed Tier (max download speed) Pre-Transaction Post-Transaction Charter Time Warner Cable Bright House New Charter [END HIGHLY CONF. INFO.] Source: 477 Data PN Federal Communications Commission FCC 16-59 243 3. Predicted Prices for Charter and Time Warner Cable by Competitive Footprint 11. In tKis section Ze employ a reJression moGel to e[amine ZKetKer CKarter’s anG 7ime :arner CaEle’s prices vary based on the competition that they face.12 Our analysis predicts standalone broadband prices for both Charter and Time Warner Cable where they face competition from Verizon Corporation, Inc. (Verizon) FiOS and DSL and AT&T Services, Inc. (AT&T) U-Verse and DSL. Our results show that the predicted prices for both Charter and Time Warner Cable are sensitive to the specific competitor as well as to the technology deployed.13 12. In eacK ]ip coGe in CKarter’s anG 7ime :arner CaEle’s Iootprints Ze calcXlate XsinJ December 2014 Form 477 Deployment Data, the percentage of homes passed that fall into each of five mutually exclusive broadband competition categories ²cable only, digital DSL, FTTN, and FTTH, and cable overbuilders.14 First we match the December 2014 Form 477 Deployment Data to zip codes via a crosswalk.15 The zip codes are then matched to monthly billing data for residential subscribers supplied by Charter and Time Warner Cable.16 These data provide the number of subscribers, monthly recurring revenues, and plan characteristics by month from June 2012 to August 2015 for every plan in a zip code for which the Applicants have at least one subscriber. For our price variable, we use the monthly recurring revenues (MRR) for all subscribers that have been on the particular plan in the zip code. The 12 We did not perform the analysis for Bright House because the company does not keep non-recurring revenues broken down by different services. See Advance/Newhouse Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Steven J. Horvitz, Counsel to Advance/Newhouse, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, at 1 (filed Oct. 21, 2015) (Advance/Newhouse Oct. 21, 2015, Updated Response to Information Request). 13 Charter has pursued a nationwide uniform pricing model to provide a [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] . CKarter’s ResiGential 3ricinJ anG Packaging, filed Dec. 11, 2015, transmitted to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, by John L. Flyinn. 14 For the purposes of this analysis, technologies are defined in the following manner: DSL as Asymmetric DSL at strictly slower than 10 Mbps downstream and strictly slower than 768 kilobits per second (kbps) upstream; FTTN is Asymmetric DSL with at least 10 Mbps downstream and at least 768 kbps upstream; and FTTH is broadband provided by any fiber technology. Cable only is for existing incumbent cable infrastructure. A cable overbuilder for purposes of this analysis is defined as cable broadband provided by one of the following four firms: Knology; Wide Open West (WOW!); RCN Corporation/ABRY Partners; or Grande Communications Networks, LLC. 15 December 2014 Form 477 Deployment Data; Census Bureau, Zip Code Tabulation Files http://www.census.gov/ geo/maps-data/data/relationship html (last visited Mar. 12, 2016) (Census Bureau, Zip Code Tabulation File). 16 See Charter Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from John L. Flynn, Counsel to Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 108(a)-3; Exhibit 108(1)-4 (filed Oct. 23, 2015) (Charter Oct. 23, 2015, Updated Response to Information Request); Time Warner Cable Updated Response to Information and Data Request, transmitted by letter from Matthew A. Brill, Counsel to Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attachment B (filed Oct. 16, 2015) (Time Warner Cable Oct. 16, 2015, Updated Response to Information Request). Federal Communications Commission FCC 16-59 244 MRR excludes one-time charges (such as from video- on-demand (VOD) or installation). 17 We restrict our analysis to standalone broadband service to avoid complications that may arise from the pricing of bundled offerings. 13. :e IocXs oXr analysis on Applicants’ pricinJ response to Veri]on )iO6 )77H anG AT&T U-Verse (FTTN). 18 Both Charter and Time Warner Cable face AT&T U-Verse and Verizon FiOS in parts of their current footprints and the speeds offered by these competitors are more comparable to 1eZ CKarter’s proposeG EroaGEanG service tKan to D6/ A7 7 8-verse offers speeds of up to 45 megabits per second (Mbps), 19 and its IPDSL provides broadband up to 18 Mbps.20 Current offerings for Verizon FiOS range from 25 Mbps to 500 Mbps down with most customers subscribing to the FiOS Quantum plans that offer download speeds of 50 Mbps or more, 21 ZKile Veri]on’s HiJK 6peeG Internet (DSL) service offers speeds up to 10-15 Mbps down and 1 Mbps up. 22 Further, we estimate that the New Charter homes passed are largely passed by Verizon and AT&T, and not cable overbuilders. 23 Finally, tKere is some GocXmentary eviGence tKat EotK CKarter anG 7ime :arner CaEle pay attention to Veri]on’s )iO6 anG A7 7’s 8-Verse offerings.24 14. To estimate the effect of the presence of Verizon FiOS and AT&T U- verse on CKarter’s anG 7ime :arner CaEle’s EroaGEanG plan pricinJ Ze reJress tKe 0RR oI a plan in a ]ip coGe on Veri]on’s D6/ anG )iO6 Geployment anG on A7 7’s D6/ anG 8-verse deployment, as well as on demographic variables that may affect broadband demand.25 We also add a piecewise linear spline for the percent of Charter and Time Warner Cable homes facing Verizon FiOS and AT&T U-verse competition in the zip code with knot points at 50 percent.26 This was done to allow for differential responses by Charter and Time Warner Cable in their plan pricing when Verizon FiOS and AT&T U-verse penetration falls above or below the 50 percent threshold. We posit that Charter and Time Warner Cable would 17 See Charter Oct. 23, 2015, Updated Response to Information Request at 17- 18. 18 AT&T currently uses FTTN architecture in most of the U-verse video footprint. Under this approach, AT&T deploys fiber to neighborhood nodes. Individual customer locations are connected to the network via existing copper plant using very-high-bit-rate DSL technology. See Applications of AT&T and DIRECTV for Consent to Assign or Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 30 FCC Rcd 9131, 9135, para. 11 n.9 (2015) ( AT&T-DIRECTV Order ). 19 AT&T-DIRECTV Order 30 FCC Rcd 9131, 9135, para. 11 n.9. 20 Id. at 9135, para. 11 n.10. 21 See 2015 Broadband Progress Report, 30 FCC Rcd 1375, 1383-84, para. 16. 22 See Verizon, DSL Service: The 24/7 Connection, http://www.verizon.com/info/dsl-services/ (last visited Mar 15, 2016). 23 The percent of total New Charter homes passed by Verizon would be approximately 22 percent, for AT&T approximately 53 percent, and for the four cable overbuilders, jointly, approximately five percent. Derived from December 2014 Form 477 Deployment Data. 24 CHR2-DOJ -00000022862 at 4, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ; TWC-DOJ -01951541 at 18-20, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 25 Summary File 1. 2010 Census Summary File 1 United States, prepared by the U.S. Census Bureau (2011). The demographic controls are: median household income, gender, educational attainment and median age. See Summary File 1. 2010 Census Summary File 1 United States, prepared by the U.S. Census Bureau (2011) and 2012 American Community Survey: 5-Year Data, from Minnesota Population Center. National Historical Geographic Information System: Version 2.0. Minneapolis, MN: University of Minnesota 2011 (https://www nhgis.org). 26 These spline variables are also used in a different analysis in Section II.C.1.c below and are explained in more detail there. Federal Communications Commission FCC 16-59 245 discount plans more steeply when penetration for these services crossed this threshold, and this is found to generally hold in the data. To this specification, we add individual plan and month-by-year fixed effects. The plan-level fixed effects control for the average price of a plan and for potential differences in the choice sets faced by consumers across zip codes. The time fixed effects control for industry trends in plan prices. Finally, the model is estimated separately for various broadband speeds. 15. The regression calculates the predicted prices for Charter and Time Warner Cable when facing Verizon FiOS and DSL and AT&T U-verse and DSL. We then calculate differences between these predicted prices and report these differences in Table 4 and Table 5 below.27 Table 4 Charter Predicted Broadband-only Pricing by Competitive Footprint [BEGIN HIGHLY CONF. INFO.] Download Speed FiOS vs. Verizon DSL FiOS vs. U-Verse FiOS vs. AT&T DSL U-verse vs. AT&T DSL U-verse vs. Verizon DSL [END HIGHLY CONF. INFO.] Table 5 Time Warner Cable Predicted Broadband-only Pricing by Competitive Footprint [BEGIN HIGHLY CONF. INFO.] Download Speed FiOS vs. Verizon DSL FiOS vs. U - verse FiOS vs. AT&T DSL U-verse vs. AT&T DSL U-verse vs. Verizon DSL [END HIGHLY CONF. INFO.] 16. CKarter’s preGicteG EroaGEanG only pricinJ is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] at all speeds when it faces competition from Verizon FiOS than when it Iaces Veri]on D6/ )XrtKer CKarter’s preGicteG prices are [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] when facing Verizon FiOS rather than AT&T U-verse, but [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] when facing Verizon FiOS rather than AT&T DSL. When Charter faces U-verse, its predicted prices are [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] than in the instances where it faces competition from eitKer Veri]on or A7 7 D6/ 7ime :arner CaEle’s preGicteG EroaGEand only price is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] at all speeds when it faces competition Irom Veri]on )iO6 tKan ZKen it Iaces Veri]on D6/ )XrtKer 7ime :arner CaEle’s predicted prices are also [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] but 27 7Ke GoZnloaG speeGs in 7aEles  anG  GiIIer EecaXse tKey reIlect tKe speeGs associateG ZitK CKarter’s anG 7ime :arner CaEle’s stanGalone EroaGEanG plans Federal Communications Commission FCC 16-59 246 to a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] degree when facing Verizon FiOS rather than AT&T U-verse, and its prices are much [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] when facing Verizon FiOS rather than AT&T DSL. When Time Warner Cable faces U-verse its predicted prices are [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] than in the instances where it faces competition from either Verizon or AT&T DSL. 17. While the analysis does generally sKeG some liJKt on KoZ EotK CKarter’s anG 7ime :arner CaEle’s stanGalone EroaGEanG prices are aIIecteG Ey competitive conGitions tKere are some caveats that should be noted. First, Charter does not seem to respond to the presence of Verizon (either FiOS or DSL) very [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] (and, in the case of FiOS, less [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] than Time Warner Cable does). The results shown in the third column of Table 4 are particularly striking: CKarter’s competitive response aJainst Veri]on )iO6 is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] than its response against AT&T DSL at [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] speeGs anG ZKile CKarter’s response aJainst Veri]on FiOS [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] at higher speeds, it is basically [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] as CKarter’s competitive response against AT&T DSL at the higher speeds. These findings might be due to tKe Iact tKat CKarter’s overlap ZitK Veri]on )iO6 is small constitXtinJ less tKan Iive percent oI CKarter’s footprint.28 More generally, the results related to Charter’s competitive response to Veri]on sKoXlG Ee treated with caution. 18. For a more robust result, the deployment data would ideally be a panel (i.e. , multiple- time-period) data set that shows changes to deployment over time and can be used to make precise inferences aEoXt proviGers’ mXtXal competitive responses EXt XnIortXnately sXcK a GetaileG Gata set is unavailable.29 The deployment information comes from a cross-sectional (i.e. , single-time-period) data set tKat represents proviGers’ EroaGEanG netZorNs as of December 2014. Thus, any inferences about competitive responses are limited in their reliability. 19. Finally, there could be other modes of competition, even of price competition, that are not captured here, given our focus on the narrowly defined (though easily quantified) measure of MRR. For example, providers might offer gift cards, rebates, or other one-time promotions to new subscribers, and it is reasonable to expect that they would be more aggressive with these strategies in more competitive areas. None of these strategies, however, would be reflected in decreases in MRR. B. Interconnection 20. In this section, we analyze whether the transaction would provide New Charter an increased incentive or ability to harm OVDs and other edge providers by raising quality-adjusted interconnection prices to OVDs and other edge providers, through some combination of price increases and/or by reductions in the quality of interconnection access (for example, by degrading streaming content). We first find that New Charter would have an increased ability to raise quality-adjusted interconnection prices. A corollary of our finding is that New Charter would also have an increased ability to engage in anticompetitive action aimed at OVDs and other edge providers. We also find 28 Share of housing units in Charter blocks that are also in FiOS blocks are approximately 4.5 percent. See December 2014 Form 477 Deployment Data. 29 The December 2014 Form 477 Deployment Data was the first time the Commission released Form 477 deployment data. Previously, the National Telecommunications and Information Administration collected data on broadband deployment through its State Broadband Initiative. FCC Releases Data on Broadband Deployment as of December 31, 2014 Collected Through FCC Form 477, Public Notice, 30 FCC Rcd 12504, 12504 (WCB 2015). Federal Communications Commission FCC 16-59 247 evidence of a mechanism that would provide New Charter with an increased incentive to harm OVDs due to the increase in its potential VOD and Pay-per-View (PPV) audience. 21. In this section, we analyze interconnection statistics and trends for the Applicants and for selected third parties. Specifically, we compare capacity and utilization for Charter, Time Warner Cable, Comcast Corp. (Comcast), and Verizon and we find that, in the absence of conditions related to interconnection 1eZ CKarter’s paiG peerinJ traffic, as a share of total traffic, in the medium term, would increase significantly and likely will exceed [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. This increase likely will contribute to an overall increase in interconnection revenues for New Charter relative to the current combined interconnection revenues of the Applicants. 22. Next, we conduct a predictive analysis of the potential effects of the transaction on interconnection prices and find that New Charter is likely to have an increased ability to raise interconnection prices. Specifically, by comparing paid peering revenues per broadband subscriber for Charter, Time Warner Cable, AT&T, Comcast, and Verizon, we find that larger providers have higher revenues per subscriber. To control for various factors other than size that may affect contractual interconnection rates, we use regression analysis. We conclude that the transaction is likely to result in higher interconnection revenues. 23. Furthermore, we look at the Netflix Inc. (Netflix) congestion period as a natural experiment. In 2013, many Netflix subscribers who purchased broadband from several U.S. BIAS providers experienced reductions in streaming quality (including rebuffering delays and low picture quality) that reached a peak during the last six months of 2013. 30 First we analyzed the observed performance of the Netflix stream on the networks of Charter, Time Warner Cable and Comcast (among other BIAS providers) during the congestion period and find that the performance on Time Warner Cable anG Comcast Zas similar :e IinG tKat CKarter’s EroaGEanG sXEscriEers e[perienceG less conJestion oI the Netflix stream than Comcast and Time Warner Cable, but that relative to the other BIAS providers included in our analysis, the performance of the Netflix stream on the Charter network was reduced during the congestion episode. Next, we consider the number of gigabytes and hours per account per month for 10 BIAS providers for two time periods and once again note differences between Charter and Comcast and Time Warner Cable. We also conduct a regression analysis to estimate the intensity of the congestion experienced by Netflix subscribers who were broadband subscribers of the 10 BIAS providers. Our regression analysis, while not fully conclusive, suggests that New Charter likely will possess the ability to discriminate against online video providers 24. Finally, we look into subscriber reactions to the congestion period²whether consumers substituted VOD or PPV for Netflix. We find that New Charter will likely have an incentive to degrade OVD rivals’ services in orGer to EeneIit Irom increaseG sales oI VOD33V *iven Gata limitations tKe analysis is conducted using Comcast as a proxy. For this analysis, we regress VOD/PPV revenues on the average number of Netflix streaming hours, the average bit rate, and designated market area (DMA) 31 and week fixed effects. The analysis indicates that Netflix hours and Comcast paid VOD/PPV services may be substitutes. To the extent this is the case, Comcast would have an incentive to degrade the Netflix stream to increase its sales of VOD/PPV. Since New Charter would have almost as many broadband 30 See Network World, Why Netflix Video Quality Has Fluctuated this Year, (June 18, 2014), http://www.networkworld.com/article/2365181/service-providers/why-netflix-video-quality-has-fluctuated-this- year.html (Network World, Netflix Quality Article). 31 A DMA is a Nielsen-defined television market consisting of a unique group of counties. The United States is divided into 210 DMA markets. Nielsen identifies television markets by placing each U.S. county (except for certain counties in Alaska) in a market based on measured viewing patterns and by MVPD distribution. See Sixteenth Video Competition Report, 30 FCC Rcd at 3274-75, para. 45 n.122. Federal Communications Commission FCC 16-59 248 sXEscriEers as Comcast its incentives to GeJraGe OVD rivals’ services Zill liNely Ee similar to those of Comcast. 1. Interconnection Statistics and Trends a. Capacities and Utilization by Mode of Interconnection 25. In tKis section Ze analy]e CKarter’s 7ime :arner CaEle’s anG tKirG parties’ recent interconnection capacities and utilization levels. Our analysis builds on our understanding of the Internet interconnection ecosystem as described in the Order, above.32 The analysis in this section provides information that is used to compare the composition of traffic by type of interconnection of Charter and Time Warner Cable with the recent traffic patterns of other large BIAS providers, and to help to predict 1eZ CKarter’s IXtXre Gevelopments relateG to traIIic patterns :e IinG tKat CKarter’s rates oI JroZtK oI traffic are aligned with those of the other major BIAS providers, and that, in the absence of any conditions relateG to interconnection in tKe meGiXm term 1eZ CKarter’s paiG peerinJ traIIic as a sKare oI its total traffic would likely exceed [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. We also find that, in the shorter term, New Charter would be able to replace most of the capacity it currently obtains from purchases of IP transit services with capacity obtained on a settlement-free basis. Figure 1 Charter Monthly Capacity (Gbps) January 2013-September 2015 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: TS = capacity used to supply transit; TP = capacity used for transit purchase; PP = capacity used to provide paid peering; and SF = capacity used to provide settlement free peering. Source: Charter Oct. 23, 2015, Updated Response to Information Request, Exhibit 111-1, Exhibit 111- 2. 32 See supra Order, Section V.C.1.a (describing Internet interconnection ecosystem). Federal Communications Commission FCC 16-59 249 Figure 2 Time Warner Cable Monthly Capacity (Gbps) January 2013-September 2015 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: TS = capacity used to supply transit; TP = capacity used for transit purchase, PP = capacity used to provide paid peering; and SF = capacity used to provide settlement free peering. Source: Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Exhibit 84 ±F.02, Exhibit 84 ±F.04, Exhibit 84 ±F.05 (Attachment F). 26. Figure 1 and Figure 2 above depict the interconnection capacities by type of interconnection for Charter and Time Warner Cable. In these two figures, the areas shaded with yellow represent settlement-free capacity, areas shaded with orange represent transit purchases, areas shaded with grey represent paid peering capacity, and the small area shaded with blue in Figure 2 represents transit capacity solG Ey 7ime :arner CaEle DXrinJ tKe perioG -anXary  to -Xly  CKarter’s total interconnection capacity [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .33 In contrast 7ime :arner CaEle’s interconnection capacity since miG-2014 consists [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of capacity it provides to its paid peers (representing approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of total capacity). 34 While total capacity for Time Warner Cable has increased at annual rates varying between [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent in tKe last tZo years oI availaEle Gata almost all tKe increase in 7ime :arner CaEle’s total interconnection capacity took place through the [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .35 33 Charter Oct. 23, 2015, Updated Response to Information Request, Exhibit 111-1, Exhibit 111- 2. 34 Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment F. 35 Id. Federal Communications Commission FCC 16-59 250 27. As Figure 3 and Figure 4 below indicate, this development is not unique to Time Warner Cable; both [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .36 Figure 3 [BEGIN HIGHLY CONF. INFO.] Comcast Monthly Capacity (Gbps) January 2013-December 2014 [END HIGHLY CONF. INFO.] Note: TS = capacity used to supply transit; TP = capacity used for transit purchase; PP = capacity used to provide paid peering; and SF = capacity used to provide settlement free peering. Source: Comcast Response to Information Request, Exhibit 125.1. 36 Comcast Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Michael D. Hurwitz, Counsel to Comcast Corporation, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 125.1 (filed Oct. 21, 2015) (Comcast Response to Information Request); Verizon Updated Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Meredith Singer, Counsel to Verizon Corporation, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 9.1 (filed Jan. 22, 2016) (Verizon Jan. 22, 2016, Updated Response to Information Request). Federal Communications Commission FCC 16-59 251 Figure 4 [BEGIN HIGHLY CONF. INFO.] Verizon Monthly Capacity (Gbps) December 2013-July 2015 [END HIGHLY CONF. INFO.] Note: TS = capacity used to supply transit; TP = capacity used for transit purchase; PP = capacity used to provide paid peering; and SF = capacity used to provide settlement free peering. Source: Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. 28. Based on available data, we estimate that post-transaction, and in the absence of any conditions related to interconnection, in the medium term, at least [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent oI 1eZ CKarter’s interconnection capacity would consist of paid peering connections, similar to the paid peering shares of the other major BIAS providers. Furthermore, the data available to us indicates that in the shorter term post-transaction, New Charter would be able to use the settlement-free relationships that Time Warner Cable currently has with major backbone BIAS providers in order to replace most of its capacity available from purchases of IP transit services with capacity provided to it on a settlement-free basis. b. Traffic Ratio Tre nds 29. The interconnection data in the record for Charter, Time Warner Cable, Comcast, and Verizon indicate that the rates of growth of inbound and outbound utilizations, as well as the rates of growth of total interconnection capacity have been [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .37 Figure 5 through Figure 8 summarize the growth rates for these firms. The rates of growth of Internet traffic and interconnection capacity for Time Warner Cable and Verizon recently appear [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .38 We find that this development is not likely 37 Charter Oct. 23, 2015, Updated Response to Information Request, Exhibit 111-1, Exhibit 111-2; Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment F; Comcast Response to Information Request, Exhibit 125.1.; Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. 38 Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment F; Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. Federal Communications Commission FCC 16-59 252 indicative of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for the Applicants individually or for New Charter. 30. We note that the rates of growth of total inbound traffic for Time Warner Cable have [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] the rates of growth of total capacity.39 As sXcK tKe spare interconnection capacity availaEle at 7ime :arner CaEle’s points oI interconnection has experienced [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] during the summer months of 2015.40 We think that these developments are transitory, and not indicative of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in order to exercise more control over interconnection. 31. Based on the interconnection data in the record, over the medium term, we expect inbound utilization levels and their rates of growth to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] outbound utilization levels and their corresponding rates of growth for Charter and Time Warner Cable. As a result, the overall inbound to outbound traffic ratios for Charter and Time Warner Cable would [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] over time. We expect overall traffic ratios to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] primarily as a result of the imbalance between inbound and outbound traffic [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . However, we do not expect the traffic ratios for the current settlement-free peers of Charter and Time Warner Cable to become unmanageable as a result. Figure 5 Charter: Year-to-Year Percentage Changes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Charter Oct. 23, 2015, Updated Response to Information Request, Exhibits 111-1- 3. 39 Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Exhibit 84 ±F.02. 40 Id. Federal Communications Commission FCC 16-59 253 Figure 6 Time Warner Cable: Year- to-Year Percentage Changes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment F. Figure 7 Comcast: Year-to-Year Percentage Changes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Comcast Response to Information Request, Exhibit 125- 1. Federal Communications Commission FCC 16-59 254 Figure 8 Verizon: Year- to-Year Percentage Changes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. 2. Predictive Analysis of Interconnection Rates 32. In Section V.C. of the Order, supra, we discuss whether the proposed transaction strenJtKens 1eZ CKarter’s EarJaininJ position in tKe interconnection marNet %eloZ Ze empirically analyze the effect of the proposed transaction on interconnection rates. We evaluate whether larger BIAS providers charge higher interconnection rates than smaller BIAS providers. To construct our data set, we analyzed 136 interconnection contracts41 currently in effect, submitted by five large BIAS providers (Charter, Time Warner Cable, AT&T, Comcast, and Verizon), in responses to our Information and Document Requests. 42 In addition to these contracts, we evaluated the interconnection revenues of these entities that were submitted in response to our information and document request. 43 41 One of the older contracts specified interconnection rates that were an order of magnitude larger than the other contracts in the data. We considered that an outlier, and deleted the corresponding observation from the data. 42 See AT&T Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Maureen R. Jeffreys, Counsel for AT&T, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibits 4.1-4.24 (filed Oct. 30, 2015) (AT&T Response to Information Request); AT&T Updated Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Maureen R. Jeffreys, Counsel for AT&T, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibits 4.1-4.24 (filed Nov. 24, 2015) (AT&T Nov. 24, 2015, Updated Response to Information Request); Charter Oct. 23, 2015, Updated Response to Information Request, Exhibit 47-1; Comcast Response to Information Request, COM-COM-00000405 ²COM-COM-00001904; Time Warner Cable Response to Information and Data Request, transmitted by letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 41-02 (filed Oct. 13, 2015) (Time Warner Cable Response to Information Request); Verizon Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Meredith Singer, Counsel to Verizon Corporation, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, VZ00001 ²VZ001581. (filed Nov. 6, 2015) 43 See Comcast Response to Information Request, Exhibit 125.1; Time Warner Cable Response to Information and Data Request, Attachment F; Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. Federal Communications Commission FCC 16-59 255 33. The large BIAS providers identified above were asked to submit all their paid peering and settlement free contracts, as well as contracts for the provision of IP transit services.44 These contracts involve a variety of counterparties, including large edge providers such as Akamai, Google, Netflix, and Facebook; Tier-1 providers such as Cogent and Level 3; and several smaller entities that purchase IP transit.45 In addition, the BIAS providers were asked to submit monthly data concerning capacities, utilizations, and revenues by type of interconnection.46 We use both contract data and the monthly revenue data to evaluate the potential impact of the transaction on interconnection rates. 34. The tables below present evidence that the interconnection rates charged by larger BIAS providers vary with respect to the size of the BIAS providers. Table 6 presents an estimate from SNL Kagan of the broadband subscribers for each of the BIAS providers, and Table 7 provides the monthly paid peering revenues per subscriber for each of the BIAS providers.47 Table 7 includes the average monthly revenues per subscriber from paid peering calculated over the most recent six months of data available to us.48 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 44 See Letter from William T. Lake, Chief, Media Bureau, FCC to Catherine Bohigian, Executive Vice President, Government Affairs, Charter, MB Docket No. 15-149 Attachment at 14 (Sept. 21, 2015) (Information Request to Charter); Letter from William T. Lake, Chief, Media Bureau, FCC to Steven Teplitz, Senior Vice President, Government Relations, Time Warner Cable, MB Docket No. 15-149 Attachment at 12 (Sept. 21, 2015) (Information Request to Time Warner); Letter from William T. Lake, Chief, Media Bureau, FCC, to Stacy Fuller, Vice President, Federal Regulatory, AT&T Services, Inc., MB Docket No. 15-149 Attachment at 1 (Oct. 9, 2015) (Information Request to AT&T); Letter from William T. Lake, Chief, Media Bureau, FCC to Lynn Charytan, Senior Vice President, Legal Regulatory Affairs, Senior Deputy General Counsel, Comcast, MB Docket No. 15-149 Attachment at 1 (Oct. 9, 2015) (Information Request to Comcast); Letter from William T. Lake, Chief, Media Bureau, FCC, to William H. Johnson, Esq, Vice President & Associate General Counsel, MB Docket No. 15-149 Attachment at 1 (Oct. 9, 2015) (Information Request to Verizon). 45 See supra note 42. 46 Information Request to Charter, Attachment at 32; Information Request to Time Warner Cable, Attachment at 24; Information Request to AT&T, Attachment at 1; Information Request to Comcast, Attachment at 1; Information Request to Verizon, Attachment at 2. 47 A7 7 GiG not sXEmit any Gata Ior ³paiG peerinJ´ A7 7 states tKat it proviGes a service it calls ³0anaJeG Internet 6ervices´ 0I6  A7 7 GiG sXEmit 0I6 Gata EXt Jiven oXr limiteG NnoZleGJe oI tKe cKaracteristics oI tKe service we did not use it to calculate revenues per subscriber. See AT&T Response to Information Request at 2-5. CKarter GiG not participate in any paiG peerinJ arranJements GXrinJ tKe relevant perioG tKereIore CKarter’s revenXes from paid peering are zero. See Charter Oct. 23, 2016, Updated Response to Information Request at 41. 48 The average interconnection revenues per subscriber were calculated using total revenues for Comcast between July and December 2014, total revenues for Time Warner Cable between April and September 2015, and total revenues for Verizon during May and August 2015. See Comcast Response to Information and Data Request, Exhibit 125.1; Time Warner Cable Response to Information and Data Request, Attachment F; Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. Federal Communications Commission FCC 16-59 256 Table 6 Number of High Speed Data Subscribers 49 2015 BIAS Provider High Speed Data Subscribers (000) Comcast 21,962 Time Warner Cable 12,253 AT&T 16,028 Verizon 9,205 Charter 5,072 Source: SNL Kagan, 4Q201 5 Table 7 Average Paid Peering Revenues Per Residential Subscriber [BEGIN HIGHLY CONF. INFO.] BIAS Provider Revenue per Residential Subscriber Comcast AT&T Time Warner Cable Verizon Charter [END HIGHLY CONF. INFO.] Source: Comcast Response to Information Request, Exhibit 125.1; Time Warner Cable Response to Information Request, Attachment F; Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1; SNL Kagan, 4Q2015. 35. Regression analysis. [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . We use an ordinary least squares (OLS) and a Tobit model to regress contractual interconnection rates on various factors that may influence BIAS provider’s revenXes 36. Interconnection contracts typically specify multiple rates that depend on capacity and utilization levels.50 For our analysis, we chose the rates associated with the committed data rates, whenever these committed data rates are applicable.51 When contracts specified either fixed monthly port charges or a price schedule without a committed data rate, or when the rates were a function of the traffic 49 High Speed Data figures include DSL, FTTH/FTTN, Cable, Fixed-Wireless & Satellite with a minimum speed of 256 kbps. SNL Kagan, 4Q2015. 50 Some of these rates also change over time. While summarizing complex contractual rates by a single number is a difficult endeavor, we strived to choose a rate representative for each contract in a consistent manner. For settlement-free contracts that specify greater than zero applicable rates when the traffic ratio exceeds a particular number, we considered the rates in effect given the last known configuration of inbound and outbound traffic. 51 The Committed Data Rate (CDR) is the minimum data transfer rate contractually guaranteed by a BIAS Provider. Federal Communications Commission FCC 16-59 257 ratios, we imputed the applicable per-Mbps rates using the most recent 95 percentile utilization levels in the data submitted by AT&T, Comcast, and Time Warner Cable. 52 37. We exclude both Charter and Verizon from this regression analysis because Charter did not sell transit or participate in paid peering arrangements during the relevant time period,53 and because [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ,54 we restrict our analysis to interconnection rates specified in the contracts submitted by AT&T, Comcast, and Time Warner Cable. 38. We use OLS and a Tobit model to evaluate the differences between the contractual interconnection rates of the BIAS providers in our sample. The dependent variable in the OLS regression is the logarithm of the contractual interconnection rate ($/Mbps). For the Tobit regression the dependent variable is the contractual interconnection rate. As independent variables in both OLS and Tobit regressions we use: BIAS provider fixed effects, counterparty fixed effects, contract vintage; and a dichotomous variable equal to 1 for on-net access and 0 for off-net access. 55 The BIAS provider fixed effects control for differences across the BIAS providers (such as the number and demographic characteristics of its broadband subscribers, or the quality of the broadband connection it provides to its customers) that might affect interconnection rates across the board. We use counterparty fixed effects to control for differences across counterparties that are invariant with respect to the BIAS providers in our data.56 We also control for the vintage57 of the contract to account for any potential time trends in the data.58 39. The dependent variable in the OLS regressions is the logarithm of the interconnection rate. As such, the OLS regression cannot account for observations for which the interconnection rate is equal to zero. However, in the Tobit specification we do consider these observations, thus allowing a comparison across BIAS providers of rates that include zeroes.59 Accordingly, the Tobit regression includes more observations than the OLS regression. Table 8 below presents the results of the regressions. 52 AT&T Nov. 24, 2015, Updated Response to Information Request, Exhibits 9.1-9.3; Comcast Response to Information Request, Exhibit 125.1; Time Warner Cable Response to Information Request, Attachment B; Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. 53 See Charter Oct. 23, 2016, Updated Response to Information Request at 39, 41. 54 Verizon Jan. 22, 2016, Updated Response to Information Request, Exhibit 9.1. 55 In Jeneral Ze consiGer peerinJ relationsKips to Ee ³on-net´ EecaXse sXcK aJreemets only proviGe Ior traIIic exchange between BIAS provider parties and their respective customers. See supra Order, para. 98. In contrast, we consiGer transit services to Ee ³oII-net´ EecaXse transit proviGers Jive tKeir cXstomers access to tKe IXll Internet anG give the rest of the Internet access to their transit customers. See id. 56 For example, the fact that Google earns significant revenues from advertising might affect the interconnection rates it pays to all the eyeball networks with which it interconnects. A fixed effect for Google controls for this (and other relevant characteristics of Google as a counterparty to an interconnection contract) that are invariant with respect to the BIAS providers in the data. 57 Vintage is defined as the year the contract was signed. 58 Since the estimated vintage dummies do not indicate a persistent trend in interconnection rates over time, we did not include time trend variables in our regressions. 59 A Tobit regression permits estimation in situations where the dependent variable, as in our case with the interconnection price, cannot take negative values, and instead of a negative value a value of zero is observed for the dependent variable. Federal Communications Commission FCC 16-59 258 Table 8 Rate Regressions [BEGIN HIGHLY CONF. INFO.] OLS Tobit (1) (2) Comcast Time Warner Cable on-net Vintage Counterparty Constant N [END HIGHLY CONF. INFO.] Note: Standard errors are clustered by BIAS provider. BIAS provider fixed effects are calculated with respect to AT&T. * - significant to 10 percent; *** - significant to 1 percent. 40. The results in Table 8 indicate that,60 controlling for the identity of the counterparty, the contract vintage and for on- or off-net access, the interconnection rates charged by [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .61 41. Absent any conditions related to interconnection, the transaction may have three potential effects on interconnection rates and revenues in the medium- to long-term. The first potential effect is a size effect: New Charter would have approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] more broadband subscribers than Time Warner Cable and Bright House 1etZorNs comEineG As a resXlt oI tKis eIIect iI 7ime :arner CaEle’s interconnection rates Zere to 60 To save space, Table 8 does not report the parameter estimates or standard errors for a large number of Vintage and Counterparty control variables, but only reports whether they were included in the regression. 61 6ince 7ime :arner CaEle’s fixed effect is statistically indistinguishable from zero, in the log-linear specification  tKe estimateG Ii[eG eIIect Ior Comcast inGicates tKat Comcast’s rates are [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] tKan 7ime :arner CaEle’s rates [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. Federal Communications Commission FCC 16-59 259 apply to traIIic GestineG Ior CKarter’s cXrrent EroaGEanG cXstomers anG since CKarter cXrrently Goes not charge for paid peering or transit,62 the interconnection revenues for New Charter would increase by approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. 42. The second potential effect of the transaction on interconnection rates is a leverage effect: New Charter, because of its larger base of broadband customers, may be able to negotiate more favorable terms with its interconnection partners. As a result of the transaction, New Charter in terms of size and demographic composition of its broadband subscribers would more closely resemble Comcast.63 Therefore, New Charter may be able to charge interconnection rates comparable to those charged by Comcast. [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 43. A third effect of the transaction represents a savings for New Charter. If the transaction is approved, New Charter will be able to save approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million per year that Charter currently pays for IP transit.64 This savings arises because New Charter would be able to obtain settlement-free interconnection with the parties from which it currently purchases IP transit. 44. Given the data available to us, the overall effect of the transaction on interconnection rates and revenues is uncertain. However, the potential size and leverage effects indicate that the combined annual interconnection revenues for Charter, Time Warner Cable, and Bright House Networks over the medium- to long-run may rise by approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent.65 Given Time :arner CaEle’s cXrrent annXal interconnection revenues of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million,66 the combined impact of the estimated size and leverage effects represents an increase in interconnection revenues of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] million per year. 3. Potential Harm from Reduction in Streaming Quality 45. Another way that New Charter may have to protect its video business from OVDs is to reduce the streaming quality of the OVD. Below, we look at the Netflix congestion period as a natural experiment. In 2013, many Netflix subscribers who purchased broadband from several U.S. BIAS providers experienced systematic reductions in streaming quality (including rebuffering delays and low picture quality) that reached a peak during the last six months of 2013. 67 First we look at how Charter and 7ime :arner EeKaveG GXrinJ tKis perioG anG compare tKeir EeKavior to Comcast’s as Zell as evalXate tKe intensity of the congestion. Next, we consider whether subscribers increased their VOD or PPV purchases during this congestion period. 62 See supra note 53. 63 1eZ CKarter’s EroaGEanG sXEscriEer sKare ZoXlG Ee closer to Comcast’s EXt ZoXlG still Ee appro[imately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent less. See Form 477 PN; Comcast Response to Information Request, Exhibits 110.1(b), 110.1(e). Further, New Charter will gain additional urban customers; therefore the demographic composition of its subscriber base also would more closely resemble Comcast’s 64 Derived from Charter Oct. 23, 2015, Updated Response to Information Request, Exhibits 111-1-3. 65 The estimated combined impact of the size and leverage effects is equal to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 66 Time Warner Cable Response to Information Request, Attachment F. 67 See Network World, Netflix Quality Article. Federal Communications Commission FCC 16-59 260 a. Congestion Data Analysis 46. In 2013, many Netflix subscribers who purchased broadband from several U.S. BIAS providers experienced systematic reductions in streaming quality (including rebuffering delays and low picture quality) that reached a peak during the winter of 2013-2014. 68 The ability to reduce streaming quality is one of the tools that New Charter may be able to use in order to harm OVDs. To assess whether New Charter would have an increased incentive and ability to reduce OVD streaming quality, we analyze whether and to what extent the top 10 BIAS providers in the United States, 69 including Charter, Time Warner Cable, and Comcast, experienced congestion that degraded the performance of Netflix on their networks during the winter of 2013-2014. 47. )irst Ze consiGer tKese %IA6 proviGers’ reactions to 1etIli[’s Gecision to EeJin streaming high definition content. Next we analyze the Netflix traffic patterns and the number of hours streamed per Netflix account per month for the largest 10 BIAS providers that also provide video services, including the Applicants. Finally, we perform a regression analysis to evaluate the intensity of the congestion experienced by Netflix subscribers who were broadband subscribers of one of the top 10 BIAS providers in the U.S. These analyses find that the quality of the Netflix stream during the peak of congestion was poorer for the larger BIAS providers. Time Warner Cable and Comcast have both had similar congestion problems that significantly degraded the performance of Netflix. We find that while CKarter’s conJestion proElems GiIIereG Irom tKat oI Comcast anG 7ime :arner CaEle tKe Gata inGicate that the performance of the Netflix stream was slightly degraded for Charter, too. 48. :e Iirst consiGer KoZ CKarter 7ime :arner CaEle anG Comcast reacteG to 1etIli[’s decision to begin streaming high definition content. Around September 25, 2013, Netflix started streaming 1080p, or high definition (HD) content to BIAS providers that were not utilizing its Open Connect70 platform (e.g., Charter, Time Warner Cable, Comcast). 71 Figure 9 EeloZ illXstrates CKarter’s 7ime :arner CaEle’s anG Comcast’s reactions to 1etIli[ streaminJ HD content Figure 9 shows that when Netflix began streaming HD content [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 49. Looking at Figure 9, it appears that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] before Netflix started streaming HD content to the BIAS providers that did not use its Open Connect platform. One possible explanation for this is that Netflix adjusted its delivery of content to avoid congestion. Another explanation is that these congestion data are averages, and averages may mask 68 Id. 69 The 10 BIAS providers are AT&T, Bright House, Cablevision Systems Corporation (Cablevision), CenturyLink, Inc. (CenturyLink) Charter, Comcast, Cox Communications (Cox), Frontier Communications Corp. (Frontier), Time Warner Cable, and Verizon. 70 Netflix Open Connect is a partnership with BIAS providers to localize substantial amounts of traffic as a means of delivering Netflix content the most efficient way possible. See Netflix, Netflix Open Connect, https://openconnect.netflix.com/en/ (last visited Mar. 7, 2016). 71 Google Fiber, Cox, Cablevision and Suddenlink Communications appear to be the only large(ish) BIAS providers that employed Open Connect during the congestion period. See Steve Donohue, Netflix 4K Ultra HD launch could boost Cablevision, Cox, Suddenlink, Fierce Cable (Nov. 4, 2013), http://www.fiercecable.com/story/netflix- 4k-ultra- hd-launch-could-boost-cablevision-cox-suddenlink/2013- 11-04. Federal Communications Commission FCC 16-59 261 significant geographical variation in bitrates (e.g., if New York and Los Angeles experienced significantly more congestion than other areas for Time Warner Cable). Figure 9 Charter, Time Warner Cable, and Comcast Bitrates Jan. 2012-July 2014 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Netflix Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Sarah K. Leggin, Counsel for Netflix, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit NFX-FCC- 00000067 (filed Oct. 23, 2015) (Netflix Response to Information Request). 50. Table 9 and Table 10 below present the traffic volumes (in GB per account per month) and the number of Netflix hours streamed per account per month for the top 10 BIAS providers, including the Applicants. Table 9 reports these data for the time period February 2013 through July 2014 and Table 10 reports data for the time period March 2014 through July 2014. 72 For the time period reported in Table 9, Charter [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] mean number of GB per account per month and is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in terms of hours per account per month [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . For the time period reported in Table 10, Charter once again [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] mean number of GB per account per month and is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in terms of hours per account per month. 72 The February 2013-July 2014 reflects the entire time period for which we have data. The March 2014 through July 2014 reflects the post-congestion period after Netflix and Comcast signed an interconnection agreement. See Edward Wyatt and Noam Cohen, Comcast and Netflix Reach Deal on Service, New York Times (Feb. 23, 2014), http://www.nytimes.com/2014/02/24/business/media/comcast-and-netflix-reach-a-streaming-agreement html? r=0 . Federal Communications Commission FCC 16-59 262 Time Warner Cable and Comcast are ranked [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , respectively in terms of hours per account per month for the time period in Table 9. For the time period in Table 10, Time Warner and Comcast are ranked [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , respectively in terms of GBs per account per month and hours per account per month. Table 9 Traffic Volume: GB Per Account Per Month February 2013² July 2014 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Netflix Response to Information Request, Exhibit NFX-FCC-00000067. Table 10 Traffic Volume: GB Per Account Per Month March 2014 ²July 2014 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Netflix Response to Information Request, Exhibit NFX-FCC-00000067. 51. Relationship between volume of traffic and streaming hours. Next, we consider the relationship between the volume of traffic and the number of streaming hours. We expect that this relationship should be increasing, as a higher number of quality-constant streaming hours clearly requires a higher volume of traffic. Differences in streaming quality (or bitrates), however, rotate this relationship counterclockwise for higher quality, or clockwise for lower quality, whereas delays in streaming due to rebuffering shift this relationship down, as shown in Figure 10 below. Federal Communications Commission FCC 16-59 263 Figure 10 Relationship between Traffic Volumes and Hours Streamed 52. Regression Analysis. To evaluate the intensity of the congestion experienced by Netflix subscribers who were broadband subscribers of one of the top 10 BIAS providers in the U.S., we use data supplied by Netflix 73 to regress the monthly volumes of traffic terminating at a BIAS provider on the number of hours streamed by broadband subscribers of that BIAS provider for the period January 2013 to August 2014. We include as explanatory variables BIAS provider fixed effects, interactions between the BIAS provider and the number of streaming hours, the monthly number of Netflix accounts estimated by Netflix for each of the BIAS providers in the sample. Using interactions between these variables and a dichotomous variable that characterizes the peak of the congestion period we also evaluate the changes in these relationships. 53. The regression equation is: 74 TBit = const + C i  ?1*Viewhours it  ?1i*{Viewhours jt _j i`  ?2*Accounts it + ?2i * {Congestion t * BIAS provider j_j i` ?3i*{Viewhours jt *Congestion t_j i`  ?it, where the dependent variable TBit represents Terabytes of traffic terminating at BIAS provider i during month t; Ci are the BIAS provider fixed effects that are similar to the shifts caused by rebuffering delays depicted in Figure 10 above; Viewhours represents the number of streaming hours for an BIAS provider in a given month, Accounts represents the number of Netflix accounts estimated by Netflix to obtain their primary broadband connection from a given BIAS provider; and Congestion is an indicator variable equal to one during the nadir of the congestion (October 2013-January 2014) and zero otherwise. The 73 See Netflix Response to Information Request, Exhibit NFX-FCC- 00000067. 74 Table 11 EeloZ presents roEXst O/6 estimates; trXncateG reJression coeIIicients 7%it ?  are very similar :e attempted to also control for potential across-the-board changes in bitrates associated with HD-content streaming that occurred around September 25, 2013, but since these changes were largely contemporaneous with the peak of the congestion, the explanatory power of these changes is significantly reduced. T er ab y te s Rebuffering delays Lower bitrate Streaming Hours Federal Communications Commission FCC 16-59 264 coefficients of interest are Ci, ?1i (representing BIAS provider-specific slope coefficients similar to the rotations caused by differences in bitrates depicted in Figure 10 above), ?2i (representing changes in the BIAS provider fixed effects during the congestion period), and ?3i (representing changes in the slope of the slope coefficients for a BIAS provider during the congestion period). A negative and statistically significant coefficient Ci indicates that the average level of rebuffering delays for BIAS provider i is larger than for the BIAS provider chosen as reference (here, AT&T). 54. The results are presented in Table 11 below. The BIAS provider names in rows 5-13 of the table correspond to the BIAS provider-specific estimated coefficients Ci (relative to AT&T, which is used as reference in the regressions). The BIAS provider-specific estimated slope coefficients, ?1i , are presented in rows 14-22, and the estimated changes attributed to congestion ( ?3i) are in rows 23-40. 55. [BEGIN HIGHLY CONF. INFO.] 56. 57. [ END HIGHLY CONF. INFO.] . Federal Communications Commission FCC 16-59 265 Table 11 Evaluating the Extent of Congestion [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: The dependent variable is the number of terabytes streamed monthly for a BIAS provider. Standard errors clustered by BIAS provider. * - significant to 5%; ** - significant to 1%; *** - significant to 0.1%. b. VOD Revenue Analysis 58. This section shows that Netflix streaming services and both paid VOD and PPV services are likely substitutes. Consequently, BIAS providers that sell either VOD or PPV have an incentive to Federal Communications Commission FCC 16-59 266 harm Netflix, and because the benefits of such harm would be substantially greater for New Charter than for the Applicants individually (because New Charter would capture the benefits of the harm over all tKree separate Iootprints  1eZ CKarter’s incentive to enJaJe in sXcK EeKavior is increased. To the extent OVD services and paid VOD and PPV are also substitutes, as is likely, New Charter would have an incentive to harm OVDs, and the transaction would increase that incentive. 59. There is some disagreement in the record about whether OVDs are complements or substitutes to BIAS providers that are also MVPD providers.75 The Applicants claim that because OVDs provide content that is a complement to their video services, the Applicants would have no incentive to harm OVDs.76 However, if the two are substitutes, then a BIAS provider may benefit from degrading OVD service for its broadband customers because its customers would substitute away from degraded OVD content and into video content sold by the MVPD. 60. The congestion episode involving the visible degradation of Netflix content available to certain BIAS provider subscribers during the second half of 2013 and in early 2014 provides us with an opportunity to measure some of the economic effects of the degradation. As discussed in Section II.B.3.a. above, the analysis indicates that Time Warner Cable and Comcast both behaved differently than Charter during the congestion time period. Besides changing BIAS provider /MVPD providers in response to Netflix streaming being degraded, consumers also may increase their purchases of VOD or PPV proJramminJ increasinJ tKe 0V3D’s revenXes Irom tKese services 7Kis increase in revenXes Irom VOD and PPV service may provide an incentive to degrade OVD streams by BIAS providers that offer video services. 61. 7Ke Commission reTXesteG inIormation anG Gata on tKe Applicants’ anG Comcast’s sales of VOD/PPV services.77 Given that Comcast and Time Warner Cable behaved in a similar manner during this congestion period,78 our intention was to conduct an analysis of the VOD/PPV revenues for both Time Warner Cable and Comcast. However, the data provided by Time Warner Cable is limited,79 and therefore we only conduct the analysis for Comcast. While arguably Comcast is different from Time Warner Cable (so that the magnitudes of the economic effects might vary), the direction of these effects is very likely the same for Comcast, Time Warner Cable, and New Charter. Specifically, if the analysis of the effects of Netflix congestion reveals that Netflix content and VOD or PPV content sold by Comcast are substitutes, then, in all likelihood, Netflix content and VOD/PPV content that would be sold by Time :arner CaEle anG 1eZ CKarter are also sXEstitXtes )XrtKer 1eZ CKarter’s incentives to degrade OVD 75 The Applicants argue that OVD services complement their video products. See, e.g., Scott Morton Decl. at para. 58; Scott Morton Reply Decl. at paras. 19-21, 31-49, 77, 82-100. Some commenters assert that OVDs are competitors to broadband providers that also offer MVPD services. See, e.g., DISH Petition at 4, 15-20, 46-55, 68; Petition to Deny of Public Knowledge, Common Cause, Consumers Union, and Open Mic, MB Docket No. 15-149, at 6-18 (filed Oct. 13, 2015) (Public Knowledge et al. Petition); WGAW Petition at 13-16, 23-30. 76 The Applicants argue that OVD services complement their video products. See, e.g., Scott Morton Decl. at para. 58; Opposition at 16-18; Scott Morton Reply Decl. at paras. 19-21, 31-49, 77, 82-100. 77 Information Request to Charter, Attachment at 31-32; Information Request to Time Warner Cable, Attachment at 24; Information Request to Comcast, Attachment at 1. 78 See supra Section II.B.3.a. 79 See Time Warner Cable Response to Information Request at 36. Data at the zip code level is only available at the time it Zas proviGeG anG is noZ availaEle to only appro[imately  percent oI 7ime :arner CaEle’s set top Eo[es. Id. CKarter’s Gata is more roEXst, however, its behavior during the congestion period was different than Time :arner CaEle’s anG Comcast’s anG tKereIore it is e[clXGeG Irom tKe analysis )or a Gescription oI CKarter’s VOD/PPV data, see Charter October 23, 2015, Updated Response to Information Request at 30- 37. Federal Communications Commission FCC 16-59 267 streaminJ are liNely to increase as a resXlt oI tKe transaction since 1eZ CKarter’s viGeo sXEscriEersKip ZoXlG increase to a level closer to Comcast’s80 62. 7o measXre tKe eIIect oI 1etIli[ conJestion on Comcast’s revenXes Irom sales oI VOD and PPV content, we used weekly data provided by Netflix 81 concerning the quality of the Netflix video stream by type of device at the DMA level, and daily DMA-level VOD/PPV sales, as well as free VOD hours information, provided by Comcast.82 We sought to estimate how the sales of VOD/PPV content sold by Comcast are affected by the number of hours of Netflix content streamed by customers of Comcast’s EroaGEanG service XsinJ tKe IolloZinJ estimatinJ eTXation where Ridw represent revenues from the sale of service i (VOD, or PPV) in DMA d and in week w ?i is the regression constant, Hoursdw represent the average number of Netflix hours streamed in DMA d and in week w, Avg_BR dw represents the average bitrate of the Netflix service in DMA d and in week w, represent DMA- and week-speciIic Ii[eG eIIects anG ? is an error term )or tKe GepenGent variable, Ridw, we consider revenues from the sale of VOD or PPV service during peak and non-peak hours83 separately and for free VOD we use hours instead of revenue to assess the effects of the Netflix congestion period. 63. A neJative anG siJniIicant estimate ?i would indicate that a reduction in the number of Netflix hours streamed in a DMA is associated, all other things equal, with an increase in the revenues of service i, and thus that Netflix content and VOD/PPV content may be to some degree considered sXEstitXtes Conversely a positive anG siJniIicant estimate ?i would indicate that Netflix content and VOD/PPV content may be considered complements. However, OLS estimates oI coeIIicients ?i are likely biased for two important reasons. First, the factors unobserved in the data that plausibly affect Netflix hours streamed in a DMA (e.g., weather) are also likely to affect the contemporaneous sales of VOD/PPV content by Comcast in that DMA. The week- and DMA-specific fixed effects used in the regression may mitigate some of the resulting estimation bias. 64. Second, the extent of degradation itself may be endogenous to the relationship between hours of Netflix viewed and VOD revenues. In other words, if actions taken by Comcast (such as failure to provide prompt and adequate capacity augmentation on interconnection links with the relevant settlement-free peers), affected the performance of the Netflix stream, then the extent of degradation might have been affected by the relationship expected by Comcast between congestion, Netflix hours streamed, and VOD/PPV revenue.84 To address this endogeneity, we estimate the above equation using the method of instrumental variables. We use a lagged variable of Hoursdw ( Hoursdw-1 --the average number of Netflix hours streamed per account in the same DMA during the previous week) as the instrument. The results are presented in Table 12 below. 80 See supra note 63. 81 See Netflix Response to Information Request, Exhibit NFX-FCC- 00000067. 82 See Comcast Response to Information Request, Exhibits 5.8, 6.6. 83 Peak periods occur daily between 7 PM and 11 PM. Non-peak hours occur outside of peak hours. 84 For example, if ²all other things equal ²Comcast expected a marginal increase in VOD/PPV revenues associated with a reduction in the number of Netflix hours streamed, to the extent possible, Comcast would have acted so as to marginally decrease the number of Netflix hours streamed. idwidiwdwidwiiidw BRAvgHoursR ?????? ?????? _ idiw and ?? Federal Communications Commission FCC 16-59 268 Table 12 Effect Netflix Congestion on Comcast VOD/PPV Revenues and Hours [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: FE indicates fixed effects. t-statistics provided in parentheses. * - significant to 5%; ** - significant to 1%; *** - significant to 0.1%. Standard errors clustered by DMA. 65. The results in columns 1 through 4 of Table 12 indicate that an increase by one hour of the average number of hours of Netflix streamed per account in a DMA in a given week was associated with a statistically significant reduction of VOD revenues earned by Comcast during peak and non-peak periods, as well as a statistically significant reduction in PPV revenues earned by Comcast. These results indicate that Netflix content and paid VOD and PPV content sold by Comcast may be substitutes in the sense that a reduction in the number of hours of Netflix content streamed are associated with an increase in paid VOD and PPV consumption. Notably, the estimated magnitudes of these effects are economically significant and indicate that an increase by one hour of the average number of Netflix hours streamed (per account) is associated with a reduction of Comcast revenues of roughly [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] from sales of paid VOD, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] from sales of PPV content, and [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] from sales of all types of paid content. 66. We also found that an increase by one hour of the average number of hours of Netflix streamed per account in a DMA in a given week was associated with a statistically significant increase in the number of free video-on-demand hours consumed by Comcast customers in that DMA in that week (see columns 5 and 6 of Table 12). This is inconsistent with Netflix programming and Comcast free VOD being substitutes for Comcast customers. One possibility for our results in columns 5 and 6 is that factors other than the quality of the Netflix stream that increase the number of Netflix hours streamed (such as bad weather) also increase the number of free VOD hours consumed by Comcast customers, and that the sets of consumers who watch free and paid VOD are largely disjoint. 67. An important question is whether congestion -- manifested as reductions in bitrates, or increased delays -- has a measurable effect on the number of Netflix hours streamed. If lower bitrates decrease the number of hours of Netflix streamed, then a strategy of congesting interconnection links with Netflix results in a lower number of hours of Netflix content streamed, which in turn, as indicated by the results in Table 12 above, might result in higher, on average, VOD and PPV revenues for Comcast. To answer this question, we estimate the effect of changes in the quality of the Netflix stream measured by bitrates, rebuffering episodes, and play delays, on the average number of hours streamed per Netflix account. Federal Communications Commission FCC 16-59 269 68. To measure the relationship between streaming hours and congestion we employed the following specification: 69. The dependent variable is the average number of Netflix hours streamed per account in a week in a DMA. The right hand side variables represent averages of (in a DMA during a particular week) bit rates, number of rebuffering episodes, and total play delays experienced by Comcast subscribers. The estimating equation includes DMA and week fixed effects. A positive and statistically significant coefficient on average bitrates indicates that an increase in bitrates is associated with an increase of the average number of Netflix hours. Negative and statistically significant coefficients on average play delay and average number of rebuffering episodes also indicate that an increase in the quality of the Netflix stream is associated, all other things equal, with a greater number of Netflix hours streamed. Since average bitrates might be affected by both Netflix in its attempts to mitigate the effects of congestion, and by customers who might choose to watch Netflix on devices that require lower bitrates (e.g., on a portable device rather than on a high-definition device) during congestion episodes, we use the congestion episode as an instrument for bitrates.85 Average bitrates are instrumented using a dummy equal to one during the congestion episode (October 2013 to February 2014), and zero otherwise. The regression results are presented in Table 13 below. Table 13 Relationship between Streaming Hours and Congestion [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: FE denotes fixed effects. The first-stage F statistic is equal to 1528. Standard errors clustered by DMA. 70. The results in Table 13 show clearly that, since the estimated coefficient on average bitrates is positive and significant, reductions in average Netflix bitrates are associated with reductions in the number of hours of Netflix content streamed. 71. 7Ke Gata entereG into tKe transaction’s recorG Ey 1etflix and Comcast indicate that VOD and PPV content sold by Comcast may be substitutes for Netflix content, and that the number of Netflix hours streamed is positively and significantly affected by bitrates. While these results concern Netflix subscribers who were Comcast broadband subscribers, we are unaware of any reasons to think that, at least qualitatively, these results would not hold for other large BIAS providers /MVPDs. Accordingly, 85 When the factors unobserved in the data that affect hours streamed are correlated with bitrates, the estimated coefficient on bitrates is biased. To deal with this potential bias, we use a variable (instrument) that is correlated with bitrates, but not correlated with the unobservable variables that affect hours streamed (such a variable is the existence of congestion). .___ 321 dwwddw rebuffAvgplaydelayAvgBRAvgHours ?????? ?????? Federal Communications Commission FCC 16-59 270 these results indicate that, all other things equal, a BIAS provider /MVPD may earn higher VOD and PPV revenXes Ey IolloZinJ a strateJy oI conJestinJ OVDs’ access to its EroaGEanG netZorN C. OVD Entry and Cable Broadband Churn 72. The Applicants argue that a substantial amount of their subscriber churn stems from the competitive environment provided by alternative broadband services offered by wireless, DSL and FTTH.86 Further, the Applicants claim that because New Charter would not have early termination fees or ³lonJ-term lock-in provisions seen elseZKere in tKe inGXstry ´it ZoXlG Ee ³easy´ Ior 1eZ CKarter EroaGEanG cXstomers to sZitcK proviGers iI tKey are GissatisIieG ZitK tKe company’s treatment oI eGJe content.87 Dr. Scott Morton claims that Charter experiences a high degree of churn among its broadband products.88 Further, Dr. Scott Morton, using information from a 2010 FCC Report claims that 20 percent of subscribers switched broadband providers for reasons other than moving residences.89 However, these figures include customers that disconnected their Charter broadband service because they moved and customers that left Charter because of failure to pay.90 73. :e evalXate tKe Applicants’ claims Ey analy]inJ tKe cKXrn Gata sXEmitteG in response to the information requests. 91 We consider the reasons subscribers churn and whether churn is different in areas where the Applicants face competition from other broadband service providers. Further, we consider long-run (i.e. , twelve-month) churn rates. We conclude that, while there is evidence that indicates that broadband subscriber churn, for each of the Applicants, responds in predictable ways to the local competitive environment that the Applicant faces, the raw monthly churn rates that Dr. Scott Morton cites and uses in her analysis overstate the degree to which consumers voluntarily switch their broadband services to competinJ proviGers As a resXlt Ze Eelieve tKat Dr 6cott 0orton’s assessment e[aJJerates tKe strenJtK oI competition as a GisciplininJ Iorce tKat constrains 1eZ CKarter’s incentives to Ioreclose OVDs or other edge providers. 86 Scott Morton Reply Decl. at para. 124. 87 Application of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership for Consent to the Transfer of Control of Licenses and Authorizations, MB Docket No. 15-149, at 47-48 (filed June 25, 2015); see also Scott Morton Decl. at para. 39. 88 Id. 89 Scott Morton Reply Decl. at para. 125. 90 See Zarakas Decl. at para. 4. 91 Advance/Newhouse Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Steven J. Horvitz, Counsel to Advance/Newhouse, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Attachment C.1 and C.2 (filed Oct. 13, 2015) (Advance/Newhouse Response to Information Request); Charter Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from John L. Flynn, Counsel to Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 108(c)-1-108(c)- 3 (Attachment C.1) (filed Oct. 27, 2015) (Charter Oct. 27, 2016, Updated Response to Information Request); Charter Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from John L. Flynn, Counsel to Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 108(c)-4-108(c)- 6 (Attachment C.2) and Exhibit 108(c)- 19-108(c)-21 (Attachment C.7) (filed Jan. 21, 2016) (Charter Jan. 21, 2016, Updated Response to Information Request); Time Warner Cable Updated Response to Sept. 21, 2015, Information and Document Requests transmitted by letter from Matthew A. Brill, Counsel to Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 81.C.2 v.2 (Attachment C.2) and Exhibit 81.C.7 v.2 (Attachment C.7) (filed Dec. 23, 2015) (Time Warner Cable Dec. 23, 2015, Updated Response to Information Request). Time Warner Cable Updated Response to Sept. 21, 2015, Information and Data Requests transmitted by letter from Matthew A. Brill, Counsel to Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 81.C.1 v.3 (Attachment C.1) (filed Jan. 19, 2016) (Time Warner Cable Jan.19, 2016, Updated Response to Information Request). Federal Communications Commission FCC 16-59 271 1. Applicant Churn Analysis by Competitive Footprint 74. To evaluate the record on whether Applicant churn is indicative of a competitive marketplace and that any attempts to behave anti-competitively towards OVDs would result in increased churn we used Applicant data to analyze the degree to which subscribers leave by product and bundle type across eacK Applicant’s entire Iootprint anG in areas ZKere sXEscriEers are more liNely to IinG a comparable broadband provider. Overall, we find that voluntary churn rates are very low and are consistent with the hypothesis that switching costs are generally high and that many broadband subscribers do not view themselves as having a good alternative to their incumbent cable provider. 75. Dr. Zarakas claims that his analysis shows that [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] of residential customers leave the Applicants networks for involuntary reasons.92 Specifically, he finds that voluntary churn for each of Applicants is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of total monthly churn and only about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent of total monthly churn for standalone broadband subscribers.93 Dr. Zarakas also looks at a time trend and notes that churn rates have been [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for Charter and Bright House and have [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for Time Warner Cable.94 76. Below we look at how each of the Applicants define churn reason categories. We then Xtili]e tKe Applicants’ Gisconnect Gata to compare tKe reasons consXmers cKXrn 1e[t Ze analy]e tKe Applicant’s cKXrn Ey reason cateJory Ior areas ZKere eitKer A7 7 or Veri]on are present )inally Ze extend the analysis of the areas where either AT&T or Verizon are present, by using regression analysis to account for demographic and marketplace conditions. a. Churn Reason Categories 77. :e analy]e tKe Applicants’ cKXrn Gata on tKe total nXmEer oI Gisconnects for each month and zip code combination from June 2012 through August 2015 by product and bundle type. 95 These data disaggregate total disconnects into four main-level reason categories according to internal policies: (1) movers; (2) voluntary; (3) non-pa yment; anG  ³all otKer´96 There was significant variation among the Applicants in how disconnect categories were generated based on internal billing system and customer call center policies. In order to maintain comparability of churn rates across each of the Applicants, we restrict the churn analysis to residential subscribers only for each Applicant. 78. Table 14, Table 15, and Table 16 provide an itemized list of the reason codes for Charter, Time Warner Cable, and Bright House. 92 Zarakas Decl. at paras. 4, 10. 93 Id. at paras. 4, 11, Table 2A and Table 2B. 94 Id. at paras. 4, 13, Figure 1A and Figure 1B. 95 Advance/Newhouse Response to Information Request, Attachment C.2; Charter Jan 21, 2016, Updated Response to Information Request, Attachment C.2; Time Warner Cable Dec., 23, 2015, Updated Response to Information Request, Attachment C.2. 96 Advance/Newhouse Response to Information Request, Attachment C.2; Charter Jan 21, 2016, Updated Response to Information Request, Attachment C.2; Time Warner Cable Dec., 23, 2015, Updated Response to Information Request, Attachment C.2; see also, Advance/Newhouse Response to Information Request at Report 60d-Disconnect Description for C.2; Charter Oct. 23, 2015, Updated Response to Information Request at 28-29; Time Warner Cable Oct. 16, 2015, Updated Response to Information Request at 34- 35. Federal Communications Commission FCC 16-59 272 Table 14 Charter Disconnect Categories by Reason Code [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Charter Oct. 23, 2015, Updated Response to Information Request at 28- 29. 79. Reasons Ior Gisconnects are assiJneG Ey CKarter’s call center representatives and mapped into tKe company’s [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .97 Table 14 lists tKe reasons Ior Gisconnection containeG in CKarter’s [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] that map into the four reason categories enumerated in the information request. 98 CKarter recoJni]es tKat tKe Commission’s cateJories do not correspond precisely to the categories tracked by Charter.99 Charter argues that measuring of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .100 97 See Letter from John L. Flynn, Counsel for Charter, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, at 2 (filed Feb. 23, 2016) (Charter Feb. 23, 2016, Ex Parte Letter). Due to data entry issues some entries are given a reason category of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . See Charter Feb. 23, 2016, Ex Parte Letter at 2. 98 Information Request to Charter, Attachment at 31; see also Charter Feb. 23, 2016, Ex Parte Letter at 2-5. 99 See Charter Feb. 23, 2016, Ex Parte Letter at 2. 100 Id. at 5-6. Federal Communications Commission FCC 16-59 273 Table 15 Time Warner Cable Disconnect Categories by Reason Code [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Time Warner Cable Oct. 16, 2015, Updated Response to Information Request at 34- 35. 80. For Time Warner Cable, the mapping of the billing system reason codes to the [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO. ] is complex, and [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .101 While we disagree with the assignment of how certain reason codes that Time Warner Cable mapped into the enumerated main-level cateJory oI ³volXntary´ Gisconnections [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 101 Time Warner Cable Updated Response to Information Request, transmitted by letter from Matthew A. Brill, Counsel for Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149 at 2-3 (filed Feb. 12, 2016). Federal Communications Commission FCC 16-59 274 Table 16 Bright House Disconnect Categories by Reason Code [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Advance/Newhouse Response to Information Request, at Report 60d-Disconnect Description for C.2. 81. The Applicants claim that they experience significant broadband churn, and therefore Kave no incentive to Karm OVDs´102 7Ke Applicants’ Xse oI montKly cKXrn rates to Getermine tKat 1eZ Charter would not have an incentive to disadvantage OVDs is misleading in at least two respects. First, as shown in Figure 11, Figure 12, and Figure 13, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] oI tKe Applicants’ montKly cKXrn amonJ Internet sXEscriEers is due to reasons (e.g., non-payment, movers) that typically are unrelated to customer satisfaction. In particular, this portion of churn is unlikely to increase if New Charter were to foreclose OVDs. It is more instructive to look instead at so-calleG ³volXntary cKXrn´²also depicted in in these figures²which specifically excludes churn due to moving and non-payment. 82. Figure 11, Figure 12, and Figure 13 below report raw broadband monthly churn rates, among residential subscribers, for each Applicant in its footprint for calendar year 2014. Broadband churn rates in any given month are calculated by dividing the total number of disconnects by reason category (Mover, Voluntary, Non-Payment, and All Other) by the number of subscribers at the end of the previous month. The calculations for Charter show that the unweighted average of total monthly churn rates during 2014 among residential broadband subscribers is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent, as compared to the average monthly churn rate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent103 rate that Charter reported in its filing. The average voluntary churn rate, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] .104 Similar results are found for Time Warner Cable and Bright House. For Time Warner Cable average total churn is approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent and average voluntary churn is approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent.105 For Bright House average total churn is approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent and average voluntary churn is approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent.106 102 See Scott Morton Decl. at para. 55. 103 Id. at para. 3. 104 Average monthly voluntary churn derived from Charter Jan. 21, 2016, Updated Response to Information Request, Attachment C.2. 105 Average monthly voluntary churn derived from Time Warner Cable Dec. 23, 2015, Updated Response to Information Request, Attachment C.2. 106 Average monthly voluntary churn derived from Advance/Newhouse Response to Information Request, Attachment C.2. Federal Communications Commission FCC 16-59 275 Figure 11 2014 Charter Monthly Broadband Churn Rates by Reason Category [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: Includes only residential subscribers. Churn is calculated as total disconnects by reason category in current month over the total number of subscribers at the end of the previous month. Source: Charter Oct. 27, 2016, Updated Response to Information Request, Attachment C.1; Charter Jan. 21, 2016, Updated Response to Information Request, Attachment C.2. Figure 12 2014 Monthly Time Warner Cable Broadband Churn Rates by Reason Category [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: Includes only residential subscribers. Churn is calculated as total disconnects by reason category in current month over the total number of subscribers at the end of the previous month. Source: Time Warner Cable Jan. 19, 2016, Updated Response to Information Request, Attachment C.1.; Time Warner Cable Dec. 23, 2015, Updated Response to Information Request, Attachment C.2. Federal Communications Commission FCC 16-59 276 Figure 13 2014 Bright House Monthly Broadband Churn Rates by Reason Category [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: Includes only residential subscribers. Churn is calculated as total disconnects by reason category in current month over the total number of subscribers at the end of the previous month. Source: Advance/Newhouse Response to Information Request Attachment C.1, C.2. b. Broadband Areas with a FTTP or FTTN Competitor 83. To analyze whether churn rates vary in areas where the Applicants face competition we further disaggregated churn rates by category into two competitive broadband areas, majority Verizon FiOS and AT&T U-verse areas. This analysis uses December 2014 Form 477 Deployment Data to identify census blocks where FTTH provided by Verizon and 10 Mbps down/768 kbps up provided by AT&T are available. 107 Census blocks were assigned to zip codes via a crosswalk.108 Next, we calculate tKe sKare oI Komes in an Applicant’s ]ip coGes ZKere )iO6 or 8-verse is availaEle ³HiJK´ )iO6 ]ip coGes are GeIineG as ]ip coGes in ZKicK more tKan KalI oI tKe KoXsinJ Xnits in tKe Applicant’s Iootprint are also ZitKin Veri]on’s )iO6 Iootprint ³HiJK 8-verse´ ]ip coGes are GeIineG analoJoXsly Ior A7 7’s U-verse footprint.109 Table 17, Table 18, and Table 19 below report churn by reason category for the relevant Applicant’s Iootprint anG Ior HiJK )iO6 anG 8-verse areas. 84. The churn rates in the tables below have been calculated for all products, all Internet products, broadband-only plans, MVPD and broadband plans, and triple play plans. For High FiOS areas, Ior EotK proGXct cateJories anG Ior all plans tKe GiIIerence EetZeen cKXrn over CKarter’s anG 7ime 107 For purposes of evaluating this transaction, we have defined U-verse as Asymmetric DSL providing at least 10/768 speeds. See supra note 14. However, AT&T is now also providing high-speed broadband via FTTH. See AT&T, U-verse with AT&T Gigapower: Blazing-fast Internet Speeds with an Enhanced TV Experience, https://www.att.com/shop/u-verse/gigapower.html (last visited _Mar. 17, 2016). We define U-verse as any AT&T broadband with at least 10 Mbps down/768 kbps up. 108 See Census Bureau, Zip Code Tabulation File. 109 Calculations for Table 17, Table 18, and Table 19 are made for residential subscribers only. Unweighted (raw) means are calculated for areas in which the Applicant faces FiOS or U-verse across a majority of its footprint. Churn rates in any given month are calculated by dividing the total number of disconnects by reason category and/or product type by the total number of subscribers at the end of the previous month. Federal Communications Commission FCC 16-59 277 :arner CaEle’s Iootprints anG HiJK )iO6 areas is [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for voluntary churn than overall churn for all product and plan categories. Table 17 Charter 2014 Monthly Churn Rates by Competitive Footprint and Product/Plan Type [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Charter Oct. 27, 2016, Updated Response to Information Request, Attachment C.1; Charter Jan. 21, 2016, Updated Response to Information Request, Attachment C.2., December 2014 Form 477 Deployment Data. Federal Communications Commission FCC 16-59 278 Table 18 Time Warner Cable Monthly Churn Rates by Competitive Footprint and Product/Plan Type [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Time Warner Cable Jan. 19, 2016, Updated Response to Information Request, Attachment C.1.; Time Warner Cable Dec. 23, 2015, Updated Response to Information Request, Attachment C.2, December 2014 Form 477 Deployment Data. Federal Communications Commission FCC 16-59 279 Table 19 Bright House 2014 Monthly Churn Rates by Competitive Footprint and Product/Plan Type [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Advance/Newhouse Response to Information Request Attachment C.1, C.2., December 2014 Form 477 Deployment Data. c. Regression Analysis 85. The competitive footprint analysis above does not consider demographic and market- speciIic conGitions EeyonG tKe ³KiJK )iO6´ anG ³KiJK 8-verse´ cateJories tKat Zere GeIineG aEove110 To control for a richer set of factors, including demographics, we employ a regression analysis. In this analysis, for each Applicant, we regress each of three dependent variables²overall monthly churn rate, voluntary monthly churn rate, and non-payment monthly churn rate²111 against various competition and 110 See supra para. 83. Demographic controls include natural logarithm of population density, natural logarithm of median household income, and median age. See Summary File 1. 2010 Census Summary File 1 United States, prepared by the U.S. Census Bureau (2011) 111 The monthly churn rates are derived from Attachments C.1 and C.2. See Advance/Newhouse Response to Information Request Attachment C.1, C.2; Charter Oct. 27, 2016, Updated Response to Information Request, Attachment C.1; Charter Jan. 21, 2016, Updated Response to Information Request, Attachment C.2; Time Warner Federal Communications Commission FCC 16-59 280 demographic variables at the ZIP code and month level. 112 The hypothesis is tKat ZKile a proviGer’s overall (and especially voluntary) monthly churn rates should rise as the level of competition that a provider faces in a ZIP code increases, non-payment churn should not be affected by the level of competition in a systematic way.113 The specifications and estimation results are shown in Table 20 through Table 22. 86. Among the competition variables included on the right-hand sides of these regressions are so-calleG ³linear splines´ oI tKe sKares oI eacK oI tKe Applicants’ Iootprints ZitKin eacK =I3 coGe that overlap with FTTH or FTTN²Verizon FiOS and AT&T U-verse. Each of the linear spline variables is a component of an additive decomposition of the associated share variable: either the share of resiGences in tKe Applicant’s Iootprint ZitKin tKe =I3 coGe tKat are also in tKe )iO6 Iootprint or tKe sKare oI resiGences in tKe Applicant’s Iootprint ZitKin tKe =I3 coGe tKat are also in tKe 8-verse footprint. For example, let ? Genote tKe sKare oI an Applicant’s Iootprint in tKe )iO6 Iootprint anG GeIine ?1 ? min {?, 1 2 }, ?2 ? max {? ? 1 2 , 0}. 87. Note that ? = ?1 + ?2. Including the variables ?1 and ?2, rather than ?, on the right-hand side of a regression allows us to test for a relationship between ? and the relevant dependent variable that is well approximated by a piecewise linear function of ? that has a kink at the threshold value of 1/2. This approach is more flexible than that of simply including ? as a regressor. 88. The regression results are shown below. Cable Jan. 19, 2016, Updated Response to Information Request, Attachment C.1.; Time Warner Cable Dec. 23, 2015, Updated Response to Information Request, Attachment C.2. 112 Summary File 1. 2010 Census Summary File 1 United States, prepared by the U.S. Census Bureau (2011), "Block Level Estimates" (GeoLytics, Inc., East Brunswick, NJ, 2014); December 2014 Form 477 Deployment Data. 113 In principle, one might also expect that mover churn rates should not be affected by the level of competition, but we adopt this more conservative hypothesis to account for the possibility that some customers that voluntarily disconnect so that they can switch to competing providers (falsely) claim that they are moving (for example, to avoid hassles with disconnection). Non-payment churn, on the other hand, is initiated by the provider and should not be affected by this type of manipulation. Federal Communications Commission FCC 16-59 281 Table 20 5egressions of Charter’s Monthly 5esiGential %roaGbanG ChXrn 5ates against 9arioXs Competition and Demographic Variables [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: All observations are at the ZIP-code-and-month level. Robust standard errors, clustered at the headend level, are reported in parentheses. Levels of significance: *** p<0.01, ** p<0.05, * p<0.1 Federal Communications Commission FCC 16-59 282 Table 21 5egressions of Time :arner Cable’s Monthly 5esiGential %roaGbanG ChXrn 5ates against 9arioXs Competition and Demographic Variables [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: All observations are at the ZIP-code-and-month level. Robust standard errors, clustered at the headend level, are reported in parentheses. . Level of significance: *** p<0.01, ** p<0.05, * p<0.1. Federal Communications Commission FCC 16-59 283 Table 22 5egressions of %right HoXse’s Monthly 5esiGential %roaGbanG ChXrn 5ates against Various Competition and Demographic Variables [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Note: All observations are at the ZIP-code- and-month level. Robust standard errors, clustered at the headend level, are reported in parentheses. Level of significance: *** p<0.01, ** p<0.05, * p<0.1. Federal Communications Commission FCC 16-59 284 89. Table 20 and Table 22, the estimates of the first six coefficients ²which are related to competition from Verizon FiOS and AT&T U-verse ²provide empirical support to the hypothesis presenteG aEove In particXlar CKarter’s overall cKXrn rate amonJ resiGential EroaGEanG subscribers tends to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] with the level of competition that Charter faces from the two largest telco providers, and this effect is driven at least in part by an [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in CKarter’s voluntary churn rate among these subscribers. On the other hand, the level of competition from the telco providers generally has [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.]  eIIect on CKarter’s non-payment category. The spline-variable estimates for Bright House Table 22 paint a similar pictXre; tKe main GiIIerence is tKat ZKereas CKarter’s volXntary cKXrn rates [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] to competition from both Verizon FiOS and AT&T U-verse, the latter does not appear to be much of a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for Bright House. Interestingly, for Bright House, the simple dummy variable for the presence of Verizon FiOS is estimated to have a negative coefficient, which, combined with the spline estimates, suggests that a complex nonlinear relationship may exist. 90. For Time Warner Cable Table 21, support for the above hypothesis is more ambiguous. [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 91. It is also worth noting that, for all three providers, several of the other competition variables have statistically significant effects on the different forms of churn, sometimes in directions that contraGict tKe Jeneral KypotKesis tKat competition sKoXlG increase a proviGer’s overall cKXrn tKroXJK tKe channel of an increase in voluntary churn. Also, while there is, a priori, no reason to expect that non- payment churn should either increase or decrease with the level of competition, a number of the competition variables have statistically significant coefficient estimates (sometimes positive and sometimes negative) in the non-payment churn regressions. Furthermore, the estimates for the voluntary- churn regressions do not always comport with the theoretical effects that we have tested here. We interpret these findings as cautionary evidence that, though competition from other providers likely does have an effect on voluntary churn, one should be cautious in reading too far into these results, as there is likely a fair amount of unobserved population heterogeneity that also contributes to differences in churn behavior and is not independent of the level of competition. 92. Overall, we find that while voluntary churn rates are much lower than the overall churn rate for each Applicant and broadband product type and plan, voluntary churn is much higher in areas in which subscribers face a comparable competing broadband alternative. However, we recognize that a sXEstantial maMority oI sXEscriEers in eacK Applicant’s Iootprint Ior speeGs  0Eps or Jreater Kave only one broadband provider, the Applicant.114 2. Long-Run Churn versus Short-Run Churn 93. There are at least two reasons to be skeptical of the use of monthly churn rates in characterizing longer-term consumer switching patterns (e.g., over the course of a year). First, as will be seen shortly, churn patterns tend to be seasonal (e.g., due to more people choosing to move, or even being ZillinJ to try sZitcKinJ proviGers GXrinJ tKe sXmmer montKs  so a sinJle montK’s cKXrn rate may not Ee representative of longer-term churn patterns. Second, it is likely that at least some portion of monthly cKXrn is GXe to ³serial´ or ³sKort-rXn´ cKXrn eJ Irom cXstomers tKat Kave XnsteaGy or Xncertain income 114 See supra Table 1. Federal Communications Commission FCC 16-59 285 streams and periodically sign up for service for short periods of time). Together, these factors raise concerns with the use of a monthly churn rate to project an annual churn rate (by simply multiplying the monthly churn rate by twelve, as Dr. Scott Morton does). 115 As a result, we are skeptical of the use of a projected annual churn rate as part of an argument that competition among broadband providers is robust. 94. The points above are illustrated in Figure 14, which compares the extrapolated annual cKXrn rates Ior CKarter resiGential EroaGEanG sXEscriEers ZitK tKe ³actXal´ annXal cKXrn rates Ior tKose subscribers. Note that seasonality is evident in the figure, particularly in the series that depicts extrapolated total annual churn rates. The figure also shows that annual voluntary churn is a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] portion of annual total churn, a point that is also made in Figure 15 ZKicK sKoZs tKat oI all oI CKarter’s resiGential EroaGEanG subscribers at the end of 2014, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent voluntarily disconnected their services with the company during the year. For purposes of comparison, similar patterns for Time Warner Cable residential broadband subscribers are shown in Figure 16 and Figure 17, which are analogous.116 Figure 14 Comparison of Churn Rates for Charter Residential Broadband Subscribers [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Charter Oct. 27, 2016, Updated Response to Information Request, Attachment C.1; Charter Jan. 21, 2016, Updated Response to Information Request, Attachment C.2, Attachment C.7. 115 Scott Morton Decl. at para. 55. 116 We were unable to conduct this exercise for Bright House [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] . See Advance/Newhouse Response to Information Request, HIGHLY CONFIDENTIAL - REPORT EXPLANATIONS at 2). Federal Communications Commission FCC 16-59 286 Figure 15 Behavior of Charter Residential Broadband Subscribers during Calendar Year 2014 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Charter Oct. 27, 2016, Updated Response to Information Request, Attachment C.1; Charter Jan. 21, 2016, Updated Response to Information Request, Attachment C.7. Figure 16 Comparison of Churn Rates for Time Warner Cable Residential Broadband Subscribers [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Time Warner Cable Jan. 19, 2016, Updated Response to Information Request, Attachment C.1.; Time Warner Cable Dec. 23, 2015, Updated Response to Information Request, Attachment C.2, Attachment C.7. Federal Communications Commission FCC 16-59 287 Figure 17 Behavior of Time Warner Cable Residential Broadband Subscribers During Calendar Year 2014 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Time Warner Cable Jan. 19, 2016, Updated Response to Information Request, Attachment C.1; Time Warner Cable Dec. 23, 2015, Updated Response to Information Request, Attachment C.7. 95. 7Ke Applicants also arJXe tKat ³CKarter constantly neeGs to attract neZ cXstomers to replace tKis cKXrn MXst to stay even´117 Based on this assertion, one might reasonably expect that, at least once in a while, the number of residential broadband subscribers shrinks from the previous time of measXrement 7o tKe contrary CKarter’s )orm -K filings indicate that residential broadband subscribership increased every year from 2012 through 2015: 3.8 million at the end of 2012,118 4.4 million at the end of 2013,119 4.8 million at the end of 2014,120 and 5.2 million at the end of 2015.121 Time Warner CaEle’s -K filings also show steady groZtK in tKat company’s resiGential EroaGEanG sXEscriEersKip 10.9 million at the end of 2012,122 11.1 million at the end of 2013,123 11.7 million at the end of 2014,124 and 12.7 million at the end of 2015.125 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] 117 Scott Morton Decl. at para. 55. 118 Charter, Annual Report (Form 10-K) (Feb. 21, 2014). 119 Id. 120 Charter, Annual Report (Form 10-K) (Feb. 10, 2016). 121 Id. 122 Time Warner Cable, Annual Report (Form 10-K) (Feb. 15, 2013). 123 Time Warner Cable, Annual Report (Form 10-K) (Feb. 18, 2014). 124 Time Warner Cable, Annual Report (Form 10-K) (Feb. 13, 2015). 125 Time Warner Cable, Annual Report (Form 10-K) (Feb. 12, 2016). Federal Communications Commission FCC 16-59 288 Figure 18 Charter Residential Broadband Subscriber Counts [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Charter Oct. 27, 2016, Updated Response to Information Request, Attachment C.1. Figure 19 Time Warner Cable Residential Broadband Subscriber Counts [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Source: Time Warner Cable Jan. 19, 2016, Updated Response to Information Request, Attachment C.1. 96. Based on the above evidence, we conclude that the use of total monthly churn rates² without regard to underlying reasons for churn and without taking into account factors like serial churn and seasonality²likely exaggerates the robustness of competition for broadband services. Thus, any analysis oI 1eZ CKarter’s incentive to Karm eGJe proviGers EaseG on tKese cKXrn rates is liNely to underestimate the strength of that incentive. Federal Communications Commission FCC 16-59 289 III. MVPD SERVICES 97. In this section, we analyze certain aspects of MVPD services in order to evaluate purported harms and benefits. First, we consider MVPD video subscriber shares. We find that post- transaction New Charter would have an approximate 17 percent subscriber share and would be ranked third nationally :e also looN at 1eZ CKarter’s presence in tKe top  DesiJnateG 0arNet Areas (DMAs) 126 and find that it would have a share of approximately 11 percent and be ranked fourth. Next we analyze the anonymized programming payment data submitted by Charter and conclude that generally for tKe inclXGeG netZorNs tKat CKarter’s proJramminJ payments per sXEscriEer are KiJKer tKan 7ime :arner CaEle’s 98. Next, we consider whether New Charter would have an increased incentive or ability to withhold key RSNs from rival MVPDs for anticompetitive reasons. This analysis focuses on the SportsNet/Deportes and SportsNet LA RSNs in the Zone 1 distribution area. 127 First using the Nash bargaining framework from Comcast-NBCU, we calculate the critical and expected departure rates if this RSN programming is withheld.128 We find that the results are sensitive to underlying assumptions on third party video margins, and that these results indicate that there is no transaction-specific change in the foreclosure incentive. However, we are somewhat skeptical of these results because Time Warner Cable currently licenses SportsNet/Deportes and has made attempts to license SportsNet LA. In order to address this concern we analyze the LA Dodgers (SportsNet LA) 2014 and 2015 baseball seasons as a natural experiment of how many rival MVPD subscribers switched to Time Warner Cable. 99. In order to analyze this natural experiment, we used a difference and difference approach to derive an estimate of the percent increase of Time Warner Cable subscribership during this time period.129 We used this estimated increase to derive estimated departure rates and fed these estimated departure rates back into the Nash equilibrium model. The difference between these estimated departure rates and the critical departure rates indicate that there is not an increased incentive to foreclose these RSNs from rival MVPDs. Finally, using the estimated departure rates, we estimate changes in the affiliate fee for these RSNs post-transaction by DMA. This analysis indicates that there is an increased incentive for New Charter to raise prices, but the extent of this price increase is not clear because prices are set the same throughout the Zone 1 distribution area. 100. Next, we present an analysis of whether the proposed transaction creates an incentive for Discovery to withhold its programming from certain MVPDs for anticompetitive reasons. The analysis relies on a Nash bargaining approach to determine the likely result of the transaction on foreclosure incentives involving Discovery programming. We present two different approaches to analyze whether Discovery would have an incentive to foreclose programming from rival MVPDs. We first present a model similar to that adopted by the Salop Reply Decl., where John Malone and Advance/Newhouse (the Stakeholders) jointly bargain with an MVPD on behalf of Discovery while leveraging their joint equity interests in New Charter and Discovery to determine their expected profits from licensing versus foreclosure. This approach implicitly assumes that the Stakeholders would disregard their fiduciary 126 See supra note 31. For purposes of analyzing the competitive effects of the transaction, a DMA is not considered to be the relevant geographic area; however we use DMAs as the geographic area for this analysis for analytic convenience. 127 Zone 1 is the subscription zone closest geographically to the sports teams, where foreclosure of the RSN programming from a rival MVPD would be most profitable. We will discuss the markets that are included in this distribution area, as well as why it was chosen for this analysis, in the RSN section below. 128 These terms, and the details of the theoretical model, are presented and explained in the RSN and Discovery analyses sections below. 129 This methodology calculates the effect of an event or policy on an outcome by comparing the average change over time in the outcome variable for the "treatment" group, compared to the average change over time for the "control" group. We will discuss our use of this methodology in detail in the RSN section. Federal Communications Commission FCC 16-59 290 duties to Discovery shareholders and force a foreclosure of programming if they find it to be in their joint best interest. 101. The second model proposes an alternative bargaining framework where Discovery bargains with an MVPD but is influenced by the Stakeholders based on whether they themselves would prefer to license or foreclose. This modeling approach therefore stems from the assumption that the equilibrium outcome is incentive compatible for Discovery, its shareholders, and the Stakeholders. For both models, the results of our analysis suggest that foreclosure is an unprofitable strategy, and is not likely to occur. We further find that the transaction should not have a significant effect on the affiliate fees charged for Discovery programming. A. MVPD Video Subscriber Shares 102. Commenters argue that the transaction would increase the concentration of the MVPD industry at the local, regional, and national levels.130 Commenters argue that larger MVPDs have more EarJaininJ poZer ZitK respect to tKe proJrammers anG tKat 1eZ CKarter’s EarJaininJ position ZoXlG increase as a result of the transaction.131 In order to evaluate these claims, we first calculate MVPD video subscriber shares at the national level, in the top 10 DMAs,132 and in the DMAs in which Charter, Time Warner Cable, and Bright House have the greatest degree of overlap. Table 23 below provides estimates oI tKe Applicants’ inGiviGXal 0V3D viGeo subscriber shares pre-transaction and an estimate of the combined video subscriber share of New Charter nationwide and for the Top 10 DMAs.133 Table 23 shows that, as a result of the transaction, New Charter would have an estimated video subscriber share of approximately 17 percent nationwide and approximately 11 percent in the top 10 DMAs. Table 23 Estimated Counts and Shares of MVPD Video Subscribers Pre-Transaction Post-Transaction Charter Time Warner Cable Bright House New Charter All DMAs 4,119,978 10,773,945 1,971,377 16,865,300 4.25% 11.11% 2.03% 17.39% Top 10 DMAs 707,039 2,684,129 0 3,391,168 2.37% 9.01% 0.00% 11.38% Source: SNL Kagan, 2Q2015. 103. Table 24 EeloZ proviGes a EreaNoXt oI an estimate oI tKe inGiviGXal Applicants’ pre- transaction MVPD video subscriber shares for each of the top 10 DMAs, as well as the estimated post- transaction New Charter video subscriber share. Among these DMAs, there are five²New York, NY, Los Angeles, CA Dallas-Fort Worth, TX, Boston, MA, and Houston, TX²in which two or more of the Applicants currently operate. Among these five DMAs with overlaps, there are two²Los Angeles, CA and Dallas-Fort Worth, TX²in ZKicK 1eZ CKarter’s estimateG post-transaction MVPD video subscriber share would exceed its national post-transaction MVPD video subscriber share. 130 See, e.g., Public Knowledge et al. Petition at 10-11; Petition to Deny of COMPTEL (currently known as INCOMPAS), MB Docket No. 15-149, at 5-7 (filed Oct. 13, 2015) (COMPTEL Petition); DISH Petition at 3. 131 See, e.g., COMPTEL Petition at 6; DISH Petition at 25-26; Public Knowledge et al. Petition at 9-10. 132 SNL Kagan uses a Multichannel Market Designated Market Area (DMA ) to provide estimates of subscriber counts. See SNL Kagan. 133 The top 10 DMAs reflect an estimated 30 percent of U.S. households. See SNL Kagan, 2Q2015. Federal Communications Commission FCC 16-59 291 Table 24 Estimated Counts and Shares of MVPD Video Subscribers In Top 10 DMAs Pre-Transaction Post-Transaction DMA Charter Time Warner Cable Bright House New Charter Los Angeles, CA 248,189 1,286,621 0 1,534,810 5.59% 28.99% 0.00% 34.59% Dallas-Ft. Worth, TX 104,908 309,435 0 414,343 5.09% 15.01% 0.00% 20.10% New York, NY 26,138 1,072,342 0 1,098,480 0.37% 15.35% 0.00% 15.73% Boston, MA (Manchester, NH) 128,096 12,830 0 140,926 5.40% 0.54% 0.00% 5.94% Houston, TX 4,124 2,901 0 7,025 0.22% 0.16% 0.00% 0.38% Atlanta, GA 182,397 0 0 182,397 9.26% 0.00% 0.00% 9.26% San Francisco-Oakland- San Jose, CA 9,392 0 0 9,392 0.42% 0.00% 0.00% 0.42% Chicago, IL 3,795 0 0 3,795 0.13% 0.00% 0.00% 0.13% Philadelphia, PA 0 0 0 0 0.00% 0.00% 0.00% 0.00% Washington, DC (Hagerstown, MD) 0 0 0 0 0.00% 0.00% 0.00% 0.00% All Top 10 DMAs 707,039 2,684,129 0 3,391,168 2.37% 9.01% 0.00% 11.38% Source: SNL Kagan, 2Q2015 104. In total, there are 41 DMAs in which two or more of the three Applicants currently operate. Among these 41 DMAs, there are 10 in which the estimated MVPD video subscriber share gain, GeIineG as tKe GiIIerence EetZeen 1eZ CKarter’s 0V3D viGeo sXEscriEer sKare anG tKe ma[imXm oI tKe pre-transaction MVPD video subscriber shares among the three Applicants, is greater than five percent. These 10 DMAs are shown in Table 25. Federal Communications Commission FCC 16-59 293 B. MVPD Programming Payments 106. As part oI tKeir response to tKe Commission’s InIormation anG Data ReTXest CKarter provided a ratio of CKarter’s to 7ime :arner CaEle’s proJramminJ Iee per sXEscriEer anG tKe ratio oI tKe nXmEer oI eacK Iirms’ sXEscriEers ZitK access to tKe particXlar netZorN134 The data were anonymized by selecting a random id for each network that both Charter and Time Warner Cable offer to their subscribers in their Extended Basic plans. 135 We analyze this anonymized programming payment data sXEmitteG Ey CKarter anG conclXGe tKat Jenerally Ior tKe inclXGeG netZorNs tKat CKarter’s proJramminJ payments per subscriber are higher tKan 7ime :arner CaEle’s 107. The data were submitted monthly, as requested in the template, from June 2012 through June 2015. 136 The figure and table below are derived from this anonymized data. Figure 20 and Figure 21 depict the ratio of the average programming fee per subscriber and the ratio of subscribers receiving the network, respectively for the June 2013 through June 2015 time period. Figure 22 depicts the weighted average ratio of the programming fee per subscriber for the June 2012 through June 2015 time period. Figure 20 Ratio of Charter to Time Warner Cable Programming Fee Per Subscriber [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] 134 Charter Oct. 23, 2015, Updated Response to Information Request, Attachment _E_CHARTER_clean.xlsx (Attachment E). The anonymized data submitted reflects the request in the template and instructions to Attachment E--all networks that at least 90 percent of expanded video subscribers for both Charter and Time Warner are able to access. The Applicants submitted the data for 36 networks according to the template and instructions for Attachment E. See also Charter Oct. 23, 2015, Updated Response to Information Request at 38. 135 Charter Oct. 23, 2015, Updated Response to Information Request, Attachment E. 136 Id. Federal Communications Commission FCC 16-59 294 Figure 21 Ratio of Charter to Time Warner Cable Channel Access [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] Figure 22 Ratio of Charter to Time Warner Cable Programming Weighted Average Fee Per Subscriber [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Federal Communications Commission FCC 16-59 295 108. For both Figure 20 and Figure 22 there is a significant [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in the programming fee ratio beginning in [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] and this is sustained through [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . We suspect that this [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] is due to either a significant [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in CKarter’s programming fee for certain networks or a significant [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in 7ime :arner CaEle’s proJramminJ Iee Ior certain netZorNs EXt Ze are unable to identify which of these two scenarios dominates. We then look at the average and weighted average for each of the 36 networks and compare the difference, by network, for the two time periods² [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . We find that there are two networks with a significant [BEGIN HIGHLY CONF. INFO.] [E ND HIGHLY CONF. INFO.] for this time period looking at both the average and the weighted average ratios.137 Table 28 below provides the average and weighted average ratios by network and also provides the percent difference of the ratios between the two time periods. 137 One ratio [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] percent and another more than [BEGIN HIGHLY CONF. INFO] [END HIGHLY CONF. INFO] percent for both the average and the weighted average ratios. Derived from Charter Oct. 23, 2015, Updated Response to Information Request, Attachment E. Federal Communications Commission FCC 16-59 296 Table 28 Programming Payments: Average and Weighted Average Analysis [BEGIN HIGHLY CONF. INFO] % Difference between June 2013 -Dec. 2013 and Jan. 2014 and June 2015 Network ID Average Weighted Average Average Weighted Average [END HIGHLY CONF. INFO.] Federal Communications Commission FCC 16-59 297 C. Programming Foreclosure 1. RSNs a. Introduction 109. Below is an analysis of whether New Charter would have an increased incentive or ability to withhold key RSNs138 from rival MVPDs for anticompetitive reasons. The Commission has long recognized that video subscribers view certain types of programming as so important that they are willing to switch to a different provider in order to gain or retain access to that programming.139 In particular, the Commission has recognized that such programming includes RSN programming140 and that sports programming is distinct because it is the least time shifted and quickly loses value after the results of live sporting events are known.141 Consistent with this view, past analyses of RSN withholding both by the Commission and by outside academic economists have found that foreclosing popular sports content results in significant subscriber losses.142 110. In this section, we discuss the likelihood of anticompetitive harm from a programming foreclosure of SportsNet, Deportes, and SportsNet LA²7ime :arner CaEle’s larJest RSNs. We find that it is unlikely that New Charter would have an increased incentive to foreclose these RSNs from rival MVPDs post-transaction. The analysis also suggests that it is possible that New Charter could raise the per subscriber affiliate fee, but it is unclear to what extent the affiliate fee would increase. 138 7Ke Commission’s most recent GiscXssion oI an R61 GeIines it as ³any non-broadcast video programming service that (1) provides live or same-day distribution within a limited geographic region of sporting events of a sports team that is a member of Major League Baseball, the National Basketball Association, the National Football League, the National Hockey League, NASCAR, NCAA Division I Football, NCAA Division I Basketball Liga de Béisbol Profesional de Puerto Rico, Baloncesto Superior Nacional de Puerto Rico, Liga Mayor de Fútbol Nacional de Puerto Rico, and the Puerto Rico Islanders of the United Soccer /eaJXe’s )irst Division anG  in any year carries a minimum of either 100 hours of programming that meets the criteria set forth in subheading 1, or 10% of the regular season games of at least one sports team that meets the criteria of subheading 1. Revision of the Commission’s Program Access Rules, Report and Order, MB Docket Nos. 12-68, 07-18, 05-192, Further Notice of Proposed Rulemaking, MB Docket No. 12-68, Order on Reconsideration in MB Docket No. 07-29, 27 FCC Rcd 12605, 12643-12644, para. 56 (2012). 139 News Corp. and DIRECTV Group, Inc. and Liberty Media Corp. for Authority to Transfer Control, Memorandum Opinion and Order, 23 FCC Rcd 3265, 3282, para. 35 (2008) (Liberty Media-DIRECTV Order) ; Applications for Consent to the Assignment and/or Transfer of Control of Licenses Adelphia Communications Corporation (and Subsidiaries, Debtors-In-Possession), Assignors, to Time Warner Cable Inc. (Subsidiaries), Assignees, Adelphia Communications Corporation, (and Subsidiaries, Debtors-In-Possession), Assignors and Transferors, to Comcast Corporation (Subsidiaries), Assignees and Transferees, Memorandum Opinion and Order, 21 FCC Rcd 8203,8236-37, para. 66 (2006) ( Adelphia-TWC Order ); General Motors Corp. and Hughes Electronics Corp., Transferors, and the News Corporation, Transferee, Memorandum Opinion and Order, 19 FCC Rcd 473, 504, para. 59 (2004) ( News Corp.-Hughes Order ) ; see also Adelphia-TWC Order, 21 FCC Rcd 8203, 8270-71, para. 46. 140 Applications of Comcast Corporation, General Electric Company, and NBC Universal, Inc. for Consent to Assign Licenses and Transfer Control of Licensees, Memorandum Opinion and Order, 26 FCC Rcd 4238, 4254, para. 36 (2011) ( Comcast-NBCU Order ). 141 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Fifteenth Report, 28 FCC Rcd 10496, 10667, para. 343 (2013); see also Liberty Media-DIRECTV Order, 23 FCC Rcd at 3308, para. 93. 142 See News Corp.-Hughes Order 19 FCC Rcd 473, 538-39, paras. 138-139, Appendix D, paras. 25-47; Adelphia- TWC Order, 21 FCC Rcd 8203, 8267, para. 138, Appendix D, paras. 12-27. Federal Communications Commission FCC 16-59 298 111. In 2011, Time Warner Cable signed an estimated $3 billion, twenty -year agreement with the Los Angeles Lakers (Lakers) to televise Lakers games on SportsNet and Deportes, 6ports1etDeportes anG to GistriEXte tKese netZorNs to otKer proviGers in tKe /aNers’ EroaGcast area143 Shortly thereafter, in January 2013, Time Warner Cable paid an estimated $8.35 billion for the Los Angeles Dodgers (Dodgers) programming rights. 144 This includes overseeing all sales and distribution of the new SportsNet LA RSN. Due to a failure to reach carriage agreements with other MVPDs, Time Warner Cable, Bright House, and Champion Broadband had been the sole distributors of SportsNet LA in the Zone 1 distribution area until June 2015, when a licensing agreement was reached with Charter Communications.145 112. SportsNet/Deportes and SportsNet LA are currently available in Central and Southern California, as well as Hawaii and Las Vegas and Reno, Nevada.146 We focus our analysis on DMAs147 in tKe ³=one ´ GistriEXtion area =one  is tKe sXEscription ]one closest JeoJraphically to the sports teams, where foreclosure of the RSN programming from a rival MVPD would be most profitable because the rival’s e[pecteG sXEscriEer loss ZoXlG Ee Jreatest 7Ke D0As tKat are consiGereG =one  Ior SportsNet/Deportes and SportsNet LA include Los Angeles, Palm Springs, Santa Barbara, and Bakersfield.148 113. Time Warner Cable additionally licenses OC Sports in Hawaii and Sports Channel Kansas City in four DMAs²Kansas City, Pittsburg, Topeka, and Wichita.149 However there is no 143 See Joseph Flint, Time Warner Cable, Lakers Strike 20-Year TV Deal, Los Angeles Times (Feb. 14, 2011) http://articles.latimes.com/2011/feb/14/sports/la-sp-0215-lakers-time-warner-20110215. 144 See RSN Foreclosure Analysis White Paper at para. 33; Joseph Flint, Standoff Over Dodgers Games Could be Defining Moment in Sports TV, Los Angeles Times (Jul. 17, 2014) http://www.latimes.com/entertainment/envelope/ cotown/la-et-ct-dodgers-tv-standoff-20140718-story.html?track=rss#page=1 . 145 See Charter to Launch Time Warner Cable SportsNet LA on June 9th, SportsNetLA.com (June 4, 2015), http://www.sportsnetla.com/charter. Charter distributes SportsNet LA in the Los Angeles DMA, in the Santa Barbara-San Luis Obispo (Santa Barbara) DMA, and the Fresno DMA. Id. Bright House has distributed SportsNetLA, in Bakersfield, CA in February 2014, and other Bright House non-California markets in March and April 2014. See Bright House, Press Release, Bright House Networks to Launch Time Warner Cable SportsNetLA (Feb. 24, 2014), https://brighthouse.com/about/about-us/newsroom/2014/bright-house-networks-to-launch-time- warner-cable-sportsnet-la.html. In 2014, Champion Broadband went out of business and began operating as Giggle Fiber. RSN Foreclosure Analysis White Paper at para. 34 & n.25. Giggle Fiber does not offer its own facilities- based video product. See Giggle Fiber, https://gigglefiber.com/ (last visited Mar. 8, 2016) 146 Time Warner Cable Response to Information Request at 38-39. SportsNet/Deportes is also available in Yuma, Arizona. See id. at 38. 147 See supra note 132. 148 As in past analyses of RSN withholding, we focus on the incentive to foreclose programming to competitors within each DMA where an RSN is available. See, e.g., News Corp.-Hughes Order, 19 FCC Rcd at 505-06, para. 63-65. We believe this is the most suitable geographic market to define competition for regional sports programming. 149 See Time Warner Cable Updated Response to Sept. 21, 2015, Information and Data Request, transmitted by letter from Matthew A. Brill, Counsel to Time Warner Cable, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15- 149, Exhibit 85g-01, (filed Oct. 22, 2015) (Time Warner Cable Oct. 22, 2015, Updated Response to Information ReTXest  7ime :arner CaEle ZKolly oZns otKer viGeo proJramminJ cKannels tKat may meet tKe Commission’s definition of RSNs. These programming channels include: Time Warner Cable Special Events, Time Warner Cable SportsChannel (Nebraska), Time Warner Sports Channel (Albany), Time Warner Cable SportsChannel (Buffalo), Time Warner SportsChannel (Syracuse), Time Warner Cable SportsChannel (Cincinnati/Dayton), Time Warner Cable Sports Channel (Cleveland/Akron), Time Warner SportsChannel (Columbus/Toledo), Canal de Tejas, Time Warner Cable SportsChannel (North-Dallas, El Paso; South-Austin, San Antonio, Corpus, RGV), and Time Warner Cable SportsChannel (Milwaukee, Green Bay). Time Warner Cable Response to Information Request at 30-32. Federal Communications Commission FCC 16-59 299 transaction-specific change in subscriber share in Hawaii,150 and therefore no foreclosure concern for OC Sports resulting from this transaction. Similarly, there is no subscriber share change in three of the four Sports Channel KC DMAs.151 There is a change in the Kansas City D0A; KoZever CKarter’s tZo percent video subscriber share in this DMA suggests that the additional bargaining leverage that New Charter may gain would be minimal.152 Time Warner Cable has an attributable interest in SportsNet NY; however the entity that owns SportsNet NY is a subsidiary of Comcast that Time Warner Cable contends is controlled by Comcast,153 so we do not apply our foreclosure analysis to this RSN. We therefore focus our foreclosure analysis on SportsNet/Deportes and SportsNet LA. 114. We propose a Nash bargaining model where a vertically integrated New Charter bargains with rival MVPDs to determine whether to license RSN programming and how much to charge on a per- subscriber basis. We then calibrate the theoretical model using Applicant and third-party data, and determine whether a foreclosure strategy would be profitable for New Charter for SportsNet/Deportes and SportsNet LA. Further, we derive empirical estimates of subscriber departure for SportsNet LA using a natural experiment. Our results indicate that foreclosure of RSN programming would result in a net loss to New Charter, and that it would therefore not choose to withhold programming when contracts are renegotiated after the transaction. However, we find that New Charter would be in an improved bargaining position, and may be able to extract higher affiliate fees from rival MVPDs as a result of the transaction. This increase in bargaining leverage may affect the post-transaction price, but it is not sufficient to create a foreclosure concern ZitK reJarG to rival 0V3Ds’ aEility to carry R61 proJramminJ 115. The Applicants have also submitted an economic analysis of RSN foreclosure.154 This submission first examines the possible foreclosure of SportsNet/Deportes in the Los Angeles DMA by comparing the expected revenue to New Charter from not renewing expiring licensing agreements, in hopes of gaining additional subscribers, to the expected revenue from continuing to license the RSN. The analysis concludes that subscribers would not leave a rival MVPD in order to receive Time Warner Cable SportsNet/Deportes at a sufficient rate to make foreclosure a profitable strategy for New Charter.155 The RSN Foreclosure Analysis White Paper also examines the likely transaction-specific increase in the price of SportsNet LA under a hypothetical scenario where a licensing agreement is reached between New Charter and a number of rival MVPDs.156 If such licensing agreements were to be reached, then the RSN [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , therefore we do not apply our foreclosure analysis to these programming channels. See Time Warner Cable Updated Oct. 22, 2016, Updated Response to Information Request, Exhibit 85g- 01. 150 SNL Kagan, 4Q2015. 151 Id. 152 Id. Time Warner Cable is the largest MVPD in the market with a 25.6 percent subscriber share. See id. 153 Time Warner Cable Response to Information Request at 33; see also NBCUniversal, NBC Sports Regional Networks, http://www.nbcuniversal.com/business/nbc-sports-regional-networks (last visited Mar. 8, 2016); Company Overview of Sterling Entertainment Enterprises, Bloomberg, http://www.bloomberg.com/research/stocks/ private/snapshot.asp?privcapId=41876493 (last visited Mar. 11, 2016). Time Warner Cable has a 26.83 percent interest in SportsNet NY. Time Warner Cable Response to Information Request at 33. Further, Time Warner Cable is entitled to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . Id. at 36. Time Warner Cable claims that it does not control the distribution rights in any RSN other than its wholly owned RSNs. Id. at 37. 154 RSN Foreclosure Analysis White Paper at paras. 11-29, 32. 155 Id. at para. 32. 156 Id. at paras. 33-64. Federal Communications Commission FCC 16-59 300 Foreclosure Analysis White Paper estimates that the transaction would increase the negotiated affiliate fee by about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per subscriber per month.157 116. The remainder of this section is organized as follows: We first present the theoretical Nash bargaining model of RSN foreclosure. We then discuss the data and assumptions necessary to test the model, and present preliminary results of whether New Charter would have an incentive to withhold RSN programming from rivals. This is followed by an empirical analysis of subscriber departure from rival MVPDs resulting from the inability to reach a licensing agreement for SportsNet LA, and updated foreclosure model results derived from this analysis. Finally, we present estimates of transaction-specific affiliate fee changes that may be expected once contracts are renegotiated. b. Permanent Foreclosure and Nash Bargaining for SportsNet/Deportes and SportsNet LA 117. We utilize a two-pronged approach to analyze the likely effect of the transaction on the distribution of Time Warner CaEle’s R61s )irst Ze calcXlate tKe ³critical GepartXre rate´ 7Kis is tKe rate at which subscribers would have to switch away from a rival MVPD in response to a loss of RSN programming to make foreclosure profitable to the vertically integrated firm (e.g., New Charter). We then analyze whether this critical departure rate is high enough to raise concerns given our expectations of actual departure rates for SportsNet/Deportes and SportsNet LA. Second, we utilize the Nash bargaining framework adopted in Comcast-NBCU to estimate the likely magnitude of any post-transaction price change for licensed RSNs.158 The analysis is complicated by the fact that Time Warner Cable has not successfully negotiated the carriage of SportsNet LA with many MVPDs.159 We are nonetheless able to shed light on potential price effects should additional carriage agreements be reached. (i) Critical Departure Rates 118. To calculate the critical departure rate, we must compare the benefits of New Charter licensing an RSN to its opportunity cost of acquiring additional subscribers that choose to switch when tKe proJramminJ is XnavailaEle to a competitor 1eZ CKarter’s total Jains Irom licensinJ to a competitor are as follows: ??????? ??????e = (? + ??)?? + (? + ???)(? ? ??) 119. Where A and ?? are the per-subscriber advertising revenue and affiliate fee charged to the rival MVPD, respectively, while ??? is the average affiliate fee charged to all other MVPDs. ? is the total number of video subscribers across all MVPDs, while ?? is the number of video subscribers of the rival firm. 1eZ CKarter’s opportXnity cost oI licensinJ tKe R61 or its total revenXe ZKen it Iorecloses programming to the rival, is the following: ??????????? ??????e = (? + ???)(? ? ??) + ?(? + ???)?? + ????(??? ? ???)?? 120. The first term (? + ???)(? ? ??) is the revenues that New Charter would earn from other MVPDS that it has not foreclosed. Further, we assume bilateral bargaining between New Charter and a single rival. Consequently, if New Charter were to foreclose on a rival and a fraction d subscribers switch to other MVPDs, those MVPDs would still be carrying the RSN and paying an affiliate fee of ???. Therefore, the second term ( ?(? + ???)??) represents affiliate and advertising revenues not lost by New Charter because a certain percentage of subscribers switch to another provider due to the foreclosure. 157 Id. at para. 61. 158 See Comcast-NBCU Order, 26 FCC Rcd 4238, 4393, para. 39. 159 These MVPDs include AT&T, Cox, DIRECTV, DISH, and Verizon. RSN Foreclosure Analysis White Paper at para. 34. See also supra para. 111 & note 145. Federal Communications Commission FCC 16-59 301 However, New Charter loses both advertising and affiliate fee revenues for those subscribers that stay with the foreclosed MVPD despite losing the RSN programming. 121. New Charter additionally gains revenue from the share of departing subscribers that switch to its own video service. This is represented by the final term ( ????(??? ? ???)??). ??? is New CKarter’s montKly proIit marJin per viGeo sXEscriEer ZKile ??? is the diversion rate. 160 That is, ? is the share of departing subscribers that switch to New Charter.161 The benefit of foreclosure is therefore the profit per subscriber that New Charter receives on the share of subscribers that it expects to capture from tKe IorecloseG 0V3D mXltiplieG Ey tKat 0V3D’s sXEscriEer Ease 122. The critical departure rate makes New Charter indifferent between foreclosing and continuing to license. To find it, we set the Licensing Revenue equal to the Foreclosure Revenue and solve for d: ?? = ? + ?? ? + ??? + ???(??? ? ???) Where: ???(??? ? ???) = ????(???? ? ???) + ??(?? ? ???) + ????(???? ? ???) This last term simply indicates that total post-transaction diversion to New Charter is the sum of diversion to eacK oI tKe Applicants anG 1eZ CKarter’s per-subscriber revenue from foreclosure is based on the inGiviGXal Iirms’ viGeo marJins162 (ii) Expected Departure Rates 123. The critical departure rate alone is not sufficient to determine the likelihood of competitive harm. It must be compared to estimates of actual departure rates from rival MVPDs in the event of a foreclosure. In this section, we present the methodology for estimating expected departure rates that was previously adopted in Comcast-NBCU.163 124. This methodology calculates the expected subscriber departure rate from an MVPD given a loss of RSN programming using information from existing affiliation agreements. The affiliate fees per subscriber that are ultimately realized for SportsNet/Deportes and SportsNet LA are a function of a bargaining process that takes into account expected revenues and costs to licensor and licensee. We are able to observe affiliate fees from existing licensing agreements between Time Warner Cable and rival firms, and using this information, we back out the departure rate that both parties expect to see if negotiations break down. In effect, this approach determines how large the departure rate would need to 160 Here we assume that ??? is a ³Jross marJin´ 7Kis is 1eZ CKarter’s proIit marJin e[clXGinJ tKe aIIiliate Iee it would itself pay for the distribution rights to the RSN programming. 161 As in the Comcast-NBCU Order, we assume that the diversion rate is proportional to subscriber shares. Comcast- NBCU Order, 26 FCC Rcd 4238, 4385, Appendix B, para. 13. Therefore, the diversion rate from MVPD i in market m to new Charter is: ?? = ?? ??/(1 ? ?? ? ) where S is the subscriber share. Subscriber share data for this analysis comes from SNL Kagan, 2Q2015. 162 We find fault with RSN Foreclosure Analysis White Paper critical departure rate formula for New Charter. In the post-transaction equilibrium, New Charter would take a transaction-specific change in the affiliate fee ( see infra para. 170) into account when determining its critical departure rate. That is, the correct ?? in the above critical departure formula is the post-transaction affiliate fee charged to a rival. The RSN Foreclosure Analysis White Paper assumes this fee does not change and uses the pre-transaction fee when calculating critical departure. 163 Comcast-NBCU Order, 26 FCC Rcd 4238, 4394-96, Appendix B, paras. 41- 46. Federal Communications Commission FCC 16-59 302 be in order to give Time Warner Cable the bargaining position necessary to obtain the currently observed affiliate fees.164 125. To determine the departure rate implied by a Nash bargaining equilibrium (NBE) between Time Warner Cable and a rival MVPD, we first calculate net gains from bargaining for both parties. For the rival MVPD it is the following: ????? ?????? = ????? ? ???? Where ?? is tKe rival 0V3D’s montKly per-subscriber video profit margin (again excluding the affiliate fee charged for the RSN), while all other parameters are as previously defined. An MVPD will only contract for the RSN programming when the expected loss from subscribers departing ( ????? ) is greater than the total cost of affiliate fees paid to Time Warner Cable ( ???? ). 126. Net licensing profit for Time Warner Cable is: ??? ?????? = (? + ??)?? ? ?(? + ???)?? ? ?????(???? ? ???)?? 127. 7Kis is 7ime :arner CaEle’s EarJaininJ revenXe net oI tKe IoreclosXre opportXnity cost as presented previously. We present a NBE where both parties have equal bargaining power and maximize the product of their joint surplus with respect to the affiliate fee: max ?? {(??? ??????) ? (????? ??????)} 128. Taking the derivative of the above NBE condition, setting equal to zero, and solving for d results in the following expression for the expected departure rate: ????????? = 2?? + ? ??? + ? +?? + ????(???? ? ???) (iii) Empirical Analysis 129. We present an empirical analysis of the expected versus critical departure rates and discuss the likelihood of post-transaction foreclosure of RSN programming. We focus on potential foreclosure of AT&T, Verizon, and DIRECTV as separate entities, and additionally provide estimates for a potential joint foreclosure of AT&T and DIRECTV. 130. The formulas presented above for estimating the critical and expected departure rates are applicable when current affiliation agreements exist such that ?? and ??? are known. While SportsNet/Deportes is currently licensed to all competitors except DISH, 165 MVPDs other than Charter and Bright House have thus far chosen not to enter into a carriage agreement for SportsNet LA.166 In the analysis that follows, we nonetheless estimate whether foreclosure of SportsNet LA would be profitable if it were to be licensed to other competitors at the rates currently offered to Charter and Bright House. (a) Assumptions and Data 131. We focus on foreclosure concerns in Zone 1 markets for SportsNet/Deportes and SportsNet LA. For both RSNs, Zone 1 distribution areas include the Los Angeles, Palm Springs, Santa 164 We estimate implied departure rates given current affiliation agreements. See Time Warner Cable Oct 22, 2015, Updated Response to Information Request, Exhibit 85g-01. We therefore rely on pre-transaction conditions and parameterize the model accordingly. 165 See Time Warner Cable Response to Information Request at 41. As such, we do not present estimates of a foreclosure of DISH. 166 See supra para. 111 & note 145. Federal Communications Commission FCC 16-59 303 Barbara, and Bakersfield DMAs.167 Of these DMAs, Time Warner Cable only operates in the Los Angeles and Palm Springs DMAs.168 However, Charter provides service in the Los Angeles and Santa Barbara DMAs while Bright House provides service in the Bakersfield DMA169 creating a potential post- transaction incentive to foreclose in each of these Zone 1 DMAs. 132. Information on RSN affiliate fees and advertising revenue was provided by Time Warner Cable.170 Also, we rely on data provided by third parties in response to information and data requests issued by the Commission to obtain data on the average subscriber acquisition cost (SAC) and monthly video margins for Telco and DBS subscribers.171 Further we verify the RSN Foreclosure Analysis White Paper calculation of monthly per-subscriber video margins for the Applicants172 and utilize this estimate in our own calculations. 133. The RSN Foreclosure Analysis White Paper submission assumes a constant video margin across all MVPDs.173 This assumption has serious implications for the results of a foreclosure analysis. Specifically, the Nash bargaining model is very sensitive to MVPD video margins, as can be seen from the formula for expected departure presented above. 174 Variation in these margins across MVPDs results in large differences in predicted departure rates coming from the NBE. According to the model, if the same affiliate fee is charged to all firms in the DMA then lower margin MVPDs must expect a higher subscriber departure rate relative to high margin competitors. If low margin firms expected the same departure rate then they would be able to negotiate lower affiliate fees, because their foregone revenue from a departing subscriber is lower (which improves their bargaining position). Given that we observe a constant affiliate fee across firms (as we will see in the table of model inputs below), the model predicts higher expected departure rates in the NBE for low margin relative to high margin firms. 134. In reality, however, we would not expect subscriber departure resulting from a programming foreclosure to vary substantially across MVPDs. Departure is ultimately a consumer decision based on their perceived value of the programming and of their MVPD service. As such, a foreclosure of programming may result in differences in departure if certain MVPDs are on average preferred to others. However, this consumer choice would have nothing to do ZitK a Iirm’s XnGerlyinJ profit margins, which generally do not reflect the retail price of MVPD service. Furthermore, we would not attribute variation in departure rates to differences in video margins. Due to this limitation of the 167 See Time Warner Cable Response to Information Request at 38-40. For the Los Angeles DMA not all counties are Zone 1. There is one Zone 2 and one Zone 3 county in this DMA. See Time Warner Cable Response to Information Request at 38-40. For our foreclosure analysis we assume that all counties in the Los Angeles DMA are Zone 1, and given the data we are unable to exclude non-Zone 1 counties from the analysis. 168 SNL Kagan, 4Q2015. 169 Id. 170 Time Warner Cable Oct. 22, 2015, Updated Response to Information Request, Exhibit 85g- 01. 171 AT&T Nov. 24, 2015, Updated Response to Information Request; Exhibit 13a; AT&T Updated Response to Information and Request, transmitted by letter from Maureen R. Jeffreys, Counsel for AT&T, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 10.1.1 (filed Dec. 23, 2015) (AT&T Dec. 23, 2015, Updated Response to Information Request); Verizon Response to Oct. 9, 2015, Information and Data Request, transmitted by letter from Meredith Singer, Counsel to Verizon Corporation, to Marlene H. Dortch, Secretary, FCC, MB Docket No. 15-149, Exhibit 10a.1. (filed Dec.23, 2015) (Verizon Dec. 23, 2015, Updated Response to Information Request). For our foreclosure analysis we use the pre-SAC margin. 172 RSN Foreclosure Analysis White Paper, Appendix A para. 6. 173 Id. 174 Specifically we are referring to ?? in the denominator. For a given affiliate fee, ?? tKe loZer tKe rival’s viGeo margin, the higher is the departure rate they expect from a programming foreclosure. Federal Communications Commission FCC 16-59 304 theoretical model, we present two sets of estimates: one where margins vary by MVPD, and a second where we assume a constant video margin across MVPDs as in RSN Foreclosure Analysis White Paper. 135. We calculate diversion rates separately for each Zone 1 DMA. In doing so we utilize the following facts and assumptions. First, as DISH does not currently license any Time Warner Cable RSNs, we assume that if SportsNet LA were to be licensed to rival Telco or DBS providers, then DISH would continue to hold out. Consequently foreclosed subscribers cannot switch to DISH to obtain their RSN programming. Second, Verizon and AT&T do not overlap in their provision of MVPD service. When calculating diversion from DIRECTV, we take into account the likelihood that a DIRECTV customer is in an AT&T footprint versus a Verizon footprint. 175 136. Table 29 below presents estimates of the model inputs, including affiliate fees and advertising revenues, margins, and diversion rates.176 175 We use a similar approach to RSN Foreclosure Analysis White Paper when calculating diversion, though we correct for certain methodological errors we believe are present in their calculations. We find fault with the RSN Foreclosure Analysis White Paper approach for calculating diversion from DIRECTV to Time Warner Cable when assuming it is a separate entity, prior to its joining with AT&T. Here they simply assume tKat Giversion is eTXal to 7ime :arner CaEle’s sXEscriEer sKare GiviGeG Ey tKe sXm oI all 7elco anG caEle sKares Essentially, their approach only nets out the shares of DIRECTV and DISH and does not distinguish between a Verizon or AT&T footprint. We believe the correct approach in this instance is to take the weighted average of DIRECTV diversion in the Verizon versus AT&T footprint, with weights equal to the expected share of DIRECTV sXEscriEers in eacK area ZKicK is simply A7 7’s sKare oI A7 7 plXs Veri]on sXEscriEers in a D0A  7KXs Ze allow DIRECTV subscribers to divert to AT&T or Verizon depending on the likelihood that they are in either footprint. See RSN Foreclosure Analysis White Paper, Appendix A paras. 3- 5. The RSN Foreclosure Analysis White Paper later adjusts the expected departure rate by the share of DIRECTV (AT&T) subscribers that are expected to switch to AT&T (DIRECTV), but this is an inferior approach to simply calculating diversion correctly by taking into account the likelihood that a DIRECTV subscriber is in a Verizon DMA versus an AT&T DMA. When calculating a weighted diversion, there is no need to directly adjust the expected departure rate. As the two approaches lead to different results, we find that our approach is preferred. RSN Foreclosure Analysis White Paper paras. 26-27. 176 Though we have calculated them, we do not present the Bakersfield DMA results in the analyses below. The Bakersfield DMA is analytically similar to the Santa Barbara DMA, with qualitatively similar results. Federal Communications Commission FCC 16-59 305 Table 29 Model Inputs [BEGIN HIGHLY CONF. INFO.] Revenues: Net Margins (Including RSN Affiliate Fee): Diversion Rates: Pre-Merger: Los Angeles Palm Springs Santa Barbara Post-Merger: Los Angeles Palm Springs Santa Barbara [END HIGHLY CONF. INFO.] Source: Time Warner Cable Oct. 22, 2015, Updated Response to Information Request Exhibit 85g-01; Verizon Response Dec. 23, 2105, Ex-10a.1; DIRECTV Response Nov. 24, 2015, Exhibit 13a; AT&T Response Dec. 23, 2015, Exhibit 10.1.1; SNL Kagan, 2Q2015. ( b) Results 137. Based on our foreclosure model, and utilizing the parameters from Table 29, we calculate pre- and post-transaction critical departure rates in the tables below: Table 30 Critical Departure with Actual Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara Pre-Merger: Post-Merger: Change: [END HIGHLY CONF. INFO.] Federal Communications Commission FCC 16-59 306 Table 31 Critical Departure with Constant (Salop) Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara Pre-Merger: Post-Merger: Change: [END HIGHLY CONF. INFO.] 138. The transaction-specific change in critical departure rates stems from an increased diversion to New Charter relative to the pre-transaction diversion to Time Warner Cable. As New CKarter’s sXEscriEer sKare increases it captXres a larJer percentaJe oI GepartinJ sXEscribers. The net effect of the transaction is to reduce the critical departure rate necessary for foreclosure by about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percentage points in the Los Angeles DMA and by about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percentage points in the Palm Springs, DMA. In the Santa Barbara DMA, the pre-transaction critical departure rate is 100 percent because Time Warner Cable does not operate in this DMA. It therefore would never find it profitable to foreclose unless it expected every subscriber to switch from a foreclosed MVPD to a rival that carried the programming. However, Charter has a significant presence in the Santa Barbara DMA,177 which results in a post-transaction possibility of foreclosure on rivals that operate there.178 139. 1ote tKat rivals’ viGeo sXEscriEer marJins Go not aIIect tKe pre-transaction critical GepartXre rate as tKe comparison oI licensinJ revenXes to opportXnity costs Goes not GepenG on tKe rival’s profitability. However, post-transaction critical departure is based on the expected post-transaction affiliate fee. As we will see in our analysis of price effects, the post-transaction equilibrium affiliate fee Goes GepenG on tKe rival Iirms’ viGeo marJins 7Kis is why the post-transaction critical departure rate varies between Table 30 and Table 31 above. 140. Next we calculate the expected departure rates for SportsNet/Deportes and SportsNet LA.179 177 CKarter’s 0V3D viGeo sXEscriEer sKare in tKe 6anta %arEara D0A is  percent 61/ .aJan 4 178 Neither AT&T nor Verizon operate in the Santa Barbara DMA, so the only foreclosure target is DIRECTV. 179 For the simultaneous foreclosure of AT&T and DIRECTV, where we assume a single entity, we calculate a weighted average expected departure rate with weights equal to the subscriber shares of the MVPDs. Federal Communications Commission FCC 16-59 307 Table 32 Expected Departure with Actual Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara [END HIGHLY CONF. INFO.] Table 33 Expected Departure with Constant (Salop) Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara [END HIGHLY CONF. INFO.] 141. We reiterate that these estimates do not represent empirically observed departure rates, but rather the rates that MVPDs expect to see should a foreclosure episode occur. The tables above highlight two important results: first is the magnitude of expected departure in the Santa Barbara DMA relative to the Los Angeles and Palm Springs DMAs, and second is the difference in expected departure when using third-party margin data as opposed to a constant margin across firms. 142. The Santa Barbara DMA is an interesting market to analyze because Time Warner Cable does not operate there; therefore rivals do not have a pre-transaction fear of programming foreclosure. In such a scenario, the Nash bargaining model indicates that a rival should be able to contract for a lower affiliate fee. However, multiple sources suggest that all Zone 1 distribution areas pay the same fee per subscriber.180 For firms in the Santa Barbara DMA to accept the same affiliate fee as in the Los Angeles or Palm Springs, DMA, they must expect a much higher rate of departure from a loss of RSN programming. This explains why the predicted departure rate is about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] as high as in other Zone 1 DMAs. 143. There is a similar explanation for why Table 33, which uses a constant margin of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] 181 for all MVPDs, produces lower expected departure rates than Table 32. Lower margin MVPDs must expect a higher departure rate conditional on paying the same fee as their high margin counterparts. When we assume all margins are equal to those of the cable companies, the expected departure rates drop for Telco and DBS. 144. The above estimates provide a range of possible expected departure rates to use as a basis for comparison against the critical departure rates derived earlier. The relevant question for each rival 180 See Fierce Cable (Mar. 23, 2016), http://www.fiercecable.com/story/twc-cuts-sportsnet- la-price-30-hopes-end-2- year-old-carriage-stalemate/2016-03- reportinJ tKat a neZ GiscoXnteG price Ior 6ports1et /A is ³availaEle to all operators in the Southern California ReJion´ anG tKat accorGinJ to 61/ .aJan ³7:C Zas cKarJinJ aroXnG  per sXEscriEer Ior tKe R61´  See also The Orange County Register (Mar. 22, 2016), http://www.ocregister.com/ articles/dodgers-709295-cable-warner.html. See also RSN Foreclosure Analysis White Paper Appendix A para 6 (where the analysis references a single affiliate fee for TWC SportsNet) 181 See RSN Foreclosure Analysis White Paper Appendix A para. 6. Federal Communications Commission FCC 16-59 308 firm is whether their expected departure rate is above the post-transaction critical departure rate for each RSN in each Zone 1 market. We present the difference between expected and critical departure in the tables below: Table 34 Expected minus Critical Departure with Actual Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara [END HIGHLY CONF. INFO.] Table 35 Expected minus Critical Departure with Constant (Salop) Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara [END HIGHLY CONF. INFO.] 145. The results largely depend on what we believe the actual departure rate to be. When using margin data from third parties, [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] the model suggests that RSN foreclosure would be profitable in the Los Angeles and Palm Springs DMAs. When using a constant video margin as assumed in the RSN Foreclosure Analysis White Paper, foreclosure becomes unprofitable in all Zone 1 DMAs. Nevertheless, the difference between expected and critical departure is quite small for [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 146. There is reason to be somewhat skeptical of the above results. For example, though we find a post-transaction foreclosure incentive when using third-party margin data, this same incentive exists pre-transaction (comparing expected departure to pre-transaction critical departure). That is, there is no transaction-specific change in foreclosure incentive. Consequently the model suggests that Time Warner Cable would be better off withholding SportsNet/Deportes and SportsNet LA even absent the proposed transaction. We know this to be incorrect, as Time Warner Cable currently licenses SportsNet/Deportes, and has made attempts to license SportsNet LA in the past.182 Furthermore, we are not comIortaEle ZitK simply iJnorinJ tKe reality oI Iirms’ proIitaEility Ey assXminJ a constant viGeo margin. Both of these concerns are ultimately related to the way the bargaining model determines an expected departure rate. 147. As we are not fully satisfied with the Nash bargaining framework for determining an expected departure rate given a foreclosure of RSN programming, we endeavor to estimate this rate using data for SportsNet LA for the 2014-2015 baseball seasons. The non-carriage of this RSN by competitors 182 See supra para. 111 & note 145; Time Warner Cable Response to Information Request at 41- 42. Federal Communications Commission FCC 16-59 309 creates a natural experiment whereby we can determine the potential subscriber gain to Time Warner Cable from those customers that decided to switch from a rival MVPD to retain access to Dodgers games. The following section describes this analysis. (iv) Empirical Analysis of SportsNet LA Actual Departure Rates (a) Difference- in-Differences Analysis 148. 7Ke IolloZinJ analysis Xses a ³DiIIerence-in-DiIIerences´ metKoGoloJy to estimate tKe effect of SportsNet LA carriage on video and non-video subscriber outcomes in affected and non-affected California zip codes through the 2014 and 2015 baseball seasons. Carriage of Dodgers games through Time Warner Cable's SportsNet LA began February 25, 2014. 183 Charter announced it would begin carriage of SportsNet LA on a month-to-month basis at the same time it announced its transaction with Time Warner Cable in June 2015. 184 Prior to that, Time Warner Cable was the sole MVPD offering SportsNet LA within its video footprint.185 We exploit this natural experiment to empirically estimate 7ime :arner CaEle’s viGeo sXEscriEer Jains GXrinJ tKis time perioG 149. 7o measXre tKe eIIect oI 6ports1et /A carriaJe on 7ime :arner CaEle’s viGeo subscribership, we use a standard statistical estimation procedure known as Difference-in-Differences (DD). 186 In California, Time Warner Cable has cable systems both inside and outside of the SportsNet LA distribution footprint. The zip codes inside of the SportsNet LA distribution area will serve as our e[perimental ³treatment JroXp´ ZKile tKose oXtsiGe oI it Zill serve as oXr ³control JroXp´ 150. 7Ke Joal oI oXr analysis is to compare tKe cKanJe in 7ime :arner CaEle’s viGeo subscribership between the treatment and control groups during the study period. However, there may be pre-existing differences between treatment and control zip codes, or common shocks during the period of study, which may bias a simple comparison of these groups. The DD method controls for these potentially biasing factors by taking the difference between video subscribership in the treatment and control groups prior to and during treatment, and then differencing these two differences. This approach removes these potential sources of bias. 151. The key assumption that needs to be satisfied for our analysis to successfully estimate the effect of withholding is that in the absence of any licensing disputes, the average change in video subscribership would have been the same for both treatment and control groups.187 This may not hold if, for example, Google Fiber deployed in the treatment zip codes but not in the control zip codes during the Dodgers withholding episode. If this were the case, our estimates would be biased towards finding no effect of RSN withholding since the treatment zip codes would have lower video subscribership than would be otherwise observed if Google Fiber had not deployed. To ensure our estimates are not spurious due to such a confounding event, we perform a number of robustness tests on our specification and find that our conclusions still hold. 152. Our analysis is based on Time Warner Cable monthly billing plan data from June 2012 to 183 See Time Warner Cable SportsNet, SportsNet LA Announces Dodgers Programming (Feb. 17, 2014), http://www.sportsnetla.com/content/snla/articles/2014/02/17/sportsnet-la-announces-dodgers-programming html. 184 See RSN Foreclosure Analysis White Paper paras. 2, 35. 185 Id. para. 34. Champion Broadband carried SportsNet LA from March 2014 until April 2015 in small parts of the Los Angeles DMA. See Time Warner Cable Response to Information Request at 41-42; RSN Foreclosure Analysis White Paper n.25; see also supra note 145. 186 See, e.g., Colin Cameron and Pravin Trivedi, Microeconometrics, Chapter 25.5 (Cambridge 2005); and Jeffrey M. Wooldridge, Econometric Analysis of Cross Sectional and Panel Data 129-30 (2002). 187 7Kis is sometimes calleG tKe ³parallel trenGs´ assXmption EecaXse it reTXires tKat tKe trenG in tKe oXtcome variable for both treatment and control groups during the pre-treatment period be similar. Federal Communications Commission FCC 16-59 310 August 2015.188 The data provide plan characteristics, average monthly recurring revenues, and the number of subscribers by tenure for each plan to which Time Warner Cable has at least one subscriber. We restrict the sample to all zip codes in the state of California in order to have the most comparable treatment and control groups and then separate the plans into video and non-video.189 Our outcome variable of interest is the total number of subscribers to Time Warner Cable video products. We then classify the zip codes as either in the treatment or control group by using a list of zip codes in the SportsNet LA footprint provided by Time Warner Cable.190 153. 7o minimi]e tKe impact oI conIoXnGinJ Iactors Ze estimate a ³Ii[eG eIIects´ DD moGel using a regression framework. In particular, we estimate the natural logarithm of Time Warner Cable video subscribers as a function of zip code fixed effects, year-month fixed effects, and an event indicator variaEle tKat is ³tXrneG on´ GXrinJ tKe  anG  EaseEall seasons in 6ports1et /A ]ip coGes 7Ke coefficient on this last indicator variable is the primary parameter of interest and provides the difference- in-differences estimate of the effect of RSN withholding on Time Warner Cable video subscribership. In addition, we include post-season and pre-season indicator variables that equal one during these time periods in SportsNet LA zip codes. The post-season indicator determines whether subscriber gains persist after the baseball season ends, and the pre-season indicator captures whether some subscribers begin switching to Time Warner Cable during spring training. 154. The results of this analysis are presented in Table 36 below.191 The coefficient on the primary variable of interest, shown in the first row of column 1, indicates that Time Warner Cable increased video subscribership by about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in treatment versus control zip codes during the 2014-2015 baseball seasons. As a roEXstness cKecN Ze also estimate tKe eIIect oI 6ports1et /A ZitKKolGinJ on 7ime :arner CaEle’s change in non-video subscribers. As expected, the results in column 2 indicate that we find no effect of SportsNet LA withholding on this group of customers. Columns 4 through 7 provide a more dynamic vieZ oI 7ime :arner CaEle’s viGeo sXEscriEer JroZtK over tKe tZo EaseEall seasons Columns 4 and 5 188 Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment B. 189 Time Warner Cable sells three products (video, broadband, and phone) and seven bundles of these three products. The four video products are: stand-alone video, video and broadband, video and phone and the triple play. The three non-video products are: standalone phone, standalone broadband and broadband and phone double play. 190 Time Warner Cable Response to Information Request, Exhibit 85e. 191 Observations are at the month-by-zip code level, and the data spans from June 2012 to August 2015. See Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment B. We control for subscriber responses to Time Warner Cable Maxx upgrades by including an indicator variable equal to 1 for each month tha t occurred after Maxx deployment in a zip code based on Applicant data. See Time Warner Cable Oct. 16, 2015, 8pGateG Response to InIormation ReTXest AttacKment I ³61/A ]ip coGe´ is a GXmmy variaEle eTXal to one iI tKe zip code is in the SportsNet LA territory. Model dynamics, leads and lags: The specifications in Columns (1) through (3) do not provide a sense of the monthly dynamics of subscriber behavior in SportsNet LA zip codes, nor does it indicate whether the growth rate of video and triple-play subscribers in SportsNet LA zip codes accelerates over time, stabilizes or reverts to the mean. To explore these dynamics, Column (4) includes pre-season, primary season, and post-season indicator variables for the 2014 and 2015 baseball seasons. Pre-season is defined as January through March in the given year. Primary season is April through September for 2014 and April through August for 2015. Post-season is October through December for 2014; data limitations precludes a post-season indicator for 2015. Columns (5) and (6) include indicator variables equal to one in SportsNet LA zip codes for up to three months before April 2014 and each month after April 2014 in the data set. Each model is weighted by the population in a zip code and includes zip code and month-by-year fixed effects. U.S. Census Bureau. Federal Communications Commission FCC 16-59 311 add pre- and post-season indicators, while columns 6 and 7 add monthly dynamics for video and non- video subscribers. 155. The monthly results in column 6 are interesting. We find that Time Warner Cable gained video subscribers in treatment zips quickly at the start of the 2014 baseball season, with a gain of about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent by June 2014, and then continued to add subscribers throughout the season. Furthermore, subscriber gains continued to accrue even during the 2015 pre-season, and continued on until well into the 2015 season. This provides evidence that the subscriber gains did not dissipate after the first year of the licensing dispute. Federal Communications Commission FCC 16-59 312 Table 36 Effect of Dodgers RSN Carriage on Time Warner Cable Subscriber Outcomes [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Cluster-robust standard errors at the headend level are presented in parentheses. *** p<0.01, ** p<0.05, * p<0.1 ( b) Revisiting Foreclosure Analysis 156. We focus on the coefficient on the difference-in-differences estimator in the first specification of Table 36 above. It indicates that the average effect of SportsNet LA unavailability during Federal Communications Commission FCC 16-59 313 the study period was to increase Time Warner Cable subscribership by about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] in treatment versus control zip codes. In this section, we present a simple and intuitive methodology for transforming a subscriber gain to Time Warner Cable into a departure rate from rival MVPDs. 157. We first note that during the study period, if an MVPD subscriber wished to retain access to SportsNet LA, then their only option was to leave their provider and switch to Time Warner Cable. Therefore, the estimated effect of Time Warner Cable being unable to license SportsNet LA during this time period is similar to that of a foreclosure strategy that simultaneously withholds programming from all rivals in a market. Conversely, the departure rate we are most interested in is that which we would expect from a breakdown of bilateral bargaining, where Time Warner Cable withholds SportsNet LA from a single rival. 158. The distinction between a foreclosure strategy targeting all rivals versus one aimed at a particular MVPD is important when determining how best to estimate subscriber departure. We note two key differences between these scenarios. First, if there are no alternatives to Time Warner Cable (all rivals are foreclosed), then the total number of subscribers switching from any rival to Time Warner Cable is likely an over-estimate relative to a scenario where only a single rival is foreclosed. This is because some fraction of subscribers that switch to Time Warner Cable would otherwise have chosen a different MVPD, were such an alternative available. Second, if alternatives to Time Warner Cable do exist, then the total number of subscribers departing from a rival will likely be higher relative to a total foreclosure scenario. This is because there exists a group of subscribers that would switch to an alternative that is not Time Warner Cable, but would not switch to Time Warner Cable. 159. The goal is then to transform our difference-in-differences coefficient into a departure rate for each rival MVPD taking into account the differences between the relevant states of the world as outlined above. We present the methodology in steps as it applies to the Los Angeles DMA. First we determine the average video subscriber count for the DMA over the course of the study period.192 We then multiply this number by [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] to determine the total gain in subscribers experienced by Time Warner Cable resulting from being the sole carrier of SportsNet LA. This number comes to about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscribers. Next, we apportion the total Time Warner Cable subscriber gains to the rival MVPDs according to their subscriber share in the DMA.193 For example, Verizon holds an 11.4 percent subscriber share in the Los Angeles DMA.194 Given that Time Warner Cable has a subscriber share of 29 percent,195 Veri]on’s sKare oI tKe remaininJ sXEscriEers is eTXal to  percent.196 7KereIore  percent oI 7ime :arner CaEle’s total sXEscriEer Jains are e[pecteG to come from Verizon, or about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscribers. 160. Third, we now account for the potential differences in subscriber departure between a total foreclosure and a bilateral foreclosure scenario. To do so, we estimate both a lower and an upper bound on the total number of subscribers departing from a rival. For the upper bound estimate we assume that all subscribers that switch from a rival to Time Warner Cable during the study period, where no alternatives exist, would still switch to Time Warner Cable despite having alternative MVPD options. 192 Time Warner Cable Oct. 16, 2015, Updated Response to Information Request, Attachment C.1. 193 SNL Kagan, 2Q2015. 194 Id. 195 Id. 196 0.114/(1 ? 0.29) = 16.1 percent Federal Communications Commission FCC 16-59 314 This is an upper bound on the overestimation issue discussed above.197 Consequently, we would not adjust down our estimate of [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscribers for Verizon. 161. Next, to account for subscribers that would switch to another MVPD and not to Time Warner Cable if such options are available,198 we expand the base of subscribers that switch to Time :arner CaEle Ey tKe rival 0V3D’s Giversion rate in tKe D0A )or e[ample iI Veri]on’s Giversion to Time Warner Cable is 45 percent, then its total subscriber departure to all MVPDs in a bilateral scenario is equal to [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscribers.199 This indicates that the Verizon subscribers that chose to switch to Time Warner Cable [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] only represent 45 percent of total Verizon departure. In this way, we are making an intuitive use of expected diversion to determine total departure. The last step is to turn total departing subscribers from a count to a percentage, by GiviGinJ Ey Veri]on’s total sXEscriEer Ease in tKe D0A 162. Finally, we can similarly estimate a lower bound on departure, by simply assuming that the total number of subscribers switching to Time Warner Cable during the study period is also the total number that would switch to any MVPD in a bilateral bargaining scenario. So, for example, the [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] expected Verizon subscribers that switched to Time Warner Cable would now be the total number of subscribers departing from Verizon to all MVPDs. Of those, we would expect [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] subscribers to switch to Time Warner Cable, and the remainder to switch to other MVPDs.200 163. We employ the above methodology to estimate maximum and minimum expected departure rates, and present the results in Table 37 below:201 Table 37 Departure Rate from SportsNet LA Withholding [BEGIN HIGHLY CONF. INFO.] Maximum Minimum [END HIGHLY CONF. INFO.] 164. The above results represent the bounds of our analysis. Our minimum expected departure rate does not vary across MVPDs because it is simply distributing total estimated departure across rivals according to subscriber share, with no additional expansion according to diversion rates. While the number of departing subscribers varies across rivals, the share as a percentaJe oI Iirms’ sXEscriEer Ease is constant. 197 See supra para. 158. 198 Id. 199 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 200 [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] . 201 The results for the joint departure from AT&T and DIRECTV are derived by assuming a hypothetical foreclosure of both entities, with an estimate of total departure from both MVPDs as a fraction of their joint subscriber base. This is identical to a weighted average departure rate with weights equal to subscriber share in the DMA. Federal Communications Commission FCC 16-59 315 165. We are now ready to revisit our foreclosure model, using empirically estimated departure rates to determine whether New Charter would find it profitable to withhold RSN programming. For simplicity, we assume that the departure rates calculated for SportsNet LA above are also the rates we would expect to see from a foreclosure of SportsNet/Deportes, and that these rates are constant across our DMAs of study.202 Furthermore, we focus on the upper bound expected departure rates as the salient estimates to determine whether foreclosure would occur under a more conservative scenario. In Table 38 EeloZ Ze present tKe comparison oI 1eZ CKarter’s critical GepartXre rates to our empirically estimated upper bound departure rates.203 Table 38 Empirically Estimated Departure minus Critical Departure with Actual Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara [END HIGHLY CONF. INFO.] 166. Using more reliable estimates of expected departure derived from an empirical analysis of SportsNet LA, we find that New Charter would not have an incentive to foreclose RSN programming to any competitors in any DMA.204 Furthermore, as the results in Table 38 rely on our upper bound actual departure estimates, it is likely that the actual difference between expected and critical departure is even larger than what we have presented here. ( v) Programming Price Effects 167. Even when foreclosure is not a likely strategy, New Charter may use the threat of foreclosure to demand higher affiliate fees from its rivals when contracts come up for renegotiation. An increase in the post-transaction diversion of foreclosed customers to New Charter would increase its potential foreclosure profits and improve its bargaining position when negotiating fees. Further, higher affiliate fees to rivals would likely result in higher prices for MVPD service given an assumption of a nonzero pass-through from programming payments to consumers. 168. To determine the likely magnitude of any post-transaction price changes, we return to the Nash bargaining framework. Taking the derivative of the NBE condition defined above,205 setting equal to zero, and solving for the pre-transaction affiliate fee charged to the rival results in the following: ??,??? ? = ?(? ? 1) + ?(?? + ???) + ?????(???? ? ???) 2 169. The post-transaction world differs in that there is now additional diversion to New Charter. Whereas before, Time Warner Cable only benefited from those subscribers that switched from a 202 As the empirical analysis of departure rates relies on a natural experiment specifically involving SportsNet LA, we are unable to perform the same calculation for SportsNet/Deportes. However, we find it reasonable to assume that these departure rates would be the same, as both RSNs cover professional sports teams and also overlap geographically with regard to the relevant markets of study. 203 Note that the critical departure rates used to derive the results in Table 38 are not identical to the ones presented in Table 30. This is because the new estimates of actual departure affect the NBE post-transaction affiliate fee, ZKicK in tXrn aIIects 1eZ CKarter’s net licensinJ proIits anG critical GepartXre 204 We similarly find no foreclosure incentive for the Bakersfield DMA. 205 See supra para. 127. Federal Communications Commission FCC 16-59 316 rival MVPD to its own video service, now New Charter benefits when subscribers switch to Charter and Bright House as well as Time Warner Cable. We solve for the post-transaction affiliate fee incorporating this additional diversion: ??,???? ? = ?(? ? 1) + ?(?? + ???) + ?[????(???? ? ???) + ??(?? ? ???) + ??(?? ? ???)] 2 170. As can be seen, the only transaction-specific effect on affiliate fees is through an increase in the diversion rate to New Charter. The change in the affiliate fee resulting from the transaction is : ??? = ??,???? ? ? ??,??? ? = ?[??(?? ? ???) + ??(?? ? ???)] 2 171. We calculate expected post-transaction price changes in Table 39 below. The results are estimated using actual video margins derived from Applicant and third-party data206 and actual departure rates derived from our difference-in-differences analysis. Table 39 Change in Affiliate Fee with Empirically Estimated Departure and Actual Margins [BEGIN HIGHLY CONF. INFO.] SportsNet LA SportsNet/Deportes Los Angeles Palm Springs Santa Barbara Los Angeles Palm Springs Santa Barbara Fee Increase (%) [END HIGHLY CONF. INFO.] 172. AccorGinJ to tKe moGel 1eZ CKarter’s improveG EarJaininJ position ZoXlG alloZ tKem to raise prices by about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] per subscriber per month for SportsNet/Deportes and SportsNet LA in the Los Angeles DMA. This corresponds to about a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent increase in affiliate fees compared to pre-transaction levels.207 The expected price change is being driven by the additional diversion to Charter, which has a 5.6 percent subscriber share in the Los Angeles DMA.208 In tKe 3alm 6prinJs D0A 1eZ CKarter’s EarJaininJ position is nearly unchanged, as 206 See supra note 171. 207 The price increase varies by market but is the same for both SportsNet/Deportes and SportsNet LA. This is because we are using a constant estimated departure rate across RSNs. The variation in price changes across markets is due to the changing diversion rate. In Comcast-NBCU, the Commission found that predicted price increases would range from [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent for the NBCU Cable Bundle and for NBCU Owned and Operated Broadcast Stations many of the predicted price increases were over [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent. See Comcast-NBCU Order, 26 FCC Rcd 4238, 4397-98, Appendix B, Table 3. Further in Comcast-NBCU, the Commission estimated changes in affiliate fees, adjusting for programming quality of approximately [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent following the News Corp-Hughes transaction. See Comcast-NBCU Order, 26 FCC Rcd 4238, 4398 Appendix B para. 52. 208 SNL Kagan, 2Q2015. Federal Communications Commission FCC 16-59 317 Charter only has a two percent subscriber share and consequently does not increase post-transaction diversion by a significant amount.209 This results in a modest increase in monthly per-subscriber affiliate fees of about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] cents, or about a [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent increase over current rates. 173. The results for Santa Barbara are quite different. There is no effect on affiliate fees for either AT&T or Verizon, as they do not operate in the DMA. The expected increase in the affiliate fee to DIRECTV, as well as to the newly-combined AT&T / DIRECTV, is fairly large due to the fact that the transaction-specific change in diversion from DIRECTV to New Charter is very high.210 Though this result may be of concern, sources suggest that current Time Warner Cable RSN licensing fees do not vary across Zone 1 distribution areas. 211 Therefore, the results above do not reflect our expectation of actual price changes in these DMAs. Rather they indicate the DMAs in which New Charter would have the greatest incentive to raise prices during new rounds of negotiations, given expectations of post-transaction departure and diversion. In effect, the reported change in affiliate fee for any single DMA is the Nash EarJaininJ moGel’s preGiction oI ZKat ZoXlG Kappen iI tKat Zere tKe only D0A ZKere 1eZ CKarter anG a rival MVPD were negotiating RSN programming rights. In reality these firms are likely to negotiate across all Zone 1 markets, presumably considering how different areas would be affected. Therefore, the moGel’s preGiction oI ZKetKer to Ioreclose as Zell as tKe Gecision oI KoZ mXcK to cKarJe sKoXlG not Ee taken as fact, but should be considered along with other evidence as to the likelihood of transaction- specific harms relating to issues of RSN foreclosure. 2. Discovery Communications a. Introduction 174. We present an analysis of whether the proposed transaction creates an incentive for Discovery to withhold its programming from certain MVPDs for anticompetitive reasons. Due to overlapping ownership interests involving Discovery, Charter, and Bright House, several commenters argue that the proposed transaction may induce Discovery to withhold its programming or raise its price to MVPDs that compete with New Charter.212 To address these concerns, we analyze the potential for foreclosure of Discovery to occur as a result of the transaction. 175. The analysis presented in this section relies on a Nash bargaining approach to determine the likely result of the transaction on foreclosure incentives involving Discovery programming. The results of our analysis suggest that foreclosure is an unprofitable strategy and is not likely to occur. We further find that the transaction should not have a significant effect on the affiliate fees charged for Discovery programming. 176. We lay out our analysis below. In the remainder of the introduction, we discuss the relevant vertical relationships between the parties of interest and why they may create a transaction- specific incentive for foreclosure of Discovery programming. We then discuss the intuition behind two separate modeling approaches that are employed to determine foreclosure incentives. These approaches reflect two different assumptions about the nature of bargaining as it relates to Discovery. The body of 209 SNL Kagan, 2Q2015. 210 We find similar price effects for the Bakersfield DMA, which also has a high transaction-specific change in diversion to New Charter. Time Warner Cable is not present in this DMA pre-transaction, but, because Bright House has a substantial subscriber share of 41 percent in this DMA, New Charter would inherit this subscriber share after the transaction. SNL Kagan, 2Q2015. 211 See supra note 167. 212 For a full discussion of the arguments raised by commenters, see supra Order, Section V.E.4.c. Federal Communications Commission FCC 16-59 318 the analysis presents a detailed theoretical model and results for each modeling approach, and draws conclusions about the likely effect of the transaction on foreclosure incentives. (i) Background 177. The proposed transaction between Charter, Time Warner Cable, and Bright House would alter key ownership stakes in Discovery programming assets, which are vertically related to Bright HoXse’s GistriEXtion assets anG caEle e[ecXtive -oKn 0alone’s eTXity anG votinJ interests AccorGinJ to Applicant filings, John Malone and Advance/Newhouse, which operates Bright House, are significant shareholders in Discovery, having a combined 35.8 percent equity share. 213 Following the proposed transaction, Advance/Newhouse and John Malone would jointly own approximately 14.7 percent of New Charter.214 178. Whereas concerns over the foreclosure of Discovery programming are currently limited because John Malone and Advance/Newhouse do not have joint equity interests in the same MVPD and are therefore less likely to coordinate their actions with regard to licensing Discovery programming, the coming together of Charter and Bright House along with Time Warner Cable has the potential to create an added incentive for coordinated action leading to foreclosure. Specifically, John Malone and AGvance1eZKoXse Moint eTXity interests KenceIortK reIerreG to as ³tKe 6taNeKolGers´ may IinG it profitable to wield their joint influence over Discovery to withhold its programming content from MVPDs that compete with New Charter. We expand on this point in discussing our modeling approach below. (ii) Modeling Approach and Estimation 179. 6imilar to oXr analysis oI 7ime :arner CaEle’s R61s Ze investiJate tZo cKannels oI potential anticompetitive behavior related to the distribution of Discovery programming content after the transaction. The first is that the Stakeholders may have an increased incentive to foreclose Discovery programming to an MVPD that competes with New Charter. The second is that the Stakeholders may use the threat of programming foreclosure to demand higher per-subscriber affiliate fees for Discovery when contracts are renegotiated. These fees may then be passed through to consumers in the form of higher prices for MVPD service. 180. To evaluate these concerns, we propose two alternative but related models for analyzing tKe eIIect oI tKe 6taNeKolGers on Discovery’s incentive to enJaJe in a proJramminJ IoreclosXre oI an MVPD, as well as on the potential for Discovery to charge higher affiliate fees after the transaction. Both models utilize the Nash bargaining framework that was used in the Comcast-NBCU Order.215 The two models follow a similar methodology but differ in their characterization of the Nash bargaining equilibrium. 181. We first present a model similar to that adopted by the Salop Reply Declaration, where the Stakeholders bargain with an MVPD on behalf of Discovery while leveraging their joint equity interests in New Charter and Discovery to determine their expected profits from licensing versus foreclosure.216 7Ke 6taNeKolGers oEtain a sKare oI Discovery’s licensinJ revenXe ZKen a licensinJ agreement is reached. However, they benefit from a foreclosure of Discovery programming if enough subscribers depart from a foreclosed MVPD to New Charter in order to retain access to Discovery. In this case tKey ZoXlG oEtain a sKare oI 1eZ CKarter’s proIits Irom tKese neZ 0V3D sXEscriEers Consequently the Stakeholders would initiate a foreclosure of Discovery programming if they expect their foreclosure revenue to exceed their licensing revenue. This approach implicitly assumes that the 213 See supra Order, para. 179. 214 Salop Reply Decl. at para. 21. 215 See supra para. 123 & note 163. 216 Salop Reply Decl. at para. 33. Federal Communications Commission FCC 16-59 319 Stakeholders would disregard their fiduciary duties to Discovery shareholders and force a foreclosure of programming if they find it to be in their joint best interest. 182. The second model proposes an alternative bargaining framework where Discovery bargains with an MVPD but is influenced by the Stakeholders based on whether they themselves would prefer to license or foreclose. In this alternative specification, the Stakeholders cannot simply decide to Ioreclose on tKeir oZn EXt can improve Discovery’s EarJaininJ position Ey increasinJ its opportXnity cost of licensing if their net profits from a programming foreclosure are expected to be positive. Discovery may choose to foreclose programming to MVPDs that compete with New Charter if it expects the Stakeholders to obtain such profits from foreclosure that they can fully compensate Discovery for its loss of licensing revenue. Consequently, Discovery would only withhold programming if it is in the best interest of the company as a whole. This modeling approach therefore stems from the assumption that the equilibrium outcome is incentive compatible for Discovery, its shareholders, and the Stakeholders. 183. Following a discussion of each theoretical model, we estimate whether a foreclosure of Discovery programming is expected to occur as a result of the transaction, and additionally determine the likely magnitude of any price changes. We examine both nationwide foreclosure as well as targeted foreclosure at the DMA level. Below, we lay out the bargaining models and present empirical results derived from Applicant and third-party data. b. Stakeholders Negotiate on Behalf of Discovery 184. We first present the Nash bargaining framework for a scenario where the Stakeholders negotiate on behalf of Discovery, but maximize their own profits based on their joint partial ownership interests in Discovery as well as New Charter. (i) Variable Definitions 185. Where applicable we retain a parameterization consistent with what was used in the RSN analysis.217 However, the presence of partial ownership interests necessitates the introduction of additional parameters. As such, the following table defines the key variables and parameters that will be used throughout this analysis: 217 See supra paras. 118-121 for RSN analysis parameterization. Federal Communications Commission FCC 16-59 320 Table 40 Variable Definitions Ownership Variables: ? Malone & Advance/Newhouse pre -transaction joint equity share in Discovery ?? Malone & Advance/Newhouse pre - transaction joint equit y share in Charter ?? Advance/Newhouse pre- transaction equity share in Bright House ??? Malone & Advance/Newhouse post -merger joint equity share in New Charter Revenue Variables: ? Discovery's advertising revenue per subscriber ?? Discovery's affiliate fee per subscriber to firm r ??? Discovery's average affiliate fee per subscriber to all other MVPDs Subscriber Churn Variables: ? Share of an MVPD's subscribers that switch to an alternative MVPD when Discovery is withheld ?? Share of switching subscribers that choose Charter ?? Share of switching subscribers that choose Bright House ?? Share of switching subscribers that choose Time Warner Cable Margins and Subscriber Counts: ? Total number of video subscribers ?? Number of video subscribers to firm r ?? Firm r monthly per-video subscriber pre-SAC profit margin ?? Charter monthly per-video subscriber pre-SAC profit margin ?? Bright House monthly per-video subscriber pre-SAC profit margin ?? Time Warner Cable monthly per-video subscriber pre-SAC profit margin Note: :e GeIine tKe montKly viGeo marJins as ³Jross´ marJins in tKat tKey Go not net oXt tKe aIIiliate Iee cKarJeG by Discovery. (ii) Transaction-Specific Change in Affiliate Fees 186. We propose a NBE where the Stakeholders bargain with an MVPD on behalf of Discovery. In the NBE, the Stakeholders and the MVPD maximize the product of their excess bargaining profits with respect to the affiliate fee. The fee that solves the first order condition is therefore the equilibrium price of programming that both parties agree upon. To determine how the transaction would affect this price, we present the pre- and post-transaction NBE given net bargaining profits to both parties. (a) Pre-Transaction 187. 7o Getermine tKe 6taNeKolGers’ pre-transaction net profit from bargaining, we must take into account their joint share of Discovery licensing profits as well as their financial interests in Charter and Bright House. Their share of the revenue from licensing Discovery is as follows: 188. ??????? ???????? = ?[(? + ??,??? )?? + (? + ???)(? ? ??)] 7Ke 6taNeKolGers’ total licensinJ revenXe is compriseG oI tKe sKare ? of advertising and affiliate fees from licensing to the rival MVPD (denoted by the subscrip t r ) at a pre-transaction price of ??,???, as well as from licensing to all other MVPDs at an average price of ???. 189. Conversely, the Stakeholders lose revenue when no carriage agreement is reached but may profit if the MVPDs they have an ownership interest in can capture some fraction of subscribers departing from the foreclosed MVPD. Therefore, their total foreclosure revenue is as follows: ??????????? ???????? = ?[(? + ???)(? ? ??) + ?(? + ???)??] + ???[????(?? ? ???) + ????(?? ? ???)] The Stakeholders retain licensing revenue from all MVPDs except for the foreclosed rival, while continuing to gain revenue from the share d of subscribers that depart the rival for an MVPD that still carries the programming. Lastly, the Stakeholders gain additional revenue from those subscribers that churn to an MVPD they have a partial ownership interest in. Federal Communications Commission FCC 16-59 321 190. Their net bargaining profit is therefore the licensing revenue minus the foreclosure revenue: ??? ??????? = ?[(? + ??,??? ) ? ?(? + ???)]?? ? ?[????(?? ? ???) + ????(?? ? ???)]?? 191. Similarly, the revenue to the rival MVPD from a licensing agreement is: ??????? ???????? = ??(?? ? ??,???) 192. And the revenue to the rival MVPD in case of a foreclosure is: ??????????? ???????? = ??(1 ? ?)?? 193. 7KereIore tKe rival 0V3D’s net EarJaininJ proIit is ??? ??????? = ????? ?????,??? 194. Then, the NBE can be characterized as follows: max ??,??? {(??? ???????) ? (??? ???????)} 195. To simplify the derivative, and for future comparison to the post-transaction equilibrium result, let us define for the moment: ?? ?? = ?? ? ??? That is, ?? ?? is the pre-transaction margin of a non-rival MVPD (the Applicants) taking into account the average Discovery affiliate fee. Recall that we had defined the margin ?? as excluding this affiliate fee and had therefore explicitly subtracted the ??? in tKe 6taNeKolGers’ IoreclosXre revenXe eTXation aEove 196. Then, with the above notation, taking the first order condition, setting equal to zero and solving for ??,??? results in the following pre-transaction equilibrium affiliate fee charged to the rival MVPD: ??,??? ? = ?(? ? 1)? + ?[?????? ?? + ?????? ?? + ?(?? + ???)] 2? ( b) Post-Transaction 197. The post-transaction equation for net licensing profits to the rival MVPD remains unchanged, except that profits are now based on the post-transaction equilibrium affiliate fee: ??? ??????? = ????? ?????,???? 198. However, the addition of Time Warner Cable and Bright House to New Charter results in increased diversion towards New Charter when the programming is withheld, and therefore increased revenue from foreclosure accruing to the Stakeholders. Consequently, their post-transaction net licensing profit becomes:218 ??? ??????? = ?[(? + ??,???? ) ? ?(? + ???)]?? ? ????[??(?? ? ???) + ??(?? ? ???) + ??(?? ? ???)]?? 218 Note that the Applicants and all MVPDs not currently negotiating with Discovery do not see a change in their licensing fees from the pre-transaction price level. As bargaining is bilateral, the NBE holds fixed the affiliate fees of all other MVPDs not involved in the post-transaction bargaining process. Additionally, whereas the pre- transaction equity shares for the Stakeholders varied between Charter and Bright House, in the post-transaction world we assume that ?? = ?? = ?? = ??? ZKicK is tKe 6taNeKolGers’ post-transaction share in the newly combined entity. Federal Communications Commission FCC 16-59 322 199. We maximize the joint licensing profits with respect to the post-transaction affiliate fee and solve the first order condition. The resulting post-transaction affiliate fee is as follows: ??,???? ? = ?(? ? 1)? + ?[???(???? ?? + ???? ?? + ???? ??) + ?(?? + ???)] 2? Taking the difference between ??,???? ? and ??,??? ? , we can derive an equation for the transaction-specific change in the affiliate fee charged to a rival: ??? = ?[???? ??(??? ? ??) + ???? ??(??? ? ??) + ??????? ??] 2? Data are available to estimate this transaction-specific change in the affiliate fee for all of the above parameters with the exception of the expected departure rate, d. We turn to a theoretical strategy for estimating the departure rate in the following section. (iii) Expected Departure 200. As in oXr analysis oI 7ime :arner CaEle’s R61s it is possiEle to calcXlate tKe e[pecteG subscriber departure rate from an MVPD given a loss of Discovery programming from currently observed affiliate fees. As we have just seen, the affiliate fees per subscriber that are realized for Discovery are a function of a bilateral bargaining process that takes into account expected revenues and costs to both parties. Because we observe these (pre-transaction) affiliate fees from existing licensing agreements, we can back out the subscriber departure rate that an MVPD would expect to see if Discovery programming is withheld. 201. We again utilize the NBE described above to derive a formula for the expected departure rate given a breakdown of bargaining. The focus here is on pre-transaction bargaining, as we do not have any reason to suspect that the transaction would impact the value of Discovery programming to subscribers and their resulting decisions to switch MVPDs due to a programming foreclosure. To derive the departure rate we need to re-write the pre-transaction Nash equilibrium affiliate fee formula to solve for d rather than ??. In effect, we are looking for the departure rate that results in a pre-transaction affiliate fee of ??,???, which is known, given the structure of optimal bargaining that we have laid out. Solving the above equation for d results in the following: ? = ?(? + 2??,???) ?(? + ??? +??) + ?????? ?? + ?????? ?? 202. In a later section, we will estimate expected departure rates and then utilize those results to derive an estimate of the potential transaction-specific change in the affiliate fee charged to a rival. (iv) Critical Departure 203. Lastly, we derive an equation for the critical departure rate necessary to make a foreclosure of Discovery programming profitable for the Stakeholders. This is the rate that makes the Stakeholders indifferent between foreclosing and licensing (i.e., the rate at which their net licensing profit is zero). To determine the critical departure rate, we compare their benefits of licensing Discovery, based on their equity interests, to the opportunity cost of profiting from subscribers that choose to leave a foreclosed MVPD Ior 1eZ CKarter As Ze are concerneG aEoXt tKe proposeG transaction’s eIIect on tKe 6taNeKolGer’s incentive anG aEility to Ioreclose Ze IocXs on tKe post-transaction critical departure rate. 204. Similar to the pre-transaction case tKe 6taNeKolGers’ total post-transaction gains from licensing Discovery are: ??????? ??????? = ?[(? + ??,???? )?? + (? + ???)(? ? ??)] Federal Communications Commission FCC 16-59 323 Their post-transaction opportunity cost of licensing Discovery is: ??????????? ??????? = ?[(? + ???)(? ? ??) + ?(? + ???)??] + ????[??(?? ? ???) + ??(?? ? ???) + ??(?? ? ???)]?? The critical departure rate is then the rate at which the licensing gains equal the foreclosure gains. Setting the above License and Foreclosure Revenue equations equal and solving for d results in the following critical departure rate: ????????? = ?(? + ??,????) ?(? + ???) + ???(???? ?? + ???? ?? + ???? ??) ( v) Empirical Analysis 205. We now turn to the estimation of critical and expected departure, as well as the expected change in affiliate fees, using Applicant and other data sources. We first perform the analysis at the DMA-level to estimate the impact of targeted foreclosure strategies that may seek to only deny programming in DMAs where it is most profitable for the Stakeholders. We then form estimates of the impact of a nationwide foreclosure strategy by averaging over the effects across DMAs. We additionally present results for a nationwide strategy that does not build up from a DMA-level estimation, though we discuss our hesitance to rely on such an approach. 206. The analysis examines the possibility of Discovery programming foreclosure of AT&T, DIRECTV, DISH Network, and Verizon. Given the recent combination of AT&T and DIRECTV, we also examine the possible foreclosure of both of these firms simultaneously. (a) Nationwide vs. Market-Level Estimation 207. The majority of the Salop Reply Declaration analysis focuses on nationwide foreclosure. While we agree that such a strategy is plausible, we take issue with the approach outlined in Salop Reply Decl. for examining the likelihood of nationwide foreclosure of Discovery. In particular, their analysis relies on a nationwide estimate of diversion from a rival MVPD to Charter, Time Warner Cable, and Bright House.219 Though our DMA-level approach similarly relies on diversion proportional to subscriber shares, we believe that the calculation of diversion rates is only plausible within-DMA and is inaccurate and largely uninterpretable when estimated on a nationwide basis.220 208. As an example, Salop Reply Declaration estimates the diversion from Verizon to Bright HoXse to Ee  percent EaseG on EotK companies’ national sKares oI viGeo sXEscriEers221 However, Bright House and Verizon only overlap in a single DMA--Tampa, Florida.222 In that DMA, the proportional diversion from Verizon to Bright House is 70 percent.223 Therefore, we can see how skewed the Salop Reply Declaration estimate becomes when calculating diversion from nationwide subscriber shares. It does not take account of actual footprint overlap and comes up with an arbitrary nationwide measure that does not reflect information about the actual DMAs in which these firms operate. This would be less of a concern if the analysis was not particularly sensitive to diversion rates; however, 219 See Salop Reply Decl. at paras. 21, 23, 25. 220 Salop Reply Decl. does estimate targeted foreclosure for a group of markets where the transaction may have the largest effect, though the calculation of diversion even for this subset of markets is again suspect. Furthermore, this analysis of post-transaction affiliate fees is based on nationwide diversion rates. See id., Appendix A, paras. 4-6 for discussion of nationwide diversion calculations. 221 To be specific, Salop Reply Decl’s Giversion Irom Veri]on to %riJKt HoXse is eTXal to %riJKt HoXse’s nationwide video subscriber share divided by 1 minus the share of all telcos (since telcos do not overlap) (0.02/(1- 0.132). See Salop Reply Decl., Appendix B, para. 21 222 SNL Kagan, 2Q2015. 223 Id. Federal Communications Commission FCC 16-59 324 Giversion plays a central role in GetermininJ tKe 6taNeKolGers’ net licensinJ proIits anG tKereIore tKeir effect on the NBE. 209. We therefore conclude that estimating foreclosure incentives on a DMA-basis, and deriving predictions across DMAs to arrive at a conclusion about a nationwide strategy, is a better approach than relying on dubious nationwide diversion measures. Our approach is equivalent to assuming that the Stakeholders negotiate separately within each DMA, taking specific market conditions into account when determining whether to foreclose and how much to charge. Estimates of a nationwide price effect can then be derived by averaging across DMAs, while the likelihood of nationwide foreclosXre can similarly Ee GetermineG Ey sXmminJ tKe 6taNeKolGers’ net licensinJ proIits across DMAs.224 ( b) Calibration and Model Sensitivity 210. Table 41 below presents our calibration of the model, including our estimates of pre- transaction affiliate fees and advertising revenues per subscriber, average MVPD video subscriber margins, and relevant equity shares. 225 Though we do not present them here, the diversion rates are calculated on a DMA-by-DMA basis from each rival MVPD to each of the Applicants.226 A number of assumptions are employed to arrive at the model inputs in Table 41. They are described in the accompanying footnotes ( 224 and 225), and their validity and robustness will be discussed throughout the empirical analysis. 224 We are not suggesting that Discovery actually charges an affiliate fee that varies across DMAs. Rather, we are assuming that negotiations take into account local marketplace conditions when determining an overall price to charge an MVPD. 225 We make a number of simplifying assumptions. These include assuming a linear loss of advertising revenue when foreclosing on a single rival. It can be argued that the appropriate relationship between advertising revenue and programming coverage is non-linear, with a loss of a large content distributor potentially leading to a steep drop in advertising rates. This would reduce the likelihood of foreclosure relative to our assumption. We also assume a constant affiliate fee for Discovery across MVPDs, as we do not have access to data that would allow us calculate the true rate for each firm. We apply the Salop Reply Decl. methodology to calculate this rate given SNL Kagan data for the per-subscriber price for each channel composing Discovery Communications. See Salop Reply Decl. Appendix A, paras. 8-11; SNL Kagan, 2015 Lastly, we apply the Salop Reply Decl. methodology to estimate a composite video subscriber profit margin for the Applicants (and arrive at the same number). See Salop Reply Decl. Appendix A para. 7. Additional margins data for rival DBS and Telco firms comes directly from third-party data requests. See AT&T Nov. 24, 2015, Updated Response to Information Request; Exhibit 13a; AT&T Dec. 23, 2015, Updated Response to Information Request, Ex hibit 10.1.1; Verizon Dec. 23, 2015, Updated Response to Information Request, Exhibit 10a.1. 226 A key assumption we make in calculating market-level diversion is that the diversion rate is equal to zero in DMAs where either the rival MVPD is not present, or the MVPD that is being diverted to (either Charter, Bright House, or Time Warner Cable) is not present. Federal Communications Commission FCC 16-59 325 Table 41 Model Inputs [ BEGIN HIGHLY CONF. INFO.] Ownership Variables Revenue Variables Margins (Net): [END HIGHLY CONF. INFO.] 211. We acknowledge and endeavor to point out certain limitations of the proposed Nash bargaining model. The model is sensitive to certain parameters, and we conduct a robustness check, as discussed below, to verify our conclusions. In particular, the substantial cross-DMA variation in diversion rates leads to large differences in estimates of the transaction-specific change in the per- subscriber affiliate fee. The model is similarly sensitive to video subscriber margins. Whereas Salop assumes the same [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] margin for all MVPDs, we use MVPD-specific video margins derived from Applicant and third-party data.227 These margins vary substantially by MVPD, and result in substantial differences across MVPDs in estimates of expected departure rates, and subsequently of affiliate fees. 212. This last point is significant, and raises the same issue that was discussed in the RSN analysis. Specifically, we would not assume departure resulting from a programming foreclosure to vary substantially across MVPDs, and we would certainly not attribute any variation to differences in video margins. The Nash bargaining model leads to such a prediction because it assumes that different MVPDs pay different prices for Discovery programming. However, due to data limitations we only see a single price Ior eacK oI Discovery’s netZorNs anG create a ZeiJKteG averaJe aIIiliate Iee across cKannels (presented in Table 41 above) to use in the analysis. 228 If the same affiliate fee is charged to all firms in the marketplace, then lower margin MVPDs must expect a higher subscriber departure rate relative to high margin competitors. If low margin firms expected the same departure rate, then they would be able to negotiate lower affiliate fees because their foregone revenue from a departing subscriber is lower. 227 See AT&T Nov. 24, 2015, Updated Response to Information Request; Exhibit 13a; AT&T Dec. 23, 2015, Updated Response to Information Request, Exhibit 10.1.1; Verizon Dec. 23, 2015, Updated Response to Information Request, Exhibit 10a.1. 228 As discussed in footnote 225 aEove Ze IolloZ 6alop Reply Decl’s approacK in creatinJ a composite aIIiliate Iee and advertising revenue measure for Discovery. Federal Communications Commission FCC 16-59 326 Consequently, the departure rates implied by equilibrium bargaining are higher for low-margin relative to high-margin MVPDs.229 213. As a robustness check, we therefore also present estimates derived from the model under the assumptions found in the Salop Reply Declaration (i.e., nationwide diversion rates and a constant video margin across MVPDs). 230 Though we have reservations about these assumptions, they are informative in that they allow us to, in effect, examine the comparative statics of certain parameters on the NBE. They also serve as a comparison to nationwide estimates derived from averaging across our market-level results. (c) Results 214. Incentive to Foreclose. We begin by examining whether the Stakeholders would have an incentive to foreclose Discovery programming in any DMAs to any of the MVPDs we study. While we do not present the results for all 210 DMAs, the table below presents the top twenty likeliest foreclosure tarJets Ior eacK 0V3D EaseG on a comparison oI eacK 0V3D’s e[pecteG GepartXre rate to tKe 6taNeKolGers’ critical GepartXre rate necessary Ior proIitaEle IoreclosXre in tKat D0A :e also present the average and median difference between expected and critical departure for each MVPD across all 210 DMAs. 229 For example, although DISH and DIRECTV have lower per-subscriber video margins, they are likely to receive a lower price for Discovery programming due to their larger nationwide subscriber base. If we knew this price, then the model would predict an attenuation of the effect of their video margins on the expected departure rate of their subscribers. 230 See Salop Reply Decl., Appendix A, para. 4-6 for discussion of nationwide diversion calculations, and Appendix A, para. 7 for discussion of margin data. Federal Communications Commission FCC 16-59 327 Table 42 Potential Foreclosure Targets [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] 215. The results indicate that foreclosure is not a profitable strategy. While the simultaneous foreclosure of AT&T and DIRECTV is the least unprofitable strategy, due mainly to the increased diversion to New Charter, the Stakeholders would still prefer to license in every DMA. Similarly, the Federal Communications Commission FCC 16-59 328 cross-market average and median differences in departure rates indicate that on a nationwide basis they would likely have no incentive to foreclose programming to any Telco or DBS rivals.231 216. The last two rows in Table 42 present the results from an estimation that relies on the Salop Reply Declaration assumptions regarding nationwide diversion and equal margins. 232 These estimates are not averaged across DMAs, but rather derived for the country as a whole. We can see that the nationwide analysis, with its dubious assumptions, reaches the same conclusion as the preferred market-level approach. 217. Price Effects. We now turn to an examination of the transaction-specific effect of the 6taNeKolGers’ oZnersKip interests on eTXiliEriXm aIIiliate Iees As previoXsly mentioneG Ze are aZare that Discovery affiliate fees do not vary by geography. Therefore we are not suggesting that Discovery would engage in the kind of DMA-specific price discrimination predicted by our Nash bargaining model. However, we find it plausible that the bargaining process between Discovery and an MVPD takes into consideration local DMA conditions when determining an overall pricing structure. Consequently we present and discuss these DMA-level results to inform our analysis and draw conclusions about the likely magnitude of any post-transaction price change for Discovery as a whole. 218. Rather than present results for each DMA, we again summarize the results in the table below. This table presents the distribution of the expected change in affiliate fees ( ??,???? ? ??,??? ) across DMAs. It additionally presents the average change, as well as the weighted average change with weights equal to the total number of video subscribers in each market. The last two rows again present the results of a nationwide analysis utilizing the Salop Reply Decl. assumptions. Table 43 Distribution of Change in Affiliate Fees [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] 219. For Verizon and AT&T, the median DMA is expected to see no change in their post- transaction affiliate fees. The average change for Verizon is about [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] , while for AT&T it is [BEGIN HIGHLY CONF. INFO.] 231 We only present a limited set of markets for Verizon because the calculated difference in departure rates only grows from the Palm Springs DMA estimate. At an estimated [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] percent difference, foreclosure should already be extremely unlikely. 232 See supra note 197. Federal Communications Commission FCC 16-59 329 [END HIGHLY CONF. INFO.] . However, the model predicts [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] for DIRECTV and DISH. That the median fee increase for DIRECTV and DISH is substantially lower than the mean suggests that the cross-DMA average fee increase is being driven by a smaller subset of DMAs where diversion to Time Warner Cable is high. Furthermore, since the weighted mean is below the unweighted, the DMAs with the highest post- transaction diversion to Time Warner Cable are relatively small in terms of total video subscribers. 220. Though these results are illustrative, we again acknowledge their sensitivity to variation in diversion and video margins. DBS providers are lower margin companies, and generally see higher diversion towards competitors if they are foreclosed from programming (due to their higher subscriber shares). This combination of factors leads to substantial predicted increases in post-transaction affiliate fees. As these results come directly from model assumptions regarding the structure of bargaining and the effect of margins and diversion on equilibrium departure rates and affiliate fees, they should be treated with some caution. In fact, we will later see that the modified NBE model, with our preferred bargaining framework, reaches a different conclusion with regard to the likely effect of the transaction on the price of Discovery programming. 221. In the second to last row we see how assuming a single nationwide diversion rate affects predicted post-transaction prices. Simultaneously assuming a single margin of [ BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] across MVPDs further reduces the expected price change; however, it is evident that nationwide versus DMA-level diversion is a first-order assumption with regard to the effect on predicted post-transaction affiliate fees. 222. We highlight the results at the one percentile: there are a handful of DMAs where the predicted post-transaction affiliate fee falls dramatically, and in fact drops below zero. These DMAs are unique in that they have no Time Warner Cable presence, but have a strong Bright House presence with concurrently large diversion rates from rival firms. Logically, DMAs outside of the Time Warner Cable footprint should see no change in affiliate fees because the Stakeholders receive no additional profit due to post-transaction diversion from a foreclosed rival to Time Warner Cable. However, the structure of the NBE indicates that affiliate fees are also affected by the change in equity from Charter and Bright House to New Charter. Advance/Newhouse owns 100 percent of Bright House pre-transaction, thereby receiving the full benefit of diversion in these DMAs. After the transaction, Bright House is a small part oI a mXcK larJer entity ZitK AGvance1eZKoXse’s anG tKereIore tKe 6taNeKolGers’ sKare ³GroppinJ´ to  percent 7KereIore tKe 6taNeKolGers’ incremental per-subscriber profit is substantially lower in the post-transaction world in DMAs where Bright House has a strong presence. Due to the structure of Nash bargaining, where the Stakeholders bargain on behalf of Discovery, this leads to a sharp drop in post- transaction affiliate fees. 223. This last result highlights another weakness of a bargaining framework that assumes the Stakeholders can simply bargain on behalf of Discovery to maximize their own profits. In what follows, we propose an alternative methodology that precludes the Stakeholders from undermining their own or Discovery’s EarJaininJ position 7Kis neZ approacK assXmes tKat tKe 6taNeKolGers can only aIIect bargaining to the extent that they would themselves prefer a programming foreclosure. In such a case, tKey ZoXlG Ee aEle to raise Discovery’s opportXnity cost oI licensinJ tKereEy improvinJ tKeir EarJaininJ position and allowing them to increase their price. c. Discovery Negotiates /everaging the 6takeholGers’ (TXity Interests (i) Model 224. We now present an alternative bargaining framework that does not assume the Stakeholders can simply bargain for Discovery and take actions that may put them at odds with Discovery shareholders. In this approach, Discovery bargains with an MVPD but attempts to leverage the 6taNeKolGers’ eTXity interests in CKarter anG %riJKt HoXse to improve its position 225. For this modeling approach, NBE affiliate fees are affected by the Stakeholders to the Federal Communications Commission FCC 16-59 330 e[tent tKat tKey are aEle to raise Discovery’s opportXnity cost oI EarJaininJ anG tKereIore tKeir reIXsal poZer 6Xppose tKat tKe 6taNeKolGers’ Moint net proIits per-subscriber from licensing are equal to ? . 7Ken Discovery’s net licensinJ profits are the following: ??? ??????????????? = [(? + ??) ? ?(? + ???)]?? +min[0, ???] 226. Where ?? is again the affiliate fee charged to the rival firm, while ??? is the average fee charged to all other MVPDs. To understand this specification, let us assume for simplicity that the Stakeholders have negative net licensing profits ( ? < 0), and that these profits are known. We then have the following NBE condition: max ?? {([(? + ??) ? ?(? + ???)]?? + ???) ? (????? ?????)} Taking the derivative, setting equal to zero and solving for ?? results in the following: ?? ? = ?(? ? 1) + ?(??? +??) ? ? 2 227. This modeling approach implicitly assumes that Discovery bargains to maximize its own licensing profits. Discovery does not consider how the affiliate fee it ultimately charges would affect the 6taNeKolGers’ Moint proIits Ze Go not consiGer tKe partial Gerivative oI ? with respect to ?? when taking the derivative above); Discovery only knows that as a result of bargaining, the Stakeholders would have some licensing profit per subscriber, and that if this profit is negative (i.e., if the Stakeholders have a positive net foreclosure profit), then Discovery can leverage it to raise affiliate fees. 228. :e Zant to NnoZ KoZ tKe 6taNeKolGers’ net licensinJ proIits aIIect tKe eTXiliEriXm affiliate fee. We therefore take the derivative of ?? ? with respect to ?: ??? ? ?? = ? 1 2 229. 7Ke resXlts are intXitive As tKe 6taNeKolGers’ net licensinJ proIits increase Eecome less neJative  Discovery’s neJotiateG aIIiliate Iee ZoXlG Grop )XrtKermore once tKe 6taNeKolGers’ net licensing profits become positive we can see that the affiliate fee would drop below the amount that would be negotiated if they had no influence at all (the case where ? = 0). Therefore, in this specification of the NBE, the Stakeholders would only improve Discovery’s EarJaininJ position iI tKeir net licensing profits are negative. Intuitively this is because the Stakeholders can offer any positive net foreclosure profits (i.e. , negative licensing profits) to Discovery to offset their gains from licensing. When ? is negative, the Stakeholders can commit to giving Discovery an amount ( ? ? ? ) to encourage IoreclosXre anG still Ee Eetter oII (ven iI Discovery Goes not Ioreclose it can leveraJe tKe 6taNeKolGers’ position to raise affiliate fees during negotiations anG increase EotK its oZn anG tKe 6taNeKolGers’ net licensing profits. 230. A key result of this model is that affiliate fees would only increase post-transaction under two conditions: The first is that the Stakeholders have negative licensing profits pre-transaction, and additional transaction-specific diversion to Time Warner Cable reduces these profits even further; the second is that the Stakeholders have positive licensing profits pre-transaction, but the transaction-specific diversion to Time Warner Cable is so large that their post-transaction licensing profits become negative (on a per-subscriber basis). 231. Given that we know pre-transaction affiliate fees, we have nearly all the data necessary to calcXlate tKe 6taNeKolGers’ net pre-transaction licensing profit. As a reminder, it is calculated as the following: ??? ??????? ??? = ?[(? + ??,??? ) ? ?(? + ???)]?? ? ?[????(?? ? ???) + ????(?? ? ???)]?? The post-transaction scenario is more GiIIicXlt as tKe 6taNeKolGers’ net proIit anG tKereIore ZKether the Federal Communications Commission FCC 16-59 331 model predicts they would influence negotiations) depends on the expected post-transaction affiliate fee. 7Kat is tKe 6taNeKolGers’ licensinJ proIit anG tKe e[pecteG aIIiliate Iee are enGoJenoXs 7Kis KXrGle can be overcome by simply assuming that they have negative post-transaction licensing profits and solving for the affiliate fee. If it is above 1.3 (the pre- transaction level tKen Ze NnoZ tKat it is in Discovery’s Eest interest to leveraJe tKe 6taNeKolGers’ eTXity interests GXrinJ neJotiations. Conversely, if it is below 1.3 then Discovery is better off simply assuming that ? = 0. 233 232. Formally this is equivalent to solving the above NBE assuming that ? ? 0. To be precise Ze solve tKe 1%( XnGer tKe assXmption tKat tKe 6taNeKolGers’ post-transaction licensing profits are negative and equal to the following: ??? ??????? ???? = ?[(? + ??,???? ) ? ?(? + ???)]?? ? ????[??(?? ? ???) + ??(?? ? ???) + ??(?? ? ???)]?? We know that the post-transaction affiliate fee is equal to the following: ????? ? = ?(? ? 1) + ?(??? +??) ? ????? 2 Plugging in the above net profit formula for ????? and solving for F results in the appropriate post- transaction affiliate fee, which can be compared to the pre-transaction tKresKolG to Getermine Discovery’s best course of action. 233. We apply this solution concept for all rival MVPDs in each DMA to determine post- transaction affiliate fees. Again, if the resulting fees are EeloZ  tKen Ze NnoZ tKat tKe 6taNeKolGers’ post-transaction licensing profits are in fact positive, and therefore they would have no influence on negotiations. Consequently the true change in affiliate fees would be zero. (ii) Departure Rates (a) Expected Departure 234. This modified NBE introduces an additional complication in the estimation of the appropriate expected departure rate from an MVPD. We can now calculate two separate rates ²one based on an equilibrium where the Stakeholders have negative licensing profits, and therefore can affect affiliate fees, and one where they have positive licensing profits and have no impact. 235. The formula for d when the Stakeholders have no impact on negotiations is arrived at by taking the derivative of the above NBE condition with respect to ?? when ? is set equal to zero, and then solving the resulting first order condition for d. It is as follows: ??? ???????????? ???????? = 2??,??? + ? ??? + ? +?? The formula for d when ? < 0 (S takeholders matter) is arrived at similarly, with the additional necessary step of plugging back in for ? in the first order condition and solving for d: ????????????? ???????? = 2??,??? + ? + ?(? + ??,???) ??? + ? +?? + ?(? + ???) + ????(?? ? ???) + ????(?? ? ???) 236. 7o Getermine ZKicK GepartXre rate is appropriate to Xse Ze calcXlate tKe 6taNeKolGers’ net licensing profits assuming d is derived from a scenario where they can influence negotiations. If net proIits are positive tKen Ze Kave a contraGiction 6taNeKolGers ZoXlG only Ee KXrtinJ Discovery’s bargaining position) and we instead use the d derived from a no-influence scenario. As we will see in the empirical section, there are only a handful of DMAs where the Stakeholders have negative licensing 233 This approach is, in effect, a proof by contradiction. Federal Communications Commission FCC 16-59 332 profits pre-transaction. This indicates that the appropriate expected departure rate calculation is almost always one in which the Stakeholders has no impact on equilibrium affiliate fees. ( b) Critical Departure 237. For the Stakeholders, critical departure rates are calculated exactly the same way as in the previous model (where they negotiate on behalf of Discovery). This is because we are still looking for a rate that makes them indifferent between licensing and foreclosure. Even if such a rate no longer means that Discovery would foreclose, as the Stakeholders do not have that kind of influence in this setting, it is still a rate we are interested in for analyzing individual foreclosure incentives. 238. :e aGGitionally calcXlate Discovery’s critical GepartXre rate 7Kis rate ZoXlG alZays Ee above that of the Stakeholders as Discovery receives all of the affiliate and advertising revenue rather than a share ?, and consequently has less incentive to foreclose. However, if enough subscribers switch to New Charter, and the Stakeholders commit to giving Discovery all net foreclosure profits, then even Discovery may find it profitable to foreclose. 239. 7o Getermine Discovery’s critical GepartXre rate in each DMA, we set its licensing revenue equal to its foreclosure revenue: [(? + ??,????) ? ?(? + ???)]?? = ???????? Discovery receives the full revenue from advertising and affiliate fees when licensing its programming, EXt Kas an opportXnity cost eTXal to tKe 6taNeKolGers’ net licensinJ proIits ZKen tKese profits are negative ( ????? < 0)  :e plXJ in tKe 6taNeKolGers’ proIit IormXla Ior ????? and solve for d: ?????????? ? = (1 + ?)(? + ??,????) (1 + ?)(? + ???) + ???(???? ?? + ???? ?? + ???? ??) (iii) Results 240. Using the new bargaining equilibrium derived above, we present a set of results similar to those presented for the previous model. The analysis is again conducted on a DMA level, and the calibration of key parameters remains unchanged.234 (a) Incentive to Foreclose 241. Table 44 and Table 45 below present the differences between expected and critical departure rates estimated from the new Nash bargaining framework. We again present the likeliest foreclosure targets, as well as average and median differences across DMAs. Table 44 presents the results for the Stakeholders, comparing expected departure to their critical departure rates. Table 45 presents results for Discovery as a whole. 242. As with the previous model, these results generally suggest that foreclosure is not in the 6taNeKolGers’ Eest interests 7Kere are KoZever  DIR(CTV DMAs and five DISH DMAs where the 6taNeKolGers’ critical GepartXre rate is EeloZ tKe e[pecteG GepartXre rate 7Kese are tKe D0As ZKere their net licensing profits are expected to be negative, and the potential for profitable foreclosure exists. However, the Stakeholders are not bargaining on behalf of Discovery and are unable to foreclose on their own. The question relevant to this model is whether foreclosure is so profitable that the Stakeholders are able to compensate Discovery fully in order to encourage the programmer to foreclose. If this were the 234 In the following set of results, we do not present estimates for the joint foreclosure of AT&T and DIRECTV. Due to the added complexity of the modified NBE model presented here, there is no way of calculating the joint effect of a programming foreclosure on both AT&T and DIRECTV without making an assumption with regard to their joint margin (the expected margin of the newly combined entity). However, when assuming that the joint marJin is eitKer A7 7’s or DIR(C7V’s cXrrent marJin or a simple averaJe oI tKe tZo oXr resXlts inGicate tKat Discovery would not find it profitable to either foreclose or raise affiliate fees on the newly combined entity. Federal Communications Commission FCC 16-59 333 case, both Discovery and the Stakeholders would be better off and would not violate their fiduciary duty to Discovery shareholders. 243. Table 45 presents the difference EetZeen e[pecteG GepartXre anG Discovery’s critical departure rate (as discussed in the previous section). We can see that even in the DMAs where foreclosure is profitable for the Stakeholders, it is still extremely unprofitable for Discovery as a whole. That is, the Stakeholders are not expected to make enough net profits from foreclosure to compensate Discovery for its expected loss in affiliate and advertising revenue. We therefore would expect that Discovery would not foreclose its programming in any DMAs. Federal Communications Commission FCC 16-59 334 Table 44 Potential Foreclosure Targets – Stakeholders [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Federal Communications Commission FCC 16-59 335 Table 45 Potential Foreclosure Targets – Discovery [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] ( b) Price Effects 244. Though foreclosure is unlikely, we again examine whether there is the potential for significant post-transaction increases in the expected affiliate fee paid by MVPDs to Discovery. Table 46 below presents the distribution of the expected transaction-specific change in affiliate fees across markets, as well as the cross-market average and weighted average change. Table 46 Distribution of Change in Affiliate Fees [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] 245. Contrary to the results derived from an NBE assuming the Stakeholders negotiate on Federal Communications Commission FCC 16-59 336 behalf of Discovery, when we assume that Discovery negotiates on its own, but leverages the 6taNeKolGers’ interests ZKere possiEle Ze IinG tKat tKe transaction-specific price effects are essentially zero.235 246. We believe that the assumptions underlying this model are more in line with how Discovery actXally EarJains ZitK 0V3Ds Jiven tKe 6taNeKolGers’ partial oZnersKip interests In tKe previous model, John Malone and Advance/Newhouse were able to have a significant effect on post- transaction prices even in markets where it was in their best interest to license. Furthermore, there were outlier markets where they actually hurt Discovery by negotiating a fee lower than the pre-transaction level. The modified NBE presented here corrects these issues by assuming a bargaining structure where the Stakeholders has limited influence, and where outcomes are incentive-compatible for Discovery and Discovery shareholders. We therefore conclude that the transaction is unlikely to either create a foreclosure concern or raise the post-transaction price of Discovery programming to any MVPDs. (iv) Critical Ownership Necessary for Foreclosure 247. We present a final analysis intending to demonstrate the equity ownership John Malone and Advance/Newhouse would need in New Charter in order for foreclosure to be a profitable strategy. We examine two separate equity ownership requirements: The ownership necessary for John Malone and Advance/Newhouse to jointly profit from foreclosure, and the ownership necessary for Discovery to profit as a whole. 248. To determine the ownership necessary for the Stakeholders to jointly prefer foreclosure to licensing, we simply set their post-transaction licensing profits equal to zero and solve for their share in New Charter: ?[(? + ??,????) ? ?(? + ???)]?? ? ????[??(?? ? ???) + ??( ? ???) + ??(?? ? ???)]?? = 0 ??? ???????????? = ?[(? + ??,????) ? ?(? + ???)] ?[??(?? ? ???) + ??(?? ? ???) + ??(?? ? ???)] Similarly, to find the critical ownership for Discovery as a whole, we set its net licensing profits to zero: [(? + ??,????) ? ?(? + ???)]?? + ????? = 0 Plugging in for ? then solving for ???, we have: ??? ????????? = (1 + ?)[(? + ??,????) ? ?(? + ???)] ?[??(?? ? ???) + ??(?? ? ???) + ??(?? ? ???)] :e can immeGiately see tKat tKe 6taNeKolGers’ necessary eTXity sKare in New Charter would need to be much higher for Discovery to find it profitable to foreclose than if they were simply able to act in their own best interest. 249. Below we present the results. Table 47 presents the cross-market distribution of threshold equity shares necessary for the Stakeholders to prefer foreclosure; Table 48 does the same for Discovery. 235 We present the full distribution of results even though there are essentially no price changes. This is in part to highlight that our modified NBE model does not result in reductions in the post-transaction affiliate fee in any markets. Federal Communications Commission FCC 16-59 337 Table 47 Distribution of NC Critical Ownership Equity – Stakeholders [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] Table 48 Distribution of NC Critical Ownership Equity – Discovery [BEGIN HIGHLY CONF. INFO.] [END HIGHLY CONF. INFO.] 250. The average results across markets reported in Table 47 indicate that the Stakeholders would need to jointly own well over 100 percent of New Charter to consider a foreclosure of Discovery programming. However, the median critical ownership share is significantly lower. There are DMAs where the critical necessary ownership share is below the 14.7 percent the Stakeholders would have post- transaction, which is in line with our previous result that they would have a post-transaction incentive (but not ability given our preferred bargaining framework) to foreclose in a handful of areas. 251. Again, the relevant question is at what point the Stakeholders could expect to generate enough profit from foreclosure such that Discovery is fully compensated. Table 48 presents these results, and generally indicates that such a scenario would require ownership equity exceeding 100 percent, which is impossible. 236 We therefore conclude that not only is foreclosure unlikely given expected post- transaction equity, but it is unlikely even at ownership levels far exceeding those resulting from the transaction. 236 We similarly find necessary critical ownership levels exceeding 100 percent for the joint foreclosure of AT&T and DIRECTV under reasonable assumptions of a joint margin for the newly combined entity. Federal Communications Commission FCC 16-59 338 STATEMENT OF COMMISSIONER MIGNON L. CLYBURN APPROVING IN PART AND CONCURRING IN PART Re: Applications of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership for Consent to Assign or Transfer Control of Licenses and Authorizations, MB Docket No. 15-149. In the nearly 12 months since Charter Communications announced its intention to transfer its license along with those of Time Warner Cable and Bright House Networks to form New Charter, I have heard from many parties, including those that support, oppose or are advocates for conditions they feel would protect consumers and prevent harms to competition. Like previous transactions presented during my tenure, I have maintained my focus on the likely consumer impact, the competitive implications, the effect on independent and diverse programming and the importance of expanded deployment of broadband and access to affordable services. While the Order seeks to address these goals by requiring a series of public interest benefits, which I do applaud, I continue to have concerns in key areas. Let me begin by discussing the Applicant’s proposed discounted broadband service offering for low-income subscribers. I have been steadfast in my commitment to programs that are not only accessible to those most in need, but offer the speeds necessary for those currently trapped in the “digital darkness” to take advantage of all the Internet has to offer. The pledge to provide stand-alone broadband service with download speeds of 30 Mbps, in excess of the FCC’s baseline definition for those who qualify for the national school lunch program and SSI, is highly commendable. This should ensure that program participants who sign up for the service will be able to unlock the Internet’s full potential, including access to advanced health services, education, the ability to apply for jobs, and so much more. At the same time, there is a subset of low-income households we must never lose sight of: adults without school age children, veterans and persons with disabilities. That veteran from Wyoming who finds it challenging to access VA benefits or schedule a medical appointment online, or that disabled woman from Illinois who has difficulty searching and applying for a job could miss out on the benefits of this affordable broadband program. Nonetheless, it is indeed a significant step in the right direction and New Charter’s commitment to exceed its initial enrollme nt targets in the 18 months following the close of the transaction, to ensure that the program truly meets the needs of its intended beneficiaries, is to be commended. Second, in an effort to bridge the communications divide, I am pleased that the Order requires broadband builds, with speeds more than double the FCC’s baseline definition, to two million additional locations. According to the Commission’s most recent statistics, 34 million people still lack access to download speeds of at least 25 Mbps. This condition makes a small, but meaningful dent in our effort to bring broadband to all Americans. As the soon-to-be, second largest provider of broadband Internet access, with service to approximately one-fifth of households, I believe that New Charter should be required to build-out to more households with a specific focus on reaching those homes deemed ‘unserved.’ Federal Communications Commission FCC 16-59 339 Third, noticeably absent from the Order, though much discussed, is a condition on stand-alone broadband. While Charter currently offers a competitively priced stand-alone broadband service, nothing in this Order would prevent the elimination of this product. Why does this matter? In a world in which consumers are increasingly cutting the cord and relying on online video distributors (OVDs), a competitively priced, stand-alone broadband offering ensures consumers truly have a choice in where they get their video programming. I appreciate Charter’s commitment to me that they have no intention to eliminate its competitive stand-alone broadband offering. Fourth, like many of the parties that commented on this transaction, I am concerned about the barriers that continue to exist when it comes to i ndependently owned and diverse programming networks. The settlement reached between DOJ and the Applicants addresses one of the barriers I frequently hear about: the use of alternative distribution method (ADM) clauses which programmers’ claim thwart their ability to distribute content through online platforms. At the same time, independently owned-and- operated programmers point to other basic roadblocks such as simply being able to acquire carriage or difficulty receiving fair or reasonable contract terms. While I acknowledge the commitments made by Charter through the January 2016 Memorandum of Unde rstanding, my preference would have been to see these issues addressed through a condition that requir es the company to add additional independently owned-and-operated networks that are not currently affiliated with New Charter. Finally, I remain concerned by the large number of outstanding local franchise agreements across Time Warner Cable’s territory. Earlier this year, I heard from the mayor of a community that has been in a “hold over” franchise status for almost a decade! The cable industry prides itself on its commitment to local communities, yet the absence of PEG funding for this particular city not only seems contrary to this claim, but has left them with no public access studio and their city council chambers without the video equipment needed to allow its citizens to watch t hose proceedings from home. Although the Order does not condition the transaction on reaching a resolution on these agreements, I am happy that New Charter will act expeditiously to renew and settle these outstanding agreements. For all of the above reasons, I vote to fully approve the conditions reached in this transaction, but because I am of the view that there are elements that should have gone further, I concur on the underlying Order. Federal Communications Commission FCC 16-59 340 DISSENTING STATEMENT OF COMMISSIONER AJIT PAI Re: Applications of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership for Consent to Assign or Transfer Control of Licenses and Authorizations, MB Docket No. 15-149. It is quite clear the Commission’s majority does not believe that the merger of Charter, Time Warner Cable, and Bright House is in the public interest. This Order spends over 100 pages detailing the harms that would allegedly result from the transaction. And when the discussion turns to the merger’s purported benefits, the words “modest” and “minimal” are used over and over again. So why is the Commission approving this merger? Because it has turned the transaction into a vehicle for advancing its ambitious agenda to micromanage the Internet economy. Today, the Commission forbids Charter from adopting any usage-based pricing, even forbidding the company from providing discounts to customers who use little data. It mandates settlement-free interconnection and actually goes so far as to adopt a four-page document setting forth the details of Charter’s interconnection requirements. It embraces rate regulation, ordering Charter to offer a 30/4 Mbps broadband service to certain customers for $14.99 a month and even detail s how many households must purchase this service. Notwithstanding its alleged concern about Charter’s post-merger size, it requires the company to become even bigger by conscripting Charter to build out to two million additional locations (overbuilding one of those two million). It requires Charter to report to the Commission the latitude, longitude, address, and 15-digit census block code of every one of those two million locations, along with the date the company passes each location and begins to offer service with 60 Mbps download speed. It installs an independent monitor within the company to ensure compliance with these onerous conditions. And it imposes many of these conditions for the better part of a decade. To be sure, one might ask: If Charter is willing to comply with these regulatory decrees as the price of getting this transaction approved, why should an FCC Commissioner object? In the AT&T/DirecTV merger, for example, I voted to approve in part, notwithstanding my opposition to numerous conditions that had nothing to do with that transaction. But at a certain point, a difference in degree becomes a difference in kind. In this case, we have reached that point. In particular, this Order sets the stage for the Commission to target paid peering and usage-based pricing on an industry-wide basis. The Order makes clear the Commission’s view that paid peering and usage-based pricing are inherent threats to online video distributors. For example, the Commission finds “that by their very nature , data caps and [usage-based pricing] in use by wired [broadband Internet access service] providers currently significantly and chiefly affect online video traffic.” 1 And if these practices are so harmful that Charter must not be allowed to engage in them, it is only a matter of time before no ISP will be permitted to do so.2 1 Order at para. 85 (emphasis added). 2 The writing is on the wall. See, e.g., John Eggerton, Wheeler: Charter Conditions Create Competition Zone, Multichannel News (Apr. 28, 2016) (stating, pre-adoption, that w ith full range of non-merger-specific conditions, “we created a seven-year innov ation and competition zone”), available at http://www.multichannel.com/ news/finance/wheeler-charter-conditions-create-competition-zone/404539. Recall, too, that in this area the agency has dutifully changed its tune when special interests have demanded FCC intervention. Compare, e.g., Statement of Tom Wheeler, November 2015 Open Commission Meeting Press Conference, http://fcc.us/1XhtV4X at 47:27-47:42 (stating, with respect to T-Mobile’s Binge On offering , that “we said that we were pro-competition and pro- innovation. Clearly this meets both of those criteria. It’s highly innovative and highly competitive”), with Letter from Roger Sherman, Bureau Chief, Wireless Telecommunications Bureau, to Kathleen Ham, Senior Vice (continued….) Federal Communications Commission FCC 16-59 341 And consider just how radical the Commission’s ap proach is. Paid interconnection arrangements have long been commonplace in the Internet economy. And without government regulation, prices have fallen dramatically. Indeed, transit rates have fallen by more than 99% over the past two decades. Or consider usage-based pricing. A fundamental tenet of our free-market economy is that you will often have to pay more to purchase more of a good or service. Not every restaurant is an all-you-can- eat buffet. The more clothes you buy at a department store, the more that you have to pay. And this is even true with respect to basic necessities. The more water or electricity that you use at home, the higher your monthly bill will be. But today, the Commission signals the beginning of the end of this concept in the online world. And I suppose it has a populist appeal. At first, many consumers are happy to learn that they can use as much data as they want without paying more. Indeed, I suspect that people would be excited at first if they were told that the government was mandating that grocery stores charge customers a single fee and allow them to leave with as much as they could carry away. But soon, many would feel the burn once they saw the significantly higher price of admission—especially those who didn’t want to buy much food. And the same is true with respect to broadband. When the government forbids usage-based pricing, it is requiring Americans who use less data to subsidize those who use more data. The elderly woman on a fixed income who uses the Internet to exchange e-mail messages with her grandchildren must pay more so that an affluent family watching online HD video for many hours each day can pay less. This isn’t fair, and it cer tainly isn’t progressive. Indeed, the record makes clear that online video places enormous demands upon the networks of Charter and Time Warner Cable and increases their capital costs. Who should bear those costs? The Commission’s view is now that all customers must do so equally. As a result, the natural response of ISPs will be to increase prices on all consumers in order to amortize the cost of serving a bandwidth- hungry few. This is the paradigmatic case of the 99% subsidizing the 1%. My view is that decisions like this are best made by the private sector. Some companies may choose to offer usage-based pricing; others may not. But the government shouldn’t rule out all but one business model. It is certainly not per se unreasonable for an ISP to ask high-bandwidth users to shoulder more of the burden than low-bandwidth users. Turning to other conditions set forth in the Order, the Commission doesn’t bother to make any effort to explain how its regulator y grab-bag has anything to do with addressing any transaction-specific harms. In fact, it virtually revels in the disconnect. For example, in one paragraph, the Commission dismisses Charter’s proposed low-income broadband program as not being “a transaction-specific benefit.” 3 But in the very next paragraph, the Co mmission proposes to impose its own low-income broadband as a condition of the transaction! 4 And what about the program’s specifics? The Commission requires Charter to offer a 30 Mbps service for $14.99 a month to qualifying low-income households. But just last year, the Commission required AT&T to offer a 10 Mbps service for $10.00 a month. And earlier this year, the Commission decided that our Lifeline program should only support 10 Mbps services. Where do these numbers come (Continued from previous page) President, Government Affairs, T-Mob ile (Dec. 16, 2015) (stating that “con cerns have been expressed about the Binge On program” and initiating FCC investigation into Binge On in order “to understand how this service relates to the Commission’s” net neutrality rules), available at https://assets.documentcloud.org/documents/2648554/Letter- to-Kathleen-Ham.pdf. 3 Order at para. 452. 4 Order at para. 453. Federal Communications Commission FCC 16-59 342 from? Who knows? There is no rhyme or reason. They just reflect whatever tribute a Commissioner (or three) is inclined to demand at a particular point in time for approving a merger. And what about the build-out requirements? What do they have to do with the transaction? Nothing. The Commission simply finds that “the public would benefit from increased residential buildout, post transaction” and decrees that Charte r shall “pass, deploy, and offer” broadband service “capable of providing at least a 60 Mbps download speed to at least two million additional mass market customer locations within five years of closing” and that at least one million of these new customer locations must be “outside of its footprint where any provider other than New Charter offers 25 Mbps or faster” broadband service. 5 Where do these numbers come from? Why two million new locations, as opposed to one million or three million? Again, there is no explanation. But that isn’t surprising, for there is none—at least nothing that has any rational connection with the merits of this transaction or public policy. Rather, the figures simply constitute the most that the Commission could demand of Charter before the company would walk away from this merger. Moreover, the build-out requirements highlight the Order’s incoherence. On the one hand, the Commission imposes a number of conditions supposedly due to concerns about harms that will result from Charter’s post-merger size. But on the other hand, the Commission imposes build-out requirements that will have the inevitable effect of making Charter larger than it otherwise would be! And unless Charter chooses to exclusively overbuild areas served by Comcast, which I find highly unlikely, Charter’s increased broadband market share will come at the expense of smaller competitors. So one of the Commission’s answers to the harms caused by incr eased concentration is . . . to further increase concentration? It is as if the Commission’s left hand doesn’t know what its far-left hand is doing. To be clear, I don’t blame Charter for agreei ng to all of these conditions. The Commission had the company over a barrel, and Charter decided that it was in its interest to accede to the Commission’s demands. As a Commissioner, it’s not my place to second-guess a company’s assessment of its self- interest. But it is my job to safeguard the public interest. And the fallout from this Order will not be limited to Charter alone. Indeed, the negative externalities of this Order are the primary reason why the Commission is adopting it. This Order moves the Commission one step closer to an across-the-board ban on usage-based pricing. This Order moves the Commission one step closer to an across-the-board ban on paid peering. This Order moves the Commission one more step down the path of micromanaging where, when, and how ISPs deploy infrastructure. And this Order is another significant step away from the free-market policies that Democrat- and Republican-led FCCs alike applied for decades—policies that made our Internet economy the envy of the world. Some might say that all of this couldn’t possibly happen. But these are the same people who confidently predicted that the Commission wouldn’t classify broadband Internet access service as a Title II, common-carrier service. These are the same people who said, after the Title II Order was adopted, that zero-rating plans would be safe from Commission attack. And these are the same people who assured us that the Commission had no interest in regulating broadband rates. In short, recent history has shown that when it comes to Internet regulation, the conventional wisdom and agency assurances have been quite wrong. So for me, this Order is a bridge too far. The Commission is not approving this merger because it believes that the merger is in the public interest—that is, because the inherent benefits outweigh the 5 Order at paras. 387–88. Federal Communications Commission FCC 16-59 343 harms. Rather, it is approving the merger because it presents an opportunity for the Commission to check more items off its regulatory wish list. This brings me to a final point, one I’ve pondered for some time. The brazenness of this Order raises a serious question: What should be the FCC’ s role in reviewing transactions? This is how I currently see it, informed by years of experience bot h at the U.S. Department of Justice’s Antitrust Division (where I worked on mergers and acquisitions ) and at the Federal Communications Commission. Here’s how things work at the Department of Justice. Parties submit pre-merger notification documents pursuant to the Hart-Scott-Rodino (HSR) Act. Of particular importance, they submit what are known in the antitrust world as “4(c)” and “4(d)” documents—materials that shed light on how the merging parties themselves see the effects of the proposed deal. The Division staff review the HSR documents, especially the 4(c) and 4(d) documents , and determine whether more searching scrutiny is required. If it is, the Division issues what is know n as a “second request,” a more detailed request for documents. Ultimately, the Division staff analyze all the evidence and soberly detail the aspects of a transaction. What is the product or service market? What is the geographic market? Who are the competitors? What are their market shares? What effect would consummation of the transaction have on competition? What are the competitive harms? Are there efficiencies that might be recognized? Could the combined entity engage in vertical restraints of trade? Are any divestitu res necessary in instances of horizontal overlap? And so on. The career staff de termine what the resolution should be and make a recommendation to the Assistant Attorney General of the Antitrust Division. Based on that recommendation, the Assistant Attorney General then decides upon the Justice Department’s approach to the deal. And the Justice Department is accountable to the courts should it seek to block a merger or impose conditions. This professional process has been well-established for decades. Here’s how things work at the Federal Communicat ions Commission. Parties file the requisite notification papers. Then, they wait for the FCC to start the 180-day “shot clock,” which kicks off the agency’s review and sets the aspirational deadline for decision. (Sometimes, the parties feel compelled to hire a politically connected insider to help get that clock started.6) Once the shot clock starts, the staff’s review begins. Unlike at the Department of Jus tice, the process is politicized from the beginning; the FCC staff report to the Chairman’s Office and ar e often overseen directly by someone loyal to the Chairman’s Office. Separately, and more significantly , the parties are required to negotiate behind closed doors with the Chairman’s Office or Office of General Counsel (which, again, reports directly to the Chairman’s Office) on conditions to be attached to th e deal. Months can go by without any transparency, internal or external, regarding the ornaments that the Chairman’s Office is seeking to place on the Christmas tree. Even Commissioners have no insight as a matter of right, and parties have told me that they are explicitly warned not to tell anyone else at the Commission about the conditions the Chairman’s Office is seeking. And when it comes to those conditions, there is no need for them to be relevant to the merger (“merger-specific,” in antitrust parlance). Indeed, that’s often why the Commission blows so far past the ill-named “shot clock”; it takes time to get the parties to “voluntarily” submit to the forced extraction of every ounce of extraneous “value.” Once the Chairman’s Office agrees with the parties on what the resolution will be, FCC staff write an order implementing the Chairman’s deal. That order is then sent to other Commissioners’ offices, with the Chairman’s favorable vote sending the unmistakable message that the order is a fait accompli—take it or leave it, with perhaps a little latitude to accommodate a few more goodies requested by a member of the majority. Given how badly broken the current merger review process has become at the FCC—how rife it is with fact-free, dilatory, politically motivated, non-transparent decision-making—I believe Congress should implement major reforms of the procedural and/or substantive rules governing the Commission’s assessment of transactions. Either the FCC should employ something akin to the Antitrust Division’s 6 See, e.g., http://apps.fcc.gov/ecfs/document/view?id=60001120867 . Federal Communications Commission FCC 16-59 344 process and standard of review (which, of course, coul d yield an objection of redundancy) or its authority in this area should be significantly restricted (no serious, knowledgeable observer will maintain that the professional staff at the Justice Department or Fe deral Trade Commission do not or cannot adequately protect the public interest). Whatever the legisl ature’s preferred approach, the status quo at the FCC when it comes to transactional review cannot continue. The ideologically inspired extortion has to end. In sum, I do not believe that the adoption of this Order is in the interest of the American people. I therefore dissent. Federal Communications Commission FCC 16-59 345 STATEMENT OF COMMISSIONER MICHAEL P. O'RIELLY APPROVING IN PART, CONCURRING IN PART, AND DISSENTING IN PART Re: Applications of Charter Communications, Inc., Time Warner Cable Inc., and Advance/Newhouse Partnership for Consent to Assign or Transfer Control of Licenses and Authorizations, MB Docket No. 15-149. The item before us approves the applications of Charter Communications, Time Warner Communications, and Advance/Newhouse Partnership (also known as Bright House) to transfer Commission licenses and authorizations, subject to conditions. After reading the item, conducting ex parte meetings, and reviewing the record, I vote to approve the transfer of control. This notwithstanding, I concur on certain conditions imposed on the combined entity and reject others that either exceed the Commission’s authority or the bounds of the applications before us. At its core, the idea to merge two or more firms is generally a business decision. A company that has been risking shareholder or private capital to produce a good or a service to the American people may determine that economies of scale, strategic synergies or market realities justify or necessitate it pursuing the acquisition of another company or companies. Af ter reaching a meeting of the minds among differing company leaders, the entities may be required to seek approval from regulators to complete the transaction. At the FCC, the “hook” is the requirement to obtain our consent to transfer licenses. That’s when the real fun begins. One would hope that, as stewards of the public trust, all federal regulators that oversee different aspects of American commerce would be held to certain standards and required to engage in reasoned decision making. Sadly, that is not always the case, as the application-specific review process envisioned by Congress bears little resemblance to the all-encompassing merger review now employed by the Commission in its never-ending attempt to gain concessions from the applicants in order to promote certain overarching social policies and set “precedent” whenever presented with such an opportunity. And the larger the size and profile of a merger, the bigger the opportunity. In this specific case, the Commission has certain responsibilities under the statute. In particular, we are charged with reviewing the transfer of wireless licenses (i.e., cable television relay service licenses, satellite communications licenses, and private wireless licenses) and section 214 authorizations to ensure that the transfer is in the “public interest, convenience, and necessity.” 1 This review may include, under section 310(d), whether the combined entity has the citizenship, character, technical, financial, and other qualifications to operate the licenses. 2 Here, the transfer of licenses and authorizations would not violate our rules and the new licensee, New Charter, seems adequately qualified to hold them under section 310 and other provisions.3 Over the years, however, the Commission has considered the potential impact of a merger on the local marketplace, and more specifically, competition within specified geographic and product markets, to determine whether a transaction serves the public interest. Others argue that this function should be left 1 47 U.S.C. § 310(d); see also id. § 214(a) (stating that the Commission must determine whether the acquisition is in the “public convenience and necessity.”). 2 Id. § 308(b). 3 The amount of debt the merged company will maintain is a legitimate concern given the past experience with cable companies over-leveraging and allowing company plant to deteriorate. This concern, however, is not significant enough in this case to warrant the denial of these applications. Federal Communications Commission FCC 16-59 346 to the Department of Justice as part of its antitrust review. 4 Despite this legitimate debate, it would seem irrelevant, in this instance, because the three companies do not operate in the same markets today for video, telephony or broadband. In fact, there is de minimis overlap in service territories or local franchise footprints. As acknowledged in the item, “[a]s an in itial matter, we note that because there is almost no overlap in the local competition distribution footprints of Charter, Time Warner, and Bright House, the proposed transaction does not result in any direct reduction in local competition for video or BIAS.” 5 Having found no issues yet, the Commission turns to a questionable and non-statutorily-driven approach, examining the potential influence or future hypothetical incentives of New Charter based on the combined size, facilities owned or relationships held, and imposing conditions to “remedy” perceived “harms.” This approach is typically reserved for the largest or most controversial transactions, highlighting that it is not a process required by law, but rather a Commission-driven exercise to use transactions as vehicles to accomplish policy goals that it could not achieve through rulemakings alone. To achieve the desired results, the Commission determines that the combined company would have the ability to dictate favorable outcomes against other entities because of the merged company’s leverage. Under almost every measurement, the entities that will combine to form New Charter would seem hard pressed to influence anything, especially considering the ever-changing services which they offer and markets in which they operate. However, for various reasons, the applicants offered a bevy of conditions to counter any potential “harm” from the me rger. Rejecting most of the applicants’ arguments on the benefits of the merger itself, the staff recommendation rests mostly on these additional conditions, as modified by staff, and their enforcement going forward as justification for approving the applications. Indeed, some of the conditions are not even merger-specific, much less license-specific. In most circumstances, I find it difficult to argue against merger conditions that a company seeks to have imposed on itself. While it can be debated as to whether voluntary commitments are truly voluntary in light of the Commission’s process, if a comp any is willing to constrain itself, and even if the Commission makes modifications that the company finds agreeable, I am hard pressed to see a need to stop these from going forward, even if I strenuously disagree with the reasoning, arguments, legal justification, wording, substantive direction or outco me. To put it more simply, if a company wants to shoot itself in the metaphorical foot, who am I to stop it from doing so? As such, I concur with the conditions contained in the item to the extent that they are agreed upon by the applicants, except as outlined in the subsequent paragraphs. Where I disagree and cannot acquiesce are those circ umstances when conditions impact a merged company in a way that harms or undermines its ability to serve subscribers, or the Commission seeks to establish new precedent that is broader in scope than the application before it. Moreover, I cannot support conditions that are not transaction-related. Using the same metaphor, a company shooting its own foot becomes extremely problematic to me if it leads to the Commission taking the gun and inflicting similar wounds on other companies. Examining the proposed conditions in detail and reading the corresponding reasoning for each condition reveals some very disturbing directions. First, the item conjures up the threat that New Charter could impose data caps and usage-based pricing to harm online video distributors, more commonly referred to as over-the-top video providers. While the validity and length of the outright prohibition of 4 It is fairly surprising and disappointing to see the Commission represent that it has worked hand and glove with the Department of Justice on the merger app lication. Such a “partnership” is nowher e to be found in law. In fact, the creation of the Commission as an independent agency allows it to act outside of the bureaucratic entanglement of any current Administration. To coordinate the review process in order to divide up the bounty of concessions from the applicant is not proper or appropriate. Perhaps this should be expected when the personnel used by the Commission to head its merger review team is on loan from the Justice Department. 5 See supra ¶72. Federal Communications Commission FCC 16-59 347 data caps and usage based pricing for seven years is highly dubious, I disagree with the notion and verbiage that these pricing mechanisms should be deemed problematic in other circumstances. And yet, the item repeatedly condemns such practices for the industry as a whole.6 The Commission has scant evidence that New Charter could or would implement data caps or usage-based pricing, especially since none of the applicants utilize them now. The bigger issue is that the Commission seems to suggest that any large cable company should be prevented from doing the same, an answer to a question which the record was not designed to resolve. Therefore, any statements or conclusions to that effect are overblown and inappropriate. Whether one likes data caps and usage-based pricing in theory is irrelevant, and the Commission’s dicta has no place in this proceeding. Turning to the creation of New Charter’s “L ow-Income Broadband Offerings,” the item is refreshingly honest in admitting that this condition has nothing to do with the transaction itself. In fact, the item states, “We find that Charter’s proposed low-income broadband program is not a transaction- specific benefit. We agree with DISH that any of the Applicants could offer a low-income broadband program absent the transaction. Indeed, Bright House already offers such a program.” 7 Nonetheless, the item then ups the ante by increasing the enrollment targets and enforcement mechanisms. Ultimately, it is added as a condition for the merger approval on the theory that it is a counterweight to the public interest harms of the transaction. But these changes don’t make the program any more relevant to the transaction than it was when the applicants made the initial offer, nor does the item even attempt to justify this as a remedy to any transaction-specific “harm.” As such, it is merely the price of getting a merger approved and a giveaway to satisfy a political goal of some people at the expense of everyone else. 8 It is highly inappropriate for the Commission to include items or conditions that are not part of the transaction itself as a price for approval. In fact, the Commission has made a point of avoiding the practice in some prior transactions, even appearing critical of outside parties that sought unrelated concessions.9 I truly hope that this is an aberration – perhaps an attempt to make the most of the last major transaction to come before the current Commission. But if such brazen politics are going to rule the day, why not just ask for cold hard cash? Would $300 million act as a sufficient counterweight? Can we establish a special bank account for the Commission to collect such payoffs? If a company offered to build homeless shelters or donate fire trucks to every local franchise authority, would such offers count as counterweights too? Is there any 6 Examples of such broadly applicable language include: “BIAS providers such as New Charter can hinder third- party online video competition through practices such as data caps, usage-based pricing (UBP), and discriminatory stand-alone residential BIAS pricing.” ( see supra ¶ 48); “We find that the record in this proceeding demonstrates that data caps and UBP can harm online video completion.” ( see supra ¶ 84); “We find that by their very nature, the data caps and UBP in use by wired BIAS providers currently significantly and chiefly affect online video traffic.” ( see supra ¶ 85). 7 See supra ¶ 452. 8 Id. (“Nevertheless, we find that the public would benefit from programs designed to bridge the digital divide.”). 9 Applications of AT&T Inc. and DirecTV for Consent to Assign or Transfer Control of Licenses and Authorizations, MB Docket No. 14-90, Memorandum Opinion & Order, 30 FCC Rcd 9131, 9203 ¶ 191 (2015) (stating, in response to allegations of potential harms, that “[t]o the extent that there potentially is an industry-wide public interest harm associated with volume discounts as such, it has not been established on the record before us, and it would be beyond the scope of this proceeding in any event as it is not transaction specific.”); id. at 9229 ¶ 253 (finding that concerns about the set-top box market “raise broader regulatory policy questions that are more appropriately addressed in the rulemaking context” and that, “[g]iven the lack of a transaction-related harm, . . . [the Commission] decline[d] to adopt the conditions requested by the commenters or to take other action in this context.”). Similarly, the Commission went out of its way to argue that an offer made by an applicant to deploy fixed wireless local loop service to 13 million households in mostly rural areas within four years was not shown to be transaction specific. See id. at 9272-9273 ¶¶ 370-375. Federal Communications Commission FCC 16-59 348 limitation to the counterweight calculation? Once delinked from the transaction itself, such conditions reside somewhere in the space between absurdity and corruption. Moreover, non-transaction-specific conditions such as these actually cause harm to the applicant’s existing subscribers. Specifically, this new program will result in increases in the cost of cable and broadband service for every current cable subscriber of the three companies, especially impactful for those living just above the poverty line . What an amazing result: the item actually makes service more expensive for those that tend to rely on certain services, such as video services, to the greatest degree. I object. Similarly, the build-out requirement conditions ar e equally objectionable under the same premise. This requirement harms the existing subscribers of both New Charter and the other provider(s) to be overbuilt. In particular, the item would force the merged company to initiate service for at least one million residents in areas where another broadband provider already exists a nd is offering broadband service above a certain speed. There are so many problems with this concocted “remedy” but I will focus on just a few. First, it diverts capital that the merged company could use to improve service to their existing customers or expand service to households without advanced services, harming these consumers. In effect, current subscribers are going to be forced to pay for the social experime nt of government-ordered competition. Second, it artificially introduces competition into a nearby market of another provider at the expense of that other provider’s customers. Absent this mandated condition, the market conditions would determine whether the merged company entered those markets, meaning that the condition will force the existing provider to divert capital from deployment and other pursuits in order to fight a governmentally- mandated competitor through such things as increased marketing costs. Third, it burdens New Charter with greater leverage and debt costs, potentially threatening the viability of the company, to pay for building out facilities to these areas. Unless this expansion is a smashing success, it unnecessarily puts at risk the capital of company shareholders, which tend to be pension holders and average consumers through one investment vehicle or another. Having had the audacity to add so many unnecessary, harmful and/or unrelated conditions to the approval of the merger, the Commission does a further injustice by delegating decisions about the length of certain conditions to staff. Specifically, the Wireline Competition Bureau would be authorized to determine whether the interconnection regime and the data cap and usage-based pricing conditions can be sunset after five years, instead of the designated seven. If these conditions are so vital – to the degree that without them the merger can’t be approved – how can the decision whether to maintain them be delegated to staff as if it were a commonplace waiver request or license modification? It is not the proper role of the staff of any bureau to decide major policy outcomes such as this. Further, this Commission’s excessive abuse of delegated authority undermines our credibility and circumvents the intention of Congress. At the same time, it weakens the legitimacy of the conditions and places even more power in the hands of the Chairman, who effectively oversees each and every bureau decision. Why does the current FCC leadership find it necessary to usurp the duly appointed rights of Commissioners that will preside here five years from now? It should be no surprise that I object to this illogical and unwise delegation. *** Under the conditions imposed by this Order, New Charter will be carrying a daunting regulatory load from its inception. In an ostensibly free-market economy, no enterprise should ever be hamstrung at the starting line in such a manner, but it is my hope that the company will be able to overcome the onerous burden laid on by a command-and-control Commission and deliver innovative new offerings to Americans. I look forward to seeing what develops.