In its attempt to win federal approval for its proposed merger with Time Warner Cable (UNKNOWN:TWC.DL) and Bright House Networks, Charter Communications (NASDAQ:CHTR) has promised that consumers will benefit from the deal.
That's typical when a company attempts to push a controversial deal past federal regulators. Instead of pointing out that the deal will create fewer choices for consumers, or noting that it could ultimately lead to higher prices, the company, in this case Charter, highlights all of the fabulous public benefits that would come from the merger.
Charter began laying the groundwork for approval by touting all of the positive things the deal would allow to happen in its initial press release announcing the merger. The would-be cable giant promised the deal would "drive investment into the combined entity's advanced broadband network, allow for wider deployment of new competitive facilities based WiFi networks in public places." It also promised more innovation, faster broadband speeds, better video products, including more high-definition channels, more affordable phone service, and more competition.
That last one takes a lot of chutzpah, as it's hard to argue that fewer companies equal more competition. Still, greater scale can sometimes result in results like what Charter describes, and it's not crazy to think the public will benefit from this deal.
DISH Network (NASDAQ:DISH), a Charter rival, takes issue with some of its claims and specifically disputed that the deal would bring new benefits to Bright House customers.
What did DISH do?
The satellite pay television provider, which competes with Charter for customers, filed a document with the Federal Communications Commission that took issue with some of its rival's claim. The document, which was obtained and first reported on by Multichannelnews.com, said the benefits from the merger across all three companies are "either illusory" or not specific to the transaction.
DISH took specific issue with claims related to Bright House, saying the network improvements Charter says will happen would happen anyway.
"Far from making those deployments possible, or even accelerating their deployment," said Dish, "it seems the proposed merger may have had the reverse effect," according to a redacted version of the document obtained by Multichannel News.
Basically, DISH is charging that Charter does not need to acquire Bright House and Time Warner Cable to bring about these public benefits. The satellite provider said it already has the ability to do that, in part because it has an existing partnership with TWC.
What does Charter have to say?
The acquiring company did not specifically respond to DISH's charges, maybe in part because the redacted pieces of the complaint made a direct response a challenge. It did offer a broad statement to Multichannel News:
New Charter's many commitments, including to provide faster broadband service without data caps or modem fees, establish industry leading interconnection policies, offer advanced video services, increase competition in the SMB and enterprise business markets, and return thousands of overseas jobs to the U.S., puts this transaction squarely in the public interest.
The FCC is not dumb
While a past version of the FCC would accept a company's claims of public benefit at face value, the current panel is not as easily placated.
All companies looking to buy up competitors promise that being allowed to do so will be fabulous not for itself or its shareholders, but for the many Americans who will be blessed by being able to do business with the new company. Promising that a merger will be a public benefit is the equivalent of the sales pitch someone gives when trying to get someone else to go on a date with them.
Sell the positive. Promise wine, roses, diamonds, and fireworks. And, whatever you do, don't point out that things might not end well. The FCC understands these tactics and will discount what Charter says accordingly (as it will do with the objections of a rival).
What will the FCC do?
DISH has an agenda, but it may also have a point. Bright House, Time Warner Cable, and Charter were all going to move forward and serve their customers even if this deal does not occur, or had never been proposed.
The truth is likely somewhere in the middle. Charter will gain some efficiencies from this deal, and that will likely result in some benefits to consumers. It's also reasonable to believe that many of these improvements would have still occurred had the three companies remained independent.
What the FCC has to determine is whether the public gain from approving the merger outweighs the negatives from shrinking the number of companies in the space. There's no clear answer to that, which is why if the federal agency approves the deal, it's likely to do so with conditions that specify certain public benefits, pricing, and other positives for consumers.
Daniel Kline has no position in any stocks mentioned. He is skeptical of the benefits of their being less cable companies. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.