Rutledge

Despite claims from Net Neutrality critics that increased oversight of the broadband business would lead to reduced investment and upgrades, Charter Communications CEO Thomas Rutledge said the new rules would have no effect on Charter’s investment plans.

Last week Rutledge sat down with FCC chairman Thomas Wheeler to discuss Charter’s proposed merger with Bright House Networks and Time Warner Cable. He was joined by Catherine Bohigian, Charter’s executive vice president for governmental affairs and FCC general counsel Jonathan Sallet and senior counselor Phil Verveer.

“Mr. Rutledge explained that the transactions will bring substantial consumer benefits, including providing a better Internet experience for watching on-line video, gaming, and using other data-hungry apps at more competitive prices, and that the mergers will not harm competition,” according to a one page filing with the FCC disclosing the meeting.

Despite repeated claims from pro-industry policy wonks that Net Neutrality and Title II oversight of cable broadband would cause operators to reconsider their investment plans, Rutledge made it clear Charter’s spending plans are unaffected.

“Mr. Rutledge agreed that the Commission’s decision to reclassify broadband Internet access under Title II has not altered Charter’s approach of investing significantly in its network to deliver cutting edge services including: the fastest entry-level broadband service (60 Mbps) with unlimited usage; out-of-home Wi-Fi hotspots; a state-of-the art, cloud-based user guide, allowing search and discovery across linear, video on demand and online content; open, non-proprietary downloadable security; and an innovative video app with hundreds of live and downloadable channels and the ability to display over-the-top content seamlessly on the television,” the disclosure continues.

Charter’s chief executive said the company supports Open Internet rules, including no throttles or blocks on lawful content and no paid prioritization. But he does worry about regulatory uncertainty while the FCC explores its expanded powers of oversight.

Following the footsteps of HBO Now, CBS Corporation is preparing to offer a broadband-only streaming video version of Showtime.

Variety reports a formal announcement is due this week for the service and just like HBO Now, it will initially launch as an Apple TV exclusive, with other platforms added later.

No information about the depth of the online Showtime on-demand catalog is available yet, but the pricing for the service is: $10.99 a month. It will launch July 12. HBO Now costs $15 a month.

CBS has gotten experience in the streaming video market with its $6/mo CBS All Access service, which offers on-demand viewing of decades of CBS programming and all episodes of current CBS series. In markets where CBS owns its local affiliate, live streaming is also available.

Showtime will also be expanding into Canada for the first time in January, to be made available on Bell Media platforms including Fibe TV and its direct to home satellite service.

This article updated to reflect pricing and launch date of the service.

While consumer groups were busy fighting the Comcast-Time Warner Cable merger, AT&T’s $49 billion purchase of DirecTV has largely flown under the radar, with no comparable organized consumer opposition to the deal. But that does not mean the FCC will approve it as-is.

Negotiations with federal regulators and an exchange of regulatory filings and comments between AT&T, the FCC, and deal critics have apparently forced AT&T to agree to several concessions to make regulators amenable to approving the transaction.

The Washington Post reports that chief among those concessions is AT&T’s willingness to voluntarily abide by certain Net Neutrality rules regardless of any court challenges, including banning the slowing or blocking of websites and agreeing not to accept payments from website operators to speed up their content. AT&T has not said how long it intends to keep that commitment.

Deal opponents are also seeking other concessions from AT&T:

No paid interconnection deals: AT&T must route incoming content to customers without any fees charged to the companies originating the traffic. This became a hot button issue when Netflix felt it was forced to pay Comcast a fee to assure its streamed video content would reach Comcast customers without buffering or other errors. AT&T is expected to fiercely oppose this condition and says it should have the right to make private deals with content delivery firms.

AT&T must offer standalone broadband: With AT&T’s acquisition of DirecTV, more than ever it will have an incentive to sell customers a television bundle with Internet service. Regulators want AT&T to assure broadband-only service remains readily available. AT&T has offered 6Mbps DSL for $34.95 a month as its standalone option. Content delivery firms like Cogent want AT&T to offer 25Mbps service in all of AT&T’s markets for $29.95 a month for at least seven years. The FCC recently defined 25Mbps the minimum speed to qualify as broadband.

No end runs around Net Neutrality with data caps and exemptions: AT&T wants the right to exempt its preferred partners from its usage caps and claims that is beneficial to consumers. But cap opponents claim that is simply another way to collect money from content companies for preferential treatment — an end run around Net Neutrality rules. Opponents of these cap exemptions, known as “zero-rating” claim all content should be treated the same. AT&T could resolve this by removing data caps from its DSL and U-verse services altogether.

With AT&T’s arrival in the Mexican wireless marketplace with its purchase of Iusacell and Nextel, América Móvil is responding with plans to build a new state-of-the-art $50 billion fiber-to-the-home network for Mexican consumers.

According to El Economista, América Móvil has a five-year plan to construct a 311,000 mile fiber network that will offer phone, broadband, and television service. The move comes in response to media reports AT&T is exploring delivering a video package over its acquired wireless networks within the next two years. The network will support broadband speeds that are faster than what most Americans along the border with Mexico can receive from AT&T and CenturyLink’s prevalent DSL services.

In comparison, U.S. phone companies like Verizon have stopped expanding its FiOS fiber to the home network and AT&T largely relies on a less-capable hybrid fiber/copper network for its U-verse service.

Competition in Mexico has forced providers to upgrade their networks to compete for customers while those in the United States tend to match each other’s prices or advocate for industry consolidation to maximize revenue and keep their costs as low as possible.

América Móvil’s broadband service Infinitum Telmex has already attracted 22.3 million broadband customers — a number likely to rise once it can enhance its online video streaming service Clarovideo.

Malone

The Economist reports Charter Communications’ acquisition of Time Warner Cable and Bright House Networks has been structured so that “it should pay no tax for several years, at least.”

The merger deal, which intimately involves John Malone, the boss of Liberty Media — a cable and media conglomerate, has all the hallmarks of a classic Malone-inspired deal: complex ownership structures, high debt levels, assiduous tax planning and a refusal to overpay.

Unlike many other dealmakers, Malone seems to want to avoid the spotlight. His firm Liberty Media is Charter’s biggest single investor and will kick in at least $5 billion in Charter stock purchases to help consummate the transaction, which will be handled primarily by Charter’s management.

The deal comes at Malone’s insistence the American cable landscape must be consolidated into just 2-3 large companies. For now, he is content standing aside while the public faces of the merger are Charter’s CEO Thomas Rutledge and Time Warner Cable’s Rob Marcus. (Bright House Networks is also a part of the transaction but has been completely overshadowed by its larger deal partners.)

While coverage of the transaction has been relegated to the Business section of newspapers and has evoked shrugs from American reporters, The Economist calls it nothing short of an extraordinary landmark.

“The boss of Liberty, a cable and media conglomerate, he has struck more deals than perhaps any other tycoon in the world—buying and selling hundreds of firms worth over $100 billion since the 1970s, often negotiating on his own, using calculations that fit on a napkin,” said the publication. “Unusually for an empire-builder he has made his investors a ton of money, and has little interest in the public eye.”

While Malone is hardly a household name, he could soon be at the center of the sixth largest corporate takeover in U.S. history and make him the world’s unparalleled media baron, controlling an empire three times the size of Rupert Murdoch’s media ventures. While Comcast will remain America’s largest single cable operator, Malone’s Liberty Media will dwarf Comcast globally with more than 75 million cable customers around the world.

Malone does not share the concerns of some Time Warner Cable and Charter investors that the merger will generate a “staggering” $66 billion in debt from day one, initially loaned from Wall Street investment banks. The Economist notes Malone seems to be violating his own rule to never overpay in a deal. In the British financial press, Charter’s deal for Time Warner Cable and Bright House does not pass Malone’s own smell test.

“At 9.1 times gross operating profits he is paying at least a fifth more for TWC than he typically does,” says the newspaper. “He is offering 23% more for it than Comcast did in its bid last year, which was scuppered by antitrust regulators. Based on last year’s cash-flow figures the deal will make a pitiful 5.6% return on capital, assuming no tax is paid. Like most cable firms TWC has a stagnant top line, with growing broadband sales being offset by declining TV and telephony revenues. So fast growth will not bail out Mr Malone.”

So where does The Economist believe John Malone will make his killing? From captive customers and suppliers, of course.

“The most obvious explanation is that Mr. Malone thinks the world has not changed much since the 1990s and that the cable industry remains a collection of local monopolies from which ever more juicy profits can be squeezed,” says The Economist. “America’s cable firms have poor service and high prices: the average Charter customer pays at least 50% more per month than one of Mr Malone’s customers in Britain or the Netherlands. In Europe cable firms face tough competition in broadband from telecoms operators; in America the telecoms firms have rolled out fixed-line broadband to perhaps just half of homes or fewer.”

The Economist suspects Malone’s new cable empire will follow Europe and be less dependent on flogging costly bundles of unwanted television channels to reluctant punters. Instead, it’s all about broadband and the platform it represents to obtain a range of video services that replace traditional cable television. But Malone’s future vision almost certainly includes a wireless mobile component, which means Americans should not be surprised to see the tycoon attempt to acquire a large mobile company, even one as large as AT&T, on which he can sell video and other telecom services. That is precisely what he is doing today in Europe.