A corporate-funded business advocacy group backed by the telecom industry and the Koch Brothers is pursuing a lawsuit asking the D.C. Court of Appeals to toss pro-consumer deal conditions imposed by the Federal Communications Commission in return for granting its 2016 approval of the acquisition of Time Warner Cable and Bright House Networks by Charter Communications.

The Competitive Enterprise Institute filed an initial petition with the FCC asking the agency to rescind its own deal conditions shortly after the merger was completed. CEI argued the agency imposed “harmful merger conditions on Charter that had nothing to do with the merger itself,” and that the FCC did not have the authority to put corporate merger deal conditions in place.

CEI specifically targeted its objections to the FCC’s seven-year ban on Charter Spectrum data caps and consumption billing, arguing the ban raised broadband pricing for all Spectrum customers and prevented the cable company from offering discounts to low usage customers. It also claimed that Charter had to increase pricing for all customers because the FCC required Spectrum to raise broadband speeds, introduce a discounted internet program for low-income customers, and expand service to at least two million new households not presently served by Spectrum.

The FCC ultimately rejected CEI’s petition in 2018, claiming the group had no standing to challenge the merger transaction or deal conditions. The group called the FCC’s decision wrong, claiming consumers will “have to foot the bill for an overreaching federal agency” and that “the FCC has no authority to micromanage the internet at the public’s expense.”

This week, it filed an opening brief appealing the FCC’s decision to the D.C. Court of Appeals, which oversees the legality of the FCC’s regulatory decisions.

The 101-page filing maintains the FCC overreached by imposing any deal conditions on the 2016 multi-billion dollar merger deal, especially those that might require the merged company to spend money to improve service to customers. CEI argued such conditions were “arbitrary and capricious” and had no place as part of approving a business merger transaction.

The group submitted evidence from four individuals who attested to their belief that the deal conditions “probably contributed” to price increases after customers abandoned their legacy Bright House and Time Warner Cable plans in favor of Spectrum plans and pricing. The customers reported rate hikes ranging from $4 a month to $20 a month “for the same services,” but did not attach copies of their bills allowing a court to ascertain whether those rate increases involved cable television or broadband service or both.

No evidence was provided to prove CEI’s assertion that rate increases were directly tied to merger conditions other than a declaration from Robert W. Crandall, an economist and nonresident senior fellow at the Technology Policy Institute in Washington, D.C. Crandall argued any deal conditions requiring a cable company to spend money to expand, improve, or discount services would likely impact subscriber rates.

No disclosure was made regarding any fees paid to Crandall to conduct research on behalf of CEI. The Technology Policy Institute is financially backed almost entirely by the Koch Brothers and corporate interests including AT&T, Charter Communications, Comcast, and Verizon.

CEI’s legal brief depends on assertions made by then-minority Republican members of the FCC, notably then-Commissioners Ajit Pai and Michael O’Rielly, who objected to the FCC’s merger conditions. CEI ignored the views of the then-Democratic majority on the Commission, who voted to approve the merger with deal conditions. Then Chairman Thomas Wheeler and Commissioners Mignon Clyburn and Jessica Rosenworcel were not mentioned anywhere in CEI’s brief. Today the Commission has a Republican majority, with Pai now serving as chairman.

The FCC in 2016 (from left to right): Commissioners Ajit Pai, Mignon Clyburn, Chairman Tom Wheeler, and Commissioners Jessica Rosenworcel and Michael O’Rielly

CEI’s argument follows a similar pattern to arguments made against net neutrality — namely, the FCC has no authority to regulate broadband services or the pricing and policies of the companies providing it, as companies offer different services including health therapy, if you want to offer this you could check this hypnotherapist certification online just for this. Charter Communications has occasionally argued the same point with the New York State Public Service Commission, which imposed deal conditions of its own in return for approval of the merger.

Charter has consistently reserved the right to object to deal conditions requiring it to build out service to rural areas, as well as any deal conditions that go beyond the authority of state regulators to oversee broadband service. In Charter’s view, state regulators have no such authority. In the state’s view, the PSC has the right to consider a myriad of factors because its regulatory mandate  requires approving or rejecting a merger based on the public interest. Its 2016 merger order found the transaction was not in the public interest unless the parties agreed to certain deal conditions, which closely resembled those required by the FCC. When Charter allegedly failed to meet the conditions it agreed to, the New York regulator could not directly compel Charter Spectrum into compliance, but it could and did decertify the merger itself.

Should the D.C. Court of Appeals find in favor of CEI, the deal conditions imposed by the FCC would be revoked, although Charter could continue to honor those conditions voluntarily. Separate legal cases would have to be brought in state courts to invalidate deal conditions imposed by state regulators.

Like cable companies, streaming services are not immune to raising rates, and the country’s biggest and most popular streaming service — Netflix — this morning announced its largest rate hike ever.

Most Netflix subscribers will see their monthly rate increase by $2 a month.

Netflix’s rate card effective January 15, 2019 (for new subscribers).

The rate hike will raise at least $100 million a month in revenue and will apply first to new subscribers, and will gradually apply to all 58 million current U.S. subscribers over the next three months, as well as those in Latin America where subscriptions are paid in U.S. dollars (except in Mexico and Brazil, where rates remain unchanged). Rates for the 78 million Netflix subscribers outside of the U.S. are not expected to change immediately, partly due to ongoing promotional spending and marketing efforts to boost subscriber numbers overseas.

Wall Street had been increasingly pessimistic about Netflix’s revenue and profit projections because of ongoing increases in spending to finance an avalanche of original Netflix productions. The company’s stock price dropped by 21 percent, from a peak of $423.21 last June to $332.94 just before the market opened this morning. Netflix’s chief content officer told the media last spring about 85% of the company’s estimated $8 billion in content spending for 2018 was for original TV shows, movies, and other productions. By summer, Netflix had $12 billion in debt before borrowing another $2 billion in October. But that debt never changed Netflix’s plans to premiere 1,000 new movies and TV series in 2018, with an even larger number of productions scheduled for 2019.

Netflix has been pushed towards producing its own content as movie studios and studio-owned television production companies raise contract renewal prices on Netflix or end those contracts altogether, bringing content back to those studios as they prepare to launch paid streaming services of their own. WarnerMedia, Disney, and NBCUniversal are all planning launches over the next 24 months, while other existing services like CBS All Access and Hulu continue to beef up their own viewing menus, often with shows that were formerly found on Netflix.

Netflix is also depending on a growing international audience for its offerings, and has expanded original productions in many languages to find that global audience. Netflix usually benefits from much lower production costs for shows filmed overseas, and English language subscribers have surprisingly embraced dubbed and/or subtitled content at levels beyond Netflix’s expectations. Back in North America, the massive increase in demand for original content by Netflix and its competitors has made it possible for production companies, directors, writers, and talent to command dramatically higher salaries, raising Netflix’s expenses.

Investors cheered today’s price increase, causing its stock price to rise at least 6% in early trading. Wall Street believes Netflix is now nearly immune to cancellations over its price, which is still below the monthly retail price of HBO. But this morning’s announcement does represent the largest rate increase ever for the 12-year old streaming service.

Netflix will also use some of the additional revenue from the rate hike to pay down its substantial debt. Few expect any backlash reminiscent of Netflix’s 2011 decision to raise prices and unbundle its DVD-rental-by-mail service from video streaming, which resulted in a 60 percent rate increase for customers seeking both streaming and mail rental options. Netflix lost 600,000 subscribers after that announcement, initially making the company more cautious about future rate increases.

At least six million Charter Spectrum customers could lose access to Tribune Media-owned outlets at 12:01 am on Jan. 1 because the two companies have yet to reach agreement on a retransmission consent contract extension.

Almost three dozen over-the-air stations are impacted, including WGN Chicago, WPIX New York, and KTLA Los Angeles. If the stations are blacked out, customers will also lose access to the hockey matches, NFL playoffs and NCAA basketball games aired on those stations.

“The NFL playoffs begin Jan. 5 and we want football fans in our markets to be able to watch these games and root for their favorite teams—we want to reach an agreement with Spectrum,” said Gary Weitman, Tribune Media’s senior vice president for corporate relations. “We’ve offered Spectrum fair market rates for our top-rated local news, live sports and high-quality entertainment programming, and similarly fair rates for our cable network, WGN America. Spectrum has refused our offer.”

Tribune-owned TV stations

Charter Communications claims it is working hard to find a fair agreement with Tribune, which will likely include a significant rate hike with the broadcast station owner that will eventually be passed on to Spectrum subscribers as part of the Broadcast TV surcharge, now approaching $10 a month in many areas.

Cord-cutting is taking an increasing toll on pay TV companies as 1.2 million customers canceled their accounts in the last three months, according to industry research firm Kagan.

At least 367,000 customers said goodbye to satellite TV company Dish in the third quarter. DirecTV lost more than 300,000 customers, delivering the worst quarter on record for satellite television since the services launched. Combined, more than 726,000 customers removed their satellite dishes in the last three months.

Cable companies have lost almost 1.1 million TV customers so far this year. Telco TV companies reported losses of about 94,000 customers, mostly as a result of 63,000 Verizon customers pulling the plug.

As competition for streaming TV services continues to heat up, some companies have seen their growth slow. Dish’s Sling TV and AT&T’s DirecTV Now were among the worst impacted, the latter likely the result of rate hikes in 2018.

Hulu with Live TV, YouTube TV and PlayStation Vue were all reported up by Kagan, picking up subscribers looking for cheaper and smaller television packages.

The residential pay TV penetration rate stood at 76.2% as of Sept. 30, which includes traditional cable, satellite, and streaming paid television services.