Netflix Backs Charter-TWC Deal

In a critical move, Netflix is giving its blessing to Charter Communications' bid to buy out Time Warner Cable in return for the guarantee of free carriage on Charter's broadband pipes for at least another three and a half years.

Netflix Inc. (Nasdaq: NFLX), which aggressively fought Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s ultimately unsuccessful bid to take over Time Warner Cable Inc. (NYSE: TWC) earlier this year, signaled its intent to support Charter Communications Inc. 's deal to purchase TWC in a new filing with the Federal Communications Commission (FCC) . As first reported by Bloomberg earlier today, Netflix said it will support Charter's TWC bid now that Charter has committed to offering free network interconnections to online content providers through 2018 as part of any merger conditions. (See Netflix to FCC: Kill Comcast-TWC Deal.)

"Charter's new peering policy is a welcome and significant departure from the efforts of some ISPs to collect access tolls on the Internet," wrote Christopher Libertelli, VP of Global Public Policy for Netflix, in his short supportive letter to the FCC. "Netflix believes that this new policy and the commitment to apply it across the 'New Charter' footprint is a substantial public interest benefit and will support scaling the Internet to meet customers' growing demand for online services and help foster continued innovation across the Internet ecosystem."

Libertelli's letter followed Charter's pledge to regulators that it will extend its "broadband-focused, highly pro-consumer model to millions of new customers" if its proposed twin acquisitions of Time Warner Cable and Bright House Networks are approved. "Part of Charter's model has been to employ a settlement-free Internet interconnection policy, which has been in place a number of years," Samuel Feder, a senior outside attorney for Charter, wrote in his own letter to the FCC. "Charter hereby commits to maintain this settlement-free policy until December 31, 2018."

Free network interconnection is a crucial issue for Netflix, which reluctantly agreed to pay peering charges to Comcast, TWC, AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Bright House and other major US broadband providers last year after accusing the providers of slowing down its video streaming traffic to customers. As the online video market leader, Netflix now accounts for more than a third of all download web traffic in peak evening hours, according to the latest data from Sandvine Inc. . (See Netflix, Bright House Ink Interconnect Deal.)

With Netflix's backing, Charter should now have an easier time gaining approval from the FCC and antitrust regulators at the US Dept. of Justice (DoJ) for both its Time Warner Cable and Bright House deals. Although Libertelli's letter did not say anything about the Bright House transaction, the TWC deal is by far the bigger and more influential one, so whatever goes for TWC will most likely go for Bright House as well.

— Alan Breznick, Cable/Video Practice Leader, Light Reading