Network mogul’s role comes under scrutiny in Time Warner merger

If the Charter Communications-Time Warner merger goes forward, investor John Malone’s role should be limited, a major telecom lobbying group said Thursday.

USTelecom said Malone, who is seen as a force behind the merger, could have the power to help networks with which he has stakes if his role isn’t limited. Malone has ownership stakes in companies such as Discovery Communications, Starz and home shopping channels QVC and HSN.

“As with Comcast’s acquisition of [NBCUniversal], this integration gives Dr. Malone strong incentives to use his content interests to benefit his distribution interests and vice versa,” USTelecom said in comments filed with the Federal Communications Commission. 

Charter plans to merge with Time Warner Cable and Bright House Networks, a smaller operator, to create a major player in the cable market.

Though the trade group did not say the commission should use its power to block the merger, it “must be carefully scrutinized by the FCC” and be subject to conditions — including on Malone’s involvement with the company that emerges after the deal.

USTelecom said that the commission should ensure that Malone “not exercise any right to influence the conduct or operation of New Charter or its affiliates, including those arising from agreements, arrangements, or operation of his equity interest … and shall hold his interest in New Charter and its affiliates solely as a passive economic interest.” The group also said that the programming companies must offer its products “at the same rates, terms, and conditions on which that programming is made available to New Charter or its affiliates.”

“The additional consolidation of the cable industry contemplated by this transaction, and the potential for its further concentrating control over must-have video programming, is of significant concern to USTelecom’s small, medium and large member companies,” said the group’s president, Walter McCormick, in a statement. “This concern is exacerbated by the regulatory disparity that exists in the broadband marketplace today, where telephone companies are subject to rules, restrictions and oversight that do not apply to their cable competitors.”

The company also expressed concern that the combined company would make it easier for cable firms to coordinate their activities, potentially putting non-cable internet providers at a disadvantage.

Malone, who made a fortune in the early decades of the cable industry, has reportedly been a point of contention for the regulators evaluating the deals. The FCC has sent letters to his companies asking about his influence and some industry observers have speculated his various ownership stakes could prove troublesome for the transactions.

“These business realities and governance structures could create incentives for a post-merger Charter to offer more favorable terms to Malone-affiliated companies,” four public interest groups said of Malone’s investments in a filing opposing the merger. “The Commission must ensure that this merger would not create such incentives.”

Malone indicated Thursday that he could be open to the idea of giving up his influence over Charter if that was a sticking point for the deal. He told CNBC that “if the problem of Charter being able to do this transaction is me, I don’t have to be part of Charter controller ownership.”