NFLX Netflix Inc

By Shalini Ramachandran and John D. McKinnon 

Federal regulators moved to approve Charter Communications Inc.'s $55 billion acquisition of Time Warner Cable Inc. but said the combined cable giant would have to live under several stringent conditions that single it out among industry rivals.

In separate statements, the Justice Department and Federal Communications Commission Chairman Tom Wheeler said the conditions would mitigate threats to online video competition posed by the merger, which will create the second-largest cable company after Comcast Corp., serving more than 17 million video customers. As part of the deal, Charter also agreed to merge with smaller operator Bright House Networks for about $10.4 billion.

Mr. Wheeler circulated a draft order to the four other FCC commissioners, and the matter is expected to be voted on in coming days. The Justice Department reached a settlement with the companies.

As part of the package of conditions with the FCC, Charter has agreed to build out high-speed broadband service to 2 million more homes. One million of those homes will be in markets where Charter will compete with another Internet provider offering the FCC's definition of broadband at 25 megabits per second.

That would require some amount of "overbuilding" cable companies, a person familiar with the deal said. Historically, cable companies haven't competed against each other in the same geographic areas, but the emergence of Internet broadband service could be changing that dynamic. Charter would be able to acquire other providers to achieve expansion in up to 250,000 homes, provided the acquired firm wasn't planning to upgrade its service.

The deal would also require the combined company to swear off data caps and usage-based billing for as long as seven years -- a restriction no other broadband provider faces today.

The company also wouldn't be able to charge companies such as Netflix Inc. for so-called interconnection deals that govern traffic handoffs between networks for that period. When regulators approved AT&T Inc.'s deal to buy DirecTV last year, they didn't impose a similar ban on interconnection fees.

In practice, the seven-year limit could be shortened by federal regulators after five years, if economic conditions have changed sufficiently. The time frame was one of the big sticking points in the negotiations over the conditions, according to people familiar with the talks.

Charter's settlement with the Justice Department also bans the cable company from imposing contract provisions that would limit media companies in any way from licensing their programming to rival online video providers. Big pay-TV distributors have long used "most-favored nation" and similar clauses to make sure they get the best deals from TV programmers.

Saying that Time Warner Cable had been "the industry leader" in seeking such restrictive clauses, the Justice Department said Charter wouldn't be able to enforce provisions already in place, retaliate against programmers for licensing to online entrants, or avail itself of such clauses in rival distributors' contracts.

Regulators will require Charter to retain an independent monitor to ensure its compliance with the conditions.

Charter said it is pleased with steps taken by Mr. Wheeler and the Justice Department and it is confident it will "soon receive final approval from federal regulators as well as the California [Public Utilities Commission]," the state regulatory body.

Charter's shares closed up 4.6% to $207.01 in Monday trading, while Time Warner Cable gained 4.1% to $209.63.

Comcast's planned takeover of Time Warner Cable collapsed last year when regulators were prepared to block the deal. Officials said they couldn't see a combination of conditions that would have sufficiently addressed the threat to competition.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com and John D. McKinnon at john.mckinnon@wsj.com

(END) Dow Jones Newswires

April 25, 2016 17:08 ET (21:08 GMT)

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