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N.Y. Gives Charter 2 Weeks to Come to Terms or Face Revocation of Charter-TWC Merger

Phillip Dampier June 14, 2018 Charter Spectrum, Editorial & Site News, Public Policy & Gov't 6 Comments

The New York Public Service Commission has notified Charter Communications it won’t be the victim of an offer that promises one thing and delivers something less, giving the company 14 days to fully accept the terms of its Time Warner Cable/Charter merger approval or face the possibility of having the merger canceled, potentially throwing Charter’s business plans into chaos.

In a move any aggrieved cable customer would appreciate, Charter’s lawyers gave the PSC a deal that looked good on the surface, only to be eroded away in the fine print. In a May 2018 response to the Commission’s “show cause” order, threatening to severely fine the cable company for breaking its commitments to New York State, the cable company effectively responded it wasn’t their fault if the Commission missed the fact the company did not actually agree to everything the state thought it did, and was in full compliance of what it unilaterally agreed to do.

The hubris of the state’s largest cable operator did not go down well in Albany, to say the least. But first some background:

Charter is coming under fire in New York State for failing to meet its obligations to extend service in a timely way to 145,000 New York homes and businesses not part of Spectrum’s service area and also lack access to broadband service. Today the Commission, in a separate action, fined Charter $2 million, to be drawn from a line of credit previously set aside by the cable company, for failing to meet its original broadband buildout targets and failing to remedy its past poor performance.

Charter’s lawyers last month protested their innocence, claiming the company was not out of compliance with its agreement — in fact it was ahead of schedule.

Both things cannot be true, so who is being honest and who is trading in “alternative facts?”

To find out, one has to turn back the clock to 2016. On January 19, Charter’s attorneys sent an acceptance letter to the Commission in response to the regulator’s offer to approve the acquisition of Time Warner Cable if Charter agreed to a series of pro-consumer benefits designed to allow New York customers to share in the lucrative deal.

Charter agreed to dramatically increase Standard internet speeds for its New York customers, first to 100 Mbps by the end of 2018 and again to 300 Mbps by the end of 2019. Charter met its first commitment ahead of schedule and is on track to again increase speeds for New York residents before the end of next year.

The company also agreed to temporarily retain Time Warner Cable’s $14.99 Everyday Low Price Internet program. Although that option has since expired for new customers, existing customers can keep the package until at least next year. But regulators note Charter has frequently made it difficult for New York customers to sign up for the program. Stop the Cap! has documented multiple instances of customers being told the plan was unavailable, or representatives have confused it with Spectrum Internet Assist, a similar budget-priced internet package for those that meet certain income and benefits qualifications.

But Charter’s agreement to expand its service to unserved areas of New York is where most of the current conflict arises. Stop the Cap! strongly recommended in our testimony to the PSC that rural broadband expansion be a part of a series of deal commitments that should be imposed on Charter if the Commission saw fit to approve the merger. The Commission agreed with our recommendation. That allows us to speak authoritatively that the Commission, in concert with the New York State government, framed that expansion commitment as an adjunct to the state’s Broadband 4 All program, Gov. Andrew Cuomo’s rural broadband expansion effort.

Charter would serve an integral role in the effort by extending service to homes and businesses just outside of its current service area. That would save the state millions in costs trying to subsidize other providers to expand into these typically unprofitable areas of the state. The design and intention of the expansion program was clear from the outset, and the Commission specifically requested Charter provide detailed lists of planned expansion areas, so the state could avoid duplicating its efforts and re-target funding to other areas of the state. The goal was to achieve near-universal broadband availability in every corner of New York.

The Commission’s 2016 letter to Charter seemed clear enough:

The conditions adopted in this Order and listed in Appendix A shall be binding and enforceable by the Commission upon unconditional acceptance by New Charter within seven (7) business days of the issuance of this Order. If the Petitioners’ unconditional acceptance is not received within seven (7) business days of the issuance of this Order, the Petitioners will have failed to satisfy their burden under the Public Service Law as described herein, and this Order shall constitute a denial of the Joint Petition.

But in Charter’s response on January 19, 2016, their lawyers got too cute by half (emphasis ours):

In accordance with the Commission’s Order Granting Joint Petition by Time Warner Cable Inc. (“Time Warner Cable”) and Charter Communications, Inc. (“Charter”) dated January 8, 2016, Charter hereby accepts the Order Conditions for Approval contained in Appendix A, subject to applicable law and without waiver of any legal rights.

On May 9, 2018 the state discovered what that language discrepancy meant. Charter’s lawyers responded to the state’s charges that the company was not complying with the terms of the merger approval agreement with a classic “gotcha” letter, claiming Charter’s agreement provided only a “qualified” acceptance of language contained exclusively in Appendix A, and its obligations started and stopped there.

That is a distinction worth millions of dollars. Appendix A basically summarizes Charter’s commitment to expand to 145,000 new passings in New York, but does not explain the expansion program or its purpose. If only Appendix A did apply, it would allow Charter to count any new cable hookup, whether in a rural hamlet or more likely in a condo in Manhattan as a “new passing,” bringing it one customer closer to meeting its expansion commitment. Charter could count new wealthy gated communities, apartment buildings, offices, and converted lofts, despite the fact it would almost certainly wire those customers for service with or without its agreement with the state government. More importantly, Charter would successfully avoid spending tens of thousands of dollars to extend the cable line down a road just to reach one or two rural customers.

Charter’s lawyers seem to think that their clever loophole will win the company significant savings and avoid fines — too bad, so sad if the state’s lawyers failed to appreciate what Charter was actually willing to agree to in 2016 and what the state accepted by default by not catching the discrepancy sooner.

“Contrary to [Charter’s] assertions, however, the Approval Order accorded Charter only two explicit choices: (1) to accept unconditionally the commitments set forth in the body of the Approval Order and Appendix A; or (2) have the Joint Petition rejected, subject to Charter’s right to judicial review,” the Commission rebutted.

In short, the state is calling Charter’s possible bluff. If it truly intends not to agree to the original terms of the agreement, the state has the right to toss out the merger agreement, in part or in full, canceling the merger. Of course, Charter can always take the matter to court and hope it can find a judge that will accept Charter’s ‘partial agreement’ argument.

To say the PSC was displeased with Charter’s novel legal maneuver would be an understatement. In today’s ruling, the PSC severely admonished Charter for its bad behavior:

Charter was not free to pick and choose the conditions it would accept or the portions of the Approval Order with which it would comply, nor was Charter free to accept only some of the conditions in the Approval Order and Appendix A yet still obtain Commission approval of the merger transaction. Charter is likewise not free to rewrite the Commission’s conditions.

In effect, Charter is ripping off the people of New York, and the state’s regulators are having none of it.

“The Commission is troubled by Charter’s position that the Commission’s Approval Order means something other than what it actually states,” the PSC wrote. “Given that many of the obligations in that Order are continuing and will need to be fulfilled in the future, the Commission believes it is critical that Charter acknowledge the obligations it agreed to undertake in exchange for the benefits it received by the Commission’s conditional approval. Anything short of an unconditional full acceptance of the Approval Order and Appendix A would deprive New York state of its fair share of the incremental benefits.”

It is likely we will know where this is headed by mid-July, because the PSC has given Charter 14 days to recommit itself to the PSC’s original merger terms, not just those in infamous Appendix A. It signaled it will no longer debate the matter, either, telling Charter “the Commission will not countenance that conduct” and wants action:

Charter is directed to cure its defective acceptance and file with the Secretary to the Commission a new letter indicating its full unconditional acceptance of the Approval Order and Appendix A thereof within 14 days.

Should Charter, however, fail to provide a new letter indicating full unconditional acceptance, the Commission may pursue other remedies at its disposal, including but not necessarily limited to the following.

First, beginning proceedings pursuant to PSL §216 to rescind, modify or amend the Approval Order, specifically, the Commission’s approval of the transfer of the Time Warner’s cable franchises and associated facilities, networks, works and systems to Charter, in whole or in part.

Second, initiate an enforcement action pursuant to PSL §26 for failing to comply with the Approval Order’s Ordering Clause 1 including an action in Supreme Court to adjudicate the dispute and/or declare the Commission’s conditional approval null and void for lack of an unconditional acceptance.

And, third, initiate a penalty action for being out of compliance with the Approval Order’s unconditional acceptance requirement under PSL §25.

It’s a teachable moment for regulators, one that cable customers have come to learn over decades of bad experiences. It’s never a good idea to trust a cable company.

Currently there are 6 comments on this Article:

  1. Dylan says:

    Hopefully this does not happen as I would like to see Charter continue with its current plans of upgrades in NY, like the 200mbps upgrade. Maybe Charter will upgrade us anytime to 200mbps or even higher for free to avoid kind of tame NYS. I do know revoking any license from them means a potential loss of a lot of customers and money, which they will not accept. I don’t see any other provider taking over NY that will be to the benefit of NYS. Certainly Comcast will never benefit us.

  2. Matthew H Mosher says:

    Doesn’t matter. Rural NY will remain left behind.

  3. Matthew H Mosher says:

    Another classic case of businesses being much smarter than governments.

  4. New Yorker says:

    Will New York go through with the threat?

    As an upstater I have seen infrastructure projects drag on in cost and time (eg. 1.5 yrs to repair a tiny bridge) enough to wonder if the George Washington Bridge was built by aliens.

    Cuomo proved me wrong when he said he would build a new Tappan Zee bridge and really did it.

    Cuomo has talked a big game in internet, but really the crown jewel of it was the Spectrum expansion. DSL, Fixed Wireless and other expansions funded by the state are not cost effective, especially if they are aiming for the FCC broadband standard. The short term cost for cable is substantial but it is finite and permanent. The only reason I can’t pay $15,000 out of pocket to extend the line to my place is that I’ve been paying almost $100 a month for 15 years for bad DSL service.

    I have been through this with people in the Tompkins government and like all government and non-profit people I have met they are staring into the glare of the headlights when they are dealing with commercial organizations. They know that Charter can expand broadband in Tompkins much more cost effectively than anyone else. Once a decade negotiations of Charter’s charter is the only kind of leverage local governments have, but they don’t believe they can ask for anything more than maybe keeping the lights on at the public access channel that hardly anyone watches.

    Some towns have threatened to revoke Charter’s charter and have backed off when they’ve realized it could be a difficult and dangerous situation. If New York undid the takeover it would make every retrans dispute we have seen look like nothing.

    It will be fun to see if Cuomo has the guts to pull the trigger; it’s hard to believe that Charter will listen to reason on this as they seem hell bent on losing the customers they already have, thus have no interest in adding long-term profitable infrastructure that mean Charter paying a solid dividend into the 2030’s and beyond.

  5. New Yorker says:

    It makes no sense.

    I wonder sometimes if raising the limits on how much money rich people giving to candidates could make it more expensive to buy off politicians. (U.S. politics rapidly became less responsive to community concerns around the time campaign finance reform.) Money would flow into local TV advertising, ads for personal injury lawyers and car dealers will disappear. At some point it might cost less to buy off the general population by paying them more, lowering prices, extending internet to more people, etc.

    Let’s look at the numbers.

    The exec of Time Warner Cable got a $100 million bonus for selling out to Charter. That money is pissed away, it is gone.

    Suppose it costs $10,000 to wire a house (it doesn’t) you would be looking at $150 million to wire those homes in New York. This money would not be gone. Charter would now own another $150 million in valuable infrastructure. You could easily spend $1000 a year on internet and cable so that $150 million is paid off in 10 years. Then the company is much richer, the stockholders are richer, everyone is richer.

    That $10,000 number is high, $1500 or $3000 might be more like it. Cost can be gotten down by coordinating things between companies that own poles. Charter doesn’t want to get involved in my creek and I don’t blame them, but the power company goes there all the time with the right machinery. If Charter had been growing their business instead of arguing with the NY they probably could have followed behind NYSEG and saved a huge amount of money.

    Maybe I don’t understand the cable biz. It seems Charter is trying to do everything it can to lose customers in New York, which is entirely consistent with their bitter refusal to expand.

  6. dhkjsalhf says:

    “Another classic case of businesses being much smarter than governments.”

    I don’t know whether this was sarcastic or not, but I feel it’s a sentiment worth addressing since it is so often expressed earnestly. Presumably, in this equation “smart” equals “unethical,” because a willingness to make false promises for financial gain doesn’t take a particularly high degree of intelligence. The other interpretation may be that the government was stupid to trust Charter in the first place, a contention for which there is admittedly ample evidence. But on the surface, the government was securing guarantees to extend broadband access to rural areas that currently lack it, which is a good thing. The fact that there are apparently some teeth behind the government’s ability to enforce that agreement is also a good thing. There often seems to be a pattern of stripping regulators of meaningful enforcement tools and then blaming them for being ineffective and wasteful when they’re unable to reign in bad actors. But in my mind the subtext here is that Charter has become “too big to fail.” And I don’t know that anyone can argue the “pro” side of a company becoming so large that it can simply thwart any attempts at regulation just by threatening to pack up its toys and go home.







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