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Charter to N.Y. – We Creatively Reinterpreted Merger Terms and You Can’t Do Anything About It

Charter Communications late Wednesday filed a remarkable 66-page circumlocutory rebuttal refuting charges from New York State Public Service Commission Chairman John Rhodes that the cable company was in breach of its agreement to expand rural broadband as part of the state’s approval of the Charter-Time Warner Cable merger.

At issue is one paragraph in the Merger Order approving the transaction that included rural broadband expansion as a required public benefit (emphasis ours):

In order to ensure the expansion of service to customers in less densely populated and/or line extension areas within the combined company’s footprint, the Commission will require New Charter to extend its network to pass, within its statewide service territory, an additional 145,000 “unserved” … and “underserved” … residential housing units and/or businesses within four years of the close of the transaction.

Charter has repeatedly failed to meet that requirement, despite an agreement with the state to divide it up into a series of six month benchmarks — each representing 20,000 homes and businesses. Charter has been given until 2020 to complete the required new passings. Despite those agreements, the state now accuses Charter of trying to cheat by claiming unqualified addresses as part of its expansion commitment. Among them, Charter claimed more than 12,000 homes and businesses in the New York City metropolitan area, the densest and most wired city in the state, as part of its expansion to the unserved and underserved. As a result, the New York Public Service Commission disqualified those urban addresses, demanded Charter show cause why it wasn’t in breach of its agreement, and regulators are seeking a $1 million fine and the possible revocation of Charter’s cable franchise in New York City.

Charter’s lengthy defense explaining why it has failed to meet its targets and counts allegedly unqualified addresses in its rural broadband expansion effort relies on unilaterally reinterpreting the original agreement the cable company signed with the state and assigning blame to others for delays in rolling out service improvements faster. It is also accusing the state of what Charter appears to be doing itself — changing the terms of the Merger Order almost two years after it was signed.

Much of Charter’s response comes with considerable eyebrow-raising hubris, telling the Commission New York should be pleased with Charter’s compliance with the Merger Order thus far, noting the only thing enforcing it is Charter’s goodwill. The company’s lawyers even label one section of their rebuttal: “The Expansion Condition Derives Its Legal Force, if any, from Charter’s Agreement to it.” That is a lawyer’s way of telling the state regulator it should be grateful Charter is doing anything at all after its merger deal was approved:

The Commission does not have the authority to compel broadband providers to offer service to particular customers at particular speeds or at particular locations, or to establish any other obligations in a cable television and telecommunications service merger related to the provision of broadband services. Indeed, it has been established for years that Internet access services are interstate, and accordingly subject to exclusive federal jurisdiction. The FCC has made abundantly clear that states may not impose “any so-called ‘economic’ or ‘public utility-type’ regulation[]” on broadband services and that federal law flatly preempts such requirements. Requiring a provider to expand the geographical range in which it offers broadband services and to offer it at specific speeds—as the Expansion Condition does—is a quintessential public utility obligation that could never lawfully be imposed by a state, as such a requirement would blatantly violate federal law.

Well, shuck my corn. New Yorkers should send Charter a bouquet and thank you card for delivering the public interest benefits it was ordered to provide in return for the right to make billions in revenue from tens of millions of New York customers.

Rural broadband challenges

One might think that with Charter’s confident declaration that it is no longer legally answerable to the deal conditions reflecting broadband speed, upgrades, rates, and rural service once the Merger Order was approved, Charter’s attorneys could call it a day and conclude their case. Instead, the legal team issued 65 more pages of legal theories and unilateral interpretations and declarations that conjure every available argument, even some that contradict each other. For example, Charter’s legal team insists on a plain language interpretation of the agreement in some places and a very strict legal interpretation in others that basically boils down to, ‘if it isn’t exactly specified in the contract, it’s not a part of the contract.’ Charter insists on using “industry accepted” practices that are not specified in the Merger Order that the Commission has not agreed to, while criticizing the Commission for interpreting its rural broadband expansion effort as applying to “rural” customers only, which Charter says it never agreed to.

Because no one should have to wade through Charter’s kitchen sink defense, we have broken down the most relevant excuses defenses explaining, for example, why Charter should be able to count a converted loft in a busy Queens neighborhood as “underserved” and multi-million dollar condos on Kent Avenue in Williamsburg (Brooklyn) as “unserved” no longer, thanks to Spectrum’s rural broadband expansion commitment. We will also share Charter’s creative interpretation of the Merger Order itself and the house of cards it constructs around it, and why Charter believes it is manifestly unfair to conduct independent surprise compliance audits without notifying Charter of those audits well in advance. Then we will share Charter’s theory about why it feels suddenly picked on by state regulators.

The Debate Over Unserved vs. Rural Broadband Expansions

The majority of Charter’s rebuttal is devoted to an all-out defense of the company’s decision to include service expansions in less costly to serve urban and suburban areas, including more than 12,000 New York City addresses. It probably needs to, because the company is facing a $1 million fine for allegedly not complying (again) with its agreed-on schedule to expand service to 145,000 unserved/underserved New Yorkers.

That Charter would attempt to count as many new passings towards its broadband expansion commitment as possible was hardly unexpected. Stop the Cap! warned the Public Service Commission and the Federal Communications Commission in its recommended deal conditions and follow-up remarks that great care must be taken when describing or defining new broadband rollout commitments. In prior mergers, regulators who did not precisely specify the nature of those expansions offered providers an easy loophole to count new passings a company would construct in the normal course of business. If a state did not specify the expansion program should exclusively target customers bypassed by cable service because they are unprofitable to serve, companies cherry-picked the low hanging fruit of new housing developments, new apartment buildings and businesses or manufacturing parks to fulfill its obligations. The reason is simple: those urban and suburban buildouts are much cheaper than wiring low density rural areas — the places broadband forgot.

Charter Communications readily agreed to the terms offered by the state to approve the merger transaction, which not only included specific conditions to deliver pro-consumer deal benefits to New York customers, but also an exhaustive explanation defining and discussing the issues the agreement was written to address. On the important issue of rural broadband expansion, the Public Service Commission was quite clear:

Too many regions of the State continue to suffer from out-dated or non-existent cable service. By requiring the Petitioners (and by extension New Charter) to build-out their network to pass an additional 145,000 “unserved” (download speeds of 0-24.9 Megabits per second (Mbps)) and “underserved” (download speeds of 25-99.9 Mbps) residential housing units and/or businesses within four years of the closing of the transaction – with annual milestones and exclusive of any available State grant monies from the Broadband 4 All Program – we will be well on our way to ensuring that all New Yorkers, regardless of location, have access to essential broadband offerings.

Also:

The Commission must also consider that, in today’s market, many New Yorkers lack adequate access to communication choices and that the public interest is not well served if we approve this merger without addressing that deficit.

The Commission also recognizes that many residential and business customers in rural areas of the State lack access to such services at speeds or levels that provide real value from the competitive communications market. Therefore, just as in the case of affordability, the public interest inquiry necessarily requires an assessment on how the transaction will harm or benefit the State’s interest in rural and business customer broadband expansion.

The Petitioners must also show how the transaction will facilitate increased access to their network for rural New Yorkers and business customers who today do not have the full value of a competitive market.

Gov. Andrew Cuomo announcing rural broadband initiatives in New York.

A full read of the Merger Order shows the PSC repeatedly sought deal conditions to ameliorate the state’s pervasive rural broadband availability problem. It said nothing about wiring up neighborhood revitalization projects in the middle of the Bronx — a dense urban area that Charter would seek to reach with or without this merger agreement. To emphasize that point even further, the Commission defined pro-consumer deal benefits/merger conditions that would deliver services Charter was unlikely to provide otherwise, helping to fulfill the Cuomo Administration’s public policy objective of ubiquitous broadband:

Any assessment of the benefits should also be reduced to the extent the actions producing those benefits could or would have occurred even in the absence of the proposed transaction.

Also:

The determination and evaluation of public benefit must be undertaken in the context of existing public policy objectives and the realities of the telecommunications and cable television marketplaces.

In New York, Gov. Andrew Cuomo’s Broadband for All program is well-known, especially by Charter and Time Warner Cable, which are both participants. The terms and objectives were clear and obvious, and required Charter to coordinate its expansion plans with the N.Y. Broadband Program Office to guarantee that state and federal tax dollars would not be spent duplicating Charter’s efforts to reach those rural residents and businesses. The reality of the telecommunications marketplace is clear: companies will not expand to deliver rural broadband service in areas that fail Return On Investment (ROI) tests without a government subsidy or a merger deal-related mandate. Consumers understand this when they call to request service and are quoted tens of thousands of dollars in installation costs to extend service in rural areas.

For the purpose of the Merger Order, the PSC carefully defined the kind of “line extension” the rural broadband expansion requirement was designed to target:

Under 16 NYCRR §895.5, a line extension area is defined, in part, as areas beyond the franchisees primary service area and may require a CIAC [a line extension fee paid by the prospective subscriber] before service is provided.

In its approval order, the PSC also references this critical point that would foreshadow how the Commission would look upon Charter’s attempt to count New York City expansion projects towards its 145,000 new passings commitment (emphasis ours):

If the build-out opportunities in New York State are primarily building down to density levels already specified in franchise agreements, then it is the franchise terms, not the merger, that would require those line extensions. 

If that wasn’t enough to discourage Charter from attempting that counting trick, the PSC also included on-point language in the Merger Order’s “Appendix A” — a bullet point short form list of requirements the company had to agree to follow, regarding the nature of the locations Charter was directed to deliver expanded or new service (underlining ours):

New Charter is required to extend its network to pass, within their statewide service territory, an additional 145,000 “unserved” (download speeds of 0-24.9 Mbps) and “underserved” (download speeds of 25-99.9 Mbps) residential housing units and/or businesses within four years of the close of the transaction, exclusive of any available State grant monies pursuant to the Broadband 4 All Program or other applicable State grant programs. If at any time during this four-year period, New Charter is able to demonstrate that there are fewer than 145,000 premises unserved and underserved as defined above, New Charter may petition the Commission for relief of any of the remaining obligation under this condition.

What makes this section important is that the PSC specifically mentions the Broadband for All grant program, which is designed to award state money to rural broadband projects. Unsurprisingly, there were no grant applicants seeking money to fund broadband expansion to million dollar condo owners in New York City or a converted manufacturing plant turned into modern apartments on Niagara Street in downtown Buffalo — both counted as new unserved passings by Charter.

Despite the exhaustive evidence to the contrary, the principal argument made by Charter’s lawyers is there is no specific prohibition against counting urban “new passings” (expansions) towards the 145,000 unserved/underserved residential housing units or businesses called for in the Merger Order. Charter’s defense attempts to bait and switch the PSC, first by working with state officials to exhaustively identify an adequate number of rural areas where broadband service is desperately needed, then suddenly counting wealthy condo owners in Brooklyn, new housing developments in Albany, and various business parks Charter was likely to wire for service anyway as evidence Charter was meeting its expansion targets.

See if you can follow their logic, especially the sentence we underlined at the end:

The text of the Merger Order is unambiguous: expanding coverage to low density areas is a reason explaining why the Commission adopted the Expansion Condition, not an element of the Expansion Condition. The requirement is to extend Charter’s network to pass an additional 145,000 homes and businesses within Charter’s “statewide service territory.” Id. The Commission’s statement that it is adopting the condition “in order to ensure the expansion of service to customers in less densely populated and/or line extension areas” is prefatory language explaining its reasoning. Id. (emphasis added). And as an explanation of the Commission’s reasoning for adopting the Expansion Condition, this makes perfect sense: densely populated areas are more likely to be served already, and thus contain fewer locations that would be candidates for further network expansion. But nothing in the Merger Order requires that every additional address to which Charter extends its network must be in “less densely populated and/or line extension areas” or precludes Charter from reporting addresses that are not.

Even if the Merger Order could somehow be construed, as the Expansion Show Cause Order does, as limiting the Expansion Condition exclusively to “less densely populated and/or line extension areas” (which it cannot), the Merger Order’s Appendix A, which sets forth the actual text of the Expansion Condition, contains no such requirement, requiring only that the “residential housing units and/or businesses” be “unserved” or “underserved,” not that they also be located in low-density areas. See Merger Order, App’x A, § I.B.1. Accordingly, even though there is no conflict as between the body of the Merger Order and Appendix A, Appendix A would control in the event of any such conflict. It is Appendix A that Charter explicitly accepted, and it is Appendix A that contains the specific text of the requirements with which Charter is ordered to comply.

Now hold on a moment. For the first time we’ve seen, Charter has declared it only explicitly accepted an appendix in the Merger Order, therefore the company seems to argue it can ignore everything else in the Order. This passage found just before Appendix A begins may explain why (emphasis ours):

[…] We conclude that with the conditions we are adopting (set forth here and in Appendix A), the merger will bring approximately $435 million in incremental net benefits (plus other unquantified benefits) to TWC and Charter customers and result in approximately $655 million in network modernization investment commitments. With the acceptance by the Petitioners of these enforceable and concrete incremental benefits, we conclude, as a whole, that the proposed transaction would meet the positive benefit test for New Yorkers and should be approved.

Charter counted The Crescendo, a former manufacturing facility turned into upscale apartments and lofts located in downtown Buffalo, as “newly passed” as part of the rural broadband expansion conditions required in the order granting the merger of Charter and Time Warner Cable. (Image courtesy: Buffalo Rising)

In what Charter’s lawyers must believe to be a clever move, the company expects its unilateral declaration to be recognized by the Commission, despite the fact the Commission clearly stated in the same Merger Order the merger’s approval required Charter’s consent of both the Order and the Appendix. The company’s lawyers clearly understand what the Commission wrote because they separately have raised a fuss in an accompanying declaration, claiming the Order’s language compelling rural broadband expansion could have derailed the merger in New York.

Ignore the Parts You Don’t Like

Adam Falk, Charter’s senior vice president of state government affairs signed a declaration submitted with Charter’s response to the PSC alleging the PSC’s then-General Counsel gave Charter the impression the Commission’s interpretation of “unserved” and “underserved” meant simple availability of broadband service at speeds of at least 25 Mbps for unserved and below 100 Mbps for underserved:

“After the Commission released the Merger Order, Charter evaluated whether it would accept its conditions or pursue some other response, such as seeking judicial review of the conditions or declining to accept the conditions and seeking to restructure its transaction with Time Warner Cable in a manner that would not require the Commission’s approval,” wrote Falk. “In Charter’s evaluation of whether to accept the Merger Order’s conditions, it was of significant importance to Charter that the Expansion Condition set forth in Appendix A of the Merger Order had been drafted in a manner that gave Charter some flexibility as to how it would be able to meet the condition.”

Falk added, “Had Appendix A contained [a] geographical limitation on the Expansion Condition, the presence of such a limitation would have been a material factor in Charter’s evaluation of whether to accept the Merger Order’s conditions. Before Charter formally accepted the conditions in Appendix A, a Charter consultant, acting at my direction, made an inquiry to Department Staff (specifically the Department’s and Commission’s then-General Counsel) regarding the presence within the body of the Merger Order of language referencing low-density areas, given the absence in Appendix A of any geographical limitation [….]

Where are these witnesses?

Falk claims the consultant and a member of Charter’s outside counsel were pointed by the PSC’s General Counsel to a reassuring legal precedent that signaled the Commission was allegedly prepared to accept only Appendix A was controlling, and Charter could effectively ignore everything else in the order granting the merger’s approval.

This would appear to be a surprising series of events, especially considering the PSC’s recent aggressive “show cause” order threatening Charter with fines and franchise revocation for not complying with its original interpretation of the Merger Order, which is miles apart from Falk’s claims of a mysterious ex-General Counsel and an unnamed consultant. Charter’s legal team relies on hearsay representations from unnamed people. The declaration itself raises a number of questions:

  • Where are these people now?
  • What do they say?
  • Why would a multi-billion dollar corporation rely on verbal assurances alone with respect to what Mr. Falk claims to be a material matter serious enough to potentially derail the merger in New York State?
  • If the ex-Counsel’s advice was given as Mr. Falk represents, why would the PSC suddenly pursue a very different interpretation of the Merger Order (the one it has consistently sought to enforce since the merger approval was written), and does that ex-Counsel have ultimate authority over how the merger agreement should be interpreted? We suspect not.

Disqualified Addresses

We know you are exhausted by now, so just a few more important points to consider (there were many more, but we suspect nobody would bother to read them all).

This newly constructed Brooklyn loft, worth more than $6 million, is now wired for cable service and counted among the “newly passed” addresses Charter wants credit for as part of its merger commitments. Does anyone believe the new owners would ever have a problem getting cable service?

Charter reacted with strong disappointment over the state’s decision to invalidate thousands of the company’s submitted addresses as evidence it was meeting its unserved/underserved merger-related commitments. The company’s lawyers used some novel arguments to rebut the state’s contention Charter was fudging the numbers:

  • Charter introduced its own concept of “well understood” metrics it claims are used by the broadband industry to define when a household or business is “passed” by a provider’s network. But there is no evidence of a meeting of the minds on this point, and Charter unilaterally declares it is the appropriate standard to follow, while also conceding the PSC did not specifically agree to those metrics.
  • Charter relies on Verizon-like logic to explain away its inability to meet its own buildout requirements. In New York City, regulators have rolled their eyes at the excuses Verizon gives to explain why it is years behind on its commitment to provide FiOS city-wide. Like Verizon, Charter seems to claim the mere presence of a wire down a street that is “capable” of furnishing service (whether the company actually ever does or not) is adequate enough to prove that street to be “served” if it can be installed in 7-14 days and without ‘unreasonable’ expense. Shouldn’t the definition of served include a real customer that can actually order and receive service?
  • Charter argued with what it claims is the state’s contention that all of New York City already has access to 100 Mbps broadband service, and as a result those locations cannot be counted as unserved/underserved broadband expansion. It hopes people will ignore the more relevant and appropriate question — whether existing franchise agreements signed by Charter and Verizon compel both companies to offer 100 Mbps service on request in those areas (while also raising uncomfortable questions about why those companies are failing to meet their existing obligations). If this is the case, those areas would have been serviced because of the city’s franchise agreements, not as a result of the merger agreement.
  • The Commission’s undercover on-site audits of many of the claimed upstate passings were rejected because of ‘misunderstandings’ about the state of Charter’s network in many of those areas. Charter’s lawyers criticized the PSC for not giving the company advance notice of the unannounced independent audit so that those ‘misunderstandings’ could have been clarified before the cable company was embarrassed by accusations it was cheating.
  • New York’s PSC has no legal authority to exclude New York City addresses from the broadband expansion program, at least according to Charter’s lawyers.

A review of the list of recently excluded addresses reveal many are in urban or suburban areas where new apartment complexes, condos, planned communities or commercial buildings have been built or renovated. Virtually all of them are within existing franchise areas and also seem well within Charter’s ROI requirements. Charter will effectively diminish the rural broadband expansion deal condition if allowed to fill up spaces with non-rural properties that effectively cut the extra deal benefits the PSC required Charter to share with New Yorkers to win approval of its merger.

One last point. Charter seems to be quite proud of their “Robust Quality Assurance Process,” to avoid duplicating existing service addresses or claim new passings in areas where other providers already offer 100 Mbps service. Yet the company concedes itself it has repeatedly withdrawn ineligible addresses when the state notifies them their ‘robust process’ has failed Charter once again. Part of that process relies on the FCC’s provider-volunteered broadband availability reports — the same ones that will suggest virtually every American has 3-6 competing broadband providers — mostly those that don’t actually exist as viable options for various reasons. Charter seems to recognize this, and claims its ‘quality assurance’ process relies on confirming what services are actually available in those neighborhoods. The lawyers do not include statistics about how many people actually open their doors or stay on the line with a cable company representative who wants to talk about their broadband options long enough to actually obtain that data.

The Unions Are Behind It

Just in case every other argument offered by Charter’s lawyers fails, there are always conspiracy theories to try. Charter hints that the unions and a labor dispute (actually a strike that has lasted more than 400 days) are responsible for the PSC’s sudden interest in holding Charter’s feet to the fire. With no evidence to offer, Charter warns the state not to bring pressure on the company to resolve its labor disputes:

The Commission is well aware that Charter is currently engaged in a labor dispute in New York City that has been the subject of considerable political attention and attracted significant interest from New York State and City officials, as well as from the Commission itself. In the course of that labor dispute, representatives of the striking employees have repeatedly threatened that New York State government entities will take adverse, unrelated regulatory actions against Charter if the labor dispute is not resolved to the union’s satisfaction—implying that the union believes it has the ability to influence the actions of certain public officials and may try to use that influence. […] In the months since Charter’s labor dispute reached an impasse, Charter has become the target of numerous proposed adverse regulatory actions, including the Expansion Show Cause Order, the NYC Franchise Order, an order initiating a “management and operations audit” of one of Charter’s telephone affiliates that referenced and was predicated specifically upon Charter’s labor dispute, and two orders proposing to publicly reveal confidential network and service information that Charter had been reporting to the Commission for years without objection or incident. The sudden focus of these enforcement efforts on Charter, the procedural irregularities of the Commissions orders, and the lack of any serious evidentiary foundation for the charges could lead reasonable observers to question whether they are animated by additional purposes unrelated to the Commission’s legitimate oversight responsibility, especially in light of public statements by public officials. Any effort by the Commission to initiate proceedings to pressure Charter to resolve its labor disputes would violate both state law and federal labor law. Charter is committed to demonstrating its compliance with the Expansion Condition within the four corners of the Merger Order itself, but reserves all rights with respect to these efforts.

Charter Spectrum strikers in the New York City area have been out for more than a year. (Image courtesy: Brooklyn Daily Eagle)

Yes, it could be all that, or perhaps state officials are exasperated that a multi-billion dollar company might not be living up to its commitments and now could be playing fast and loose with a vitally important rural broadband expansion initiative.

This is but a taste of the temerity of Charter’s attorneys. We could have mentioned the parts where they blame the weather for service expansion problems, why once the deal is done the state really has almost no power to compel the company to meet its obligations, why the PSC was unfair not giving Charter several months advance notice of invalidated addresses so it could correct deficiencies somehow missed by the company’s fabulous Robust Quality Assurance Process, why the company seems to treat the PSC’s estimate that it will cost an average of $2,000 to wire rural unserved homes as a requirement — one that can only be successfully achieved by counterbalancing cheap installations in New York City against costly projects to wire a dairy farm in Cohocton, and finally why it is really “complicated” to wire multi-dwelling units in New York City but that remains preferable to dealing with angry farmers in upstate New York stuck with no broadband service at all.

Charter has an easy way to avoid all of this unpleasantness. Charter must fulfill the terms of the Merger Order it agreed to, and must be penalized and sanctioned for its prior failures. We’ve already recommended sanctions that would assign any fines collected by the Commission to be spent on additional broadband expansion to reduce the number of rural residents being stuck with satellite internet service instead of a wired provider. That will make a real difference in the lives of more than 70,000 New Yorkers stuck with a non-broadband solution.

N.Y. Public Service Commission Discovers Charter’s Misleading Upstate Broadband Numbers

A utility pole with Charter Communications wiring in upstate New York.

Charter Communications has been caught counting upstate New York homes and businesses as newly served when, in fact, many have had cable service for years.

New York’s largest cable operator is once again under fire over questions about whether it is misled state officials in its claims to be expanding rural broadband service to 145,000 unserved homes and businesses. In many instances, New York regulators found evidence the company was counting residents as “newly passed” by Spectrum cable lines when regulator on-site audits found those customers were already served by Spectrum or another broadband provider.

The Buffalo News reports staff members of the New York Public Service Commission visited multiple properties and took photos and notes finding simple overhead cable replacements or non-existent addresses were counted by Charter as new expansion areas to be counted towards its agreement to expand rural broadband in return for approval of its 2016 acquisition of Time Warner Cable.

The PSC has already repeatedly admonished Charter Communications for failing to keep to its broadband expansion agreements. The regulator has also warned the company faced at least $1 million in fines and franchise revocation proceedings in parts of New York City for allegedly miscounting 12,467 addresses in dense urban areas of New York City that either already had access to Spectrum cable service or should have under New York City’s franchise agreement.

Based on the latest list of invalid addresses rejected by the PSC, thousands are located in rural upstate New York. Charter is the biggest cable operator in every part of New York State except Long Island, and a few New York City boroughs where Altice’s Cablevision is the dominant provider. Some parts of rural New York are served by independent cable operators or co-ops, and 1,726 addresses Charter listed as “newly passed” were declared invalid after the PSC discovered they were already served by Charter/Spectrum or another provider. The agreement required Charter not to count areas where New York State paid taxpayer dollars to subsidize rural broadband expansion from other providers like telephone companies.

If Charter is unable to provide evidence refuting the PSC’s findings by May 9, 2018, the PSC will fine Charter $1 million. The company was required to maintain a $12 million line of credit after its earlier lapses that can be drawn upon by New York State to efficiently collect fines and penalties.

Stop the Cap! filed a recommendation with the PSC in April that it impose new sanctions against Charter if it is once again found deficient in meeting its commitments. Specifically, the group recommended the PSC impose a requirement that Charter further expand its network to reach as many New York homes and businesses reasonably within reach that have recently been assigned to receive satellite internet access. More than 70,000 rural New Yorkers were disappointed to learn they would not receive promised broadband service from a wired broadband provider because no companies bid to serve these potential customers.

“Compelling Charter to broaden its reach by as few as three miles beyond where it stands today could bring a number of upstate New York residents their only practical chance of getting true broadband service,” said Phillip Dampier, Stop the Cap!’s founder and president. “Fines punish bad behavior but don’t bring anyone broadband service. We’d prefer they be required to spend that money and more on helping erase New York’s urban-rural digital divide once and for all. Satellite internet is an unacceptable solution for all but a small number of these broadband-stranded New Yorkers.”

Cuomo

New York Governor Andrew Cuomo chimed in on Wednesday through his press secretary, criticizing Charter’s alleged bad behavior.

“The State approved Spectrum’s acquisition and its ability to operate in New York based on the fulfillment of certain obligations, including providing broadband access to underserved parts of the state and preserving a qualified workforce,” said Dani Lever, press secretary to Gov. Andrew M. Cuomo. “The governor believes it is essential that corporations doing business with the state uphold their commitments, and we will not tolerate abusive corporate practices or a failure to deliver service to the people. Large and powerful companies will be held to the same standard as all other businesses in New York. The Spectrum franchise is not a matter of right, but is a license with legal obligations and if those are not fulfilled, that license should be revoked.”

In response, Charter strongly denies the allegations and claims it not only isn’t guilty of overcounting new rural passings, it is actually delivering rural broadband expansion ahead of schedule.

“Charter is bringing more broadband to more people across New York state,” the company said in a statement. “We exceeded our last build-out commitment by thousands of homes and businesses.  We’ve also raised our speeds to deliver faster broadband statewide. We are in full compliance with our merger order and the New York City franchise.”

The original 2016 merger approval agreement called on Charter to expand its Spectrum cable service (formerly known as Time Warner Cable) to an additional 145,000 New York locations over four years. Charter’s standing with the PSC was quickly called into question when the company broke its commitment to reach the first 36,250 properties no later than May, 2017.

“It should have been clear to Charter its buildout schedule and commitment was in serious trouble by Thanksgiving of 2016 — just months after completing its $56 billion buyout of Time Warner Cable, when it reported it had achieved only 7,265 new service passings so far,” said Dampier. “By the deadline, Charter only managed to reach 15,164 newly served properties, less than half what it promised. Now the company claims it is overachieving its commitments, but is it fudging the numbers?”

John Rhodes, chairman of the PSC, seems to think so.

When the department’s staff went out on road trips to audit some of Charter’s claimed “new passings,” it discovered troubling evidence that “many of these claimed newly completed passings actually consisted of cable and equipment upgrades to existing cable plant. In other words, Charter replaced older cabling and equipment on a pole with newer cabling and equipment, but the location had already been passed by the cable network, oftentimes having been originally passed with cable [service] for years,” according to Rhodes.

The PSC did not surprise Charter with the results of its audits at the last minute either. New York’s PSC notified it had started actively auditing Charter’s claimed passings as early as January, 2017. Each month, staff members sent the results of those audits to Charter, showing exactly what properties appeared not to be in compliance with the approval agreement.

Rhodes

The audit was comprehensive, according to Rhodes:

DPS Staff’s audit process involved field inspections of targeted address locations identified by Charter as completed. Department Staff used GPS and other mapping tools to identify addresses, cross roads, and landmarks in the periphery of the target inspection addresses. When an address was positively identified, DPS Staff made observations at the claimed completed location to determine if cable network (either aerial or underground) was present, and if so, was the cable newer or older vintage, and whether or not cable was already present and passing the location prior to January 2016. Amongst other things, Field Inspectors made visual observations of cabling, electronics, power supplies, connectors, cable shrink tubing and related attachments for overall condition, including signs of wear, corrosion, and discoloration that would associate weathering and age of the outside plant facilities. Department Staff also looked for noticeable recent additions of cable tags, subscriber drops, as well as the attachment conditions of other pole attachers to help determine if there had been any recent physical moves or changes to the facilities. Further, DPS Staff made visual observations of the foliage and vegetation in the periphery of the communications space, looking for signs of recent trimming or other activity that might indicate outside plant work activity.

The final straw may have been Charter’s December, 2017 buildout list, which included 42,889 claimed new passings. PSC staffers audited 6,389 addresses in upstate New York, revealing disturbingly low verified compliance with the expansion agreement. Of those upstate addresses, Rhodes’ report claims 465 audits were unverifiable or undetermined, 1,726 were recommended for disqualification because there was pre-existing cable service at those locations, and another 1,597 addresses were apparently duplicates from previous quarterly Charter buildout lists the company may have attempted to count twice.

Charter’s most recent settlement agreement set a schedule for rural broadband expansion, with deadlines, benchmarks, and substantial fines for missing either:

  • 36,771 properties by Dec. 16, 2017;
  • 58,417 by May 18, 2018;
  • 80,063 by Dec. 16, 2018;
  • 101,708 by May 18, 2019;
  • 123,354 by Nov. 16, 2019;
  • 145,000 by May 18, 2020.

The Great 5G Giveaway: Cities and States Race to Let Big Wireless Deploy 5G on the Cheap

In 2017, negotiations between the city of McAllen, Tex. and wireless companies over the cost of placing new wireless infrastructure neared agreement at $1,500 per network node, an amount not out of line with the kind of infrastructure fees being charged in other cities where utilities want to place their equipment in the public rights-of-way. But just before contracts were ready to sign, the wireless companies broke off negotiations with city officials and began lobbying for a new Texas state law that would set the terms and conditions for placing telecommunications infrastructure statewide regardless of the wishes of individual Texas towns and cities.

SB 1004 was the kind of bill companies like AT&T love. Drafted from talking points supplied by the telecom industry and introduced by a friendly legislator — Republican State Sen. Kelly Hancock, (dubbed “THE WORST” by Texas Monthly magazine) — AT&T and Hancock partnered up to push the legislation through the state legislature, with the help of more than 100 lobbyists working with a budget of $7.8 million, according to a Texas Monitor analysis.

AT&T counts Texas as its corporate home, and company spends lavishly to have its way. It has been the largest lobbying force in the state by far for at least two decades, with 108 registered lobbyists. In second place is TXU Energy Retail, which registered just 29 lobbyists. AT&T offers politicians in the states where it provides local phone service a continuous fountain of campaign contributions. Since 2007, AT&T has spent more than $2.2 million on Texas politicians alone. AT&T donated to 175 of the 181 members of the Texas House and Senate, and its legislative achievements are impressive, winning passage of 14 of the 28 bills the company supported or wrote. Hancock counts AT&T among his top corporate donors, along with the former Time Warner Cable and Comcast.

SB 1004 will cost Texas communities a substantial amount of local control over wireless infrastructure, along with millions of dollars in pole attachment and oversight fees. Hancock, who has no background in telecommunications, arbitrarily set fee caps on wireless facilities at $20 a year for locating equipment on an existing pole and $250 a year if a company attaches equipment on something else. To observers, it isn’t just a bargain for the wireless industry, it could also means some towns and cities could be forced to spend public tax dollars to manage and monitor wireless company infrastructure should something goes awry.

McAllen is among 31 cities in Texas fighting to overturn AT&T’s state law. The city is upset because SB 1004 strips its authority to manage public rights-of-way. By bending over backwards to the wireless industry, companies can put 5G small cells and other equipment just about anywhere with little recourse. In fact, the Texas law mandates companies use pre-existing street signs, traffic garages, and street/traffic lighting as antenna locations wherever possible, which is good news for AT&T but could cause visual pollution and potential safety issues for residents. With below-market attachment fees topping out at just $250, four major national wireless companies can sprout antennas all over town, whether they create eyesores or not.

Bennett Sandlin, executive director of the Texas Municipal League, called that an “unconstitutionally low amount of money.”

“It’s mandatory that when private companies want to make a profit using public land that they pay a reasonable rental fee for it,” Sandlin told the Texas Monitor. “Just like if AT&T wanted to run these facilities through our backyard, we wouldn’t let them do it for free.”

Sandlin adds the wireless industry wants to be given special privileges under the guise of expanding internet access in return for getting cheap access to public rights-of-way, but they don’t want to be regulated like a public utility.

If the new law stands, it is estimated that Texas cities will lose up to $800 million a year in revenue from fees — money that will probably be made up by increasing taxes or other fees.

In Tennessee, the state has gone all out to hurry the passage of a similar law in hopes of convincing wireless companies to make the state one of the first targets for 5G expansion.

Sen. Bill Ketron (R-Murfreesboro), believes clearing a path for rapid 5G deployment will attract billions of dollars of new investment in the state.

“It’s going to transform the world as we currently know it. We’re expecting speeds anywhere from 30 to 50 percent faster as far as connectivity is concerned,” Ketron told his colleagues in the Tennessee legislature. “It opens up that bandwidth for all the data, everything that we’re doing from texting to telemedicine to even autonomous vehicles.”

House Bill 2279 and its companion SB 2504 are written almost word for word on the recommendations of AT&T and other wireless lobbyists. Like a Christmas tree decorated with ornaments, all of AT&T’s legislative priorities can be found in both bills, and not by accident. The phone company’s lobbyists have worked hand in hand with other internet providers, lawmakers, and local governments and co-ops to push the bill for rapid passage. After four months, it is nearing the governor’s signature.

The handful of critics, mostly Democrats, have been reduced to offering concern about the bill’s impact on local self-governance. Sen. Lee Harris (D-Shelby County) told colleagues, “I’m inclined to support this bill, but it does give me pause that we would intervene in these negotiations and set a price,” referring to the bill’s capped application fee of $100 per small cell installation, with a $35 annual renewal fee.

Ketron has frequently defended the bill’s cap on fees, which most observers claim are substantially lower than what wireless companies expected to pay, by claiming he wanted to prevent cities and towns from “cashing in on poles because that would be passed on to all the users through their rate fees, and I know my bill is already high enough.”

Sen. Ketron moving HB 2279 forward in the Tennessee legislature on April 11, 2018.

The potential revenue hit to municipalities would normally be enough to rally opposition, but because of AT&T’s lobbying efforts, most cities and counties in Tennessee have remained neutral on the bill, signaling a virtual guarantee it will become law. The company has worked hard to try to reassure communities the new law will be revenue neutral and be sensitive to the aesthetic needs of local communities. The bill promises that in the event a small cell damages or brings down a pole, the owner of the equipment will be responsible to fix the damage or provide an identical replacement light or pole at the company’s expense.

But based on stories from other communities that have gotten small cell technology for existing 4G LTE networks, problems remain. The biggest issue for residents is visual clutter on poles in their front yards. Some companies also install “lawn refrigerator” cabinets that house backup batteries or other equipment to keep small cells operational in the event of a power outage. Residents frequently complain about these unsightly metal boxes that can appear overnight in the public right-of-way, sometimes right in front of their home, with no warning.

Some town engineers also question the safety of some installations, particularly if multiple carriers seek to place equipment on the same poles. Some have expressed concern about what impact the extra equipment might have in a vehicle collision that brings a pole down onto another vehicle. There are also broader implications once a town surrenders authority over its public rights-of-way to state officials.

Ketron’s personal knowledge of 5G technology and his credibility to deliver on the promises and claims he has made to his colleagues is also open to question. During a brief floor session to consider House Bill 2279, Ketron frequently became tongue-twisted explaining the merits of 5G networks, their functionality, and what benefits they will offer rural Tennessee consumers.

In rambling introductory remarks, Ketron claimed, “the connectivity speed through that bandwidth what 5G brings us […] all are going to be communicating through all that bandwidth of that data.” He also promised a colleague in rural Tennessee that 5G service had a real potential to solve the state’s rural broadband problems, despite the fact the technology would be very costly to deploy in rural areas because of required fiber backhaul and the limited range of each small cell.

The Tennessee Electric Cooperative believes 5G deployment will likely stop with the suburbs, unlikely to expand into rural areas because of its limited range.

“Because of this, we don’t anticipate it will ever see widespread use outside of densely populated areas,” Trent Scott, spokesman for the organization told the Memphis Daily News. “The economics of deploying current 5G technology in sparsely populated areas are going to be a challenge.”

But the idea of AT&T and other wireless companies spending billions on new wireless infrastructure in Tennessee attracts political support for the short-term jobs for installers. The future of 5G technology and its use with Tennessee’s smart grid and intelligent transportation projects of the future may explain why the bill has attracted 40 co-sponsors.

But on the local level in communities like McAllen, there is also recognition wireless companies stand to earn tens of billions from the next generation of wireless technology, and they will be able to earn that revenue at a relatively cheap cost if communities surrender their ability to leverage their publicly owned assets like rights of way. McAllen officials hoped to negotiate a new network of public hotspots to help bring internet access to those who cannot afford traditional internet subscriptions. If AT&T agreed, the city was willing to steeply discount their fees. But no companies showed any interest in the idea. With enthusiastic state legislators willing to introduce legislation tailor-made for those companies, they didn’t have to.

The Tennessee legislature debated passage of the state’s 5G-related legislation for just 15 minutes before passing it 32-1. But did members truly understand it? (14:44)

Former Head of Ajit Pai’s Broadband Group Arrested by FBI on Fraud Charges

Phillip Dampier April 16, 2018 Public Policy & Gov't, Rural Broadband, Video No Comments

Pierce (Image courtesy of: KTUU-TV)

FCC Chairman Ajit Pai’s choice to lead his newly created Broadband Deployment Advisory Committee (BDAC) was arrested last week by the FBI and charged with a multimillion-dollar investment fraud scheme.

Elizabeth Pierce, former CEO of Quintillion and ex-chair of the BDAC from its start until September, 2017 surrendered to authorities in New York City. Pierce was charged with wire fraud for allegedly tricking investors into putting more than $250 million into an Alaskan fiber optic project based on guaranteed revenue contracts prosecutors claimed Pierce forged herself to reassure investors Quintillion would benefit from telecom traffic revenue the fiber network never had.

To realize her plan to build a fiber optic system that would service Alaska and connect it to the lower 48 states, Pierce convinced two investment companies that she had secured signed contracts that would supposedly generate hundreds of millions of dollars in guaranteed future revenue from the system,” said Manhattan U.S. Attorney Geoffrey Berman. “Those sales agreements were worthless because the customers had not signed them. Pierce had forged counterparty signatures on contract after contract.”

To raise adequate funds to support Quintillion’s ambitious fiber optic network buildout, Pierce frequently appealed to outside investors. Several wanted evidence the fiber network would attract enough business from telecom companies to justify an investment. Pierce was accused of faking contracts with Alaska’s telecommunications companies from 2015 until 2017 to provide reassurance companies were committed to spend at least $24 million in traffic charges the first year the network began operation.

Pierce’s alleged scheme fell apart when Quintillion began invoicing clients based on the fake contracts. At least one protested, claiming it did not use Quintillion’s network. A subsequent internal investigation allegedly founds dozens of phony contracts kept in Pierce’s Google Drive account, with at least 78 moved to the service’s trash bin 48 hours before investigators began searching Pierce’s computer. Prosecutors were able to recover the deleted documents with a search warrant presented to Google.

Pierce may have attracted FCC Chairman Ajit Pai’s attention after publicly complaining the permitting process in Alaska took longer than building fiber cables from scratch and shipping them from Europe. Out of more than 380 applicants, FCC Chairman Ajit Pai picked Pierce in 2017 to head his new broadband advisory committee, tasked with eliminating or streamlining regulations and making life easier for broadband providers to persuade them to expand broadband rollouts.

“The Commission was fortunate to have an excellent and deep pool of applicants to serve on the BDAC,” Chairman Pai noted on the occasion of introducing the BDAC and Pierce to the public. Critics argue Pai’s BDAC has been stacked with industry, industry-funded or industry-friendly committee members that are influencing most of the public policy recommendations issued in the group’s final recommendations. At least two city officials resigned over concerns their views were not being taken seriously.

Pierce resigned from Quintillion in August 2017 and from the BDAC a month later for  “personal reasons.”

KTUU-TV in Anchorage reports Quintillion’s ex-CEO was charged with wire fraud. Nevertheless, the Alaskan fiber project is trying to carry on. (3:11)

Corruption? Massachusetts Giving Preferential Treatment, Taxpayer Dollars to Charter/Spectrum

The head of a state-funded group with direct ties to the Massachusetts governor’s office told local officials in New Marlborough that the Massachusetts Broadband Institute (MBI) “believes in cable companies” and is favoring one — Charter Communications, with an exclusive offer to invest millions in taxpayer dollars to entice Charter to bring its Spectrum cable service to town, while telling would-be competitors the money is only available to Charter Communications.

MBI was created in 2008, originally tasked with investing $50 million in state funds to help resolve the digital divide between eastern and western Massachusetts. MBI also manages the publicly owned, middle mile fiber optic network that towns in western Massachusetts are depending on as part of their plans to connect local residents to the internet.

In 2015, MBI suddenly yanked support for WiredWest, the region’s most robust and credible player in connecting residential homes and businesses. The group had spent several years organizing and educating some two dozen largely rural communities, and was well on its way to constructing a public broadband network for the towns that agreed to sign on to the project. Since 2015, a series of political disputes, bureaucracy, and confusion has stalled broadband expansion.

Peter Larkin, MBI’s board chairman, has been roundly criticized in many western Massachusetts communities for continuing MBI’s slow and cumbersome bureaucracy, frequent policy shifts, and most recently playing favorites with cable companies. Ignoring his own organization’s systemic failures and bureaucratic roadblocks, Larkin has recently leveraged community frustration with the slow pace of progress as an excuse to hand two of the nation’s largest cable operators public taxpayer dollars to complete a project MBI was directly responsible for stalling.

Larkin

Under the latest proposal, outlined last Friday, Charter Communications would receive $3.1 million to expand Spectrum cable service to at least 96% of the community of New Marlborough. Originally, the town was responsible for $1.44 million in cost sharing with the state, a substantial sum for a community with a population just over 1,500 residents. Larkin last week offered to split the cost to the town, with the town’s share reduced to $720,000 — payable directly to Charter.

“The state is willing to cut the gap in half to make this project go,” Larkin said.

But that deal appears to be good only if the town selects Charter Communications. Over the last year, MBI has been allocating public taxpayer dollars towards private cable and phone companies, especially Comcast and Charter, to get the companies to agree to expand their cable systems in areas both have ignored for decades. WiredWest’s proposal made towns partners in the project. Larkin’s offer suggests taxpayers should pay up to 50% of the expansion costs, while Charter keeps 100% of the revenue and profits.

In the past, MBI’s financial carrots have been enough to get the two cable companies to expand using state matching funds alone, but as the town’s Broadband Committee Chairman Richard Long told the Berkshire Eagle after the meeting, he thinks this is the first time an unserved town in central or western Massachusetts will have to contribute local taxpayer funds as well just to get service from a cable company.

Larkin’s hard sell for Charter raised eyebrows among some in the town, especially after Larkin offered to use state funds to also finance their $720,000 portion of the deal over as much as a decade. Larkin claimed he wanted to get the project done and wanted to be helpful.

“The state may spend moneys or engage in other activities that benefit or incentivize private businesses in order to promote such [economic] development and it may authorize or partner with its cities and towns to do likewise,” Larkin recently wrote in a letter to towns offering to help them get negotiations going with the cable companies.

Town resident Dave Travis called Larkin’s offer something else.

“Call me a whistleblower, concerned citizen, activist for fairness, justice and democracy, but for Massachusetts Broadband Institute to show such blatant preferential treatment [to Charter] when there are qualified, experienced local options feels like corruption, and it needs some serious daylight,” Travis wrote.

WiredWest’s Tim Newman exposed just how far Larkin was willing to go to bat for Charter.

“Is the generosity you’re presenting to our town on behalf of Charter the same generosity if the town were to build its own network?” he asked Larkin.

“We do believe in the cable companies … we think it’s a value worth leaning in a little bit harder for,” he said, suggesting Charter has the financial ability to complete the project.

“So, the short answer is ‘no’ — the $720,000 would not be available?” Newman pressed.

“No,” Larkin answered.

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