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N.Y. Settles With Charter Communications; Rural Expansion Website Now Available

New York residents can click the image above and input their address and see if Charter’s expanded service area will include their home or business.

The New York State Public Service Commission (PSC) today announced approval of a $13 million settlement agreement with Charter Communications after the cable company failed to build-out its cable network as required in last year’s approval of Charter’s acquisition of Time Warner Cable. The $13 million settlement is the largest cable company financial settlement of its kind in state history and possibly the largest in the nation’s.

“In its approval of the merger, the Commission required Charter to undertake several types of investments and other activities,” said Commission Chair John B. Rhodes. “While Charter is delivering on many of them, it failed to expand the reach of its network to un-served and under-served customers at the pace it committed. We are taking these additional steps to ensure full and complete compliance.”

Charter Communications was required, as a condition of approval of its merger with Time Warner Cable, to expand its broadband service to 145,000 unserved/underserved homes and businesses in New York over the next four years. Rural broadband expansion was one of the conditions Stop the Cap! recommended to the New York regulator in our testimony regarding the merger proposal.

In the first year, Charter failed to meet its buildout requirements, only reaching 15,164 locations — less than half of the 36,250 it agreed to serve by May, 2017. The cable company first tried to blame utility companies for dragging their feet allowing Charter to place its cables on their utility poles, an argument that failed to impress the PSC. Even if utility companies instantly cleared the way for Charter, the cable company admitted it would not be ready to proceed because of necessary preparatory work needed to begin the buildout.

As a result, Charter has been forced to place $13 million in an escrow-type account that New York can tap into in amounts of up to $1 million increments to penalize the company for further delays. Charter can win back all $13 million if it stops missing its six-month buildout targets. Each time it does miss a deadline, the State reserves the right to withdraw funds in amounts that will vary based on the seriousness of the violation. Some forfeited funds will be used to acquire computers and internet training for low-income New Yorkers. The rest will be channeled into New York’s general fund.

Charter’s new targets require the company to expand its cable service in increments of 21,646 homes over six periods through May 18, 2020.

Many rural New Yorkers with no access to broadband service have complained Charter has not been forthcoming about whether the broadband expansion will reach their individual home or business, so the cable company has also agreed to launch a new website where New Yorkers can input their home or business address to learn if they are included in the broadband expansion. Charter warns that inclusion on the build-list database is not a guarantee that a home or area will be actually be reached.

“Build plans, timelines, and all other information provided are subject to change and areas designated for build may not be built,” the website states.

Charter is also required to deliver broadband speeds up to 100Mbps statewide by the end of 2018 — something the company has already accomplished in almost every part of the state where it provides service. The company is not subject to broadband rate regulation, and Charter charges a $199 setup fee for customers who seek to upgrade to speeds in excess of 60Mbps (except in former Time Warner Cable Maxx service areas, where 100Mbps is already the standard broadband speed). Charter must also make 300Mbps available to all New York residents by the end of 2019, something the company will likely achieve in most parts of the state sometime late next year.

Charter Communications is by far the largest cable company serving New York State. The company provides cable television, internet and telephone service in the major metropolitan areas of Buffalo, Rochester, Syracuse, Albany and the boroughs of Manhattan, Staten Island, Queens and parts of Brooklyn. Cablevision, now owned by Altice, covers the other boroughs and Long Island, as well as part of the Hudson Valley and Westchester County.

Lexington, Ky. Residents Vent Frustration With Charter Spectrum

Nearly 200 people turned out for a packed public meeting in Lexington, Ky. to complain about Charter Communications and its Spectrum cable television service.

“Welcome, Spectrum, to the lion’s den,” said Mayor Jim Gray, introducing company representatives. The complaints began right away.

“The biggest slap in the face is that no matter what we pay,” one woman said, “no matter what we set up for autopay, every single month – no purchases, no changes on our end, our bill is never consistent and always growing.”

Prices and poor customer service were the top complaints at a meeting that filled a large room at a local senior center, organized by Lexington city officials.

The problems began after Charter Communications bought Time Warner Cable. As customers’ Time Warner Cable promotions expired, prices skyrocketed. Charter representatives are trained to convert customers to Spectrum-branded packages, which many customers argue costs more.

“There’s always going to be some pains when you change from one company to the next,” Mike Pedelty, a Charter spokesperson, told WKYT’s Garrett Wymer. “There’s different ways Time Warner Cable did things than the way Charter does things. We understand that, we appreciate that. We try to do our best to communicate to our customers, we try to make sure that we let them know their options.”

Customers do not necessarily like those options.

“Spectrum has increased my bill twice while I’m still on the package,” complained customer Loney Burns. When she tried to cut back on her package to save money, Burns was told, “if you want to take them off, we will increase your bill.”

City employee Roger Damon pointed out that most Time Warner Cable customers avoided paying the regular prices Charter uses as a benchmark to claim Spectrum’s packages and pricing costs less. By negotiating with Time Warner Cable, customers could easily obtain a new promotional offer when an old one ran out. After Charter took over, the company stopped giving back-to-back promotions. As a result, a growing number of customers are forced into regular priced Spectrum packages, exactly as Charter CEO Thomas Rutledge intended.

“It’s not a very competitive business, and that’s one of the reasons that we have these challenges with customer service today,” Gray told the crowd. “We have had very, very poor technical service, very poor customer service and price increases with no notice. No one should have to scrub their monthly bills for hidden fees.”

The city’s only recourse is to fine Charter or revoke its franchise. But with the cable industry being largely deregulated, local officials have little bite to deliver after a bark. Fines can be appealed in court and there are no significant examples in recent history where a community revoked a cable franchise and found another company willing to enter another operator’s traditional service area.

WKYT-TV in Lexington covered last week’s public meeting on Charter Communications’ service in Kentucky. (1:21)

Charter: Time Warner Cable’s Too-Low Pricing Meant It Couldn’t Afford Upgrades

Charter Communications has a new argument for raising your cable bill: Time Warner Cable’s promotions were so low-priced, the company couldn’t afford upgrades. By ending promotional pricing and raising prices, Charter can finally afford to manage the upgrades Time Warner Cable never made.

That novel argument comes courtesy of Charter Communications’ director of government affairs Anna Lucey, who made it in response to complaints from customers in western Massachusetts about substandard service and bill shock from Charter’s Spectrum. She was invited to answer questions and complaints raised during last week’s Board of Selectmen meeting in Adams, Mass.

Cheshire resident Peter Gentile, who was serving as cameraman to televise the public meeting with the cable company for Northern Berkshire Community Television, complained that when his Time Warner Cable promotion ended, Charter promptly raised his bill from $103 to $182 a month — nearly an $80 a month rate hike.

“It is absurd … I was told I could save some money by downgrading my internet so it would be slower and I would lose approximately 30 channels and my bill would only go down $7.75,” he said. “This is an impoverished community, this is an elderly community that is getting older and poorer and … I wish that you would go back to your team and explain.”

Lucey explained Charter is adopting one-size-fits-all nationwide pricing for its customers and is ending promotional pricing, explaining that Time Warner’s policy of “subsidizing” cable bills to give customers a lower rate did not allow Time Warner Cable to invest in its infrastructure.

Lucey

“It did lend a problem to infrastructure reinvestment that Time Warner could do, which is one of the reasons why we don’t have similar promotional packages that constantly deflate the cable bills,” Lucey said. “We want to keep all of our services up to date and continue to reinvest but I understand the sticker shock isn’t pleasant.”

Unfortunately for Lucey’s creative justification for rate increases, the financial facts disprove her assertion. In fact, Time Warner Cable outperformed Charter Communications in the first quarter of 2016, just before Charter closed on its acquisition of Time Warner Cable.

In April 2016, Time Warner Cable chairman and CEO Rob Marcus reported “the best ever customer relationship net additions,” “accelerated revenue growth of 7.5%,” and “robust adjusted OIBDA growth of 8.2%.”

“Our first-quarter results are the clearest indication yet that our efforts over the last 27 months are paying off. We have made our network more reliable, our products more compelling and our customer service far better. We’ve refined our marketing, enhanced our sales channels and strengthened our retention capability. All of that has driven robust customer growth, which in Q1 translated into very strong revenue and OIBDA growth. I couldn’t be prouder of what our talented, committed, passionate team has accomplished,” Marcus said, reflecting on the history of Time Warner Cable’s Maxx upgrade project, which delivered more compelling broadband speeds at a lower cost to Time Warner Cable customers than what Charter Communications offers today.

In fact, financial results for that period showed as Time Warner methodically worked through upgrading its systems, customer and revenue growth went up. The only exception was Free Cash Flow, which the company attributed to merger-related expenses, not promotional pricing:

SELECTED CONSOLIDATED FINANCIAL RESULTS
(in millions, except per share data; unaudited) 1st Quarter
Change
2016 2015 $ %
Revenue $ 6,191 $ 5,777 $ 414 7.2 %
Adjusted OIBDA(a) $ 2,159 $ 1,996 $ 163 8.2 %
Operating Income(b) $ 1,145 $ 1,084 $ 61 5.6 %
Diluted EPS(c) $ 1.72 $ 1.59 $ 0.13 8.2 %
Adjusted Diluted EPS(a) $ 1.81 $ 1.65 $ 0.16 9.7 %
Cash provided by operating activities(b) $ 1,608 $ 1,508 $ 100 6.6 %
Capital expenditures $ 1,318 $ 1,134 $ 184 16.2 %
Free Cash Flow(a)(b) $ 346 $ 407 $ (61 ) (15.0 %)
(a) Refer to Note 4 to the accompanying consolidated financial statements for definitions of Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow and below for reconciliations.
(b) Operating Income is reduced by merger-related and restructuring costs of $40 million and $26 million for the first quarters of 2016 and 2015, respectively. Cash provided by operating activities and Free Cash Flow are reduced by merger-related and restructuring payments of $14 million and $26 million for the first quarters of 2016 and 2015, respectively.
(c) Diluted EPS represents net income per diluted common share attributable to TWC common shareholders.

Charter’s later announcement of upgrades for the remaining Time Warner Cable systems not upgraded to Maxx service before the merger deal was completed are occurring more slowly than Time Warner’s own original timetable. As soon as the ink was dry on the merger deal, Charter immediately canceled the Maxx upgrade program for all markets not already in progress with upgrades.

Charter’s own upgrade plan is less compelling than the Maxx menu of options, which gave customers more choices at a lower cost. Charter’s own financial reports admit the company is losing former Time Warner Cable customers as their promotions expire. Charter’s own executives attribute those losses not on deferred upgrades, but on the cost of service going forward after promotional pricing expires.

Who Will Buy Charter? Altice, Comcast, SoftBank, or None of the Above?

The French press did not take kindly to comments from MoffettNathanson analyst Craig Moffett, who suggested Altice’s ability to swallow up Charter Communications in a deal worth at least $185 billion dollars was “not credible.”

Panelists appearing on French language business news channel BFM TV chuckled at Mr. Moffett’s ability to predict Altice chairman Patrick Drahi’s next move.

“Mr. Moffett does not know Mr. Drahi like we’ve come to know Mr. Drahi,” noted one analyst. “We’ve learned not to underestimate his ability to put together business deals that some would call bold, others financially reckless, yet he does it again and again. If Mr. Drahi wants [Charter], he shall have it.”

French business reporters have scoffed at Altice for years, well before the company arrived in the United States to acquire Cablevision and Suddenlink and rebrand them as Altice.

“When you don’t take him seriously, that is when he strikes,” reported BFM.

Drahi is a master of using other people’s money to finance massive telecommunications deals. For him, bigger is essential, and that means he’d either have to acquire Comcast or Charter or hope to build a cable empire out of smaller cable companies he’d acquire and combine.

Drahi (center)

Multiple independent media outlets are tracking Drahi’s movements. Le Figaro reports Drahi has spent months laying the groundwork for his next big takeover in the United States and the newspaper knew all along it would be a major deal, because Drahi is banking on the prospects of emptying the pockets of millions of American cable subscribers to fund his operations. Americans pay vastly more for cable television and broadband service than consumers in Europe because of a lack of regulation and competition.

The newspaper adds that Drahi routinely tells investors and reporters he wants to be “number one or two” in all countries where he does business. Right now Altice is the fourth largest cable operator in the United States, an absolutely intolerable situation for Mr. Drahi.

Drahi is well aware of the enormous cost of a Charter acquisition, and Bloomberg News reports he is considering asking the Canada Pension Plan Investment Board and BC Partners to help fund the potential merger. Both groups are already familiar with Mr. Drahi and Altice and were instrumental in his acquisition of Cablevision and Suddenlink. Despite the potential help, Moffett still believes Charter is well outside of Altice’s reach.

“None of the proposed suitors—Verizon, SoftBank, Altice—have the balance sheet to acquire Charter,” Moffett wrote his investor clients in a research note. He notes Greg Maffei, chairman of Liberty Broadband, is unconvinced of the wisdom of allowing a buyer to use its other highly leveraged companies as compensation in a merger deal.

Moffett believes the deal has to make sense to two people to proceed – John Malone, Charter’s largest shareholder and ironically Drahi’s mentor and Charter CEO Thomas Rutledge, who was America’s highest paid executive in 2016. He stands to get considerably richer if he can fend off a deal until he achieves tens of millions in stock option awards, first when Charter’s average share price tops $455.66 a share and stays there for at least 60 days and then again when the share price exceeds $564 a share and stays there for 60 days. This morning, Charter Communications was selling at just over $399 a share. All of the merger and acquisition talk is helping boost Charter’s stock price, but Rutledge doesn’t want the company sold until after he can walk out with his compensation package fully funded or finds a buyer willing to make him whole.

As for Malone, he’s always been willing to cash out, but only when the deal makes financial sense to him and avoids taxes.

“Let’s put a finer point on it,” Moffett added. “The ONLY reason [Liberty Media chief] John Malone would be willing to swap his equity in Charter for equity in Altice would be if he believed, with real conviction, that Altice could simply manage the asset better than Charter’s current management.  It is not a knock on Altice to suggest that there is simply no way that Liberty would believe that. Next.”

But then, Time Warner Cable’s management didn’t take an acquisition offer from Charter Communications seriously either when it was first proposed. Time Warner Cable believed selling to Comcast made better sense to shareholders and executives. Like Altice, Charter was a much smaller cable operator proposing to buy a much larger one. In the end, regulators rejected the deal with Comcast and with Wall Street beating the drum for someone to acquire Time Warner Cable, Charter’s sweetened second offer was readily accepted.

Charter’s biggest downside to a potential acquirer is the $60 billion in debt it took on buying Time Warner Cable and Bright House Networks. Debt at SoftBank also makes Moffett skeptical of a deal between Sprint and Charter.

“They [SoftBank] already sit on $135 billion of debt,” Moffett wrote. “Add Charter’s $63 billion and you’re within a rounding error of $200 billion. Add any cash at all for Charter’s equity and you’re flirting with a quarter trillion (trillion!) dollars of debt. Were SoftBank to buy Charter, they would become not only the most heavily indebted non-financial company the world has ever seen, they would in fact be more indebted than most countries.”

To avoid crushing debt scuttling a deal, Citigroup speculated in a report to their investors that Comcast and Altice could partner up to divvy up Charter Communications themselves. The Wall Street bank speculates Comcast would help finance a deal if it meant it would take control of Charter’s customers formerly served by Time Warner Cable. Legacy Charter customers and those formerly served by Bright House would become part of the Altice family.

Such a transaction would likely overcome Malone’s objections over an Altice-only offer leaving him with a large pile of Altice USA stock.

Just as with Time Warner Cable, once a company is seen willing to deal, fervor on Wall Street to make a deal — any deal — can drive companies into transactions they might not otherwise have considered earlier. If Charter is seen as a seller, there will be growing pressure to find a buyer, if only to satiate investors and executives hoping for a windfall and Wall Street banks seeking tens of millions in deal advisory fees.

Spectrum Customer Service Reps Apologizing for Awful Pricing

…for our outrageous pricing!

Spectrum’s customer service agents are apologizing to customers for the rate shock they are experiencing when their existing Time Warner Cable or Bright House Networks promotions expire and customers find out the Spectrum plans and pricing being offered instead turn out to be nothing close to the deals customers used to get.

“You may get a call asking about my performance today, the survey is about me and my job today only,” a customer service agent explained to Jason, a Spectrum customer in Elmhurst, N.Y., who shared his experience on DSL Reports. “It doesn’t have anything to do with how you feel about Spectrum or TWC. If you are upset about the new pricing, please use the comments portion to explain. I look forward to hearing your feedback.”

Customer service representatives are on the front line of delivering bad news to cable customers facing double-digit rate increases, especially when customers realize they also receive fewer TV channels after changing plans.

“I’m guessing these agents must be getting destroyed in the surveys, [and] having worked retail where these types of surveys are used, I felt bad for the reps,” explained the Spectrum customer. “I know in my neighborhood, everyone seems to have their TWC promos expiring in the next month or so and are very unhappy.”

That unhappiness is getting worse as word about Charter Communications’ mid-year rate increase is showing up on customer bills. Broadband prices are increasing at least $1 a month, the Broadcast TV Surcharge is rising to $7.50 a month, and set-top box equipment rentals also increased by $1 a month for each piece of equipment starting in August 2017.

Premium speed broadband customers are now also facing a higher internet bill.

Spectrum’s Ultra tier, which is 100Mbps in some markets, 300Mbps in others, is increasing to $119.99 a month, up from $104.99 in most markets. The increase is less if you also subscribe to Spectrum TV, which reduces the rate to $113.99 a month. Spectrum rate cards from around the country do not yet reflect the $1 rate increase for traditional Spectrum 60/5Mbps internet (100Mbps in select markets):

Low income customers enrolled in Spectrum’s Everyday Low Price (ELP) internet package — a carryover from Time Warner Cable — also got the rude shock of a $5 rate increase on a service that used to cost $14.99 a month. That represents more than a 33% rate hike, which is just fine with Charter.

“In some of our markets the price has increased for the ELP package,” said spokesperson “Julie_R”. “Notifications were sent via bill statements and became effective with the August statements. Our ELP package is not a promotion.  From time to time, Spectrum makes decisions to adjust the pricing for our products and services to account for network investments.  We understand that value is important.  ELP is still a very good value at $19.99.”

The rate increase does not apply to New York State residents, where regulators placed significant deal conditions on the Charter/Time Warner Cable merger to help protect consumers in that state.

We have also been receiving reports from readers that Spectrum’s Internet Assist (SIA) program, designed for the elderly and income-challenged, is not easy to enroll in and customer service representatives have rejected a number of applicants for a variety of reasons. SIA offers a 30Mbps broadband connection for $14.99 a month to those qualified for:

  • The National School Lunch Program (NSLP); free or reduced cost lunch
  • The Community Eligibility Provision (CEP) of the NSLP
  • Supplemental Security Income (SSI) ( ≥ age 65 only) Programs that do not qualify for Spectrum Internet Assist: Social Security Disability (SSD), Social Security Disability Insurance (SSDI), and Social Security Retirement and Survivor Benefits are different from Supplemental Security Income (SSI) and do NOT meet eligibility requirements.

The biggest problems encountered so far:

  • Representatives lack information about the program and attempt to upsell customers to regular pricing and packages.
  • Bundling additional services with SIA can be more expensive than just choosing a traditional bundled package sold to everyone, especially if it is a new customer promotion.
  • There is considerable confusion over the qualifications for SSI recipients. Be sure to recognize you must be 65 or older and note SSD, SSDI, and certain other programs noted above do not qualify you to receive SIA.

We are continuing to monitor the SIA program looking to ensure Spectrum is making the program available to customers that qualify for it.

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