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.

The New York State Public Service Commission today fined Charter/Spectrum $2 million after the company failed to meet its obligations to expand its cable network to more than ten thousand homes and businesses the company committed to serve in the time allotted. In addition, the PSC warned the company, which claimed in a response to the state’s “show cause” order that it was not obligated to meet the terms of its 2016 merger agreement, faces the threat of having its merger with Time Warner Cable revoked, which could end Spectrum’s ability to operate in New York State.

“As a condition of our approval of Charter’s merger two years ago, we required Charter to make significant investments in its network,” said Commission chair John B. Rhodes. “Our investigation shows that Charter failed to meet its obligations to expand the reach of its network to unserved and underserved customers at the required pace and that it failed to justify why it wasn’t able to meet its obligations. Furthermore, since the company has taken the unfortunate position of refusing to adhere to all conditions set forth in our initial decision two years ago, we now demand the company unconditionally accept all of the conditions as the Commission unambiguously required in 2016, or run the risk of more severe consequences.”

In its order regarding Charter’s failure to meet its buildout obligations, the Commission rejected 18,363 addresses — including 12,467 in New York City and 4,096 in the cities of Buffalo, Rochester, Syracuse, Schenectady, Albany, and Mt. Vernon — to which Charter claimed it expanded network as part of its required buildout requirement. The Commission found that these addresses were already passed by Charter or another company providing high speed broadband, or that Charter was separately required to pass the addresses pursuant to state regulations and/or franchise agreements.

As a result, Charter must revise its overall 145,000 addresses-buildout plan to remove the rejected addresses and file a revised buildout plan for going forward within 21 days. In its initial 2016 order approving Charter’s acquisition of Time Warner Cable, the Commission required that Charter 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.

About a year later, it became evident that Charter had failed to meet its May 2017 target. To get the company back on track, the Commission approved a settlement under which Charter was required to pass 36,771 eligible premises by December 2017, and meet regular six-month milestones or else pay up to $1 million for each miss, and up to $1 million should the company fail to correct any miss within three months.

Rhodes

Earlier this year, Commission staff, audited Charter’s compliance filing of proposed passings to be counted toward its December 2017 target, and determined that 14,522 passings should be
disqualified, which meant that the company failed to meet its required target. In its May response to the Commission, Charter argued that not all of the Commission’s 2016 merger order applies to the company as part of its rationale for including ineligible addresses. Given the company’s continued intransigence, the Commission today ordered that the company unconditionally accept all of the conditions and requirements spelled out in its 2016 order or face subsequent Commission action.

With today’s decision, the Commission ordered Charter to pay $1 million in accordance with the settlement agreement for failing to satisfy the December 2017 target and failing to demonstrate that it missed the target due to circumstances beyond its control. The Commission similarly  found that Charter did not “cure” this miss by March 16, 2018, nor did it demonstrate that it had good cause for its failure to do so, requiring an additional $1 million payment to the state.

Charter Communications is abandoning any pretense of data caps on its internet service by decommissioning its internet usage measurement tool for residential subscribers effective this July.

Company officials began notifying customers in billing statements that the usage measurement tool will be dropped effective next month. Charter Communications markets Spectrum internet service as free of any data caps, and a usage measurement system only confused customers about whether their internet usage was truly unlimited.

Originally introduced by Time Warner Cable in late 2009 and gradually made available to customers nationwide, the usage measurement tool reported monthly data usage for customers as part of Time Warner Cable’s original 2008 market test of data caps in Beaumont, Tex.

Customers were offered a Lite Tier with a 5 GB monthly cap or 40 GB of usage for the company’s Turbo Tier. Overlimit fees were $1/GB.

The company attempted to expand its data cap trial in the spring of 2009 to customers in Austin and San Antonio, Tex., Rochester, N.Y., and the Triad region of North Carolina. A major backlash, organized in part by Stop the Cap!, resulted in those market trials being abandoned within two weeks of being announced.

Time Warner Cable never attempted to impose compulsory data caps again after its disastrous 2009 trial and Charter Communications quietly abandoned its own frequently unenforced usage caps in 2015, shortly before bidding to acquire Time Warner Cable and Bright House Networks.

By ditching the usage measurement tool, Spectrum will retire the last remaining elements of Time Warner Cable’s legacy of dabbling with usage caps and further monetizing internet usage.

Charter is also forbidden from imposing data caps for up to seven years as a result of deal conditions imposed by regulators in return for approval of its merger with TWC and BH.

Time Warner Cable offered $14.99 internet access to anyone. Charter isn’t.

Charter Communications can stop accepting new customers in New York State for Time Warner Cable’s legacy “Everyday Low Price” internet service, offering basic internet service for $14.99 a month without a contract or income qualification.

Under the terms of the New York Public Service Commission’s Merger Order, Spectrum was required to continue offering Time Warner Cable’s affordable internet service for at least two years after the close of the merger to any customer in the state that wanted it. New York was the only state in the country that put meaningful deal conditions on the Charter-Time Warner Cable-Bright House merger, requiring the country’s second largest cable operator to share pro-consumer benefits with its customers in the state.

The second anniversary of the merger occurred on May 18, 2018, which means Spectrum is no longer required to enroll new customers in the Everyday Low Price (ELP) plan. Existing ELP customers can keep the plan until at least May 17, 2019, as long as they do not make changes to their account that would result in their enrollment being canceled. Once canceled, customers cannot get the legacy plan back. At about the same time next year, Charter can also compel its New York customers to abandon existing Time Warner Cable plan(s), in favor of Spectrum plans and pricing, should the company wish to do so.

Some Spectrum customers are getting nasty surprises in their latest cable bills.

For some customers, it has been one year or more since Spectrum introduced new plans and pricing for former Bright House Networks and Time Warner Cable customers and one year since the company implemented all-digital cable television upgrades that require customers to place equipment on every television wired for cable in the home.

Many customers received “free” equipment as part of the digital upgrades, but may have forgotten that promotion only lasted one year. That is also the length of Spectrum’s various ‘new customer’ and ‘retention’ promotions. When the year is up, your bill goes up — sometimes dramatically.

In Cleveland, Ohio some customers are finding bills increasing $18-30 a month or more, sometimes increasing more than once as rate promotions and free set-top equipment deals end at different times in the year.

It is not unusual to find customers paying $180-225 or more a month for Spectrum’s “triple play” package of television, phone, and internet service, after promotions end. A significant percentage of customers still holding legacy Time Warner Cable and Bright House plans are finding those packages increasing in price as well. In comparison, new customers with a triple play package generally pay between $100-120 a month, depending on equipment.

Some of the rate changes Spectrum imposed over the last 12 months include:

• Equipment rate increases (usually around $1.00 a month per box)
• New “Secure Connection Fee”: $1.00/mo per box – Spectrum claims this fee covers “those measures Spectrum employs to manage and secure the connection between Spectrum’s system and the Spectrum receiver and other devices Subscriber uses to access Spectrum’s services.”
• Broadcast TV Surcharge rate increases
• Internet service rate increases

Although Spectrum has reportedly become more amenable to offering retention deals to customers threatening to leave, the best deals are still for new customers. Some have dropped Spectrum service and signed up again under the name of another household member to secure a better deal. Others will have to wait 30 days after ending service before one is qualified for a new customer deal once again.

WKYC in Cleveland reports some Spectrum customers are upset about sudden bill changes. (2:34)