Conditions recommended by Stop the Cap! to protect New York consumers after a merger of Charter Communications and Time Warner Cable are expected to cost the two cable companies almost one billion dollars and will guarantee statewide adoption of Time Warner Cable’s Maxx upgrade, guaranteeing all customers receive speed upgrades ranging from 60-300Mbps.

On Friday, the N.Y. Public Service Commission announced its conditional approval of the merger transaction, but only if Charter agrees to a series of wide-ranging conditions to guarantee that New York customers receive tangible benefits as a result of the merger:

The Commission agrees that in order for the proposed merger to be in the public interest, the Petitioners must agree to make concrete and enforceable commitments to modernize their cable system and services, expand access, address the digital divide and improve customer service. To this end, we find that with the acceptance by the Petitioners of the enforceable conditions, as discussed in the body of this Order and Appendix A, the proposed merger is in the public interest. These conditions are designed to help ensure a near ubiquitous world-class communications network that meets the needs of all New Yorkers. Absent acceptance of these conditions, the public interest standard cannot be met, and the petition for transaction approval is denied.

Stop the Cap! was quoted and footnoted extensively in the PSC order. We provided the PSC with insight beyond the public relations machine of Charter and Time Warner Cable. We exposed the fact Charter’s promised service improvements were actually more modest than what Time Warner Cable has undertaken on its own through its Maxx upgrade program. We educated regulators about the inadequacy of Charter’s initial commitment to offer low-cost Internet access for low-income families. We questioned the consumer benefits of certain upgrades that could actually increase costs for consumers because of additional equipment fees. We alerted the PSC that Charter would discontinue Time Warner’s affordable $14.99 Internet offer. We strongly recommended the PSC consider making rural broadband expansion a part of this transaction. We also sought additional protections from any future compulsory usage caps or usage-based billing.

Although Stop the Cap! was opposed to the transaction from the outset, doubting it was in the public interest, we recognized the chances for approval were greater than the Comcast-TWC merger that was eventually withdrawn. Therefore, we made it a priority to outline multiple conditions we felt should be imposed on Charter if the deal was to be approved.

Our constituency is ordinary consumers and ratepayers. Too often these kinds of mergers are approved with token conditions that only benefit minority or special interests, favored non-profit or government entities, or those with vested business interests (programmers, equipment manufacturers, etc.) It was important to us that any approval bring something beyond free Internet service for schools or community centers, agreements to continue carrying certain cable networks, or a temporary discount or low value coupon that ends up in the mailboxes of customers a year or two from now.

We know what Time Warner Cable customers in New York want: better service, faster speeds, no data caps, no gotcha fees, affordable Internet options, and job protection.

It appears New York regulators understand that as well and intend to force Charter to offer customers a better deal.

Despite publicly saying little about the merger, just a few hours after the PSC’s decision, Gov. Andrew Cuomo’s office issued a press release taking credit for the merger conditions and unveiling the “tenth signature proposal of his 2016 agenda: dramatically expanding and improving access to high-speed Internet in communities statewide.” Once again, the governor will try to entice providers like Time Warner Cable, Frontier Communications, and Verizon to expand rural broadband in New York using public dollars.

Although lacking a catchy title, the “New New York Broadband Program” includes a $500 million solicitation for private sector partners to subsidize rural broadband expansion with state dollars. The key goals of the 2016 program include:

Much of the funding from earlier years ended up going to Time Warner Cable for modest expansion of its cable service, especially in eastern upstate New York. Likely applicants in 2016 include Time Warner Cable, Frontier Communications, community-owned/co-op broadband providers and rural wireless ISPs. Verizon and Cablevision are unlikely to apply.

Despite the governor’s efforts, most New York homes and businesses will be more affected by the Charter-Time Warner Cable merger, if it wins federal approval.

The Public Service Commission took its role very seriously, issuing a 93-page decision that took recommendations from consumer groups including Stop the Cap! very seriously. It did not share the industry’s belief that telecommunications providers in New York are heavily competitive.

“Time Warner serves close to 50% of New York State and we have a legitimate interest in ensuring that, when a company of this size provides customers with a service so affected by the public interest, as is communications, that real benefits accrue to consumers as a result of a given transaction,” the PSC wrote.

The PSC had an easier time sorting through comments about this merger, which generated considerably less interest than Comcast’s failed attempt to buy Time Warner.

“Generally, comments supporting the proposed transaction assert that, among other things, the merger will create jobs and provide better products at more affordable rates,” the PSC concluded in its ruling. “Those opposing the transaction state that the merger will inevitably lead to higher rates and potential data caps on broadband services in the future.”

The PSC took a very skeptical approach to Charter’s promised benefits, often finding them vague, questionable, or likely to have occurred with or without Charter’s involvement.

For example, the PSC questioned Charter’s promised network investments and upgrades:

Petitioners, however, decline to specify where in the national footprint of Charter, TWC and BHN these investments will be made or to identify the decisional factors to be used to channel these capital resources to specific areas or customers. There is no analysis to indicate that a reasonable proportion of these investments will be to systems in New York or for the benefit of New York customers. Similarly, there is no proposal by the Petitioners to describe the specific commitments that are being made or the specific enforcement mechanisms that would be used in the event the Petitioners’ implementation fell short of their commitments. Further, in order for these investments to be characterized as part of a net public benefit, Staff concludes, and we agree, that Petitioners would have to establish that these investments would not have been made in the absence of the proposed merger.

In the absence of a demonstration that there is “a tangible commitment to make new investments or invest beyond Time Warner’s current capital investment budgets,” it is difficult to characterize these capital expenditures as a certain benefit to New York customers or a satisfaction of the public interest under the New York statutes.

One of Stop the Cap!’s core arguments in our comments to the PSC was that Charter’s upgrade commitments were not particularly meaningful because Time Warner Cable was gradually upgrading its own systems to a level of service superior to what Charter plans to offer. The PSC clearly understood this and our warning that Charter’s commitments lacked specificity:

Public Benefit Assessment Staff and several commenters suggest that the proposed merger, as described in the Joint Petition and Petitioners’ Reply Comments, does not have sufficient net benefits to warrant a finding that the transaction is in the public interest. We concur. Many of the asserted benefits from the proposed transaction are events triggered by actions taken independently from the merger, and others are likely to be undertaken by TWC in any event, should the merger not be approved. Further, many asserted benefits are only described on a national scale and there is no way to determine if the investments or expenditures will occur in New York. Similarly, many of the projected benefits are described in terms that are too indefinite to permit us to assume that the benefits will occur as described to make a meaningful contribution to the transaction’s net benefits.

As a result, the PSC has looked more closely at Time Warner Cable’s Maxx program to be the benchmark for New York, not Charter’s proposed upgrades. They have adopted our recommendation that every Time Warner Cable customer in New York get the same kind of service upgrade residents in New York City enjoy today.

Another argument made by Stop the Cap! dealt with affordable Internet access. Time Warner Cable’s Everyday Low Price Internet ($14.99/mo for 2Mbps) is not fast, but it is affordable and free of the kind of revenue-protecting pre-conditions usually placed on Internet access for the poor. Time Warner’s plan is available to every customer at any time with no restrictions or contracts. In contrast, Charter’s originally proposed affordable Internet program required participants have school-age children, enroll only in the late summer, not have current cable broadband service (or be willing to forego it for 60 days), and not have any prior balance. As with Comcast, pre-conditions like this limit participation. The PSC agreed and now customers will be able to keep their more affordable Internet plans without jumping through artificial hoops launched by Charter.

The days of rural New Yorkers being quoted $20,000 to install Time Warner Cable service are also going to be a thing of the past. In addition to a commitment to pay for line extensions reaching 145,000 unserved or underserved customers, Charter is now required to work with New York’s Broadband 4 All program to receive supplementary funding, as available, to complete service extensions to eventually reach every customer that lives within a franchise area and wants cable service.

There are several other benefits outlined below that make this a better (although not great) deal, at least for New Yorkers. If any other state regulator manages to get an even better deal for that state’s residents, New Yorkers will automatically benefit because of a “most favored state clause” in the PSC’s order, which requires Charter to share those benefits with New York residents.

All in all, the New York State Public Service Commission has lived up to its reputation as a consumer-protective body that is responsive to the needs of the public. This is in great contrast to many other states where regulators seem themselves as a business facilitator (and occasionally come directly from the businesses being regulated). In these states, the merger won approval with few, in any, preconditions.

We were delighted to have been extensively quoted and footnoted in the PSC’s order, having proven our case the Charter-Time Warner deal didn’t offer very much for New York. But we’re not happy the PSC punted on data caps. While recognizing they are a concern, the PSC seemed satisfied a three-year guarantee of no data caps was adequate. We disagree. As an increasing number of Comcast customers can attest, data caps are anti-competitive, anti-consumer, and unnecessary. Whatever benefits faster speeds can deliver can be easily curtailed by a data cap. So can online video competition. With much of upstate New York totally dependent on a single provider – Time Warner or Charter – for broadband speeds above 10Mbps, there is plenty of room for mischief that would otherwise be controlled by competitive forces. The PSC saw fit to avoid using its power of approval to get creative on keeping flat rate Internet affordable and available. That is a mistake we predict will be back to haunt us in the future.

Here are the specific conditions, most advocated by Stop the Cap!, that Charter Communications must agree to as a condition of the deal’s approval in New York:

Rural Broadband Access [$355 Million Value]

In addition to the goals accomplished by Gov. Cuomo’s New New York Broadband Program, Charter must agree to unilaterally build-out its network to reach an additional 145,000 “unserved” and “underserved” homes and businesses within four years. This will be an easy target for Charter to reach because the PSC defines “underserved” as any home with less than 100Mbps service. That represents much of upstate New York bypassed by TWC Maxx, so a speed upgrade in just one upstate city will achieve this requirement.

However, the PSC also included a second condition. Subject to the final terms and conditions of the Broadband 4 All Program being comparable to the Connect New York Program, Charter will be required to bid for Broadband 4 All Program funding to offer line extensions to any remaining unserved and underserved home across its entire New York service territory, which means every New Yorker within a cable franchise service area that wants service will be able to get it without being quoted tens of thousands of dollars for construction costs.

This will finally help would-be customers like Stop the Cap! reader Jesse Walser in Jamesville who has tried to get wired broadband in his home for over a decade. Verizon won’t upgrade its network and Time Warner Cable quoted him between $5,900 and $26,000 for installation of a line extension to reach his home.

All Digital Cable System Upgrade

Charter must convert their existing New York systems to an all-digital network (including upgrading the Columbia County Charter cable system to enable broadband communications) capable of delivering faster broadband speeds.

In Columbia County, residents are currently better served by smaller local providers. Both Germantown Telephone and Mid-Hudson Cable offer high-speed access throughout their territories. Berkshire Telephone has almost 100% DSL coverage, and Taconic Telephone has expanded DSL service to much of their huge service territory. Frontier Communications offers some DSL in southern Columbia County. The biggest problem providers are Verizon, which has no plans for DSL service in the area, and Charter Cable, which still runs a basic cable television-only system in the county.

In New York, Charter now provides cable television and other communication services to a relatively small number of customers, from two cable system clusters in and around Plattsburgh (14,000 customers) and Columbia County (2,500 customers). Plattsburgh gets television, phone and broadband service from Charter, but Columbia County is still served by a now-ancient, cable television only system.

Network Modernization and Speed Increases [$305 Million Value]

Charter must convert all of its systems in New York to all-digital within 30 months of the closing of the merger transaction. Charter is also required to offer broadband speeds up to 100Mbps to all customers by the end 2018 and match TWC Maxx speeds of 300Mbps by the end of 2019.

Charter’s all digital upgrade in upstate New York will facilitate faster broadband service, but it will also mean a set-top box or other similar device for every cable connected television in the home.

Broadband Affordability [$250 Million Value]

Despite Charter’s simplified menu of options (two broadband speed tiers and one video package), the PSC has required Charter to allow customers to keep their current plans, at least for the next several years:

• Charter is required to maintain and advance its commitment to an affordable standalone Internet offering through the continuation of the Time Warner Everyday Low Price $14.99
  service throughout the Time Warner New York territory for up to two years and allow existing customers to keep the service for three years.
• Charter is required to offer its 60Mbps standalone broadband product throughout New York at uniform national pricing. [$125 million value]
• Charter is required to allow existing Time Warner customers to retain, without material changes that have the intent to discourage, the standalone and bundled broadband services they subscribe to at the close of the transaction for three years from the date of the closing.
• Charter is required to provide a low-income broadband offering to eligible customers throughout its New York footprint. The PSC-ordered plan will offer 30Mbps for $14.99 a month to any household eligible for the National School Lunch Program and senior citizens 65 years and older eligible for the federal Supplemental Security Income program. No credit check shall be required and conditions requiring current broadband customers to wait 60 days to qualify and cover any past due bills have been deleted.

Customer Service [$55 Million Value]

Within two years after the close of the proposed transaction, Charter shall invest a minimum of $50 million in service improvement programs.

Charter is required to show a 35% reduction in Time Warner Cable’s 2014 cable PSC Complaint Rate by the end of 2020, with a 17.5% reduction due by the end of 2018. If they don’t achieve that, Charter must invest an additional $2.5 million in its service for each failure.

Job Protection

For the next four years, Charter cannot cut the number of customer facing jobs in New York.

In a sign federal regulators are taking the behemoth merger of Charter Communications, Time Warner Cable, and Bright House Networks seriously, the FCC today announced it was temporarily stopping the clock on the merger review required to approve or reject it.

“The commission has a strong interest in ensuring a full and complete record upon which to base its decision in this proceeding,” the FCC wrote in a statement. “Pausing the clock will ensure that commenters have sufficient time to review and comment on this new information, and will provide commission staff with the necessary time to review both the applicants’ materials and any responses.”

The delay is expected to last at least 15 days. The FCC considers such mergers under an informal 180-day “shot clock” that was designed to make certain mergers under review would receive prompt consideration by regulators. But the FCC treats the clock as a suggestion, not a mandate, and has often delayed contentious mergers, sometimes to a degree where the parties involved recognize the direction the review is headed, and withdraw their application.

Charter insists that is not the case here.

“We have recently submitted supplemental information to underscore the benefits of these transactions and it is expected that the FCC would want to give the public time to comment,” Charter said in a statement. “We are working well with the FCC on its review of our deal and continue to look forward to a timely approval.”

Comcast said the same thing when its merger application for Time Warner Cable stalled in federal and state regulators’ offices. Its merger application was eventually voluntarily withdrawn.

While planning to quietly drop Time Warner Cable’s budget-minded, unrestricted $14.99 Everyday Low Price Internet package after it acquires the company, Charter Communications is celebrating a “new and improved” low-income Internet offer that will likely discriminate against current customers while protecting company profits.

Charter Communications announced this month it would start offering qualified low-income families and seniors 30/4Mbps broadband service for $14.99 a month within six months of closing its acquisition deal with Bright House Networks and Time Warner Cable. Charter claims its newest program will offer the highest broadband speed of any similar low-income discount Internet plan, and will include discounts for cable television and phone service as well.

“Recognizing the central role broadband plays in our daily lives and the economic challenges faced by many Americans today, we look forward to launching this offering that will provide more consumers a superior broadband service,” said Tom Rutledge, president and CEO of Charter Communications. “Our industry-leading low-cost broadband service is just one of the many benefits these transactions will bring to our customers. We look forward to providing this superior broadband service to underserved families and seniors throughout Charter’s footprint.”

But Charter’s discount Internet offer will replace Time Warner’s current $14.99 discount Internet program, available to any customer without pre-conditions or term contracts. Charter’s proposal to regulators states the company plans to replace multiple tiers of broadband service offered by Time Warner and Bright House with just two options — 60 and 100Mbps tiers that will eventually cost customers at least $60 a month — four times the cost of Time Warner’s budget-minded alternative.

Unlike Time Warner’s Everyday Low Price Internet, customers will have to qualify for the discounted program, which will discriminate against current customers, individuals and families without school age children, and senior citizens that do not receive additional assistance from the government.

Among the most onerous restrictions, Charter plans to protects itself from revenue cannibalization by prohibiting existing broadband customers from paying less by signing up for Charter’s new discounted plan. Customers will have to voluntarily drop Bright House/Charter/Time Warner Cable Internet service for at least 60 days before they can apply for Charter’s new low-cost option.

Other requirements limit participation only to families with students participating in the National School Lunch Program or seniors age 65 or older who also receive Supplemental Security Income program benefits. In all cases, participating customers must pay off all current and any past charges still owed to Bright House, Charter, and/or Time Warner Cable before they can enroll.

Charter included in a press release announcing the program a list of organizations it claims prove “widespread support for Charter’s low-cost broadband service.” Charter did not mention most of the groups quoted have a long history supporting the telecom industry, mostly after cashing generous contribution checks from the cable and phone companies involved:

National Urban League: A notorious friend of big cable and phone companies, the Urban League is a regular supporter of telecom mergers and opposes Net Neutrality. The Urban League has compiled a poor record among civil rights groups that routinely favors corporate contributors over the need of their constituencies. Its president, Marc Morial, has attracted the attention of the Center for Public Integrity, which published an exposé about the group and its leadership in 2014.

National Action Network, an organization founded and run by Reverend Al Sharpton: Sharpton’s group no longer discloses its corporate donor list, but large telecom companies often have the support of NAN on everything from mergers and acquisitions to blocking consumer protection regulation. An entertainment company executive in California called Sharpton corporate America’s “least expensive negro” for his willingness to advocate for big cable and phone companies in return for relatively small donations to his organization. National Action Network Inc. is on Charity Navigator’s Watchlist.

League of United Latin American Citizens: Time Warner Cable is an existing Corporate Alliance member of LULAC, a group that routinely supports large telecom company mergers and acquisitions and often advocates on their behalf while accepting corporate contributions.

Connected Nation: A group Public Knowledge says is sponsored by telephone and cable companies and represents their interests.

Digital Divide Partners LLC: Two guys from the Bronx running a website with spelling and grammar issues. The site doesn’t seem to have been updated since May 2015 and only then to post a generic thank you letter from the Manhattan Borough President Gale Brewer.

NOBEL Women: In addition to the company’s sponsorship of group functions, Bright House’s corporate vice president for government and industry affairs – Marva Johnson, was a featured participant at the group’s 2014 annual conference.

Rainbow PUSH Coalition: Jesse Jackson’s group has come under fire for favoring the corporate agendas of its donor base. Rainbow/PUSH has a long record supporting corporate telecom mergers, including SBC and Ameritech back in 1999, AT&T and Tele-Communications, Inc. in 1999, AT&T and BellSouth back in 2006, Comcast and NBCUniversal in 2011, among many, many others. The coalition, supposedly representing the interests of average Americans, has also filed comments with regulators opposing a-la-carte cable TV pricing (pay only for the channels you want) and railing against Net Neutrality.

Time Warner Cable customers who purchased their own cable modems to avoid the company’s $8 monthly rental fee will effectively be forced to indirectly pay those fees once again if Charter Communications wins approval to buy the cable operator.

A major modem manufacturer, Zoom Telephonics, has asked the Federal Communications Commission to reject Charter’s buyout of Time Warner Cable and Bright House Networks because it will hurt cost-conscious consumers that invested in their own equipment to avoid costly modem rental fees.

Zoom’s argument is that Charter builds modem fees into the price of its broadband service and offers no discounts to consumers that own their own equipment. At least 14% of Time Warner Cable customers have purchased their own modems and are not charged the $8 rental fee. Charter has promised not to charge separate modem fees for three years after its acquisition deal is approved, but that also means the company is building the cost of that equipment into the price of broadband service.

Zoom has an interest in the outcome because Charter has yet to approve any Zoom cable modem model for use on its network. Time Warner Cable has certified at least one Zoom model in the past. Assuming the buyout is approved, consumers would have a disincentive to buy Zoom cable modems (or those manufactured by anyone else) because the equipment will be provided with the service.

Zoom has tangled with Charter before, most recently in the summer of 2014 when it criticized Charter’s policy forbidding new customers from using their own modems with Charter’s service. From June 26, 2012 until Aug. 22, 2014, Charter’s website stated, “For new Internet Customers and customers switching to our New Package Pricing, we will no longer allow customer owned modems on our network.”

Zoom claims Charter modified that policy three days before a key FCC filing deadline that could have eventually brought regulator attention on the cable operator. But Zoom remains unhappy with how Charter deals with the issue of customer-owned equipment.

“Charter has still not adopted certification standards that are open to Zoom and other cable modem producers, nor has Charter yet made a commitment for timely certifications under this program,” Zoom claimed in the summer of 2014. “Of the 17 cable modems Charter shows as qualified for customer attachment to its network, not one is stocked by leading cable modem retailers Walmart, Staples, and Office Depot and not one has 802.11ac wireless capability. Charter still does not separately list the cost of its leased modems on customer bills, and Charter does not offer a corresponding savings to all customers who buy a qualified cable modem and attach it to the Charter network.”

Zoom wants Charter to be required to offer consumers that own their own equipment a tangible monthly discount for broadband service as a condition of any merger approval.

“The Communications Act says that cable companies should sell cable modem leases and Internet service separately,” Andrew Jay Schwartzman, a professor at Georgetown University Law Center who is representing Zoom, told the Los Angeles Times. “By combining the prices, Charter’s customers are deprived of the ability to purchase advanced cable modems and save the cost of monthly rental fees.”

Charter argues the Act only covers set-top boxes used for cable television service, not modem fees. Charter also claims its introductory prices are lower than what most cable companies charge, modem fee or not.

“Customers will benefit from Charter’s pro-customer and pro-broadband model with transparent billing policies,” Tamara Smith, a Charter spokeswoman, told the newspaper. “It features straightforward, nationally uniform pricing with no data caps, no usage-based pricing, no modem fees, no early termination fees and does not pass on federal or state Universal Service Fund fees to customers.”

But Charter is only guaranteeing those customer-friendly policies for three years, after which it can raise prices and add fees at will.

An expert hired by Charter Communications to offer “qualified” views on the competitive impact of a merger involving Charter, Bright House Networks, and Time Warner Cable got his facts wrong about Charter’s data cap policy, a mistake that calls into question his analysis about the company’s potential to abuse broadband customers by imposing data caps after its three-year commitment not to expires.

Theodore Nierenberg, a professor of economics at the Yale School of Management, among other things, offered an expansive rebuttal to opponents of the Charter merger deal, arguing that it would enhance competition and deliver consumers enhanced benefits.

Nierenberg does not believe Charter has any interest in imposing data caps on customers, despite the fact Charter quietly shelved existing caps on Oct. 1, 2014, several months before unveiling a bid for both Time Warner and Bright House, neither of which have capped customer usage.

“I conclude that actions such as charging interconnection fees, imposing usage based billing or data caps, or degrading network performance are very unlikely, both because New Charter has no incentive to undertake them, and because the FCC will enforce New Charter’s commitments,” Nierenberg wrote.

But his facts are in error. The same company that believed usage caps were an essential part of its broadband service between early 2009 until October 2014 has suddenly turned over a new leaf? Nierenberg claims there was effectively no leaf to turn, claiming Charter had no “active data cap” since January 2012¹:

For 3 years, New Charter will not charge consumers additional fees to use specific third-party Internet applications, or engage in zero-rating (discriminatory exemptions from a data cap).

These binding commitments provide further assurance beyond the economic reasoning I describe below — assurance that New Charter will not engage in these types of conduct: charging higher interconnection fees, using discriminatory data plans, or reducing the quality of OVD signals. (Note that Charter already does not have data caps for its residential broadband customers. Notwithstanding the dramatic but welcome rise in data usage by broadband customers, Charter has not had an active data cap since January 2012.)

Customers in some areas were called by Charter for exceeding their usage allowance, and usage rationing remained a fact of life in Charter’s Acceptable Use Policy until late last year, not January 2012 as Nierenberg claims.

So what assurance should a customer take from a company that believed strongly in usage caps for more than five years? Surely not that Charter will never consider engaging in data capping yet again three years from now.

Charter can assure consumers of its good intentions by declaring it will always offer affordable unlimited access Internet without a three-year expiration date. Quietly dropping a cap several months before executing a well-planned buy of Time Warner Cable and Bright House doesn’t inspire confidence. Too often short term rate freezes are followed by accelerated rate hikes once the deal conditions expire.

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