All signs are pointing to a relative cake walk for Charter Communications’ executives this afternoon as they seek final approval from the California Public Utilities Commission to acquire Time Warner Cable systems in the state, with the help of an Administrative Law Judge that is recommending approval with a minimum of conditions.

In fact, the strongest condition Charter may have to accept in California came by accident. As part of Charter’s lobbying effort, it proposed a set of voluntary conditions it was prepared to accept, claiming to regulators these conditions would represent benefits of approving the transaction. One of those was a temporary three-year commitment to abide by the FCC’s Open Internet Order, which among other things bans paid prioritization (Internet fast lanes), intentionally blocking lawful Internet content, and speed throttling your Internet connection.

Somewhere along the way, someone forgot to include the language that sunsets (or ends) Charter’s voluntary commitment after three years.

Without it, Charter will have to abide by the terms of the FCC’s Open Internet Order forever.

Soon after recognizing the change in language, Charter’s lawyers appealed to the CPUC to correct what it called a “drafting error.”

“[New Charter does] not seek modification of the second sentence, which matches their voluntary commitments, but believe[s] that the three-year limitation in the second sentence was intended to— and should—apply to the first sentence as well,” Charter’s lawyers argued two weeks ago.

In other words, the Administrative Law Judge’s apparent attempt to ‘cut and paste’ Charter’s own press release-like voluntary deal commitments into his personal recommendation went horribly wrong. Charter’s lawyers prefer to call it an “intent to track” the company’s voluntary commitments. Either way, Charter’s lawyers all call the new language unfair.

“Holding New Charter indefinitely to FCC rules even after the FCC’s rules are invalidated or modified, and irrespective of future market conditions or the practices or rules governing New Charter’s competitors, would be a highly unconventional requirement,” the lawyers complained.

That provides valuable insight into how “New Charter” is likely to feel about Net Neutrality three years from now. Charter’s lawyers argue it would be unfair to hold them to “invalidated” rules — the same ones the company itself has voluntarily embraced as a condition of approval, but only for now.

Remarkably, in the final revision of the Administrative Law Judge’s recommendations to the CPUC recommending approval, the language that is keeping Charter’s lawyers up at night is still there:

New Charter shall fully comply with all the terms and conditions of the Federal Communications Commission’s Open Internet Order, regardless of the outcome of any legal challenge to the Open Internet Order. In addition, for a period of not less than three years from the closing of the Transaction, New Charter (a) will not adopt fees for users to use specific third-party Internet applications; (b) will not engage in zero-rating; (c) will not engage in usage-based billing; (d) will not impose data caps; and (e) will submit any Internet interconnection disputes not resolvable by good faith negotiations on a case-by-case basis.

Charter’s new service area, including Time Warner Cable and Bright House customers.

If it remains intact through the vote expected this afternoon, New Charter will have to permanently abide by the FCC’s Open Internet Order, with no end date. That condition will apply in California, and because of most-favored state status, also in New York.

Stop the Cap!’s recommendations to the CPUC are also in the same document, although our views were not shared by the judge:

Stop the Cap! objects to [New Charter’s] 3-year moratorium on data caps and usage based pricing for broadband services. It argues that such bans should be made permanent or, if not permanent, should last at least 7 years in parallel with the lifespan of the conditions imposed in the FCC’s approval of the parent company merger. In addition, Stop the Cap! objects to what it asserts will be a major price increase for existing Time Warner customers when Charter’s pricing plans replace Time Warner’s pricing plans.

More broadly, Stop the Cap! president Phillip Dampier called the revised recommendations to approve the deal underwhelming and disappointing.

“By window-dressing what is essentially Charter’s own voluntary offer to the CPUC, the commission is continuing to miss a golden opportunity to win deal conditions that will meaningfully benefit Californian consumers that will otherwise get little more than higher cable and broadband bills,” Dampier told Communications Daily. “Virtually everything Charter is promising customers is already available or soon will be from Time Warner Cable, often for less money. Time Warner Cable committed to offering its customers 300Mbps speeds, no usage caps or usage billing, and all-digital service through its Maxx upgrade program, expected to be complete by the end of 2017 or 2018. The CPUC is proposing to allow New Charter to wait until 2019 to provide 300Mbps service and potentially cap Internet service three years after that, four years less than what the FCC is demanding.”

Among the conditions Charter will be expected to fulfill in return for approval of its merger in California:

• Within a year of the closing of the merger deal, New Charter must boost broadband download speeds for customers on their all-digital platform to at least 60Mbps, an upgrade that is largely already complete.
• Within 30 months, New Charter must upgrade all households in its California service territory to an all-digital platform with download speeds of not less than 60Mbps, an upgrade that has already been underway for a few years.
• By Dec. 31, 2019, New Charter shall offer broadband Internet service with speeds of at least 300Mbps download to all households with current broadband availability from New Charter in its California network. Time Warner Cable essentially promised to do the same by early 2018, with many of its customers already getting up to 300Mbps in Southern California.
• While Charter talks about a bright future for the Time Warner customers joining its family, the company has not done a great job maintaining and upgrading its own cable systems in parts of California. Many smaller communities still only receive analog cable TV from Charter, with no broadband option at all. Therefore, the CPUC is giving New Charter three years to deploy 70,000 new broadband “passings” to current analog-only cable service areas in Kern, Kings, Modoc, Monterey, San Bernardino and Tulare counties. But the CPUC is giving New Charter a break, only requiring them to offer up to 100Mbps service in these communities.
• Time Warner Cable and Bright House customers in California will be able to keep their current broadband service plans for up to three years. Customers will also be allowed to buy their own cable modems and set-top boxes, but there is no requirement New Charter compensate customers who do with a service discount.
• Within six months of the deal closing, New Charter must offer Lifeline phone discounts within its service territory in California.
• New Charter must print and distribute brochures explaining the need for backup power to keep phone service working if electricity is interrupted. Those brochures must be available in multiple languages including, but not limited to, English, Spanish, Chinese and Vietnamese, as well as in accessible formats for visually impaired customers.

The CPUC is also expected to adopt Charter’s own voluntary commitments not to impose usage caps, usage billing, modem fees, and other customer-unfriendly practices for three years, a point that drew strong criticism from Stop the Cap! and the California Office of Ratepayer Advocates for being inadequate.

Both groups proposed that bans on data caps and usage billing should stay in place “until there is effective competition in Southern California, or no shorter than seven years after the decision is issued, whichever is later.”

ORA’s program supervisor Ana Maria Johnson believes the proposed changes don’t go far enough to “mitigate the harms that the merger will likely cause, especially in Southern California.”

Dampier was surprised how little the CPUC seemed to be asking of New Charter, especially in comparison to regulators in New York.

“The New York Public Service Commission did a more thorough job protecting consumers by insisting on faster and better upgrades, including readiness for gigabit service, and the same level of broadband service for all of New Charter’s customers in New York,” Dampier argued. “It also demanded and won meaningful expansion in rural broadband, low-cost Internet access, protection of New York jobs, and improved customer service. It is remarkable to us the CPUC did not insist on at least as much for California.”

The CPUC is expected to take a final vote on the merger deal this afternoon, starting at 12:30pm ET/9:30am PT and will be webcast. It is the 20th item on the agenda.

Stop the Cap! continues the fight for a better deal for Time Warner Cable customers that could soon end up as Charter Communications customers, if the California Public Utilities Commission (CPUC) approves the merger.

While the Federal Communications Commission formally approved the deal last week, California has yet to sign off on the transaction, giving consumer advocates like Stop the Cap! an opportunity to recommend the state regulator impose stronger consumer-friendly deal conditions that guarantee customers their share of the anticipated windfall in “deal benefits” that shareholders and executives of the companies involved are likely to receive.

Our California coordinator Matthew Friedman has been educating the CPUC about the true nature of data caps and usage-based billing, and sharing our view that Charter’s promised merger deal benefits are illusory, offering little more than what Time Warner Cable already offers its Maxx-upgraded service areas. In fact, Time Warner’s ongoing commitment to not impose compulsory data caps or usage billing is likely to be canceled by Charter Communications, which has only agreed not to impose such billing schemes on customers for three years.

Even worse, future Charter customers are likely to pay higher broadband bills after Charter imposes its regular prices on Time Warner Cable customers — prices often higher than what Time Warner charges for similar services. Although Time Warner customers have been able to negotiate a better deal for themselves after threatening to cancel, Stop the Cap! anticipates Charter will not be as generous with those customers in the future.

At the minimum, Stop the Cap! is recommending the CPUC either permanently ban compulsory usage caps and usage billing from Charter, or add a competition test that will allow such billing only where consumers can switch to a competitor that offers comparable unlimited broadband service.

Charter’s broadband “deal”

The loss of [Time Warner’s] commitment [to always offer unlimited broadband options to consumers] could result in the following harms, according to Friedman:

1. New Charter’s commitment to provide low cost broadband will become completely voluntary and unenforceable;
2. increased broadband pricing resulting in decreased demand for broadband;
3. New Charter will be able to circumvent Net Neutrality rules;
4. New Charter will be able to engage in a multitude of anticompetitive behaviours, increasing the cost and reducing the attractiveness of competing video content from edge providers, thus lessening the demand for high-speed broadband access to the Internet, and thus running counter to Section 706(a)’s mandate to promote competition in broadband services;
5. innovation and investment will potentially decrease significantly;
6. network security can be adversely affected; and,
7. Californians, especially low-income Californians, may lose access to education opportunities.

We’re not drinking “New Charter’s” Kool-Aid

“Stop the Cap! (and the Office of Ratepayer Advocates as well) has offered a reasonable option of requiring a competition test to sunset the prohibition on data caps and usage based pricing,” wrote Friedman. “This suggestion is based on Charter’s own expert testimony and [the conditions] must be rewritten per these suggestions if it is to fulfill multiple statutory requirements.”

Stop the Cap! also advocates that Time Warner Cable customers that purchased their own cable modems to avoid Time Warner’s modem fees deserve an ongoing bill credit for providing their own equipment, because Charter builds the cost of its modem into the price of broadband service.

“Charter already bakes the price of the modem rental into the monthly cost of the plan,” Friedman noted. “New Charter [should be required] to offer a discount to customers who bring their own modems. Charter currently allows customers to bring their own modems… they just continue to charge those customers for a Charter modem that the customer never uses.”

Although Charter’s pledge to increase broadband speeds for Time Warner customers seems laudatory, in fact Charter’s proposed service offerings also represent a significant rate increase for broadband customers who don’t need or want 60Mbps service. They won’t have much choice after Charter imposes its own plans and pricing, which are now limited to 60 or 100Mbps options for most customers, at prices starting at $60 a month.

“Clearly these TWC customers are materially much worse off under New Charter than TWC,” Friedman told the CPUC. “Equally clear is that Charter’s ‘Simplified Pricing’ (perhaps more accurately described as ‘Fewer Options and Higher Prices’) is far from a public benefit. This massive price increase will affect literally every stand-alone-broadband TWC customer other than the few who qualify for the School Lunch/Senior Assistance plan. While the low-cost School Lunch/Senior Assistance plan is great for the narrowly targeted group of consumers who manage to qualify, roughly doubling the cost of broadband for every other standalone customer more than offsets the combined value of every other ‘benefit’ that the applicants allege will come from this transfer.”

Stop the Cap! also advocates that the CPUC guarantee Charter customers have a choice about the broadband speeds they need and the amount they have to pay for Internet access.

“New Charter should be required to retain TWC’s pricing and plan structure in perpetuity, for both new and existing TWC customers. TWC customers should retain the ability to switch back and forth between TWC’s cheaper, larger variety of plans,” Friedman wrote. “New Charter should be required to continue TWC’s practice of increasing customer speeds as technology advances with no
accompanying price increase.”

Although Charter’s lobbying efforts promote improved service for Time Warner Cable customers, it is our view that once one examines the full scope and impact of Charter’s proposal, customers will be worse off under Charter than they would be staying with Time Warner Cable.

“TWC stands out in its field for its customer-friendly policies such as providing discounts for those who own their own modems, its public commitment to refuse to impose data caps or
usage based pricing even in the face of pressure from Wall Street to do so, and the creation of its TWC Roku App to allow customers to avoid set-top box rental fees,” argued Friedman. “This transfer, as currently conditioned, creates a net public benefit harm, not a benefit, or even a status quo.”

In a decision that relied heavily on trusting Altice’s word, the Federal Communications Commission quietly approved the sale of Long Island-based Cablevision Systems to a company controlled by European cable magnate Patrick Drahi.

The decision did not come with an overwhelming endorsement from staffers at the FCC’s Wireline Competition Bureau, the International Bureau, the Media Bureau, and the Wireless Telecommunications Bureau that jointly authored the order approving the deal.

“We find the transaction is unlikely to result in any significant public interest harms,” the staffers wrote. “We find that the transaction is likely to result in some public interest benefits of increased broadband speeds and more affordable options for low income consumers in Cablevision’s service territory. Although we find that the public interest benefits are limited, the scales tilt in favor of granting the Applications because of the absence of harms.”

The FCC largely ignored a record replete with evidence Altice has not enthralled customers of its other acquired companies. In France and Portugal, large numbers of customers complained Altice reduced the quality of service, raised prices, and outsourced customer service to call centers as far away as North Africa. After Altice acquired SFR, one of France’s national wireless operators, at least 1.5 million customers canceled their accounts, alleging poor service. Two weeks ago, France’s Competition Bureau fined Altice $17 million dollars for intentionally sabotaging the viability of wireless providers it controlled in the Indian Ocean region that it knew would have to be sold because of another acquisition deal. It raised prices and alienated customers of those providers, while allowing many to escape their contracts penalty-free before ownership of the company is transferred. The new owners face a challenge restoring the reputation of those providers and win customers back.

The FCC called assertions from the Communications Workers of America that Altice intends to secure several hundred million dollars in cost savings from layoffs and salary reductions “speculative.” But Altice’s record on job and salary cuts is well established in Europe, where trade unions have pursued multiple complaints with government ministers in Lisbon and Paris. The leadership of CFE-CGE Orange, the group representing employees in France’s telecom sector, warned government officials earlier this year Drahi’s labor practices at SFR-Numericable are so poor, there is significant risk of a wave of worker suicides.

‘Not our problem’ was the effective response by the FCC staffers.

“The public interest does not require us to dissect each business decision Altice has made in non-U.S. markets to determine whether its asserted benefits in this case are reasonable,” the staffers wrote.

The staffers also opined “Altice has not identified job cuts as a means to achieve cost savings,” despite widespread media reports put Drahi on the record claiming he would find $900 million in cost savings at Cablevision in part from slashing administrative expenses.

Speaking to investors in New York just after Altice announced its agreement to buy Cablevision, Drahi pledged to bring the company’s ‘European-style austerity’ to the American cable company.

“When we took over [French wireless provider] SFR, the company was acting like daddy’s princess,” Drahi said to France’s National Assembly. “The princess spent money left and right, but it was mother company Vivendi that picked up the bills. Well, now the princess has a new dad, and this isn’t how my money gets spent.”

Drahi

“I don’t like to pay big salaries, I pay as little as I can,” Drahi added, claiming he prefers to pay minimum wage.

“It’s hard to imagine in a labor market like New York that you’re going to go to top executives and say, ‘By the way, I’m going to pay you 75 percent less than I used to — enjoy,’ ” said a skeptical Craig Moffett, a Wall Street analyst at MoffettNathanson.

Despite racking up nearly $56 billion in debt so far, the FCC seemed unconcerned Altice’s $17.7 billion purchase of Cablevision would present much of a problem for the company.

Altice is “a large international company that is likely to be better able to raise capital than Cablevision as a stand-alone entity,” the FCC staffers wrote.

Several Wall Street analysts pointedly disagree.

“My main worry is that Altice is pilling up new debts again and, needing increasingly more cash to pay back debt, may push Numericable into a direction were it shouldn’t be,” said François Godard, an analyst at Enders Analysis.

“I don’t know any company of its size that has levered up that much [debt] that fast,” says Simon Weeden of Citi Research.

Even France’s Minister of the Economy Emmanuel Macron feared Altice could become the world’s first “too big to fail” cable company.

“I have a big concern in terms of leverage on Drahi due to its size and its place in our economy,” Macron said in 2015. “He is looking to run faster than the music.”

In April alone, Altice sought $9.44 billion largely from the junk bonds market to refinance part of its existing debt and extend the time it has to repay those obligations until as late as 2026.

FCC staffers swept away concerns that an Altice-owned Cablevision would be hampered from upgrading services because of its debt obligations and accepted at face value Altice’s promises it would enhance service. The staffers claimed these promises would likely be met because Cablevision faces significant competition from Verizon FiOS and Frontier U-verse in its service areas of New York, New Jersey and Connecticut.

Cablevision serves communities surrounding the metropolitan New York region

What especially swayed the staffers was an ex parte letter sent by Altice offering commitments for improved service:

1. Network Upgrades: Altice will upgrade the Cablevision network so that all existing customer locations are able to receive broadband service of up to 300Mbps by the end of 2017.
2. Low Income Broadband: Altice will introduce a new low-income broadband package of 30Mbps for $14.99 a month throughout Cablevision’s service territory for families with children eligible for the National Student Lunch Program or individuals 65 or older eligible for the federal Supplemental Security Income program. Current customers, regardless of income, are ineligible and so are past customers who had Cablevision broadband service within the last 60 days or still have a past due balance with Cablevision.

Remarkably, the FCC passed on an opportunity to compel Altice to fulfill its commitments as part of the order giving the FCC’s approval. Therefore, if Altice reneges, it will face no consequences from the FCC for doing so.

“Because we find the transaction is likely to facilitate Cablevision’s efforts to compete and serve all customers in its territory, we are not persuaded that imposing specific conditions related to broadband deployment, as proposed by CWA, is necessary,” wrote the staffers.

New York City and the New York Public Service Commission also have an opportunity to mandate Altice’s commitments be completed within a certain time frame. Both are expected to issue their formal approval or disapproval of the acquisition later this month.

Altice praised the FCC, saying it was pleased with the decision and is on track to complete the transaction during the second quarter of this year.

Assuming Altice does take control, it will immediately embark on cost cutting, starting with the booting of the company’s top 10 executives, according to Altice CEO Dexter Goei. Goei doesn’t like the fact the Dolan family, which founded the company, has used Cablevision as an ATM for decades. The Dolan clan collectively took $46 million in compensation in 2014. Last year, CEO James pocketed $24.6 million, up one million from the year before.

Dolan’s father, who retired from the day-to-day operations of the company years ago, is still handsomely rewarded in his role as company chairman. In 2015, Charles Dolan received a $3 million pay raise, from $15.3 million to $18.3 million.

“Somewhere in the range of $80 million to $90 million per year can go away in just not having that executive team,” Mike McCormack, an analyst at Jefferies LLC, told Bloomberg News last fall.

On Monday, Stop the Cap! joined 21 other public interest organizations in sending a joint letter urging the Federal Communications Commission to deny Charter’s bid to take over Time Warner Cable and Bright House Networks. Late last week, the Wall Street Journal reported that FCC Chairman Tom Wheeler may be planning to circulate a draft order approving the $90 billion merger.

The Center for Media Justice, CREDO Action, Daily Kos, Demand Progress, Free Press and Presente.org were among the media justice, Internet rights and public interest groups calling on the FCC to reject this deal, which would create a national broadband duopoly.

Together, Charter and Comcast would control nearly two-thirds of the nation’s high-speed broadband subscribers and would offer service to nearly 80 percent of U.S. households. The letter notes that this substantial increase in market power, coupled with Charter’s $66 billion in debt, would give the company both the incentive and the heightened ability to raise prices at will. This would broaden the digital divide, hitting low-income communities the hardest.

Stop the Cap! earlier filed objections to the merger with the FCC and in two states seen as critical to the deal – New York and California. In our view, no cable merger has ever resulted in better service or lower prices for consumers. Such deals deliver handsome sums to executives and shareholders while saddling customers with relentless rate hikes and no improvement in service. Charter’s history is troubling and its ability to meet its financial obligations while saddled in debt is dubious. Charter declared bankruptcy in 2009, after accumulating $21.7 billion in debt accumulated from years of mergers and consolidation efforts. As credit markets tightened up, Charter’s ability to manage its debt fell apart. Now the company is back to its old modus operandi, piling up debt buying Time Warner Cable — a much larger operation, and trying to combine it with Bright House Networks, another cable operator prominent in Florida.

Earlier this year, several of the signers delivered petitions to the FCC from more than 300,000 Americans opposing the merger, and thousands have called the agency in recent days to weigh in against the deal. Political leaders including Senate Democratic Leader Harry Reid have spoken out about the merger’s many harms.

“Too many Washington insiders have given up on challenging this deal despite its serious harms,” said Free Press policy director Matt Wood. “Instead of forecasting its chances for approval, the groups signing this letter will keep fighting to block this merger, along with the guaranteed price increases it would foist on people and communities who can least afford it.

“If Charter gets this merger approved, nothing will stop it from raising its rates for high-speed broadband and video customers who have nowhere else to turn. Temporary promises and weak conditions aren’t going to preserve competition and choice in the long run, and they’re not going to do anything to stop these price hikes. The FCC is charged with promoting the public interest, and there’s no way in which this merger benefits the public. Higher prices and fewer choices won’t help anyone but the companies pitching this bad bargain.”

“If its takeover of Time Warner Cable goes through, Charter will have a broadband footprint as big as Comcast’s,” said Demand Progress executive director David Segal. “This would turn an industry that’s already too concentrated into a duopoly, paving the way for higher rates today and the eventual formation of a new cross-sector behemoth that controls content production and delivery.

“Americans increasingly understand that corporate concentration is jacking up prices and lowering quality for all sorts of basic goods and services. At a hearing of a Senate antitrust subcommittee this month, lawmakers made it clear that they see companies that are allegedly too big to fix in many industries, not just the banking sector. This FCC must now decide whether it wants to stem the swelling tide of concentration, or enable these monopolies.”

Free Press and Stop the Cap! contributed elements of this story.

Kinzinger

Republican-sponsored H.R. 2666 — the “No Rate Regulation of Broadband Internet Access Act” — is drawing opposition from House Democrats because the measure, if it becomes law, could grant cable and telephone companies broad permanent exemption from oversight and consumer protection laws.

The bill, introduced last summer by Rep. Adam Kinzinger (R-Ill.), consists of a single sentence:

Notwithstanding any other provision of law, the Federal Communications Commission may not regulate the rates charged for broadband Internet access service (as defined in the rules adopted in the Report and Order on Remand, Declaratory Ruling, and Order that was adopted by the Commission on February 26, 2015 (FCC 15–24)).

Eshoo

Democrats worry despite the brevity of the bill, its language is broad and sweeping, and could be interpreted by the courts to grant deregulation and freedom from oversight to telecommunications providers that already rank at the bottom of customer satisfaction scores. It would also undercut the FCC’s reclassification of broadband from an information service to a telecommunications service, subject to Title II regulations, which gave the FCC increased authority to oversee the broadband industry.

Rep. Anna Eshoo (D-Calif.) has signaled her likely opposition to the Republican bill, noting the proposed law could “eviscerate the FCC’s authority to protect consumers against truth in billing practices and discriminatory data caps; to ensure broadband availability through [the Universal Service Fund] and E-Rate; to address rate-related issues in merger reviews; to ensure enforcement against paid prioritization; and other essential consumer protections.”

Several Democrats on the House Communications Subcommittee are introducing amendments that would likely keep Republican language prohibiting the FCC from directly regulating broadband prices, but also protect the power of the FCC to regulate billing practices, data caps and usage pricing, Net Neutrality, universal service requirements, merger reviews, and discriminatory and/or unfair business practices.

The Democrats are likely to have an uphill battle in a Republican-controlled House. Constituents may have more influence expressing their opposition to H.R. 2666 by reaching out to Rep. Kinzinger and the 18 Republican co-sponsors of the measure:

• Rep. Latta, Robert E. [R-Ohio]
• Rep. Bilirakis, Gus M. [R-Fla.]
• Rep. Barton, Joe [R-Tex.]
• Rep. Lance, Leonard [R-N.J.]
• Rep. Shimkus, John [R-Ill.]
• Rep. Blackburn, Marsha [R-Tenn.]
• Rep. Olson, Pete [R-Tex.]
• Rep. Pompeo, Mike [R-Kan.]
• Rep. Scalise, Steve [R-La.]
• Rep. Cramer, Kevin [R-N.D.]
• Rep. Collins, Chris [R-N.Y.]
• Rep. Long, Billy [R-Mo.]
• Rep. Guthrie, Brett [R-Ky.]
• Rep. Johnson, Bill [R-Ohio]
• Rep. Ellmers, Renee L. [R-N.C.]
• Rep. Walden, Greg [R-Ore.]
• Rep. Upton, Fred [R-Mich.]
• Rep. Allen, Rick W. [R-Ga.]