It took the four commissioners of the New York Public Service Commission just 20 minutes to vote unanimously to undo the multi-billion dollar 2016 merger of Charter Communications and Time Warner Cable, by revoking its approval for failing to meet the public interest.

“Charter’s repeated failures to serve New Yorkers and honor its commitments are well documented and are only getting worse. After more than a year of administrative enforcement efforts to bring Charter into compliance with the Commission’s merger order, the time has come for stronger actions to protect New Yorkers and the public interest,” said Commission Chair John B. Rhodes. “Charter’s non-compliance and brazenly disrespectful behavior toward New York State and its customers necessitates the actions taken today seeking court-ordered penalties for its failures, and revoking the Charter merger approval.”

If the order withstands inevitable court challenges, it would be the first time a regulator drove a large cable operator out of business in a state for bad conduct. It would also make history, achieving similar notoriety to the 1981 case of Tele-Communications, Inc., vs. Jefferson City, Mo., when TCI’s national director of franchising personally threatened the mayor and the city’s cable consultant if their franchise was not renewed. When the city voted to award the franchise to another cable operator, TCI refused to sell its system, withheld franchise fee payments, and alternately told the city it would either strip its cables off utility poles in spite or let them “rot on the pole” rather than sell at any price.

Without modification, the Charter/Time Warner Cable merger was a bad deal for New York

After Stop the Cap! and other consumer groups participated in a detailed review of Charter Communications’ proposal to acquire Time Warner Cable, the Public Service Commission adopted many of our pro-consumer suggestions to ensure the merger benefited the people of New York at least partly as much as the executives and shareholders of the two companies. New York State law demands that telecommunications mergers must meet a public interest test to win approval. On its face, the Commission found the Charter/Time Warner Cable proposal failed to meet this test. The state received detailed evidence showing Time Warner Cable’s existing upgrade plan offered a better deal to New York residents than Charter’s own proposal. Time Warner Cable also maintained a large workforce in New York in call centers, direct hire technicians, and its corporate headquarters.

After a detailed analysis, the PSC rejected the merger for failure to meet the public interest. At the same time, it also offered Charter a way to turn that rejection into a conditional approval. If the company agreed to “enforceable and concrete conditions” that would deliver positive net benefits for New Yorkers to share in the rewards of the merger deal, the Commission would approve the transaction.

Charter has complied with most of the deal conditions demanded by the Commission. The company has boosted its broadband speeds across the state ahead of schedule, committed to at least seven years of broadband service without data caps, introduced an affordable internet access program and temporarily maintained an existing offer for $14.99 slow-speed internet access available to any New York customer, and agreed to maintain jobs in New York (with the exception of a 1.5 year strike action ongoing in New York City affecting technicians).

But the most costly condition for Charter to meet is also the one it has repeatedly failed to meet — its commitment to wire unserved rural areas, largely in upstate New York. Charter committed to a timetable to roll out high-speed internet access for 145,000 homes and businesses that currently lack access to any internet provider.

Charter’s merger deal meets Gov. Cuomo’s Broadband for All Program

Gov. Andrew Cuomo announcing rural broadband initiatives in New York in 2015.

This rural broadband expansion condition was integral to Gov. Andrew Cuomo’s Broadband for All program, promising to make broadband access available to every resident and business in New York State.

Cuomo’s broadband program depended on several sources to accomplish its goal:

• State/Private Funding: The state invested $500 million of $5.7 billion dollars it earned from settling lawsuits against big banks and insurance companies over the improprieties that helped trigger the 2008 Great Recession. This money was designed to incentivize the private sector to expand high-speed internet access in underserved/unserved areas. Recipients had to provide a 1:1 financial match of whatever grant funds were given, putting the dollar value of this part of the program at over $1 billion.
• The FCC: The Federal Communications Commission’s Connect America Fund (CAF) offered funding to incumbent providers to expand service in certain areas in New York. Some $170 million of that funding allocated to the state was declined, principally by Verizon, which showed little interest in expanding its rural broadband network. A bipartisan effort to retain and divert those funds into the New NY Broadband Program was successful, allowing the state to fund several rural broadband projects Verizon was not interested in.
• Charter/Time Warner Cable Merger: To win approval of its merger in New York, Charter agreed to pass an additional 145,000 homes and businesses in less densely populated areas across the state. The company was required to file regular updates on its progress and coordinate with the state the exact locations it planned to serve. This was to ensure Charter would not spend money wiring areas already receiving broadband expansion funding.

For the program to be successful, it was essential that duplication of expansion efforts be avoided. As the program’s public funding wound down, the state discovered it lacked enough money to attract private bidders to serve the last 75,628 locations around the state that remained without a service provider, deemed too remote and expensive to serve. The state awarded over $15 million in state funds and an additional $13.6 million in federal and private funding to Hughes Network Services, LLC, which will furnish satellite-based internet service to those locations. That solution prompted loud complaints from residents discovering they were baited with high-speed internet access that realistically could provide gigabit speed, and suddenly switched to satellite service that cannot guarantee to consistently meet the FCC’s 25/3 Mbps broadband standard and comes with a data cap of 50 GB (or less in some instances) a month, rendering its usefulness highly questionable.

Bait rural upstate customers with the promise of Spectrum internet access, switch to expanding service in New York City instead

Rural broadband for urban customers.

The Cuomo Administration may also have to temper its excitement for successfully completing the Broadband for All program if Charter fails to deliver service to the homes and businesses the state expected it would. In fact, the Commission today accused Charter of substituting broadband expansion in dense urban areas where the company would undoubtedly offer service with or without an expansion commitment for the rural upstate areas it originally promised to service. By adding one customer in a converted loft in Brooklyn while deleting a customer it planned to serve in upstate Livingston County, Charter would save a substantial sum. In all, the Commission alleges Charter’s attempts to count urban areas as “newly passed” while leaving rural upstate areas unserved could save the company tens of millions of dollars.

The company’s failure to meet its rural buildout commitment began almost immediately. Despite a requirement to complete an initial buildout to 36,250 homes and businesses by May 18, 2017, Charter only managed to reach 15,164 premises — just 41.8% of its goal. As a result, the Commission began talks with Charter to get the company back on track and monitor Charter’s claim that utility companies were stalling approval of Charter’s pole attachment requests. The Commission even offered its staff to assist Charter with a comprehensive database tracking pole attachment issues, in hopes of facilitating prompt resolution of any problems that delayed service expansion.

To further assist Charter, the Commission set a new schedule of Charter’s buildout obligations for the period between December 2017 and May 2020, comprised of roughly 20,000-23,000 new passings during each six month period, a significant reduction from the original requirement of 36,250 new passings in the first buildout phase.

To incentivize Charter to stay on track, the Commission also required the company to establish a $12 million Letter of Credit to secure Charter’s obligations. If Charter missed further deadlines, the state could draw funds each time Charter missed a target, typically in $1 million increments.

On Jan. 8, 2018, Charter filed its first report under the new settlement on its buildout progress. The company claimed it exceeded its target by reaching 42,889 homes and businesses in the previous six months. The company also began airing commercials inserted into cable channels seen by Spectrum customers around the state, proclaiming it was expanding service ahead of schedule.

On closer inspection, however, the PSC discovered the most innovative part of Charter’s new-found success was inflating the numbers of new passings by including over 12,000 addresses in New York City and several upstate cities, 1,762 locations where Spectrum service was already available, and more than 250 addresses that were in areas that already received state funding to expand service. In addition to not being rural areas, Charter’s existing franchise agreements would have compelled the company to offer service to most of these addresses with or without the PSC deal conditions.

The state informed Charter it planned to disqualify 18,363 passings from the December report filed on Jan. 8, which meant Charter again failed to satisfy the required 36,771 passings it was supposed to have finished by mid-December. The Commission also removed addresses Charter unilaterally added to its 145,000 buildout plan where other providers already offered service or were planning to with the assistance of already-awarded grant funding.

The many fines for Charter Communications

The Commission has fined Charter $1 million for missing its December targets and another $1 million for not making good on correcting its earlier failures. On Friday, it fined Charter once again for another $1 million, reaching a total of $3 million in fines. The PSC also directed its Counsel to bring an enforcement action in State Supreme Court to seek additional penalties for past failures and ongoing non-compliance with its obligations. Earlier this month, the PSC referred a false advertising claim to the Attorney General’s office regarding Charter’s misleading ads about its progress expanding rural broadband in New York.

The number of alleged misdeeds by Charter has been amply covered by Stop the Cap! in our own investigative report.

In fact, to date, the Commission says Charter has never met any of its rural buildout targets. In response, Charter claimed it effectively did not have to, arguing that once the merger was approved, Charter was under no obligation to answer to the Commission’s regulatory requirements respecting broadband rollouts. Under federal deregulation laws, the state cannot regulate broadband service, Charter argued.

$12 million is a small price to pay when saving tens of millions not expanding rural service

The Commission also suspects that Charter’s $12 million Letter of Credit is a small price to pay for reneging on its broadband commitments.

“It appears that the prospect of forfeiting its right to earn back all of Settlement Agreement’s $12 million Letter of Credit does not seem to be an appropriate incentive where the company stands to save tens of millions of dollars by failing to live up to its buildout obligations in New York,” the Commission wrote.

A 4-0 Vote to Kick Charter Spectrum Out of New York

What has gotten the company’s intention is a 4-0 unanimous vote to cancel the approval of the company’s merger agreement with the state, which effectively puts Charter out of business in New York. The Commission ordered Charter to file a plan within 60 days detailing how it plans to cease service in New York and transition to another provider without causing any service disruptions for customers.

Such a move is unprecedented, but not unwarranted in the eyes of the Commission, which claims it gave Charter ample warnings to correct its bad behavior.

“Both the Commission and the DPS [PSC] Staff have repeatedly attempted to correct Charter’s behavior and secure its performance of the Approval Order’s Network Expansion Condition,” the Commission wrote. “Charter continues to show an inability or a total unwillingness to extend its network in the manner intended by the Commission to pass the requisite number of unserved or underserved homes and/or businesses, which make evident that there was not – and is not – a corporate commitment of compliance with regard to this important public interest condition.”

Now the company faces a requirement to file a six-month transition plan to end service in all areas formerly served by Time Warner Cable in New York State by early 2019. The Commission has also made it clear it is done talking and negotiating with Charter, denying all requests for a rehearing.

“Charter’s repeated, continued, and brazen non-compliance with the Commission-imposed regulatory obligations and failure to act in the public’s interest necessitates a more stringent remedy,” the Commission concluded.

The New York Public Service Commission holds a special session to fine Charter Communications and revoke its merger with Time Warner Cable. (Hearing commences at 5:00 mark) (25:24)

New York City’s cable franchise territories

A proposal to replace Charter Communications’ Spectrum cable systems in New York with a workers co-op, owned and self-managed by its workers, would offer a bundle of television, phone, and broadband service price-capped at $100 a month for residential customers.

Developed by several dozen striking Charter/Spectrum workers, the 18-page proposal, “New York City Communication July 2018 Business Plan” would, for now, address only the five boroughs of New York City and nearby Bergen, N.J. But Troy Walcott, a striking member of the International Brotherhood of Electric Workers (IBEW) Local 3, says the current proposal was written as “a proof of concept” that can be adopted across New York State.

“The best time is now,” Walcott told LaborPress, noting that if the city (or state) decided not to renew Charter Communications’ franchise agreements in the city, there will still be a few years left before it expires, giving the proposed co-op time to develop its own network or plan to overhaul what was originally Time Warner Cable’s system in places like Manhattan.

A citywide co-op would also introduce competitive service in boroughs presently serviced by Altice, formerly Cablevision. The group would have to build its own network in those areas. If New York revokes Charter’s franchise, the cable system would likely take the city and/or state to court, setting up years of litigation. Past precedent has shown that cable systems abandoning or forced from an area are exceptionally rare, and usually involve a friendly sale of the existing system to another provider. One example was Adelphia Communications Corporation, which ran the fifth largest cable company in the country until it filed bankruptcy in 2002 after investigators revealed internal executive corruption. Adelphia systems were sold to Comcast and Time Warner Cable in most areas, although the communities of Mooresville, Davidson, and Cornelius, N.C., acquired the bankrupt Adelphia system serving parts of the three communities in 2007 for $80 million, relaunching it as a community-owned cable provider with mixed results.

A workers co-op is owned and run by its workers in the public interest.

If New York does strip Charter of its Spectrum cable franchises in the state, and if that effort survives the inevitable court challenges, Charter would likely sell its systems in New York to Comcast, an obviously motivated buyer. Another possible, but less-likely buyer is Altice, which acquired Cablevision and already provides service in parts of downstate New York, New Jersey, and Connecticut.

Charter is facing multiple investigations in New York over its business conduct. In New York City, where its franchise agreement is set to expire July 18, 2020, the company is under fire for its creative interpretation of “located in New York City” — language in Article 17 of the franchise agreement which requires Charter to use vendors registered to do business in New York, have a long-term commercial lease in New York, and more than 50% of its workforce living in New York.

With a substantial amount of its workforce on strike in the area for the last year and a half, and the industry’s trend to shift work to third-party contractors as a cost saving measure, the IBEW has been documenting instances of Charter-badged commercial vehicles parked overnight behind a Far Rockaway florist shop or in residential neighborhoods, often with out-of-state license plates.

Charter officials deny those accusations, and claim at least 75% of its vendors and contractors are located within New York City.

When Kate Blumm, assistant commissioner of the New York City Department of Information Technology & Telecommunications (DoITT) confronted Charter officials about its possible use of out-of-state vendors, the response from Charter was less than reassuring.

“Once we started to probe, we realized that Charter was essentially making the argument that if you are a worker and you are doing work in the city, therefore, you are located in the city,” Blumm said during the March 13 episode of the “Blue Collar Buzz” podcast. “They pointed us to a Macmillan online dictionary definition of what the word ‘located’ means — and we kind of looked at ourselves and were scratching our heads — this is not the spirit and intent of this provision. This provision says that Charter has to use best efforts to use vendors located in the city.”

As a result, the DoITT has pushed its franchise agreement audit one year earlier than normal, now scheduled to begin Sept. 1. The city’s concerns about Charter’s performance have been amplified at the state level by the New York Public Service Commission, which has hammered Charter executives for months about the company’s inability to meet its obligations under the 2016 Merger Order approving the takeover of Time Warner Cable.

Tell us what you think about your cable TV service – whether it’s @verizon , @Altice or @GetSpectrum – send us your comments so we can make sure New Yorkers get the best service possible 📺👉https://t.co/ic2cx3sAjW

— NYC IT & Telecomm (@NYCDoITT) July 11, 2018

“Not only has the company failed to meet its obligations to build out its cable system as required, it continues to make patently false and misleading claims to consumers that it has met those obligations without in any way acknowledging the findings of the Public Service Commission to the contrary,” said PSC Chairman John B. Rhodes. “Our patience with Charter has come to an end and now we must move to take much stronger actions.”

Mayor de Blasio

Backers of the cable co-op note many of those on their business plan development team have direct experience designing, surveying, building, and maintaining the existing Spectrum cable system originally owned by Time Warner Cable.

“We know the system because we built it,” Walcott said. “The system was already crumbling and the infrastructure needed to be redone. This is something that’s going to have to get done anyway. We’re saying, instead of letting them do it, let’s start doing it and rebuilding it ourselves — the people that are actually going to build it anyway.”

Finding enough money to proceed will be the co-op’s biggest challenge. New York City officials, like Mayor Bill De Blasio, are in favor of more cable competition in spirit, but are careful not to commit themselves, or the sizable sums required if the group decides to begin building a competing system or bid to acquire the current Spectrum system. So far, the New York City Council has committed to gradually increasing financial support for the development and cultivation of worker cooperatives, starting with $1.2 million in 2015 and increasing to $2.2 million last year. A full-scale acquisition of the existing infrastructure owned by Charter in New York would likely run into the billions of dollars.

The group hopes public demand and dislike of Charter/Spectrum will force elected officials to get involved in the effort.

For the last year and a half, while Charter/Spectrum has been accused of dragging its feet on rural broadband rollouts across New York State and is now threatened with franchise revocation, the company had plenty of time to spare waiting out the International Brotherhood of Electrical Workers Local 3, who have been on strike to protest a pay-and-benefits-race-to-the-bottom in the New York City.

The strike has attracted attention and support from many high-profile downstate politicians, particularly New York City Mayor Bill de Blasio and Gov. Andrew Cuomo, but so far the dramatically enlarged Charter Communications, which acquired Time Warner Cable in 2016, seems comfortable waiting out the union and hoping to force workers to give up and accept to the cable company’s less generous basic benefits package.

The cost of the strike has hurt average middle class Spectrum employees far more than Charter’s top executives — particularly CEO Thomas Rutledge, who had no objections to accepting a take-home bonus and pay package worth $98 million after overseeing the company’s merger. In contrast, many striking workers have depleted their family’s savings and have sold their homes to relocate to less expensive apartments as they struggle to holdout against the nation’s second largest cable company. A few others were reportedly homeless. The union’s emergency fund has been depleted.

The David vs. Goliath battle has also put enormous strain on some affected families. Some have quit the company and looked for employment elsewhere, some others have returned to work and abandoned the strike, leaving holdouts hoping for a breakthrough.

Instead, Charter appears to have won a mysterious ally in the form of a Spectrum employee hired after the strike began in 2017. Initially the worker  had a supervisory role in the company with a salary to match, but late last year strangely accepted an apparent demotion to a level three technician, while retaining his very generous managerial salary. That worker, on his own, managed to navigate a complicated procedure and cumbersome process to file a petition to decertify the union with the National Labor Relations Board. If his effort is successful, IBEW Local 3 would lose the right to negotiate for their members, which is another way of saying “break the union.”

“The guy was brought in – he’s a front, pretty much,” Staten Island mom Sanela Djencic told LaborPress. “He was brought in to bust the union.”

Not so, claims Charter.

“Charter had no involvement in the filing of the decertification petition,” Charter/Spectrum spokesperson John Bonomo flatly told LaborPress in an email. “We don’t have any further comment.”

The NLRB ruled the employee’s petition to decertify the union was valid, finding insufficient evidence to prove the worker was actually serving in a managerial capacity at the time.

In a June 27 letter to employees, John Quigley, Charter’s regional vice president of New York City field operations, was considerably less neutral about the union’s involvement in Charter’s business.

“This ruling clears another hurdle in the decertification process that will allow employees to determine their future,” Quigley wrote. “It is a common tactic for unions to delay and/or block decertification efforts as long as possible […] instead of allowing the voice of employees to be heard. We believe that employees should have the right to vote in a secret ballot election to determine their future. It is the fair and right thing to do.”

Quigley

Quigley did not comment on Charter’s own role erecting hurdles to settle the strike action, something that would also allow employees to determine their future. In fact, strikers complain companies like Charter often prefer to stall and block a fair settlement in hopes the union and its members will run out of funds before it is forced to the table to sign a new agreement.

The company’s efforts to reject union demands come at the same time it is under pressure to deliver the merger-related cost savings it promised shareholders and Wall Street as an outcome of the multibillion dollar merger deal. Cutting back on employee benefits is one way to manage that. Bringing in independent contractors, traditionally paid less and offered fewer benefits, is another. But Charter has consistently claimed it is not trying to hurt its workforce.

Scabby the Rat

“Charter did not want this strike and made multiple attempts to resolve it,” a company spokesman said. “But the union has not been a true partner in negotiations. With Local 3 refusing to even discuss the terms in Charter’s offer, we moved forward last summer and implemented wage increases and other worker benefits. Today we are putting more money into our employees’ pockets, providing them with excellent benefits, and making substantial investments to shore up their retirement benefits that are in jeopardy.”

Charter’s declarations of what is ‘fair and right’ have irritated some members of New York City government.

“Charter Communications has betrayed the public trust and is not deserving of the right to do business with our City,” said Councilman I. Daneek Miller (D-St. Albans). “Charter has an established pattern of deceit against its own workers and consumers in the name of boosting its profit margin, and it must be held accountable for its deception. Well-paying middle class jobs, healthcare and the generational security that is best achieved through union membership are core principles of our city, for which the company has demonstrated no appreciation. If Charter continues to engage in bad faith negotiations with Local 3 or sponsors any attempts to break the union, it’ll be hard pressed to persuade the council to renew its franchise agreement.”

In June, Councilman Rory Lancman (D-Hillcrest) told The Tribune, “Charter Communications has spent the past 15 months doing everything in its power to break Local 3 and boost its own bottom line. Charter’s complete disregard for its own workers and unwillingness to negotiate in good faith are beyond shameful and will not be tolerated in New York City.”

Verizon Communications will bring fiber and enhanced DSL broadband service to an additional 32,000 New Yorkers in the Hudson Valley, Long Island, and upstate as part of a multi-million dollar agreement with the New York Public Service Commission.

When combined with an earlier agreement, Verizon has committed to bringing rural broadband service to more than 47,000 households in its landline service area, with the state contributing $71 million in subsidies and Verizon spending $36 million of its own money.

By the end of this year, Verizon expects to introduce high-speed fiber to the home internet service to 7,000 new locations on Long Island and 4,000 in the Hudson Valley and upstate regions.

“The joint proposal strikes the appropriate balance for consumers, Verizon and its employees,” said PSC Chairman John Rhodes. “The joint proposal builds upon and expands important customer protections previously approved by the Commission and it requires Verizon to expand its fiber network and invest in its copper network, both of which will result service improvements.”

The broadband expansion agreement will include copper reliability improvements in the New York City area, where FiOS is still not available to every home and business in the city. It also includes a commitment to provide fiber-to-the-neighborhood (FTTN) service in sparsely populated areas. This will allow Verizon to introduce or enhance DSL service capable of speeds of 10 Mbps or more.

Verizon has also committed to remove at least 64,000 duplicate utility poles over the next four years around the state. Utility companies have been criticized for installing new poles without removing damaged or deteriorating older poles.

For now, neither Verizon or the PSC is providing details about where broadband service will be introduced or improved.

The state has negotiated with Verizon for more than two years to get the company to improve its legacy landline and internet services, still important in New York. Verizon has complained that with most of its landline customers long gone, it didn’t make financial sense to invest heavily in older, existing copper wire technology. But Verizon suspended expansion of its fiber to the home network in upstate New York eight years ago, leaving many customers in limbo as landline service quality declined. There are still more than two million households and businesses in New York connected to Verizon’s copper wire network.

The state says the deal will “result in the availability of higher quality, more reliable landline telephone service to currently underserved communities and will increase Verizon’s competitive presence in several economically important telecommunications markets in New York.”

The upgrades will cover landline and broadband service improvements. Verizon has no plans to restart expansion of FiOS TV service.

The agreement was reached as the PSC continues to threaten Charter Communications with additional fines and Spectrum cable franchise revocation for failure to meet the terms of its 2016 merger agreement with Time Warner Cable.

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

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

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

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

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

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

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

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

Rural broadband challenges

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

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

The Debate Over Unserved vs. Rural Broadband Expansions

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

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

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

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

Also:

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

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

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

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

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

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

Also:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ignore the Parts You Don’t Like

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

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

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

Where are these witnesses?

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

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

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

Disqualified Addresses

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

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

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

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

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

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

The Unions Are Behind It

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

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

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

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

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

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