While celebrating its success at cutting $350 million in expenses, Frontier’s newest plan to keep the company from drifting towards bankruptcy is a $500 million increase in revenue (and hopefully profits) with a series of “revenue enhancements” and cost cutting.

Significant broadband upgrades in legacy DSL service areas are not on the table, as Frontier continues to spend most of its capital on matching Connect America Funds (CAF) and state grants to expand broadband into unserved and underserved rural areas.

“Approximately 80% of our capital program continues to focus on revenue generating and productivity enhancing projects,” said R. Perley McBride, Frontier’s outgoing chief financial officer. “The focus of our capital spending remains consistent. We continue to focus on our CAF builds, using both wired and wireless technologies.”

Frontier has been criticized by some for spending too much on its network and acquisitions and not enough on shareholder return. The company suspended its dividend in February, and the share price has remained below $6 a share since July. After announcing its latest quarterly results and a new $500 million EBITDA initiative on July 31, the average share price posted only modest gains of around $0.25 a share.

Frontier’s business remains troubled, with looming debt repayments in its future. The date to remember is Sept. 15, 2022 — the day Frontier needs to repay $2 billion in unsecured bonds to maintain its credibility in the credit markets. If it fails to pay, the company could find future financing difficult, which is often what triggers a trip to bankruptcy court.

The year 2022 is also very important to Californians. Frontier disclosed it planned to expand rural broadband service to 847,000 unserved/underserved rural residents by the end of 2022, with specific commitments in the next few years to upgrade 77,402 locations, in part with CAF funding, increase broadband speed for 250,000 households, and deploy newly available service to 100,000 homes.

Frontier’s own deployment goals in California — goals the company may not be honoring. (Image courtesy of: Steve Blum’s blog)

According to the California Emerging Technology Fund (CETF), Frontier has no intention of meeting its rural broadband commitments. In effect, similar to Charter Communications, it merely made the commitments to win approval of its acquisition of Verizon’s wireline and FiOS business in California.

A day of reckoning for the company’s alleged failure to meet its obligations is likely forthcoming. Steve Blum’s blog notes Frontier isn’t saying much:

In its formal response to CETF’s allegations, Frontier never actually says that it kept to that timetable. All it says is that “Frontier sent a letter to the Communication Division dated March 8, 2018 on its commitments that includes a confidential attachment reflecting completed locations through December 31, 2017”. It sent a letter, but doesn’t say what’s in the letter or even claim that the letter documents fulfillment of its obligations.

CETF told California regulators a disturbing story about Frontier’s failure to perform and other allegations in its filing with the California Public Utilities Commission, alleging Frontier is reneging on the deal it made with the state and various stakeholders in return for getting its acquisition approved. The group also accused Frontier of failing to deliver on its affordable broadband offering, because the company made signing up difficult and bundled extra fees and surcharges onto the bill.

“Frontier launched its existing affordable broadband offer in late August 2016 and to date only 9,173 adoptions have been achieved, a mere 4.5% of the 200,000 household adoption goal,” the CETF wrote. “Due to the initial Frontier eligibility requirement that Frontier customers be a telephone landline Lifeline subscriber and the total bundled cost, the affordable broadband offer has only attracted 7,452 low-income subscribers, which is 190,827 households short of the agreed-upon goal.”

Frontier has a employer turnover problem in California, evident from this filing by the CETF. (Courtesy: CETF)

The CETF said Frontier was “shirking” and should face the maximum fine of $50,000 a day retroactive to July 1, 2016 for failure to comply with its obligations. As of the end of July, 2018 that fine would amount to over $39 million.

To comply with existing obligations to California, Frontier could have to spend in excess of $1 billion in the next two years. But Frontier has told investors it planned to spend no more than $1.15 billion on capex in fiscal year 2018 across its entire national service area. This could explain why Frontier may be stalling on upgrades in California.

Also raining on Frontier’s parade is the muted reaction to Frontier’s latest money-raising scheme. Shareholders appear lukewarm, with some openly skeptical that Frontier can deliver what it promises.

The plan’s success depends on:

• Frontier’s ability to raise rates and find other “revenue enhancements” of $150-200 million. Rate increases drive customers to competitors, reducing revenue.
• Vague “operational improvements” are expected to bring $150-200 million.
• Customer care and support savings are anticipated to generate $125-175 million in EBITDA benefit.

Outgoing CFO McBride relies heavily on opaque corporate-speak like this, with few specifics:

“In addition to the dedicated resources, we are utilizing a new approach that will significantly accelerate the benefits of both revenue and expense initiatives. This new approach involves utilization of external expertise to significantly reduce the time to successfully realize our objectives. This will allow us to execute more initiatives in parallel while still managing day to day requirements of the business.”

In short, this suggests Frontier will outsource a lot of initiatives they used to manage in-house. The company also plans to start limiting truck rolls to customer homes if the company determines the problem is likely elsewhere in their network. It also claims it is cutting customer hold times at their call centers, which are still frequently outsourced.

What Frontier has made clear, again, is their determination to keep a cap on spending, which means much of the money Frontier will spend each year will go towards network maintenance, not service upgrades. Therefore, customers can expect incremental upgrades, usually when a construction project requires Frontier to replace existing copper wire infrastructure with fiber optics or at a building site for a new housing development. Most customers in existing neighborhoods served by legacy copper wiring on the poles since the 1960s will continue to be serviced by those lines until they are torn down in a storm or stolen. Frontier has consistently shown no interest in wholesale network upgrades in its legacy service areas.

For residents of 10 Mississippi communities, an alternative broadband option is now available delivering up to 120/50 Mbps speed with no data caps or throttling for a flat $50 a month, taxes and fees included.

“C Spire 5G Internet” is as described, except it doesn’t use the official 5G standard and will require the installation of a “dinner plate”-sized antenna on one’s home to get the service.

C Spire is using an 802.11 variant with equipment developed by Mimosa and Siklu, leveraging C Spire’s existing 8,400 route miles of fiber infrastructure to extend service wirelessly to each customer without the cost of wiring a fiber optic cable to the home.

Siklu’s EtherHaul products work in conjunction with its point-to-point and point-to-multipoint radios that operate in the 60 and 70-80 GHz millimeter wave bands. Because of the vast amount of spectrum available on these uncongested frequencies, C Spire can provide connections up to 10 Gbps from each small cell site.

C Spire is using Siklu’s EH-600 mmWave backhaul equipment for its fixed wireless internet service in Mississippi.

Mimosa supplies short-range MicroPoP architectures and in limited tower deployments including Mimosa A5 and A5c access devices, Mimosa C5 client devices, and Mimosa N5-360 beamforming antennas.

“Our service is backhauled by Siklu’s carrier grade solutions enabling us to deliver high-speed internet access without the arbitrary data caps usually associated with LTE or satellite services,” said C Spire president Stephen Bye.  “With a flat rate of $50 a month, which includes taxes and fees, our customers can now easily get all of the content they want and need.”

C Spire said it is quickly working to introduce the service in “dozens” of markets in Mississippi, in addition to its earlier plans to offer fixed wireless to over 90,000 locations across its service area. The “5G” fixed wireless service being introduced in Mississippi is not the same as C Spire’s earlier fixed wireless initiative.

Customers report wireless speeds are within a reasonable range of what is advertised, but antenna placement can be critical to get the best speed. It isn’t known how many customers are currently sharing each small cell site, and C Spire has protected itself with a contract clause allowing it to begin data caps, usage based billing, or targeted suspensions for customers deemed to be consuming too much data if network congestion becomes a problem.

Mississippi is broadband-challenged because many of its rural locations are populated with some of the country’s poorest citizens. AT&T, the state’s largest phone company, has shown little interest expanding fiber into many of these areas, especially in northern Mississippi, and the state’s cable companies include Cable One, notorious for being expensive and data-capped. As a result, the state is ranked 49th out of 50 for broadband availability.

C Spire is a regional mobile provider — the sixth largest in the country — and directly provides its own cell service in Memphis, Tenn., Mississippi, Alabama, and the Florida Panhandle.

C Spire introduces 120 Mbps fixed wireless internet access for a flat $50 a month in Mississippi. No data caps or throttling. This company produced video introduces the service. (1:23)

Moving on out?

New York’s Public Service Commission on Friday set the stage for ‘an orderly transition’ ending Spectrum’s brief life in New York, to be replaced with a ‘to be announced’ new cable operator to serve the needs of New York subscribers.

Or so the New York Public Service Commission hopes.

Although Friday’s 4-0 unanimous decision to revoke Charter’s merger deal in New York is a public relations and legal nightmare for the country’s second largest cable operator, we suspect top executives are getting a good night’s sleep tonight, not too concerned about the immediate consequences of today’s stunning vote.

Losing New York is what Wall Street would call “a materially adverse event” for any cable operator. New York City is the country’s largest media market. Billions of dollars worth of cable infrastructure, subscriber and advertising revenue, and prestige are at stake. Despite the ‘vote to revoke,’ Charter’s attorneys have signaled for weeks they intend to preserve and protect the cable company’s legal rights, and it is almost certain the PSC’s merger revocation order will meet a court-ordered injunction as soon as next week.

The courts are likely to make the final decision about whether Spectrum can stay or has to go. That aforementioned injunction will stop the clock on any ‘rash action’ and start what could be years of litigation, filled with discovery, endless hearings, stall tactics, blizzards of motions, appeals, more appeals, and then more lawsuits over whatever final exit plan is eventually filed, if one is required by the courts. A judge could also order the cable company and the state to work it out in a court-approved settlement, something the PSC seems loathe to do in its two orders published today which make it clear the regulator is done talking only to feel strung along by the cable company.

For the near term, Spectrum customers won’t notice a thing. Even if the PSC was not taken to court, Charter has 60 days to file a six month transition plan, making the earliest date to waive Spectrum goodbye is sometime in early 2019.

To help readers out, we’ve prepared a short FAQ to address any concerns:

Q. Will I lose my cable and internet service?

A. No. Regardless of what happens, the PSC has ordered a transition plan designed to provide a seamless switch between Spectrum and a future provider. For most customers, it will resemble Charter’s own transition from Time Warner Cable to Spectrum.

Q. Who will replace Spectrum?

Not again.

A. The cable industry often resembles a cartel, whose members go to great lengths to protect each other. Historically, no large cable operator will entertain requests for proposals from cities or states requesting a replacement of a cable company already providing service. In short, if a city is fed up with Comcast and wants to shop around for another provider, it is highly unlikely Charter/Spectrum, Cox, Altice/Cablevision, Mediacom, or other providers will submit a bid to replace Comcast. If they did, Comcast could theoretically retaliate in their service areas. Should the Public Service Commission itself solicit bids to replace Spectrum, it is unlikely any operator will send a proposal unless/until Charter indicates it wants to leave the state. This kind of informal protectionism has proven highly effective limiting the power of towns and cities to play companies off each other to get a better deal for their residents.

Q. If Charter loses its court challenge and has to leave, what happens then?

A. If Charter exhausts its appeals and realizes it can no longer do business in New York, it will seek a private sale or system swap with another provider. Comcast would be the most likely contender, having shown prior interest in serving New York and having contiguous cable operations in adjoining states, especially in northern New England, Massachusetts, Pennsylvania and New Jersey. Comcast could agree to trade its cable systems in states like Texas, Florida, or California in return for its New York State’s Spectrum systems, which cover cities across the state. But that is likely years away.

Q. Isn’t Comcast worse than what we have now with Spectrum?

A. Consumer satisfaction surveys suggest the answer is yes. Comcast is routinely rock bottom in customer satisfaction, customer service, pricing, and service options. Its 1 TB data cap on internet service has not yet reached many of its northeastern customers, but most observers expect it eventually will. In contrast, Charter has agreed not to impose data caps for up to seven years after its 2016 merger. But Comcast has delivered more frequent broadband speed upgrades and has more advanced set-top boxes and infrastructure.

Stop the Cap! would vociferously oppose Comcast’s entry in New York, however, just as we did a few years ago when we participated in the successful fight to stop Comcast’s merger attempt with Time Warner Cable.

Q, What other providers might be interested?

A. Altice, which does business as Cablevision or Optimum, is New York’s other big cable operator, providing service exclusively downstate. Altice had aggressive plans to become a big player in the U.S. cable business, but its acquisition dreams were halted by shareholders, concerned about the European company’s already staggering debt, run up acquiring other companies. Altice is currently scrapping Cablevision’s existing Hybrid Fiber Coax infrastructure and replacing it with direct fiber to the home service, which offers improved service. But the company charges a lot for its advanced set-top box, has bloated modem rental fees, and is notorious for vicious cost-cutting, which stalled service improvements at its mobile and cable companies in France and raised a lot of controversy among employees.

Cox could be another contender, but would have to find a few billion to acquire Spectrum’s statewide system. Wild card players include AT&T and Verizon. Verizon would face extreme regulatory challenges, however, because it is the local phone company for most residents in the state. AT&T sold its U-verse system in Connecticut to Frontier Communications and seems increasingly focused on content, not on the systems that deliver content. A hedge fund or private equity firm could also be contenders, but perhaps not considering the high cost to acquire the systems and New York’s reputation for fierce customer protection. Remember, New York insists that a cable company ownership transfer must meet public interest tests, not simply enrich hedge fund participants.

Q. What happens to Charter’s pre-existing deal conditions on rural broadband and speed increases?

A. Officially, the PSC has ordered Charter to continue abiding by the 2016 Merger Order and its deal commitments. The state will likely continue to fine Charter if it keeps missing rural broadband rollout targets until a court stops them or the company leaves. Charter will probably continue rural broadband expansion to show good faith. Charter has met its merger obligations related to speed increases, so it is not currently out of compliance. But a legal challenge offers the opportunity for a third-party judge to suspend or modify existing deal commitments, at least temporarily. It is unlikely Charter will want to invest large sums in its cable systems if it believes it will lose its case in court. The timetable for an upgrade to 200 Mbps Standard speed will likely now occur on a regional basis. The northeast division will still likely activate these speeds across multiple cities in the region sometime this summer, especially in places where it faces competitive pressure. The 300 Mbps upgrade in 2019 is more likely to be impacted by any forthcoming legal action.

Q. Is this political or about the union striking Charter? It is an election year.

A. All things are political to some degree in an election year in New York. That said, the New York Public Service Commission has the nation’s best track record of protecting consumers from bad actor telecom and energy companies. They take their responsibilities very seriously, and have shown consistent independence from the governor’s office, especially in recent years. The Commission was by far the most responsive of any state, including California, in taking our concerns about the Charter/Time Warner Cable merger seriously, and incorporated several of our suggestions into the final Merger Order. We warned the PSC cable companies have routinely reneged or slipped through deal conditions. We even predicted Charter would attempt to count new buildouts in non-rural areas and business office parks towards any commitment to expand their service areas. The PSC smartly conditioned its Merger Order by defining the goal of Charter’s broadband expansion — serving the unserved and underserved. That is why the company is not getting away with counting New York City buildouts towards this commitment.

Cynthia Nixon and Andrew Cuomo, both running for New York governor, neither fans of Charter Spectrum.

Few voters are likely to tie a PSC decision to the governor’s race, although Gov. Andrew Cuomo has repeatedly taken credit and praised the PSC for not tolerating bad behavior from Spectrum. If it was a purely political play, it would originate in the governor’s office. Gov. Cuomo’s Broadband for All program depends on achieving near-100% broadband penetration, something it may not manage if Charter fails its rural buildout commitments. That would be a PR mess. There is ample evidence that Charter’s own conduct was sufficient to trigger this kind of response, with or without an election looming.

New York is also a union-friendly state, and the International Brotherhood of Electrical Workers (IBEW) Local 3 has held out for over a year in the New York City area striking to preserve important job benefits Charter wants to discontinue. New revelations from the PSC outlining Charter’s increasingly bad safety record has strengthened the union’s case that Charter would rather bring in unqualified replacement workers and put safety at risk than settling with a union that essentially built the cable system serving New York City. There is no credible evidence that the union is involved in the PSC’s decision to revoke the merger agreement, although we suspect most affected members will fully support the decision.

Q. Is the PSC being too harsh? Can’t they work it out with Charter?

A. For New York to revoke a merger and effectively boot the company out of business in the state is remarkable. Utility companies that irresponsibly lack a credible disaster plan or do not comply with industry standards to maintain tree trimming and infrastructure repairs that result in plunging parts of upstate into darkness for up to two weeks after wind storms in two consecutive years were fined, but not ordered to leave. The ongoing scandal of competing private ESCO electric companies that have almost all scandalously overcharged New Yorkers with electric bills higher than their incumbent utility have been threatened with de-certification and fines, but are still conducting business, even though much of their marketing material was misleading.

Is it too late to work it out?

That should tell you the PSC’s move today was a final straw. The two parties have negotiated and debated Spectrum’s performance lapses for nearly a year. Tension was clearly rising by the spring after the PSC uncovered evidence Charter was intentionally counting areas it knew were outside of the spirit and language of the merger order’s rural broadband deal commitments. Charter’s brazen behavior achieved a new low when it questioned the PSC’s authority to oversee the merger agreement Charter signed. At one point, it unilaterally announced it would only honor the deal commitments found in one appendix of the Merger Order, conveniently ignoring the section describing and defining the rural broadband commitment Charter agreed to. The company also continued to air what the PSC declared to be false advertising, promoting Charter’s claimed accomplishments in rural broadband expansion. Charter repeatedly ignored warnings to suspend and remove those ads. In fact, the PSC issued strongly worded warnings to Charter at least twice, specifically outlining the possibility of canceling the merger agreement and forcing Spectrum out of the state. In response, Charter began staking out its legal arguments in filings, obviously preparing for litigation.

The PSC would probably argue it is impossible to work things out with a company that repeatedly breaks its own commitments. The PSC also openly worried what message it would send to other regulated utilities if it did not react strongly to Charter’s behavior. If the company had a corporate agenda to cheat New York out of important rural broadband expansion, negotiating, fining, and sanctioning a company is unlikely to change its behavior at the top.

Stop the Cap! had earlier recommended the PSC adopt new sanctions to force Charter to comply with its commitments, and expand them to bring service to many New Yorkers who were left behind by Gov. Cuomo’s Broadband for All program, suddenly saddled with satellite internet service. A large percentage of those affected are frustratingly close to nearby Spectrum service areas and although it would cost Charter a significant sum to reach them, it would deliver a financial sting for their bad behavior while also bringing much-needed internet access to the leftovers left-behind by the governor’s broadband expansion program. Such a settlement would require the company to actually comply with their commitments, something the PSC had been unable to achieve through no fault of their own. Perhaps a judge might have better luck should a negotiated settlement come up in litigation.

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)

Murphy

Every Minnesota resident would receive access to high-speed internet service under a new proposal that would fund broadband expansion with sales tax revenue earned from out-of-state internet purchases.

The Connect MN plan, backed by the Democratic-Farmer-Labor Party (DFL) candidate for governor Erin Murphy, would offer rural and underserved Minnesotans 100/20 Mbps broadband service by 2026. To pay for the expansion program, Murphy proposes to invest $100 million annually in Minnesota’s Broadband Development Grant Program, which would provide funding to public and private providers to incentivize expansion into areas currently unprofitable to serve.

“For too long, we have talked about the importance of broadband at the Capitol without the investment needed to address the scope of the challenge,” said Murphy. “When I am Governor, we will move forward with a strategic plan that will connect every Minnesotan with the high-speed internet they need to succeed.”

Funding for the broadband expansion would come from new sales tax collections on out-of-state online purchases that have largely gone uncollected in the past. With the recent Supreme Court decision, South Dakota v. Wayfair, out-of-state retailers would be compelled to collect Minnesota’s sales tax when shipping items to a Minnesota address and remit the proceeds to the state government. The U.S. Government Accountability Office estimates more uniform collection of sales tax on out-of-state purchases will collect an extra $132-206 million for Minnesota annually. Dedicating much of that money to improve broadband service in the state could result in extending service to 550,000 unserved households — more than 26% of the state — within eight years.

Colored sections show areas lacking at least 25/3 Mbps broadband.

That level of investment would put Minnesota in the same league as New York, where in 2015 Gov. Andrew Cuomo announced a $500 million investment by the state in rural broadband expansion in an effort to achieve statewide broadband access by 2018. Cuomo’s plan is still under construction, and has been criticized for missing its end goal of universal coverage, with about 1-2% of state residents left with the option of satellite-delivered internet access.

Murphy’s plan would dramatically expand on her predecessor’s own broadband initiatives. Incumbent Gov. Mark Dayton’s (DFL) 2018 plan proposed to invest $30 million and reach 11,000 homes and businesses. Since taking office, Gov. Dayton claims to have secured enough funding to expand broadband access to 33,852 households, 5,189 businesses, and 300 community institutions in Greater Minnesota since taking office in 2011. Reaching the half million still unserved homes would take decades at current funding levels.

Murphy’s proposal also goes far beyond rural broadband expansion programs in other states. Tennessee currently offers a $45 million investment in rural broadband over three years — with less than $30 million specifically designated for rural broadband hookups. In West Virginia, a state ranked 43rd in wired broadband by the FCC’s 2018 Broadband Deployment Report, less than $2 million was available this year for rural broadband expansion, combining available funds from a Community Development Block Grant program with leftover money originally set aside for water and sewer projects.

Murphy claims universal access to broadband spurs innovation and drives economic development, education, healthcare and quality of life. One study indicates that a community will see a $10 return on investment for every $1 invested in broadband.

“This is a once-in-a-generation opportunity to make progress on an issue holding back too many Minnesotans in communities all over the state,” said Murphy. “It’s a critical step in ensuring that everyone in Minnesota can build a bright future for themselves and their families.”