A corporate-funded business advocacy group backed by the telecom industry and the Koch Brothers is pursuing a lawsuit asking the D.C. Court of Appeals to toss pro-consumer deal conditions imposed by the Federal Communications Commission in return for granting its 2016 approval of the acquisition of Time Warner Cable and Bright House Networks by Charter Communications.

The Competitive Enterprise Institute filed an initial petition with the FCC asking the agency to rescind its own deal conditions shortly after the merger was completed. CEI argued the agency imposed “harmful merger conditions on Charter that had nothing to do with the merger itself,” and that the FCC did not have the authority to put corporate merger deal conditions in place.

CEI specifically targeted its objections to the FCC’s seven-year ban on Charter Spectrum data caps and consumption billing, arguing the ban raised broadband pricing for all Spectrum customers and prevented the cable company from offering discounts to low usage customers. It also claimed that Charter had to increase pricing for all customers because the FCC required Spectrum to raise broadband speeds, introduce a discounted internet program for low-income customers, and expand service to at least two million new households not presently served by Spectrum.

The FCC ultimately rejected CEI’s petition in 2018, claiming the group had no standing to challenge the merger transaction or deal conditions. The group called the FCC’s decision wrong, claiming consumers will “have to foot the bill for an overreaching federal agency” and that “the FCC has no authority to micromanage the internet at the public’s expense.”

This week, it filed an opening brief appealing the FCC’s decision to the D.C. Court of Appeals, which oversees the legality of the FCC’s regulatory decisions.

The 101-page filing maintains the FCC overreached by imposing any deal conditions on the 2016 multi-billion dollar merger deal, especially those that might require the merged company to spend money to improve service to customers. CEI argued such conditions were “arbitrary and capricious” and had no place as part of approving a business merger transaction.

The group submitted evidence from four individuals who attested to their belief that the deal conditions “probably contributed” to price increases after customers abandoned their legacy Bright House and Time Warner Cable plans in favor of Spectrum plans and pricing. The customers reported rate hikes ranging from $4 a month to $20 a month “for the same services,” but did not attach copies of their bills allowing a court to ascertain whether those rate increases involved cable television or broadband service or both.

No evidence was provided to prove CEI’s assertion that rate increases were directly tied to merger conditions other than a declaration from Robert W. Crandall, an economist and nonresident senior fellow at the Technology Policy Institute in Washington, D.C. Crandall argued any deal conditions requiring a cable company to spend money to expand, improve, or discount services would likely impact subscriber rates.

No disclosure was made regarding any fees paid to Crandall to conduct research on behalf of CEI. The Technology Policy Institute is financially backed almost entirely by the Koch Brothers and corporate interests including AT&T, Charter Communications, Comcast, and Verizon.

CEI’s legal brief depends on assertions made by then-minority Republican members of the FCC, notably then-Commissioners Ajit Pai and Michael O’Rielly, who objected to the FCC’s merger conditions. CEI ignored the views of the then-Democratic majority on the Commission, who voted to approve the merger with deal conditions. Then Chairman Thomas Wheeler and Commissioners Mignon Clyburn and Jessica Rosenworcel were not mentioned anywhere in CEI’s brief. Today the Commission has a Republican majority, with Pai now serving as chairman.

The FCC in 2016 (from left to right): Commissioners Ajit Pai, Mignon Clyburn, Chairman Tom Wheeler, and Commissioners Jessica Rosenworcel and Michael O’Rielly

CEI’s argument follows a similar pattern to arguments made against net neutrality — namely, the FCC has no authority to regulate broadband services or the pricing and policies of the companies providing it, as companies offer different services including health therapy, if you want to offer this you could check this hypnotherapist certification online just for this. Charter Communications has occasionally argued the same point with the New York State Public Service Commission, which imposed deal conditions of its own in return for approval of the merger.

Charter has consistently reserved the right to object to deal conditions requiring it to build out service to rural areas, as well as any deal conditions that go beyond the authority of state regulators to oversee broadband service. In Charter’s view, state regulators have no such authority. In the state’s view, the PSC has the right to consider a myriad of factors because its regulatory mandate  requires approving or rejecting a merger based on the public interest. Its 2016 merger order found the transaction was not in the public interest unless the parties agreed to certain deal conditions, which closely resembled those required by the FCC. When Charter allegedly failed to meet the conditions it agreed to, the New York regulator could not directly compel Charter Spectrum into compliance, but it could and did decertify the merger itself.

Should the D.C. Court of Appeals find in favor of CEI, the deal conditions imposed by the FCC would be revoked, although Charter could continue to honor those conditions voluntarily. Separate legal cases would have to be brought in state courts to invalidate deal conditions imposed by state regulators.

For the sixth time, the New York State Public Service Commission has granted another extension to Charter Communications, allowing the company to continue doing business in the state, despite a July 2018 order revoking its merger agreement with Time Warner Cable.

“On January 12, 2019, Charter filed a letter requesting that the Commission grant further 30-day extensions by January 14, 2019,” the Commission wrote in its decision. “This order grants limited 21-day extensions.”

As a result, the newest deadlines for Charter to appeal the Commission’s decision to cancel Charter’s merger with Time Warner Cable is Feb. 4 and to file a Six-Month Exit Plan for Spectrum, informing the Commission how Charter plans to transition service to a new provider, is March 4.

The Commission claims that private, ongoing discussions between Charter and the Commission’s staff are “productive” and the company has ceased airing what the Commission claimed to be misleading advertising about the state of its expansion effort in New York State.

Last fall, the Commission laid out the framework for a settlement agreement, requiring Charter Spectrum to address “issues relating to the inclusion of certain categories of addresses and whether they are valid ‘passings’ under the Merger Approval Order; penalty actions and amounts under dispute in Supreme Court; and a schedule for compliance (including enforcement mechanisms) going forward.”

The state telecommunications regulator has been involved in a two-year long dispute with Charter over expanding rural broadband options for New York residents. The original merger approval order required Charter to build out its service to areas the company had not serviced before.

Charter’s rural broadband expansion was important for Gov. Andrew Cuomo’s 2015 Broadband for All program, which was supposed to expand broadband access to 2.42 million unserved or underserved rural households, making broadband available to 99.5% of the state by 2018. Governor Cuomo’s plan remains unfinished, in part, because of the ongoing dispute with Charter.

A $174.2 million consumer fraud settlement has been reached between outgoing New York Attorney General Barbara D. Underwood and Charter Communications, delivering $62.5 million in direct refunds to some customers in former Time Warner Cable Maxx territories in New York State and free premium and streaming services for all current New York customers.

The settlement, likely the largest ever reached with an Internet Service Provider (ISP), comes in response to a 2017 lawsuit filed by former Attorney General Eric Schneiderman, accusing Time Warner Cable of short-changing customers on broadband speed and reliability, by knowingly advertising internet speeds it could not deliver. Time Warner Cable was acquired by Charter Communications in 2016.

“This settlement should serve as a wakeup call to any company serving New York consumers: fulfill your promises, or pay the price,” said Underwood. “Not only is this the largest-ever consumer payout by an internet service provider, returning tens of millions of dollars to New Yorkers who were ripped off and providing additional streaming and premium channels as restitution – but it also sets a new standard for how internet providers should fairly market their services.”

The settlement allows Charter to admit no wrongdoing, but the company is required to compensate Spectrum customers in New York and reform its marketing practices. Going forward, Spectrum must offer evidence through regular speed testing that the company can actually deliver advertised speeds. Charter is also required to continue network investments in New York to improve its internet service.

Lawsuit History

Schneiderman

In 2017, the Attorney General’s office filed a detailed complaint in New York State Supreme Court, alleging that Charter had failed to deliver the internet speed or reliability it had promised subscribers in several respects. That includes leasing deficient modems and wireless routers to subscribers – equipment that did not deliver the internet speeds they had paid for; aggressively marketing, and charging more for, headline download speeds of 100, 200, and 300 Mbps while failing to maintain enough network capacity to reliably deliver those speeds to subscribers; guaranteeing that subscribers would enjoy seamless access to their chosen internet content while engaging in hardball tactics with Netflix and other popular third-party content providers that, at various times, ensured that subscribers would suffer through frozen screens, extended buffering, and reduced picture quality; and representing internet speeds as equally available, whether connecting over a wired or Wi-Fi connection – even though, in real-world use, internet speeds are routinely slower via Wi-Fi connection.

The Attorney General’s office prevailed at every major stage of the court proceedings. After Charter sought to move the case to federal court, the Attorney General’s office won a federal court decision returning it to state court. Charter then moved to dismiss the action on various grounds, including federal preemption; the Attorney General’s office successfully opposed that motion, which the trial court denied in full. When Charter appealed parts of that ruling, the Attorney General’s office prevailed again at the Appellate Division.

Underwood

The Settlement

Under the settlement, New Yorkers will be qualified to receive different levels of compensation as a result of the settlement. Here is what customers can expect:

Only current Charter Spectrum internet customers (including those on legacy Time Warner Cable internet plans) can receive benefits under this settlement. If you do not have service today, but had it in the past, you do not qualify for relief.

Cash Refunds

Only customers living in areas upgraded to Time Warner Cable Maxx service can receive cash compensation. At the time of the lawsuit, this included much of New York City area, the Hudson Valley, parts of the Capital Region, and Syracuse-Central New York. Additionally, the customer must have subscribed to a Time Warner Cable legacy speed plan of 100 Mbps or higher. (Customers in non-Maxx areas including Buffalo/WNY, Rochester-Finger Lakes Region, Binghamton, and the North Country will not receive financial compensation.)

If you did subscribe to 100+ Mbps Time Warner Cable service and still subscribe to either your original legacy plan or have since upgraded to a Spectrum plan, you may qualify for:

• a $75 refund (700,000 subscribers) if you were supplied an inadequate cable modem or Wi-Fi router by Time Warner Cable.
• an additional $75 refund (150,000 subscribers) if you were leasing an inadequate cable modem for 24 months or longer.

You do not need to take any action to get these refunds. Charter Spectrum will notify eligible subscribers about the settlement and provide refunds within 120 days. (If you previously received a refund for being supplied with an inadequate modem, you are ineligible for this cash refund).

Free Services

Only former TWC Maxx customers qualify for cash refunds.

In addition to the direct refunds detailed above, Charter will offer free streaming services to approximately 2.2 million active internet subscribers (both Spectrum and legacy Time Warner Cable plans qualify):

If you currently subscribe to both Spectrum Internet and TV service, you qualify for three free months of HBO or six free months of Showtime. (If you already subscribe to these premium movie channels, you are ineligible for this part of the settlement. If you subscribe to one, but not both of these networks, select the one you do not currently receive.)

If you currently subscribe to internet-only service from Spectrum, you will receive a free month of Charter’s Spectrum TV Choice streaming service—in which subscribers can access broadcast television and a choice of 10 pay TV networks—as well as a free month of Showtime.

Charter will notify subscribers of their eligibility for video and streaming services and provide details for accessing them within 120 days of the settlement. Receiving the video and streaming services as restitution will not affect eligibility for future promotional pricing.

Pro-Consumer Reform

New York also secured groundbreaking reforms in how Charter Spectrum conducts business. Underwood believes these guidelines could serve as a guide for other states to eventually adopt, delivering consumer benefits to cable subscribers everywhere. For now, New York consumers can expect:

• Internet Speed Proof of Performance: Charter must describe internet speeds as “wired,” disclose wireless speeds may vary, and mention that the number of concurrent users and device limitations will impact your actual internet speed. These disclosures must be made in all marketing materials and ad campaigns. Additionally, Spectrum must regularly certify through actual speed testing that it can deliver the speeds it advertises or discontinue any speed plan that cannot be substantiated.
• Truth in Advertising: Charter Spectrum cannot make unsubstantiated claims about the speed required for different internet activities (eg. streaming, gaming, browsing). It also must not advertise internet service as reliable (eg. no buffering, no slowdowns), or guarantee Wi-Fi speed without proof.
• Equipment Reforms: Charter must provide subscribers with equipment capable of delivering the advertised speed under typical network conditions when they commence service, promptly offer to ship or install free replacements to all subscribers with inadequate equipment via at least three different contact methods, and implement rules to prevent subscribers from initiating or upgrading service without proper equipment for the chosen speed tiers.
• Sales and Customer Service Retraining: Charter must train customer service representations and other employees to inform subscribers about the factors that affect internet speeds. Charter must also maintain a video on its website to educate subscribers about various factors limiting internet speeds over Wi-Fi.

Today’s settlement has no bearing on the well-publicized dispute between the New York Public Service Commission and Charter that led the Commission to cancel approval of Charter’s acquisition of Time Warner Cable. Last summer, the Commission voted to throw Spectrum out of the state, but ongoing negotiations between the PSC and Charter are also likely to culminate in a similar settlement including cash fines and new commitments from the cable operator.

Rutledge

Charter Communications is using the benefits of the Republican-promoted tax cut to buy back its own stock, because the only other option under consideration was using the money to buy up other cable operators.

“From a [mergers and acquisitions] perspective, I think cable is a great business. If there were assets for sale that we could do more of, we would do that,” said Charter Communications CEO Thomas Rutledge at this week’s UBS Global Media & Communications Conference. “We’ve been buying a lot of our own stock back. Why? Because we think the cable business is a great business and we haven’t been able to buy other cable assets.”

Charter is not using the company’s lower tax rate to benefit Spectrum customers with lower bills or more extravagant upgrades. Instead, it is accelerating efforts to please shareholders and executives with efforts to boost its share price — something key to top executives’ performance bonuses.

With digital and broadband upgrades nearly complete in areas formerly served by Time Warner Cable and Bright House Networks — the cable companies Charter acquired in 2016 — Rutledge told investors he can initiate additional upgrades without spending huge sums on infrastructure buildouts.

Gigabit speed is now available in most markets, and the company has doubled its lowest internet download speeds in areas where it faces significant competition from AT&T from 100 to 200 Mbps, boosting sales of Spectrum broadband service, according to Rutledge.

Today, about 60% of Spectrum customers are offered 100 Mbps, while the other 40% — mostly in AT&T service areas — are getting 200 Mbps.

Rutledge told investors he does not see much threat from Verizon FiOS or its newly launched 5G offerings, and has no immediate plans to upgrade service in Verizon service areas because neither offering seems that compelling.

“I saw that Verizon had some passings that they could do 800 Mbps in,” Rutledge said. “We have 51 million passings that we can do 1 gigabit in and we can go to 10 gigabits relatively inexpensively and I think we will because I think the world will go to 10 gigabits.”

Analysts are uncertain whether Rutledge’s comments are naïve or brave.

“We see 5G fixed wireless broadband [like that offered by Verizon] as the largest existential threat to broadband providers, by far,” wrote analysts at Cowen. Until now, most broadband competition for cable operators came from phone companies pitching DSL. Verizon retrenched on its FiOS offering several years ago. But AT&T has been more aggressive upgrading urban areas to fiber service, which has forced Charter to respond with higher speeds and better promotions.

Rutledge does not see Verizon’s 5G being a significant competitive threat for several years, and suspects Wall Street may once again punish Verizon for spending money on a wireless network less capable than what the cable industry offers today. Shareholders may also dislike watching Verizon distracted by the home broadband market when portable wireless revenues are much more important to the company.

Verizon officials claim about half of those signing up for its 5G service plan were not current Verizon customers. But the company would not say whether their new fixed wireless customers were coming largely from cable or DSL disconnects, which would prove marketplace disruption.

New York’s Department of Public Service (DPS) has granted Charter Communications an unprecedented additional 18-day extension to file its threatened appeal of the Commission’s decision to boot the cable company from the state and its six-month exit plan.

“Charter and DPS Staff state in their request for a limited 18-day extension of time that discussions are ongoing, that Charter and DPS Staff have established a framework for how a settlement agreement might be structured, and that any final agreement would necessarily address: issues relating to the inclusion of certain categories of addresses and whether they are valid ‘passings’ under the Merger Approval Order; penalty actions and amounts under dispute in Supreme Court; and a schedule for compliance (including enforcement mechanisms) going forward,” the order granting the extension reads.

Despite last week’s filing from Charter’s attorneys excoriating the Public Service Commission for its decision to remove Spectrum from the state, the DPS claimed this week that because of Charter’s “continued obligations to comply with the Public Service Law and regulations, good cause exists […] to allow for further discussions while both sides reserve their respective legal rights.”

But some consumer groups, including Stop the Cap!, are wondering exactly when patience will run thin at the Commission.

“When the latest deadline arrives in January 2019, it will be nearly six months since the Commission voted to strip approval of Charter’s merger with Time Warner Cable,” said Phillip M. Dampier, founder of Stop the Cap! “While we can appreciate the benefits of negotiation and dialogue, these conversations are taking place behind closed doors with no public input and no formal ability for groups like ours to intervene and offer our own views.”

Stop the Cap! has advocated that Charter Communications be allowed to remain in business in New York, but only with their agreement to meet some additional terms and conditions:

1. Further extend Spectrum service to additional customers in rural New York scheduled to receive satellite internet service;
2. Increase entry-level broadband speed to at least 200 Mbps immediately and further extend availability of Everyday Low Price Internet service ($14.99/mo);
3. Settle the ongoing labor dispute with striking Spectrum workers in downstate New York.

“At present, it appears the DPS/PSC is only negotiating to get Spectrum back in compliance with the original terms of the Merger Order they have been ignoring, which is hardly a concession,” Dampier said. “Charter’s arrogance and blatant disrespect for the terms of the merger deal and its flippant adherence to those terms should cost the company more than just a monetary fine lost in the state’s coffers. Visible benefits to New York consumers must be part of the equation.”

The state seems mostly focused on keeping Charter in compliance with the agreement while the lawyers talk.

“As the Commission noted in prior extensions, however, this limited extension should not be viewed as an indefinite grant of time for discussions to continue between DPS Staff and the Company,” DPS officials wrote. “Many Upstate New Yorkers living in Charter’s franchise areas are understandably frustrated by the lack of modern communications infrastructure. The Compliance and Revocation Orders were designed to deal with very serious consumer issues presented by Charter’s conduct related to the company’s network expansion. As such, the processes envisioned therein must continue in the absence of an agreement.”

The current extension resets the deadlines to file an appeal to Dec. 14, 2018 and the six-month exit plan to Jan. 11, 2019. Both are just the latest in a series of extensions.

Important Dates:

• July 27, 2018: The PSC votes to rescind approval of the Charter/Time Warner Cable merger in New York, effectively disallowing the company to continue to do business in the state.
• August 17, 2018: Charter files a 60-day extension request, which is granted on Aug. 20.
• September 7, 2018: Charter files a 30-day extension request, which is granted on Sept. 10.
• October 9, 2018: Charter files a 60-day extension request. The DPS grants a 45-day extension instead on Oct. 10.
• November 21, 2018: Department of Public Service (DPS) Staff and Charter filed a joint letter stating that they had not yet been able to reach a fully executed settlement agreement, but that they had established a framework for how a settlement agreement might be structured and that discussions remain ongoing. A limited 18-day extension is granted.
• December 14, 2018: Deadline for Charter to file its appeal with the Commission.
• January 11, 2019: Deadline for Charter to file a six-month exit plan showing the Commission how the company intends to orderly transfer its Spectrum cable operation to another provider.