Will Charter Spectrum stay in New York?

New York is tangled in a months-long, multi-front war with Charter – the merged entity of Charter Communications and Time Warner Cable – and the end to the conflict seems to keep getting further away. The state’s Public Service Commission revoked its approval of that 2016 merger in July, saying that Charter Spectrum failed to adequately extend broadband service throughout the state, which had been a condition of the merger. The PSC gave Charter 60 days to come up with an exit plan that would have another provider take over its services.

At the same time, Charter has been locked in a conflict with the International Brotherhood of Electrical Workers Local 3, whose members have been striking for two years. In December, then-New York Attorney General Barbara Underwood announced a $174.2 million settlement with Charter for Time Warner Cable defrauding subscribers. On top of that, earlier this month New York City called on Charter to fork over what it says is $6 million in unpaid fees, as part of an agreement that requires the company to pay the city a portion of revenue from its ad time sales.

Despite all this, negotiations between the Public Service Commission and Charter over whether the company will be able to maintain its operations in New York state seem to be dragging on, eight months after the PSC originally moved to revoke Charter’s license to operate. The state has granted Charter multiple extensions on its deadline, leading some to believe that a deal to keep Charter in New York is on the horizon. We turned to experts from all positions on the spectrum to find out whether that deal will materialize, what it might look like and whether this debacle could really end with Charter’s exit.

In this week’s “Ask the Experts” feature, we reached out to Aija Leiponen, a professor at Cornell University’s School of Applied Economics and Management; Richard Berkley, executive director of the Public Utility Law Project of New York; Shubha Ghosh, a professor at Syracuse University’s College of Law; Lawrence White, a professor of economics at New York University; telecommunications consultant Doug Dawson and labor reporter Bob Hennelly.

Why did the Public Service Commission make this move to kick out Charter in July?

Bob Hennelly: The state regulator maintained that Charter Spectrum had not kept the commitments it made to build out the broadband internet capability of the state’s traditionally underserved communities that it agreed to make as a condition for a sign off on the company’s purchase of Time Warner over two years ago. The PSC alleged that Charter had not come anywhere near its commitment to loop in an additional 145,000 households that were not hooked up or had been underserved when it came to broadband services by May of 2020. Charter maintained that it was ahead of schedule and had already added 86,000 new households, well ahead of to the 58,000 homes target the pact required by May of last year. While the PSC and the cable giant dispute was playing out in Albany, the company came under increasing political pressure from Gov. Andrew Cuomo to reach a deal to settle a bitter strike between the nation’s fastest growing cable company and the International Brotherhood of Electrical Worker Local 3. Last summer, after the PSC voted to direct Charter to draw up contingencies to turn over their New York operations to another provider, the company charged the regulator was over-reaching and threatened to litigate.

Lawrence White: The PSC believed that Charter wasn't living up to its commitment to expand its service after it acquired the Time Warner Cable operations in some areas. The middle word of the PSC is "service" after all.

Aija Leiponen: Charter had not complied with the merger conditions – that it was allowed to buy the Time Warner Cable network – related to the required expansion of broadband service particularly in upstate New York. New York is a large and sparsely populated state outside of a small number of metro areas, and it is not profitable for any network provider to provide high-speed broadband in all parts of the state. Nevertheless, it is an important policy goal for the state lawmakers to make sure all communities have reasonable access to the "information superhighway.” Broadband has become such an essential infrastructure service that without it, economic development can be significantly harmed.

Shubha Ghosh: The PSC needed to take action to show it took access to cable services seriously. Charter, some perceived, was not moving fast enough under the terms of the approved merger to provide access to cable and Internet in underserved rural communities.

Richard Berkley: The Public Service Commission's approval of Charter's purchase of Time Warner Cable was conditioned upon certain requirements necessary to make the transaction consistent with the public interest. Among other things, the company committed to provide high-speed internet service to 145,000 “unserved” or “underserved” homes in New York state. In May of 2017, Charter admitted it missed the first deadline for new service provision, and in December at the company's next report on its progress wiring new homes, it was determined by the PSC that Charter was counting at least 18,000 homes that were either in New York City or other dense urban areas that did not qualify as “unserved” or “underserved.” The importance of that finding is defined by the state's compelling interest in promoting and guaranteeing comprehensive high-speed, high-quality and affordable broadband to every region of the state, enabling their participation in the 21st century information based economy. For that reason, among others, the PSC moved to revoke its approval of the merger.

Doug Dawson: Charter did not comply with the terms of the agreement it made with the state as part of the merger agreement with Time Warner Cable. One of the stipulations of that agreement was that Charter would extend its network to bring broadband to 145,000 homes. The Public Service Commission also says that Charter lied about its compliance with that agreement by claiming new connections in places like New York City rather than the rural homes that should have been connected. This situation is not unique and large telecommunications companies have often paid lip service to agreements made as parts of mergers. I’m guessing Charter was somewhat shocked when they found that they were expected to fully comply with the terms of the merger agreement.

How will this conflict end?

Aija Leiponen: The parties are currently working out how many and which communities the company has to “pass” with its network service, and thereby define how many households will need to be brought into the network in order to be seen in compliance with the merger conditions. As I predicted last summer, this is a complicated negotiation that will take a long time (and is still not complete, although both parties say there has been progress). However, I now expect a resolution to be announced in the next few months; it will not go on forever. New York state is a valuable market for Charter, and it will not want to be kicked out of the state. It is simply trying to wiggle out of as many unprofitable service requirements as possible. However, PSC is rightly holding their feet to the fire and making sure they follow through and help with the broadband policy goals. Unfortunately, the state’s negotiating position is not all that strong, because if they had to follow through and kick Charter out, there are not many sufficiently large cable companies who could take over the assets and operate the network and it would be unlikely that the new company would agree to comply with the merger conditions.

Shubha Ghosh: It is hard to predict. An easy prediction is that the PSC and Charter will draw up timetables for Charter to follow, with protracted back and forth over the years. PSC is taking a hard line, however, and will not back down. So it may well be that the merger is unwound in New York state with the market, as it is, being open for options. Perhaps the market will provide options consistent with the PSC vision, perhaps not.

Bob Hennelly: In the months since the summer fireworks and the attorney general’s deal, the tenor of the communications between the cable provider and the PSC have gotten less adversarial. PSC Chair John Rhodes signaled the change in tenor by granting deadline extensions so that the parties could hammer out a face-saving resolution. Multiple published reports indicate a deal is likely before the April 3 deadline. It will keep Charter in the state while advancing the regulator’s goal of expanding broadband access. There will likely be a requirement that the company make additional investments in bringing state-of-the-art high-speed internet services to rural and other traditionally underserved neighborhoods. Expect a level of granularity as well, with a mutually agreed-to metrics to measure Charter’s performance. But the potential gains here for consumers can’t be taken in isolation. Keep in mind that the attorney general’s settlement won a $62.5 million payout to more than 700,000 active subscribers, who were entitled to get between $75 and $150 each. It also secured free streaming services and premium channels for about 2.2 million households.

Lawrence White: There will likely be a deal that will involve greater specificity as to where and how and when Charter will expand its service. It is highly unlikely that another company will replace Charter.

Doug Dawson: My bet is that the two sides will reach a settlement. That deal will likely require Charter to comply with the original terms of the agreement and will additionally levy large fines on Charter or else compel them to provide credits or free service to customers. I’m not sure that bringing in a new company would benefit customers. The next biggest cable company below Charter is 20 percent of their size, and the smaller cable companies largely have even worse service reputations than Charter – there’s not a list of quality cable operators ready to take over a two-million customer operation.

Richard Berkley: It is more likely than not that the PSC and Charter will come to an agreement with a stricter buildout requirement for wiring “unserved” and “underserved” homes for broadband. The new terms will focus upon rural areas and other areas that lack ubiquitous broadband, it will probably include additional financial penalties, and there may be additional requirements aimed at demand stimulation in low-/fixed-income rural and urban communities that currently have low percentage of internet users, or particularly if most internet in those areas is wireless only and not wired broadband. If another company were to come in, which at this point is relatively unlikely, it could be Altice (formerly known as Cablevision) or it could be Comcast, both of which have elements in a potential deal that would need to strongly outweigh factors supporting the public interest in order for such a transaction to go forward.

How should this conflict end?

Aija Leiponen: I predict they will come up with a solution, although it will be marked by significant compromise due to the factors mentioned above, which is bad news for New York residents. If Charter is not wise, the negotiation will end and it will be kicked out. Then the case will be worked out for an additional few years in court, which would be very bad news for everyone.

Bob Hennelly: If all the reporting is right on the behind-the-scenes negotiations, the idea of shopping for another state provider looks like a moot point. But back in July, Joe Maniscalco reported in LaborPress that the members of IBEW Local 3 that have been out on strike against Charter had put forward a business plan to have the workers form a cooperative that would replace the cable gant in the five boroughs. Charter Spectrum’s franchise agreement with New York City expires next year and Mayor Bill de Blasio has committed to having “universal broadband” citywide in 2025. Perhaps, with a political climate that sent Amazon packing, there might be room for such an out-of-the-box alternative to the increasing consolidation of wealth and power that’s so emblematic of big media.

Lawrence White: Achieving a better-specified expansion of service does appear to be the best outcome. It is unrealistic to expect another company to take over Charter's operations. That is the “nuclear option.” Any serious effort by the PSC to try to make this happen would lead to years of litigation.

Richard Berkley: The answer is not so much whether another company should take Charter's place, or what kinds of enforceable conditions the PSC should add to the conditions under which Charter is required to function, but quite simply – what result is best calculated to promote the public interest. Such an analysis could include municipalities or counties buying pieces of Charter's network(s), if that were fiscally responsible and if such a transaction would lead to affordable high-speed and high-quality broadband. In other areas of the country, such municipal networks have been highly successful. Alternately, Charter could be incentivized through a mixture of regulatory conditions and incentives to create competition in its service areas, to offer higher speeds and quality at lower prices, which is often the goal of promoting competition in constrained markets. In the end, the question is less about what the state might hope to be the outcome, and what is possible. At this point, continuing the relationship with Charter seems more likely to further the public interest, particularly since there has been no public show of interest by a potential buyer with the financial and technical competence to own and operate a network such as Charter's, which is, quite truly, the central provider of broadband and phone in New York.

Shubha Ghosh: One option is for the state to not unwind the merger but open up an auction for providers to serve rural areas. The deeper problem is the lack of competition in the cable industry which results from the technology and cost structure and lack of more coordinated federal and state oversight to develop communications infrastructure and more competition in the national marketplace.

Doug Dawson: Disenfranchisement is the ultimate regulatory remedy and has only been used a few times over the last 100 years in the telecommunications industry. Most cases have stemmed from criminal behavior by company owners. I’m dubious that the courts would uphold booting Charter from the state over this one issue and it feels like regulatory overreach. With that said, Charter has been a bad corporate citizen in this case. The Public Service Commission doesn’t hold any normal regulatory authority over Charter other than through this merger stipulation. The best solution would be to get Charter to do what they are supposed to do – something that is becoming increasingly difficult as the big cable companies are becoming de facto monopolies.