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Charter grapples with N.Y. controversies

August 5, 2018

In 2016, Charter Communications clinched New York state regulators’ approval of its $55 billion acquisition of Time Warner Cable. The endorsement was hardly unconditional.

The New York Public Service Commission’s decision late last month to revoke its approval of the merger based on Charter’s alleged violations of the agreement’s terms highlights the Stamford-based firm’s fraught position in New York, where it also faces a major lawsuit and strike. Charter officials have rejected the criticism as the company continues to serve some 2 million customers in the state, but some observers think the telecommunications giant should adopt a more conciliatory stance.

“It seems to me that Charter’s reputation is at stake and unfortunately, the company executives don’t seem as concerned as I would expect,” said Debbie Danowski, an associate professor of communications and media arts at Sacred Heart University. “In this case, Charter is creating an environment that adds to an already problematic reputation that shows little promise of ever improving.”

Charter officials did not make any executives available for an interview for this article.

Regulatory pressure

The commission based its January 2016 approval of Charter’s acquisition of TWC on conditions including the delivery of broadband speed upgrades to 100 megabits-per-second statewide by the end of this year and 300 MBPS by the end of 2019. The commission also mandated that Charter expand its network to cover an additional 145,000 unserved or under-served homes and businesses in less-populated areas within four years of the deal’s closing.

In the past two months, the PSC has ordered a total of $3 million in penalties against Charter. Last September, the commission approved a $13 million settlement — the state’s largest-ever with a cable provider — after it said the company failed to build out its cable network as required in the 2016 agreement.

“Charter’s repeated failures to serve New Yorkers and honor its commitments are well documented and are only getting worse,” John B. Rhodes, the commission’s chairman, said in a statement.

Charter officials have disputed the commission’s allegations. They said the company has extended the reach of its broadband network to more than 86,000 New York homes and businesses since the PSC approved the merger.

“We believe we are in compliance,” Charter CEO and Chairman Tom Rutledge said in an earnings call last Tuesday. “We live up to our commitments. In fact, we’re well ahead of our obligations in terms of speed upgrades and in build-out itself.”

But, in an apparent compromise, the company said in a statement last Wednesday it would stop airing certain advertising “in an effort to help bring about a resolution of outstanding disputed matters with the PSC… We look forward to resolving all matters currently disputed with the PSC in the not too distant future.” The statement did not elaborate on the affected ads.

Charter’s New York customers would not lose their service as a result of the PSC decision because the company would keep operating in the state until another provider were put in place. But a number of experts are skeptical of the impact of the regulator’s ruling.

“I can’t imagine Charter actually being kicked out of the state,” said Lawrence J. White, a professor of economics at New York University. “My guess is they end up with some kind of compromise. This thing will get resolved through some sort of settlement.”

Mounting controversy

At the same time, Charter faces a lawsuit from the New York Attorney General’s Office accusing the company of defrauding and misleading customers by falling short of promises to internet subscribers.

Charter denies the allegations. In February, the court rejected a motion by the company to dismiss the complaint.

In addition, the company is grappling with a 16-month strike by hundreds of New York City technicians protesting proposed contract terms.

The strike has also grabbed the attention of top elected officials. Several hundred people, including Gov. Andrew Cuomo and New York City Mayor Bill de Blasio attended a march and rally last September, in Manhattan and Brooklyn, N.Y.

“If they don’t get their act together and fulfill that agreement, they’re going to be out of the state of New York,” Cuomo said at the Brooklyn rally. “I want Charter to understand this. This is not a one-day affair. This is not the end. Today is the beginning.”

Rutledge said the company was concerned that “labor issues… have politicized actions” of the PSC.

A Charter spokeswoman told Hearst Connecticut Media last week that the company had “no news to share at this time” on the contract negotiations. Messages left for the technicians’ union, International Brotherhood of Electrical Workers Local 3, were not returned.

Embattled companies unwilling to examine their practices often blame political motivations for regulators’ actions against them, said Sacred Heart’s Danowski.

“In today’s political climate, it’s very easy to blame circumstances rather than take responsibility for meeting requirements that benefit consumers,” Danowski said. “Unfortunately, this becomes a major problem when, as in this case, media companies have monopolies and little to no competition.”

Steady growth

Despite the ongoing controversy, Charter’s business continues to expand. Its second-quarter revenues grew about 5 percent to nearly $11 billion. Its profits nearly doubled to about $273 million.

The company launched a mobile platform in late June, and it continues to work on a number of other initiatives, such as increasing internet speeds nationwide.

The company’s traded this week at around $300, down about 25 percent from its peak during the past year. But the decline is likely unrelated to the New York controversies. Its value had spiked last fall amid speculation of a merger — and the accompanying possibility of another windfall for shareholders.

But the company’s reputation could still suffer even if its earnings remain robust.

“In many cases, it’s the appearance rather than the company’s actions that determine the public’s satisfaction with their services,” Danowski said. “In this case, Charter is creating an environment that adds to an already problematic reputation that shows little promise of ever improving.”

pschott@scni.com; 203-964-2236; twitter: @paulschott

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