Charter avoids getting kicked out of New York, agrees to new merger conditions

Charter Communications won’t be kicked out of New York after all.

Nine months after a New York government agency ordered Charter to leave the state over its alleged failure to comply with merger conditions, state officials have announced a settlement that will let Charter stay in New York in exchange for further broadband expansions. The settlement will enforce a new version of the original merger conditions and require a $12 million payment, about half of which could help other ISPs deploy broadband.

The State Public Service Commission (PSC) had voted in July 2018 to revoke its approval of Charter’s 2016 purchase of Time Warner Cable (TWC), saying Charter failed to meet interim deadlines for broadband-expansion requirements. The order, which came just a month after a $2 million fine, would have required Charter to sell the TWC system to another provider. But the PSC never enforced the merger revocation order as it repeatedly granted deadline extensions to Charter while the sides held settlement talks.

The result is a proposed settlement between Charter and the state Department of Public Service (DPS) that was announced Friday.

“Pursuant to the agreement, Charter would expand its network to provide high-speed broadband service to 145,000 residences and businesses entirely in Upstate New York; the network expansion would be completed by September 30, 2021 in accordance with a schedule providing frequent interim enforceable milestone requirements; and Charter will pay $12 million to expand broadband service to additional unserved and underserved premises,” a DPS statement said.

Half of that $12 million could end up going back to Charter, but Charter would have to use it to deploy broadband to locations in addition to the 145,000 already required. The other $6 million would fund broadband deployment projects in a competitive bidding process, and it could thus end up going to Charter’s competitors—although Charter would be eligible to bid for the funding, too.

The settlement needs approval from the PSC, which is taking public comments on the settlement for 60 days before making a final decision. The proposed settlement “does not constitute a finding or admission of any violation by Charter nor does it constitute a penalty or forfeiture under the New York State Public Service Law,” Charter and the DPS said in a joint letter to the PSC. The settlement “allows the parties to move forward with the critical work of expanding access to broadband, by resolving their disagreements without the need for costly litigation,” the letter said.

Numbers dispute settled

The 2016 merger approval required Charter to extend its high-speed broadband network to 145,000 unserved and underserved homes and businesses by 2020. The “new” 145,000-location requirement in the settlement is thus no different from the existing requirement, except that Charter will now get an extra year to comply.

But the settlement should end the sides’ dispute over what actually counts toward the 145,000 locations. While Charter had claimed it was meeting all merger-condition deadlines, the PSC accused Charter of trying to count locations that weren’t eligible for the deployment requirement. For example, the PSC alleged that Charter wrongly counted broadband deployments at New York City homes and businesses that it was already required to serve as part of its franchise agreements.

Under the settlement, no address in New York City will count toward the 145,000 locations. To count toward the 145,000, a home or business must not be “passed, served, or capable of being served (by either a standard or non-standard installation), by pre-existing network from Charter or any other provider capable of delivering broadband speeds of 100Mbps or higher,” the settlement says.

Last year, Charter claimed that it had deployed new broadband to more than 86,000 New York homes and businesses since the merger agreement. Charter will be able to count most but not all of those toward the 145,000-location requirement, as the settlement says it will get credit for 64,827 homes and businesses that it deployed broadband to as of December 16, 2018.

In addition to the 145,000-location deadline of September 30, 2021, Charter will face six interim deadlines between September 30, 2019 and May 31, 2021. The interim requirements range from 76,521 to 133,586 locations.

If Charter doesn’t meet any of the interim deadlines, it will have to pay $2,800 for each location below the required amount. For example, Charter would have to pay $2.8 million if it fell 1,000 locations short of any of the interim deadlines—though Charter can apply for penalty waivers if there are “extreme weather events” or delays outside of Charter’s control.

The PSC had previously filed an enforcement proceeding against Charter in a state court, but the parties will seek a stay in the case if the settlement is approved. The settlement does not prevent New York from suing Charter again if the ISP fails to comply with the settlement.

$12 million broadband fund

The new requirement to pay $12 million is “over and above” what the 2016 merger approval required, and it will be used “for broadband expansion projects at locations to be selected by the Department and the Broadband Program Office,” Charter and the DPS said in their joint letter. This will result in additional deployment beyond the required 145,000 homes and businesses.

The $12 million payment will be split into two $6 million deposits into escrow funds. After Charter fulfills its 145,000-location broadband expansion requirement, it can seek funding from the first $6 million to finance “incremental broadband expansion projects in Charter’s franchise areas within New York State, as directed by the Department,” according to the settlement.

To get reimbursement from the fund, Charter will have to provide quarterly expenditure records to the state, and reimbursements will be “based upon Charter’s actual expenses.” It’s not clear how many homes and businesses will get broadband from this fund, as the settlement says Charter shall continue to expand its network to new locations “until the funds set aside… have been exhausted.”

This fund could rise above $6 million if Charter misses any of its interim deadlines, as the $2,800-per-location penalties would be added to the initial $6 million.

The other $6 million payment will fund new broadband deployments through a competitive bidding process, so that money could end up going to Charter or its competitors. This funding will be distributed “through the solicitation of public bids from broadband providers capable of delivering broadband speeds of 100Mbps or higher including, but not limited to, Charter,” the settlement says. The funding can be distributed both in areas where Charter offers service and areas where it doesn’t. If the bidding attracts no cost-effective bids from a wireline provider, wireless providers capable of delivering at least 25Mbps download speeds will be eligible for the funding.

Disclosure: The Advance/Newhouse Partnership, which owns 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.

https://arstechnica.com/?p=1494339