Here’s something you don’t see every day: Fed up with what they say are two years of lies and broken promises from Charter Communications, New York regulators are kicking the huge cable company out of the state.
The New York Public Service Commission has given Charter, which operates its cable and internet service under the brand name Spectrum, 60 days to find a buyer for its system and to take over service to 2 million customers.
It’s been so long since a regulator has taken a nuclear option of this magnitude against a big corporation that we might as well call it unprecedented. In any event, none of the experts who has weighed in on the action can remember anything like it happening before.
Charter is the largest cable provider in New York and the second-largest in the country. In announcing the punishment, PSC Chairman John Rhodes cited Charter’s “brazenly disrespectful behavior toward New York State.” The commission’s formal order documented the utter lack of “a corporate commitment of compliance.”
Regulators in other states and at the federal level should take note: Hardball is the right way to play a chronically misbehaving corporation. That’s how big businesses typically play the game, after all: Utilities, cable operators, and telecommunications firms treat their regulators as paper tigers, because that’s what they are.
When regulators approve a merger with conditions that can be enforced only after the merger goes through, the company has won, for it knows that unwinding a multibillion-dollar transaction, much less revoking a company’s franchise, is way more than any agency has the courage to do. That’s what makes the New York PSC’s action unique.
New York is delivering a lesson that should be absorbed by other regulatory agencies such as the California Public Utilities Commission, which has been trying for years to get Pacific Gas & Electric to meet its customer service commitments by levying penalties by the billions. PUC officials have talked about revoking PG&E’s franchise, putting the underachieving behemoth out of business. But the option has never moved beyond talk.
Charter isn’t taking New York’s action lying down. The company attributes the state’s action to pressure from organized labor and to politics, citing an upcoming election. (Democratic Gov. Andrew Cuomo is facing a primary challenge from actress Cynthia Nixon, a progressive Democrat, on Sept. 13.) “We have a very strong legal case and ability to defend ourselves,” Charter CEO Tom Rutledge told Wall Street analysts Tuesday.
Technically speaking, the New York regulators voted to rescind their 2016 approval of Charter’s merger with Time Warner Cable, which brought Stamford, Conn.-based Charter into the state. The merger approval came with conditions, the most important of which was that Charter would provide access to its high-speed broadband network to 145,000 mostly rural homes and businesses that had either no service or slow service. The idea was to require Charter to build in “less populated” areas that have been consistently bypassed by the cable industry.
The company didn’t have to sign up these customers, just “pass” them — build out its network so they could subscribe if they wished. Charter had until May 2020 to finish this project, but had to meet benchmarks every six months to show it was making progress.
According to the PSC, Charter consistently missed its deadlines. Worse, it tried to fake the numbers: The PSC says Charter claimed to have newly passed locations in places that already had been built out, and even listed thousands of addresses in New York City as unserved or underserved. “Undisputably,” the commission observed in its order, “NYC is not a less-populated area within the State of New York.”
Even worse than that, the PSC says, Charter lied about its progress. On June 26, the commission upbraided Charter for making “patently false” claims in TV commercials and on its website that it had met the commission’s conditions — even after the commission instructed it to take the claims down. “Charter seems more focused on controlling its public relations perception than its public interest obligations,” the commission said.
Charter essentially blew off the commission, responding with a lawyer’s letter citing, among other things, freedom of speech.
After it became clear that Charter wasn’t meeting its commitments, the New York regulators imposed fines last year that could reach a maximum of $12 million if the company continued to miss its deadlines. It should have been obvious at the outset that this wasn’t nearly enough to make the company behave — Charter recorded $41.6 billion in revenue last year, meaning that it could cover even the maximum penalty from less than three hours of sales income.
The reaction thus far to New York’s action has been oddly muted. The New York Times placed the story on page 16, a curious choice for a story about an action affecting 2 million New Yorkers. Local newspapers in the state are advising their readers to sit tight, on the grounds that whether Charter is ultimately forced to sell its network off, or allowed to stay, it has the incentive to keep customers from canceling its service.
Charter stock has risen nearly 7% in the two trading days since the PSC bombshell. That could reflect skepticism that the regulators will follow through. There’s a strong feeling in the marketplace that the PSC is merely firing a powerful shot across Charter’s bow, and that the commission and the company will find a way to settle. But it certainly is clear that the PSC is at the end of its rope with Charter, and it’s a fair bet that whatever settlement might be reached, it will have real teeth in it.