AP NEWS

Amid New York controversies, Stamford’s Charter keeps growing

December 21, 2018

STAMFORD — A nine-figure expenditure will cap a year of major growth — and ongoing controversy — for the city’s sole Fortune 100 company.

Charter Communications has settled a $174 million lawsuit alleging it misled internet subscribers in New York, an agreement that includes a record eight-figure customer refund. While the Stamford company still faces regulatory and organized-labor pressure, the settlement will likely not lead to a massive loss of customers or derail the ongoing growth of the telecommunications giant.

“Anytime you see nine digits, it’s a big deal,” said Lawrence J. White, a professor of economics at New York University. “Hopefully, this is a shot across the bow to say to Charter, ‘You, guys, can’t defraud the customers.’ They’ll have to do better.”

In a statement, Charter said it was “pleased to have reached a settlement with the (New York) attorney general on the issue of certain Time Warner Cable advertising practices in New York prior to our merger, and to have put this litigation behind us.”

Under pressure in the Empire State

Controversy in New York surrounding Charter’s “Spectrum” brand of services has dogged the company since its $55 billion acquisition of Time Warner Cable in 2016.

The lawsuit was filed last year by the state attorney general’s office alleging Charter and predecessor Time Warner Cable denied customers reliable and fast internet service that it had promised.

“This settlement should serve as a wake-up call to any company serving New York consumers: fulfill your promises, or pay the price,” New York state Attorney General Barbara Underwood said in a statement. “It also sets a new standard for how internet providers should fairly market their services.”

The settlement includes direct restitution of $62.5 million for more than 700,000 active subscribers, who will each receive between $75 and $150. It represents the largest such payment by an American ISP, according to Underwood’s office.

In addition, the agreement also stipulates that Charter enact several reforms, including the requirement to describe internet speeds as “wired” and prove them through regular testing.

Other New York public agencies have also accused the company of failing to deliver on promises to customers and comply with state regulations. In July, the state’s Public Service Commission announced it would revoke its approval of the merger and fined Charter another $1 million.

The commission has accused Charter of consistently failing to meet deadlines, trying to avoid commitments to rural communities, carrying out unsafe field practices and making misleading statements about its performance and compliance requirements.

Charter has disputed those allegations. The settlement does not affect the company’s negotiations with the commission, according to a Charter spokesman.

At the same time, the company is grappling with a strike of several hundred New York-based technicians that started in March 2017.

Despite the clashes with regulators and union officials, the firm does not appear to want to give up its New York business.

“Charter has made, and continues to make, substantial investments enhancing internet service across the state of New York since our 2016 merger,” Charter said in its statement. “We look forward to continue providing the best TV, internet, voice and mobile products to our customers, and to bringing broadband to more homes and businesses across the state.”

Still growing

The settlement is not a devastating financial hit for Charter.

It equates to less than 1 percent of the company’s approximately $27 billion in 2017 expenditures.

“As the settlement announcement makes clear, $174 million is a lot of money,” said David Souder, associate dean of graduate programs in the University of Connecticut’s business school. “However, it should not have any negative impact on Charter’s long-term growth plans. If anything, reaching a settlement allows management to put a past issue behind them and refocus on future growth.”

At the same time, more than $100 million worth of discounts included in the settlement could help stave off large-scale customer defections.

In addition to the refunds, Charter will provide a range of free streaming and video services to its approximately 2.2 million active internet subscribers in New York. Customers who have internet and cable packages would receive three free months of HBO or six free months of Showtime.

“Charter is being asked to give away services, but customers may decide it’s worthwhile to then stay and pay when those services are no longer,” White said. “The penalty for the company is then somewhat diminished.”

Meanwhile, Charter continues to grow across its 41-state footprint.

Charter now serves about 26 million residences and 1.8 million small- and medium-sized businesses. In the third quarter, its total customer base grew 3 percent from a year ago.

While growth has declined for its voice and video businesses, internet services continue to attract more customers. The latter business increased about 5 percent, to 23 million customers in the past quarter.

Through Wi-Fi access, Charter already serves more than 200 million wireless devices in U.S. homes and offices, according to company data.

Aiming to build that customer base, Charter rolled out this year its Spectrum Mobile service. It aims to deliver wireless service similar to the coverage offered by the dominant wireless carriers such as Verizon, AT&T, T-Mobile and Sprint.

“More people are interested in looking at their cellphones, and fewer are interested in subscribing to cable TV,” Ramesh Subramanian, a professor of information systems at Quinnipiac University, said in a recent interview. “With unlimited data, whatever content customers need and want is available through cellphones. And if they can get all their internet, voice and wireless services in one bill, then that makes their lives very easy.”

A “mobile virtual network operator” agreement with Verizon allows Charter to buy access to the latter’s cellular network at wholesale pricing and resell that service to customers. As Charter continues to add hotspots and as its wireless technology advances, its dependence on the Verizon network would decrease.

In addition to the partnership with Verizon, Charter has formed other mobile-focused alliances. In April, it joined with Comcast, the country’s largest cable company, to create an operating platform to support Spectrum Mobile and Comcast’s Xfinity Mobile platform.

“They have their own territories, so they don’t compete directly,” Souder said. “In this case, they can come together and do things to work out the technology and apply it in different locations.”

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