Charter to Refund Customers $62.5 Million to Resolve NY Internet Speeds Lawsuit
Charter Communications will pay $62.5 million in direct refunds to consumers to settle a New York lawsuit that alleged wide disparity between the former Time Warner Cable’s advertised and actual internet speeds, New York Attorney General Barbara Underwood (D) said Tuesday. The AG said it’s the largest consumer payout by an ISP in U.S. history, and the settlement could be worth $174.2 million including the value of premium channels and streaming services the company plans to provide free. Charter’s separate negotiation with New York over the Public Service Commission revoking TWC deal OK over allegedly missed broadband deployment commitments (see 1812110022) continue and is the bigger worry for Wall Street, said MoffettNathanson analyst Craig Moffett.
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The state sued Charter in February 2017 after a 16-month investigation by then-AG Eric Schneiderman (D) determined that Time Warner Cable deliberately defrauded and misled New Yorkers by promising speeds it couldn’t provide (see 1702010048). Charter closed the TWC deal in May 2016.
“Fulfill your promises, or pay the price,” said Underwood, saying the settlement “sets a new standard for how internet providers should fairly market their services.” Charter made upgrades after the investigation, including network enhancements, modem replacements and upgraded Wi-Fi routers, the AG office noted.
Charter is pleased to settle on "certain Time Warner Cable advertising practices in New York prior to our merger, and to have put this litigation behind us,” a spokesperson said. “Charter has made, and continues to make, substantial investments enhancing internet service across the state of New York since our 2016 merger.”
Cable companies’ actual speeds usually met advertised speeds in September 2017, the FCC reported this month (see 1812060025). “The best performing ISPs … are Optimum, Charter and Verizon-Fiber; more than 90% of their panelists were able to attain an actual median download speed of at least 95% of the advertised download speed,” it said.
“It’s certainly a significant financial penalty, and almost certainly larger than most would have anticipated,” emailed Moffett. “But Wall Street tends to view these kinds of things as one-time items, so they usually don’t have much of an impact on stock prices. And it’s always welcome to have these kinds of things settled.” Charter’s continuing fight with the PSC is a “bigger question” and “has been much more closely followed by the investment community,” the analyst said. “There was a measure of shock that Charter would even be threatened with being kicked out of the state,” and while investors now see it more as a negotiation, “the draconian nature of the initial threat," he said, "has made everyone pay much closer attention than would otherwise have been the case.”
“This is clearly a hit financially for Charter,” said 556 Ventures analyst Bill Ho. “The precedence cannot be ignored and it is a marketing cautionary tale.” This result “should embolden the PSC” in the separate case on revoking the TWC deal because the settlement casts a negative light on Charter, he said.
About 700,000 New York subscribers will split $62.5 million in refunds, the AG office said. Customers who leased an inadequate modem or Wi-Fi router, or who subscribed to a TWC legacy speed plan of 100 Mbps or more, will each get $75. About 150,000 who had a bad modem for two years or more get an additional $75. The ISP will give away streaming and premium channels to 2.2 million subscribers, with a retail value of more than $100 million. The benefits are three months of HBO or six months of Showtime to internet and cable bundlers, or one month of streaming TV to all other active internet subscribers.
Charter must change marketing and business practices, including a requirement to describe internet speeds as “wired” and substantiate them through regular speed testing. The company is prohibited from making unsubstantiated claims about the speed required for specific activities like streaming, internet service reliability or availability of the promised speed over Wi-Fi. Charter must give subscribers adequate equipment and replace inadequate devices for free, and train customer service staff to inform subscribers about factors affecting speeds.
Consumer advocates applauded. “The refunds are the short-term good news” for customers who allegedly didn’t get the service level for which they paid, said Richard Berkley, Public Utility Law Project executive director. “The long-term good news” is Charter agreeing to make “pricing and speed offerings more transparent and accountable.”
The state “stepped up to ensure that broadband consumers actually get the speeds they pay for, and to make whole consumers who were deceived in the past,” said Public Knowledge Senior Counsel John Bergmayer. “Other states, and other broadband providers should take note.”
“The impact could be felt far beyond the borders of the state,” said Jonathan Schwantes, Consumer Reports senior policy counsel. “It sends a message to internet providers that, if you don’t live up to your advertised promises, the hammer is coming down on you.”