NY PSC Punishment Expected to Bring Charter to Table
Charter Communications probably will feel pressure to talk deal after the New York Public Service Commission took back OK of the Time Warner Cable buy, experts said in interviews. Some said the PSC probably lacks authority to undo the deal. A Public Knowledge attorney said the PSC is within its rights. Charter will defend itself in court, if necessary, CEO Thomas Rutledge said Tuesday (see 1807310062).
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The PSC shocked observers Friday by ordering the cable ISP out of the state, seeking civil penalties for allegedly not meeting broadband expansion conditions in the 2016 TWC order (see 1807270049). Charter claims it exceeded those conditions. “This will lead to … serious negotiations for Charter to come up with a plan to meet the state’s concerns,” predicted Phillips Lytle’s David Bronston. The agency’s “nuclear” action is “uncharted territory,” the New York telecom attorney said. “I don’t see this as creating the new norm,” but it shows the state following through on threats, he said. The company and commission didn’t comment Wednesday.
It seems like a “strategic move” to increase pressure on the company, since the regulator probably lacks authority to unwind a national deal DOJ cleared, said Syracuse University law professor Shubha Ghosh. But it’s not “government overreach” for the PSC to review and condition a deal with a regulated company, and the agency may have a case that Charter didn’t move quickly enough to comply with conditions, he said. Ghosh doubted a court would agree the appropriate remedy is to banish Charter, especially since the goal was expanded service. Ghosh sees two sets of issues: “whether [Charter] has complied or not, and then if it hasn’t complied, what the next steps should be.”
The action could have cascading implications for all Charter franchises, because the cable agreements require disclosures the company is complying with all state, local and federal regulations, Bronston said. “That creates even a national problem for them,” he said. “It may give leverage to … places like New York City where the franchise is coming up for renewal,” or put Charter in default of agreements, said Bronston, who represents public access programmers there. The city franchise agreement expires July 2020, but negotiations start much sooner, he said.
It “sets up a dramatic game of chicken between the PSC and Charter, where the grandiosity of the ‘unmerge’ order meets the relative paucity of the PSC’s actual jurisdiction, which only extends to telephony and cable, not broadband,” emailed Wilkinson Barker attorney Raymond Gifford, former Colorado Public Utilities Commission chairman. “It also points up the frequent state act of bootstrapping its more limited jurisdiction with agreed-to conditions (such as broadband buildout) that go beyond that jurisdiction. The merging companies agree to the extra-jurisdictional conditions to get the deal done, but their enforceability remains a big question mark.” New York courts may answer the question, if neither side backs down, Gifford said.
The state regulator "absolutely has the ability to prevent Charter from doing business in the state,” said PK senior counsel John Bergmayer. “Charter needed its permission to begin with -- it was a new company coming in, and taking over Time Warner Cable’s business. If New York at the time had denied Charter’s application, that would have effectively killed the deal.” All the PSC is doing “is deciding who can do business in the state,” he said. “Assuming it’s upheld, the PSC will eventually have to grant permission to operate to some company or another, likely subject once again to buildout conditions.”
All that seems certain is that Charter will challenge the PSC decision, though a settlement is always possible, NARUC General Counsel Brad Ramsay emailed: “On its face, the PSC order presents a compelling case that Charter has not complied with its merger commitments.”
Neither the commission nor Charter brass is known for subtlety, and consumers are caught in the middle, said cable consultant Steve Effros. “They have to work this out,” he emailed. “It's a brutal form of negotiation but if it keeps going like this the consumer is the one who gets totally burned.”
Businesses usually try to settle such disputes, and Charter could agree to new timetables for broadband rollout, Ghosh said. But if the company is “recalcitrant,” the matter could become a federal case, he said. Companies often like to move disputes with a state regulator to federal courts to remove the regulator’s “home-court advantage,” Ghosh said. Going to a federal court might lead to reopening the entire deal for review, he said: It could go back to DOJ, he said, and “there might be issues in other states that haven’t surfaced yet.”
New York City Public Advocate Letitia James applauded the PSC, saying she has fought since the 2014 attempted Comcast/TWC for “bridging the digital divide so that all New Yorkers not only have access to high speed Internet but are also able to afford it.” New Street Research analysts see it “wildly unlikely” the PSC can kick out Charter (see 1807300041).