Cable Internet Provider Ordered To Pay Defrauded Customers For Lousy Broadband

Though the company is huge, which means fines and refunds are relatively insignificant to it, the ruling is part of a larger customer backlash against tech companies which have repeatedly violated consumers' rights.

The implication is that the era of tech impunity to legal or financial consequences is ending. JL


Joseph Spector and Jeff Platsky report in USA Today:

The agreement settles a consumer fraud case brought by New York that claimed the state's largest internet service provider, which operated as Time Warner Cable, didn't provide reliable and fast internet service as promised."The $62.5 million in direct refunds to consumers represent the largest-ever payout to consumers by an internet service provider (ISP) in U.S. history."

A $174.2 million settlement between New York and Charter Communications Inc. for “defrauding internet subscribers” may turn heads at first glance, but for the Fortune 100 company, the penalty amounts to a half-day of revenues and a little more than four days of operating earnings.

Charter and its Spectrum cable television unit will pay the record consumer fraud settlement partly to the state and partly to its customers, state Attorney General Barbara D. Underwood announced Tuesday morning.

For a company that is on track to record $43 billion in revenues this year and more than $15 billion in operating income, the settlement will make barely a pinhole in the income statement.

"Because of the size of the company and because they have so much scale, they can make up the financial damage fairly quickly," said Paul Verna, a principal analyst for eMarketer in New York.

But experts say the record payout makes clear the danger of being a fast-and-loose operator in the business of providing the internet and video channels: If you set out to deceive, you will face the financial consequences.

"The $62.5 million in direct refunds to consumers alone are believed to represent the largest-ever payout to consumers by an internet service provider (ISP) in U.S. history," according to the announcement.

Actual cash refunds amount to less than a half-day’s revenue of the close to $15 billion the company will take in from internet customers this year.

"This may be a trivial amount for a $41 billion company, but is sends a warning to the industry in general about low tolerance for false and misleading advertising," said Submial Chatterjee, a marketing professor at Binghamton University’s School of Management.  

Chatterjee said the impact of the settlement on the company’s reputation may be far more damaging than than the money it will ultimately cost them.

"Class-action suits brought forward by individual customers pose a greater threat, where the damages tend to be much larger — in the billions. I can imagine a scenario where small businesses may sue Spectrum for loss of business (slow internet speeds slows credit card transactions, connecting with customers, etc). Now this is a public relations disaster, and will probably hurt Spectrum much more than the fines," he said.

Charter Spectrum has agreed to provide some premium cable channels for free to customers as part of the deal.

"This settlement should serve as a wake-up call to any company serving New York consumers: fulfill your promises, or pay the price," Underwood said in a statement.

"Not only is this the largest-ever consumer payout by an internet service provider, returning tens of millions of dollars to New Yorkers who were ripped off and providing additional streaming and premium channels as restitution — but it also sets a new standard for how internet providers should fairly market their services," the attorney general said.

The agreement settles a consumer fraud case brought by New York last year that claimed the state's largest internet service provider, which operated initially as Time Warner Cable, didn't provide reliable and fast internet service as promised.

It includes restitution of $62.5 million for more than 700,000 active subscribers, Underwood said.

Customers will each receive between $75 and $150, and they will also get streaming services and premium channels, with a retail value of over $100 million, at no charge for about 2.2 million active subscribers.

Charter will be required to implement new marketing and business reforms, explain advertised internet speeds as “wired,” and increase speed testing.

Ray Dell, a Spectrum/Time Warner customer for more than 20 years at his Corning and Penn Yan homes, looks forward to the money he expects to receive for years of being cheated on internet speeds.

"Anything from Time Warner/Spectrum will be appreciated," Dell said. "Over the years, the prices have been inflated."

The retiree, however, said the settlement won’t lure him back to the service after he recently abandoned Spectrum for better and cheaper service from Empire Access, a fiber optic network operator based in Prattsburgh, Steuben County.

Despite the settlement, Charter Communications has its eyes on expansion, and winning a larger share of the internet and video customers in play. Based on the latest figures, Charter taps into barely one-third of the homes it has access to with video service, and about half of the households with internet service.

Also expect the company to use its new customer interface — made possible by a switch to an all-digital system — to push more products on its video customers to fight off declining revenues from the segment as more people abandon traditional coaxial cable service in favor of streaming. In that way, the company may be able to squeeze more money out of existing set of customers.

In a recent presentation to investors, Thomas Rutledge, Charter chief executive, said the company will "use the interface as a sales tool … continuing to sell transactions to (the) customer without a lot of operating costs."

Advertised speed upgrades for internet service also could lure a larger share of customers, Rutledge said, as the enhancement makes the delivery of virtual reality and 3D holograms to the home a possibility.

Spectrum's streaming service, rolled out earlier this year, is an app that can be installed on video platforms such as Roku or directly through a smart television. Users open the app in the same way as Netflix or Hulu, and the channel selection and guide looks much the same as the experience using a cable box. 

The streaming app is meant to go head-to-head with other cable-like streaming services such as DirectTVNow, Sling TV and PlayStation Vue.

Although Spectrum pushed through a price increase earlier this year, Rutledge indicated future price increases may be slightly tempered. The company’s data business continues to exhibit acceptable growth, though he acknowledged "nobody loves a price increase."

"We grew our data business 5.3 percent last year," Rutledge said. "That’s 5.3 percent customer relationship growth. You get that with a small increase in rates, and you have a very healthy revenue base from a growth perspective."

Rutledge did not define what he means by "small."

Despite the company’s push to sign up more internet and video customers with service enhancements, Jerry Hickey remains satisfied with his basic service from the cable television giant.

"I am not going to switch," said the Brockport resident, who may have one of the service’s least costly plans at $21 a month, which he supplements with Roku and Netflix over his Frontier DSL internet service. "You find often times they give you a starter rate and raise it three months later."

In a separate action, the company is in a fight with the state Public Service Commission over its expansion of internet service in New York.

In a statement, Charter said it continues to implement better service after its 2016 merger with Time Warner Cable.

"We are pleased to have reached a settlement with the 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," the company said in a statement.

The company added, "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."

In the first nine months the of the year, the Stamford, Connecticut-based Charter reported net income of $934 million on revenues of $32.4 billion.