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Charter Fights FCC Subsidies in Upstate New York Broadband Push

May 26, 2020, 10:01 AM

Charter Communications Inc. wants to block federal aid for broadband in upstate New York, making it harder for rivals to compete for customers the company pledged to serve as part of a merger agreement.

The Federal Communications Commission plans to let companies compete for aid to bring broadband to rural areas that lack service. That includes upstate New York, where Charter promised to serve 145,000 customers as a condition of winning state approval of its merger with Time Warner Cable Inc. in 2016.

Smaller rivals such as Starry Inc. and Otsego Electric Cooperative Inc. are urging the FCC to reject Charter’s petition to block the aid, saying the subsidies are needed to spur competition and that the company may not deliver on its commitment to serve the area.

The squabble leaves the FCC with no easy choice—send subsidies where they may not be needed to spur service, or hold back the aid and risk giving the second-largest U.S. cable company a monopoly in those areas.

“The FCC has to balance the likelihood that a company will actually deliver the broadband that it has promised and compare that to what the alternative would be,” said Carol Mattey, a consultant and former deputy chief of the commission’s Wireline Competition Bureau.

The FCC in January approved plans to bring broadband to about 5.9 million homes and businesses that lack the service. The commission wants providers to compete in auctions for up to $20.4 billion in subsidies over the next decade to deliver the service.

The FCC will supply the subsidies from its $8 annual billion Universal Service Fund, which gets revenue from fees on telephone customers’ out-of-state and international calls.

Charter, which operates under the trade name Spectrum, said in its petition last month that the FCC risks “subsidized overbuilding” in upstate New York. The company plans to cover the cost of deploying broadband to the region—more than $600 million—without subsidies, it said in its petition.

“Scarce government subsidy funds must be used to reach areas that would otherwise continue unserved,” Avery Boggs, a Charter spokesperson, said in an email.

The FCC’s decision may hinge on whether the commission is persuaded by Charter’s argument against overbuilding, said Drew Clark, of counsel for the CommLaw Group, with a specialty in broadband law and policy.

The FCC signaled its aversion to overbuilding when it created the subsidies, Clark said. The commission said it didn’t want the aid going to rural areas getting other federal or state assistance for broadband.

The FCC declined to comment on Charter’s request.

Merger Promise

Charter closed its $60 billion acquisition of New York-based Time Warner Cable in 2016. It said the blockbuster deal would allow it to better compete with other cable behemoths and provide a wider array of services to customers in New York and elsewhere.

The New York Public Service Commission blessed the merger on the condition that the new company would expand broadband by 2020 to the rural swath of New York that lacked service.

The New York commission, seeing too little progress on Charter’s pledge to provide the service, revoked its merger approval in 2018. That action forced a new round of talks between Charter and the state, which resulted in a new agreement last year giving the company until September 2021 to serve the upstate area.

Opponents of Charter’s petition say the company’s slow progress on its commitment shows why the FCC should provide subsidies for rivals to compete.

“There is little confidence that Charter will meet the September 2021 deadline,” New York Assemblymember Didi Barrett said in a letter to the commission.

Smaller broadband internet providers such as Starry and Otsego back the subsidies and say they are eager to serve the New York region.

“Charter is trying to keep other broadband providers from competing,” Otsego, which offers internet service in central New York, told the FCC in a filing.

Charter does have backers in the rural area, including local business groups, churches and Boys & Girls Club chapters.

“Charter Communications has already agreed to provide broadband services to areas including my own,” H. Bernard Alex, a pastor at Victory Temple Baptist Church in Syracuse, said in a letter to the FCC.

Patrick Hedger, a research fellow for the Competitive Enterprise Institute, said Charter likely does have a concern about competition from smaller rivals—and such a worry is legitimate.

“If I open up a business and then a guy opens up next door that has access to government subsidies,” Hedger said, “that’s going to hurt my ability to compete.”

To contact the reporter on this story: Jon Reid in Washington at jreid@bloomberglaw.com

To contact the editor responsible for this story: Keith Perine at kperine@bloomberglaw.com

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