Charter has agreed to pay $62.5 million in refunds to more than 700,000 customers to settle a lawsuit filed by the New York state attorney general's office, which alleged that Charter defrauded customers by promising Internet speeds that it knew it could not deliver.

The 700,000 New York-based customers will receive between $75 and $150 each, NY AG Barbara Underwood announced today. Charter will also provide access to "streaming services and premium channels, with a retail value of over $100 million, at no charge for approximately 2.2 million active subscribers." The settlement's total value is $174.2 million, the AG's office said.

"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 US history," the AG's announcement said. "The landmark agreement settles a consumer fraud action alleging that the state's largest ISP, which operated initially as Time Warner Cable (TWC) and later under Charter's Spectrum brand name, denied customers the reliable and fast Internet service it had promised."

Underwood said the settlement "should serve as a wakeup call to any company serving New York consumers: fulfill your promises, or pay the price."

In addition to providing refunds and free services, the settlement also requires Charter "to implement a series of precedent-setting marketing and business reforms, including the requirement to describe Internet speeds as 'wired' [and disclose that wireless speeds may vary], and to substantiate them through regular speed testing" using an industry-accepted testing methodology, the state announcement said.

The AG's lawsuit, filed in February 2017, accused Charter of "leasing deficient modems and wireless routers to subscribers—equipment that did not deliver the Internet speeds they had paid for; aggressively marketing, and charging more for headline download speeds of 100, 200, and 300 Mbps while failing to maintain enough network capacity to reliably deliver those speeds to subscribers," the AG's office said.

The AG further accused Charter of "guaranteeing that subscribers would enjoy seamless access to their chosen Internet content while engaging in hardball tactics with Netflix and other popular third-party content providers that, at various times, ensured that subscribers would suffer through frozen screens, extended buffering, and reduced picture quality; and representing Internet speeds as equally available, whether connecting over a wired or Wi-Fi connection—even though, in real-world use, Internet speeds are routinely slower via Wi-Fi connection."

TWC also "deceived" the Federal Communications Commission in order to get better results in the agency's in-home speed testing, the lawsuit said.

Charter lost multiple court decisions

Charter argued in court that the case should be dismissed, citing the FCC's net neutrality repeal and related preemption of state laws. But New York courts refused to let Charter avoid the lawsuit.

"The Attorney General's office prevailed at every major stage of the court proceedings," Underwood's announcement today said. "After Charter sought to move the case to federal court, the Attorney General's office won a federal court decision returning it to state court. Charter then moved to dismiss the action on various grounds, including federal preemption; the Attorney General's office successfully opposed that motion, which the trial court denied in full. When Charter appealed parts of that ruling, the Attorney General's office prevailed again at the Appellate Division."

While Charter said that the lawsuit pertained only to Time Warner Cable practices prior to its 2016 purchase of TWC, the AG's office said last year that the company "continues to underserve their subscribers by failing to make the capital investments necessary to live up to their promised speeds."

Settlement terms

Charter will give $75 each to the more than 700,000 active subscribers who leased an inadequate modem, leased an inadequate Wi-Fi router, or subscribed to a Time Warner Cable legacy speed plan of 100Mbps or higher.

Charter will give an additional $75 "to each of over approximately 150,000 subscribers who had an inadequate modem for 24 months or more," the AG's office said. Charter must notify subscribers of their refund eligibility and distribute the money within 120 days.

Charter previously gave out $6 million in refunds for inadequate modems before this settlement was reached; those subscribers will not get any additional payments.

Charter customers who get both Internet and cable TV will be given "a choice of either three free months of HBO or six free months of Showtime." All other Charter Internet subscribers "will receive a free month of Charter's Spectrum TV Choice streaming service—in which subscribers can access broadcast television and a choice of 10 pay TV networks—as well as a free month of Showtime."

Charter has also "made significant investments to address the problems identified in the complaint and improve Internet service in New York," including "network enhancements, modem replacements, and upgraded Wi-Fi routers," the announcement said.

Going forward, Charter is prohibited from providing subscribers with equipment that can't deliver advertised speeds under typical network conditions and must replace any equipment that isn't up to the task.

According to CNBC, Charter said in a statement that "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. Charter has made, and continues to make, substantial investments enhancing Internet service across the state of New York since our 2016 merger, as acknowledged by the Attorney General in this settlement. 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."

Charter avoids merger revocation

In a separate case, the New York State Public Service Commission (PSC) voted in July to revoke its approval of Charter's 2016 purchase of TWC, saying that Charter repeatedly failed to meet deadlines for broadband expansions that were required in exchange for merger approval.

If that order is enforced, Charter would have to sell the former Time Warner Cable system in New York. However, Charter has been negotiating with state officials to secure a deal that would let the company stay in the state. New York has granted Charter several deadline extensions, including one last week, as negotiations continue.

Disclosure: The Advance/Newhouse Partnership, which owns 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.