New York government officials have threatened to terminate Charter Communications' franchise agreements with New York City, saying the cable company failed to meet broadband construction requirements and may not have paid all of its required franchise fees.

The NY Public Service Commission said Charter should pay a $1 million fine for missing a deadline to expand its broadband network statewide and is questioning Charter over declines in franchise fees paid to New York City.

"It is critically important that regulated companies strictly adhere to the state's rules and regulations," PSC Chairman John Rhodes said in an announcement yesterday. "If a regulated entity like Charter's cable business decides to violate or ignore the rules, we will take swift action and hold [it] accountable to the full extent of the law."

Charter violated state rules or NYC franchise

The allegations relate both to Charter's 2011 franchise agreements with New York City and statewide commitments Charter made in order to get state approval of its 2016 acquisition of Time Warner Cable (TWC). Charter told the commission that it met the latest merger buildout deadline, but a "detailed audit by Commission staff found more than 14,000 passings claimed by Charter for its December milestone were ineligible, causing Charter to fall short of the milestone by more than 8,000 passings," the commission said.

Charter claimed that it met the TWC merger buildout commitments in part by expanding service in New York City. But Charter's "new" broadband deployments in New York City included addresses that the company was already required to serve as part of the franchise agreements, the commission said.

If Charter wasn't already serving those addresses in New York City, it would have violated the franchise agreements, the commission said. But if Charter was already serving those addresses, then they can't count toward the new construction required in order to meet merger commitments.

The commission served Charter with an order to show cause, requiring Charter to answer the "commission staff's findings that the company should pay $1 million to the State Treasury for missing a December deadline to expand its network to 36,771 additional homes and businesses that did not have high speed broadband as of the date of Charter's acquisition of Time Warner cable," the announcement said.

A second order to show cause requires Charter to answer allegations about its possible non-compliance with NYC franchise agreements.

Charter is apparently "either in violation of the Commission's regulations or the NYC franchise agreements," the commission said, noting that "it is questionable whether Charter's network did in fact pass all buildings in its NYC footprint as required by the respective franchise renewals."

The commission is investigating "whether Charter's franchise agreement with New York City should be terminated for breaches, including underpayments and failure to meet network deployment obligations," it said.

The commission said it is suspicious that Charter isn't paying enough in franchise fees because the payments to the city "have been declining year-over-year since Charter consummated its merger with Time Warner [Cable]." Charter is required to pay five percent of its annual gross video revenue to the city.

"If Charter is improperly calculating its franchise fee payments to NYC it may be construed as a material breach of the agreement and a basis for [franchise] revocation proceedings to begin," the commission said.

Charter said it will dispute the allegations.

"Charter is committed to bringing more broadband to more people across New York State," the company said in a statement to Ars. "We exceeded our last buildout commitment by thousands of homes and businesses. We've also raised our speeds to deliver faster broadband statewide. We are in full compliance with our merger order and the New York City franchise, and we will fight these baseless and legally suspect actions vigorously."

Charter agreed to pay a fine last year after the state commission found it hadn't met an early merger-related buildout deadline. Separately, New York Attorney General Eric Schneiderman has a pending lawsuit against Charter that alleges the company falsely promised fast Internet speeds that it knew it could not deliver.

It seems unlikely that the PSC would revoke Charter's NYC franchises, as it is threatening to do. But starting the process could pressure Charter to satisfy the state's demands for more broadband deployment.

NYC homes already had broadband

Charter's merger approval required it to expand broadband to 145,000 "unserved" or "underserved" residences or businesses by May 2020. To count as unserved, a location must not have any ISP offering download speeds of at least 25Mbps; to count as underserved, a location must not have any ISP offering download speeds of at least 100Mbps.

Charter originally was required to serve more than 36,000 of those units by May 18, 2017, but it missed the deadline and obtained an extension until December 16, 2017.

Charter filed an update on its compliance on January 8, 2018, stating that it had passed 42,889 premises by the December deadline. But the PSC said it is proposing to disqualify more than 14,000 of those, leaving Charter well short of the requirement.

Most of the disqualified addresses are in New York City, where Charter counted 12,467 addresses as part of its newly completed construction. But none of the New York City addresses should count toward the buildout requirement because each location was either served already by Charter's network or was previously "served by one or more other providers at speeds of 100Mbps," the PSC said.

PSC used online mapping tools as part of its investigation and visited 490 addresses in New York City, gaining access to 462 of them. All of these 462 "were either served by pre-existing Charter network, 100Mbps service from another provider, or a combination of both," the commission said.

The commission provided a few specific examples. Two multi-unit buildings with a combined 214 residential units should already have been served by Charter under its franchise agreement. The commission also described what it called a "more egregious example:"

Charter also listed the Reuters Building as countable toward the December 2017 target in Charter's January 2018 filing, which has a listed address of 3 Times Square. Staff could not find any photos of the building prior to 2014 beside aerial views, but construction was completed in 2001, well before the effective date of the current franchise agreements. If Charter's network was not capable of providing these addresses with service, then it appears as though it may be a material breach of the NYC franchise renewals that warrants further investigation here and grounds to begin revocation proceedings.

The merger-related construction requirements are supposed to be met in less-densely populated areas or in areas that require line extensions, but "New York City is not such an area," the commission said.

Outside of New York City, commission staff said they identified another 1,762 addresses that should be disqualified. In 1,726 of these cases, "there was [a] pre-existing cable network," the commission said. The other 36 addresses either already had 100Mbps service from another provider or were "duplicate pre-existing/100Mbps service addresses."

"DPS Staff advises that many of these claimed newly completed passings actually consisted of cable and equipment upgrades to existing cable plant," the commission said. "In other words, Charter replaced older cabling and equipment on a pole with newer cabling and equipment, but the location had already been passed by the cable network, oftentimes having been originally passed with cable network for years."

The state also says that Charter's plan to serve 145,000 addresses by 2020 includes 11,979 addresses that should not count toward the target. Many of these addresses are in Census blocks where the state has separate plans to award broadband deployment grants to ISPs.

The PSC gave Charter 21 days to provide a full response.

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.