Update, 2:31PM: The article has been updated to include a statement from Charter Communications.

New York State Attorney General Barbara D. Underwood has announced a record $174.2 million dollar consumer fraud settlement with Charter Communications Inc. and Spectrum Management Holding Company for defrauding internet subscribers. The settlement, according to Underwood includes $62.5 million dollars in direct refunds to consumers alone, believed to be the largest-ever payout to consumers by an internet service provider (ISP) in U.S. history.

New York's Attorney General has been investigating broadband internet service providers in New York and this is the first settlement. In 2017 the Attorney General's office filed a complaint in NYS Supreme Court alleging that Charter, initially operating as Time-Warner and later under Charter's Spectrum brand name had failed to deliver the internet speed and reliability it had promised subscribers.  Allegations include the company's lease of deficient modems and wireless routers to subscribers that didn't deliver the advertised speeds that the customers had paid for and failing to maintain enough network capacity among others.

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

The key terms of the settlement include:

1) Consumer Relief (Direct Refunds): $62.5 million

a. Charter to award a $75 refund to each of over 700,000 active subscribers based on:

(1) Leasing an inadequate modem;
(2) Leasing an inadequate WiFi router; OR
(3) Subscribing to a Time Warner Cable legacy speed plan of 100 Mbps or higher.

b. Charter to award an additional $75 refund to each of over approximately 150,000 subscribers who had an inadequate modem for 24 months or more.

Charter will notify subscribers of their eligibility for refunds and disburse them within 120 days. 

Note: Charter has already disbursed over $6 million in refunds for inadequate modems to date, separate from today’s settlement. Because these subscribers received full compensation, they are ineligible for a further payment. 

2) Consumer Relief (In-Kind Video and Streaming Benefit): Worth over $100 million

In addition to the direct refunds detailed above, Charter will offer free streaming services to approximately 2.2 million active internet subscribers:

a. Charter will offer all subscribers currently receiving internet and cable television from the company a choice of either three free months of HBO or six free months of Showtime. (Note: This benefit is available to subscribers who do not already subscribe to both of the offered networks through Charter.)

b. All other active 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 will notify subscribers of their eligibility for video and streaming services and provide details for accessing them within 120 days of the settlement.

Receiving the video and streaming services as restitution will not affect eligibility for future promotional pricing.

3) Substantial Network Investments

Following the Attorney General’s investigation, Charter made significant investments to address the problems identified in the complaint and improve internet service in New York. This includes network enhancements, modem replacements, and upgraded WiFi routers.

Marketing and Business Reforms

The settlement also includes the follow key injunctive terms:

1) Affirmative Advertising Obligations: Charter is required to (a) describe internet speeds as “wired”; (b) disclose that wireless speeds may vary; and (c) disclose the factors that might lead actual experience to vary, including based on the number of users and device limitations. This applies to all advertising and marketing of speeds, including television and other commercials, website and website communications, print ads, bill inserts, emails, and more.

2) Substantiating Internet Speeds: Charter must substantiate internet speeds using an industry-accepted testing methodology, and discontinue any speed plan that cannot be substantiated.

3) Advertising prohibitions: Charter is prohibited from making unsubstantiated claims about (a) the speed required for particular internet activities like streaming; (b) the reliability of the internet service (e.g., no buffering, no slowdowns); or (c) the availability of the promised speed over WiFi.

Charter is also prohibited from describing internet speeds as “consistent” without fully satisfying the FCC Consistent Speed Metric and must make commercially reasonable efforts to deliver access to all online content and services featured in its advertisements.

4) Equipment Reforms: Charter is required to: (a) provide subscribers with equipment capable of delivering the advertised speed under typical network conditions when they commence service; (b) promptly offer to ship or install free replacements to all subscribers with inadequate equipment via at least three different contact methods; and (c) implement rules to prevent subscribers from initiating or upgrading service without proper equipment for the chosen speed tiers.

5) Sales and Customer Service Training: Charter must train customer service representations and other employees to inform subscribers about the factors that affect internet speeds. Charter must also maintain a video on its website to educate subscribers about various factors limiting internet speeds over WiFi.

Charter issued the following statement following the settlement:

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.