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Charter Communications to Pay $174.2M for Low Internet Speed

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Charter Communications (CHTR - Free Report) will be paying a record $174.2 million as part of a settlement deal with New York Attorney General Barbara Underwood for delivering lower- than-promised Internet speed to customers.

Notably, Charter is the first Internet service provider in the United States to pay the largest ever settlement amount to consumers.    

The state’s largest Internet service provider, Spectrum — re-branded after Charter acquired Time Warner Cable in 2016 — failed to provide the promised Internet speed. Underwood has asked Charter to update its marketing practices to be in tandem with the service provided.

As part of the settlement, the company will be paying $62.5 million directly to customers. More than 700,000 active subscribers in the city will receive $75 to $150 each based on their plans. Additionally, Charter agreed to provide $110 million worth of free streaming services and premium channels to about 2.2 million active customers.

Charter Communications, Inc. Revenue (TTM)

Charter Communications, Inc. Revenue (TTM) | Charter Communications, Inc. Quote

Charter’s Troubles Mount

Earlier this year, the New York State Public Service Commission revoked its earlier approved merger of Charter and Time Warner cable, citing merger non-compliance issues by Charter. The decision came after Spectrum failed to deliver its promise to New York City customers. Thereafter, Charter was given a 60 day period to “plan for an orderly transition to a successor provider.”

Charter also lost nearly 66,000 residential video subscribers in third-quarter 2018 and the company’s residential video subscribers declined 1.6% year over year to 16.1 million. Shift in consumer viewing patterns toward OTT platforms like Netflix (NFLX - Free Report) , Amazon Prime and Hulu among others is the main reason behind the subscriber loss.

Nevertheless, Charter has boosted its Internet service speed to acquire customers. Notably, the company has doubled Internet speed to 200 Mbps for the new and existing Spectrum Internet customers at no extra cost in 40% of its market.

Notably, Charter gained 266,000 residential Internet customers in third-quarter 2018, taking the total count to 23.3 million, up 4.9% year over year. Additionally, more than 80% of these residential Internet customers have subscribed to tiers that provide 100 Mbps or more speed.

Moreover, the company further expanded the availability of its Spectrum Internet Gig service (940 Mbps) to a number of new markets in third-quarter 2018. The service, which uses DOCSIS 3.1 technology, now covers approximately 95% of its footprint.

Further, Charter expects to launch its Spectrum Internet Gig service across its entire footprint by the end of 2018.

Zacks Rank and Stocks to Consider

Charter currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer technology sector are Crocs, Inc. (CROX - Free Report) and Cinemark Holdings Inc. (CNK - Free Report) . While Crocs sports a Zacks Rank #1 (Strong Buy), Cinemark carries a Zack Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for both Crocs and Cinemark is pegged at 15%.

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