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French Media: Altice’s Big Bad Wolf Hits the U.S. Running

Phillip Dampier June 26, 2017 Altice NV, Consumer News No Comments

Patrick Drahi is about to take American investors for a ride. Unfortunately, some won’t survive the journey.

“The only merit of American cars is that we can carry corpses in the trunk without having to fold their legs,” wrote French crime novelist Frédéric Dard, as noted in a piece in Les Echoes. Ironically, the French newspaper notes, the transport of “stiffs” is perfectly legal on Wall Street, where the art of the deal is often more important than its outcome for investors that take a bath.

This time, Mr. Drahi is taking advantage of Wall Street’s ability to Think Big with other people’s money. The newspaper notes he is not loading the trunk more than average, at least for the United States. “From Twitter to Snap, investors are used to swallowing the ‘private equity’ snakes as long as it delivers an outstanding success like Facebook from time to time.”

While Europe looks on with astonishment at the audacity of Mr. Drahi’s big splash in the States, the newspaper notes American investors don’t seem to notice Mr. Drahi has popped his trunk open on them even as he showers current shareholders with $1.28 billion in dividend payouts as the company constantly attempts to refinance its enormous debts. Altice’s two biggest financial allies, a Canadian employee retirement fund and BC Partners, seem more than happy unloading half their stake in Altice USA during the recent IPO, transferring their exposure to Drahi’s wily ways to someone else.

In the ultimate example of “heads I win, tails you lose” business practices, Drahi has well insulated himself from his own investors and from any consequences for his future mistakes. Les Echoes notes that as part of the complex backing away of Drahi’s North American partners, 98.5% of the voting rights will be conferred not to the buyers, but to Altice itself. Altice will also collect a breathtaking $30 million in fees from the unload. Not to be outdone, Altice’s top three executives are also constructing an elaborate protective cocoon for themselves. In the event of any damage control that changes Altice’s control of ownership, the three get more than $70 million in bonuses.

The newspaper later wrote Altice’s IPO was the latest example of the complacency of the U.S. stock market.

“Altice does not hide its vocation of feeding the great appetite for concentration of cable in the United States,” the newspaper wrote. “The telecoms tycoon passed the final test of entry into the temple of stock market temples.”

While Drahi promises great upgrades that will require considerable investment, his actual record of spending is more mixed than his ambitious statements would otherwise suggest. Upgrades at his acquisition SFR-Numericable languished for years as the company’s attention was more focused on making additional acquisitions, usually with borrowed cash. More than one million customers left while waiting for upgrades, even as service continued to deteriorate.

Back in France, some shareholders are pushing back over what they feel is Drahi’s personal conflict of interest, which may make him very rich off their money.

Last week, activist fund CIMA, a minority shareholder of Altice’s SFR wireless company, filed a complaint with the Tribunal de Grande Instance (TGI) in Paris, noted Le Figaro.

Altice Name Change Will Personally Profit Drahi

CIMA claimed that by 2018, all of Drahi’s acquisitions will be consolidated under the Altice brand. Oddly, Drahi is willing to toss away the SFR brand, which is widely recognized in France and worth an estimated €904 million, and replace it with Altice — a name hardly known inside or outside of France.

“Altice has no commercial recognition,” says Catherine Berjal, co-founder of CIMA.

But then that misses the fact Altice’s trademark is held personally by Drahi and he won’t be offering it for free. Every company owned by Altice will be required to pay unspecified annual royalties to Mr. Drahi starting three years from now, just to license the use of the Altice name.

Making Someone Else Pay Your Fine

When Altice was caught violating French competition regulations, it was fined €80 million by France’s Competition Authority. SFR shareholders were unpleasantly surprised to discover SFR alone covered the fine, despite the ruling which found Altice and SFR equally liable.

Drahi the Landlord

SFR headquarters, Saint-Denis

Finally, some shareholders are scrutinizing SFR’s sudden decision to relocate its corporate headquarters, despite signing a 12-year lease in 2013 for brand new offices in Saint-Denis, priced at €490 per square meterBerjal notes this sudden move doesn’t make any business sense, until one digs a little deeper.

“Patrick Drahi has decided to break this lease to move SFR into a building that belongs to him personally,” Berjal said, adding the move will result in a spectacular rent increase. “The rent is 725 per square meter [at Drahi’s property], not to mention the contract termination fees that have to be paid [to the old landlord].”

CIMA feels Drahi isn’t exactly representing the best interests of shareholders, just himself.

“The operations mentioned in this complaint were perfectly legal and in compliance with the applicable rules of governance,” countered a spokesman for SFR contacted by AFP.

Drahi’s Ultimate Compensation Package: $43 Billion+

The Wall Street Journal has been tracking Drahi’s dreams of being one of the world’s most richly compensated CEOs, perhaps the richest ever.

Even the most casual investor couldn’t turn a blind eye to Drahi’s original plan for personal compensation, which would have given him $817 million in compensation over five years simply by paying him a management fee of 0.2% of revenues plus a performance fee of 5% of increased cash flows, which was child’s play to accomplish with additional acquisitions or rate hikes. One minority shareholder balked, complaining this kind of compensation was “too easy to achieve.”

Plan “B” could redefine CEO greed for years to come. In addition, to Drahi’s outstanding stock options, worth €55 million at the current stock price, Drahi would keep his 59% ownership of Altice, a stake currently worth €19 billion today. If Drahi manages to triple the share price, his net worth automatically increases another $43 billion dollars. But Drahi is also asking for a bonus: another 30 million shares of Altice stock to be awarded to him automatically. The first 10 million shares automatically are his if he is still alive and breathing at Altice in 2020. Another 10 million shares show up if the share prices doubles by then, and yet another 10 million go into his portfolio if the share price triples by the end of 2021. That represents another €1.1 billion on top of the $43 billion.

That may be why some in the French press have dubbed Drahi the “Big, Bad Wolf.” Les Echoes notes Wall Street has never particularly minded this kind of wolf, as long as it confined itself to eating consumers. But Drahi’s desire to also drain his investors is what the newspaper cautions is a “big bad wolf none would have expected.”

AT&T Fixed Wireless Expands to 8 New States; Up to 10Mbps, 160GB Usage Cap

AT&T Fixed Wireless Internet, intended for rural areas, is now available in eight new states in the southern U.S., joining Georgia:

  • Alabama
  • Florida
  • Kentucky
  • Mississippi
  • North Carolina
  • South Carolina
  • Tennessee
  • Louisiana

More than 70,000 locations can now subscribe to the fixed wireless service at prices ranging from $50-70 a month. AT&T said it was on track to expand the service to over 400,000 locations by the end of 2017 and over 1.1 million locations by 2020. Later this year, the service will be introduced in rural areas of Arkansas, California, Illinois, Indiana, Kansas, Michigan, Ohio, Texas and Wisconsin.

“We’re committed to connect hard-to-reach locations to the internet. This changes lives and creates economic growth for these areas,” said Cheryl Choy, vice president of wired voice and internet products at AT&T. “We’re excited to bring this service to even more underserved locations.”

An exact list of communities served isn’t available, but AT&T allows potential customers to enter their zip code on its website to determine availability.

AT&T introduced the fixed wireless service in parts of rural Georgia earlier this spring. The plan offers up to 10Mbps of speed with a 160GB monthly data cap. If a customer exceeds that amount, their account is charged $10 for each additional 50GB increment, up to a maximum overlimit fee of $200 a month.

Customers with a DirecTV and AT&T mobile phone subscription can get AT&T’s Fixed Wireless service for $50 a month. Those who don’t have a satellite package but are willing to sign a one-year contract will pay $60 a month. If you want to skip the contract, the price rises to $70 a month. An installation fee of $99 also applies, unless a customer also signs up for DirecTV.

NY Post: Charter Wants to Buy Cox Communications; Alaska’s GCI Will Eventually Become Charter

Three unnamed sources told the New York Post Charter Communications is seeking to acquire privately held Cox Communications, despite repeated assertions from the family owned Cox it is not for sale.

“Tom wants to buy Cox,” said one “highly placed cable source.” Another confirmed the news, but notes Charter has not yet approached Cox with a deal. “If they’re going to sell it to anyone, they’re going to sell it to an old cable guy.”

Cox is America’s third-largest cable company with 6.2 million subscribers. A combination with Charter would still leave Comcast as the nation’s largest cable company. Wall Street has pushed cable companies towards further consolidation, and if Charter doesn’t approach Cox, it is highly likely Altice USA will.

Cox told the newspaper all of this attention is unwanted.

“Cox has been very clear and consistent that we are not for sale and, in fact, we’re aggressively investing in our network, products and strategic partnerships and investments of our own,” Cox spokesman Todd Smith told The Post on Wednesday.

But some cable watchers expect Cox may not want to stay in the family if the price is right. In April, Alex Taylor, the great-grandson of founder James Cox was named Cox’s next CEO, starting Jan. 1, 2018.

Charter may also eventually grow by at least 100,000 new subscribers as John Malone’s Liberty Interactive’s ownership of Alaska-based GCI might not last long. Cable watchers predict Malone will flip GCI to Charter Communications after the deal closes, which would result in a likely quick rebrand of GCI as Charter/Spectrum.

Tennessee Electric Co-Op Threatens to Rip Comcast’s Wires Off Its Poles Next Week

If Comcast doesn’t send a check for $176,000 to cover the last three years of pole attachment fees owed to the Southwest Tennessee Electric Membership Corporation (STEMC), the electric co-op is prepared to rip Comcast’s lines right off its poles.

Comcast, under a license agreement with the utility, pays a small fee to the utility to place its infrastructure on its utility poles. Comcast has not paid since June 2014, and if the cable giant doesn’t send a check by June 28, STEMC will remove Comcast’s attachments from their poles, knocking out cable service for thousands of customers.

“We’ve been going back and forth with them for going on three years now trying to get payment out of them,” said STEMC chief financial officer Scott Sims.

A notice on STEMC’s website explains Comcast’s foot-dragging isn’t fair to the cooperative:

We regret that some customers may lose their Comcast service.  However, the full cost and maintenance of these utility poles are borne by all members of STEMC, and we cannot allow STEMC members to subsidize Comcast’s services.  We are hopeful that Comcast will make payment prior to the deadline and avoid the need to remove their cable attachments.

Many residents are taking the side of the utility, pointing out Comcast would have shut off their cable service long before Comcast’s three years of non-payment.

A Comcast representative told WREG-TV that STEMC started billing Comcast double what they used to, claiming to have discovered previously unbilled pole attachments. Comcast wanted evidence of these attachments from STEMC, despite the fact they were capable of counting their own cable subscribers in the area, and refused to make a payment until this information was provided. Comcast claims it finally got evidence this month.

“Since receiving that information, we have completed our own audit and are taking the appropriate next steps to arrange for payment in the correct amount,” Comcast said in a released statement. “We look forward to working with STEMC to resolve this issue quickly and ensure that our mutual customers’ services are not disrupted.”

Wall Street Hissyfit: Raise Broadband Prices to $90/Month Immediately! (Or Else)

If the average customer isn’t paying $90 a month for broadband service, they are paying too little and that needs to stop.

That is the view of persistent rate hike advocate Jonathan Chaplin, a Wall Street analyst with New Street Research, who has advocated for sweeping broadband rate increases for years.

“We have argued that broadband is underpriced, given that pricing has barely increased over the past decade while broadband utility has exploded,” Chaplin wrote in a note to investors. “Our analysis suggested a ‘utility-adjusted’ ARPU target of ~$90. Comcast recently increased standalone broadband to $90 with a modem, paving the way for faster ARPU growth as the mix shifts in favor of broadband-only households. Charter will likely follow, once they are through the integration of Time Warner Cable.”

Companies that fail to raise prices risk being downgraded by analysts with views like these, which can have a direct impact on a stock’s share price and the executive compensation and bonus packages that are often tied to the company’s performance.

But there is a dilemma and disagreement between some cable industry analysts about how much companies can charge their customers. Companies like Cable ONE have been aggressively raising broadband prices to unprecedented levels in some of the poorest communities in the country, which worries fellow Wall Street analyst Craig Moffett from MoffettNathanson LLC.

“Never mind that the per capita income in Cable ONE’s footprint is the lowest (by far) of the companies we [Moffett’s firm] cover, or that the percentage of customers living below the poverty line is the highest (also by far),” Moffett told his investor subscribers. “What matters is that there is very little competition in Cable ONE’s footprint. If you want high-speed broadband, where else are you going to go? The unspoken fear among their larger peers is that over-reliance on broadband pricing invites regulatory intervention, not just for Cable ONE, but for everyone.”

Chaplin thinks the risk from gouging broadband customers is next to zero. With cable TV becoming less profitable every day, all the big profits that can be made will be made from broadband, where cable operators often enjoy a monopoly on high-speed service.

According to Chaplin, if customers value internet access, they will pay the higher prices cable companies charge. So what are companies waiting for? Raise those prices!

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