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Altice Caught in Panama Papers Scandal; Tapping Junk Bond Market (Again) to Raise Quick Cash

drahiPatrick Drahi’s Altice — new owner of Suddenlink and presumed next owner of Cablevision — has been caught dealing with the scandalous Panamanian law firm Mossack Fonseca, which specializes in helping wealth-soaked billionaires and politicians evade taxes.

Altice’s name came up in the Panama Papers, a leak of over 11 million documents taken from the law firm. Although admitting it had dealings with Mossack Fonseca in 2008 and 2010, an Altice official claimed it was only for “incidental transactions for reasons of strict confidentiality and in perfectly legal conditions with no tax impact, let alone foreign, near or far, for any purpose of evasion, concealment, or tax optimization.” But critics are asking why a Swiss national running a cable conglomerate in Francophone Europe would hire an obscure law firm in Panama City to manage those “incidental transactions.”

Failed Consolidation Merger Keeps the Price Wars Going

Altice has been having a tough April. First, its participation in a three-way plot to consolidate the French wireless industry and end ongoing competitive price wars that benefit consumers turned out to be for nothing. Orange and Bouygues Telecom were set to merge, but likely only after divesting certain assets to Altice’s Numericable-SFR. The transaction fell apart when the two larger carriers couldn’t guarantee they’d each make a financial killing from the deal, and antitrust authorities were grumbling they might be willing to hammer anything that would likely boost prices for French consumers.

Last year, Wall Street was very pleased with Altice’s strategy of buying up other telecom companies, squeezing costs out of their operations through pay cuts, layoffs, and stiffing vendors, and then using customer revenue to leverage even more acquisitions. Altice enjoys significant support from asset managers like Vanguard, BlackRock, T. Rowe Price, and Fidelity. But their portfolios began taking beatings after Altice’s financial performance became an open question. More than a million customers dropped Altice-owned SFR-Numericable in the last year, citing poor performance.

Loaded in Debt, Altice Jumps into Junk Bond Market Twice in One Week

junk3The company’s massive debt load also continues to be a major concern. This week, Altice dipped into the junk bond markets not once, but twice, seeking to refinance their enormous debts. Yesterday, Altice went looking for $2.75 billion. Today it was expected to be back looking for $1.5 billion more, which is the third time Drahi has looked for money from investors comfortable with significant risk.

Drahi’s buyout of Cablevision in a $17.7 billion deal was financed with similar junk bonds and leveraged loans. If his acquisition is approved, it may have a profound impact on Cablevision customers in downstate New York, Connecticut, and New Jersey.

At Cablevision, Profits Will Come Before Employees, Customers

Drahi is insisting on driving Cablevision’s profit margins to as high as 50% while promising to slash $1 billion in costs out of the operation. Much of those savings will come from salary and job cuts at Cablevision and Newsday, the last remaining daily newspaper printed on Long Island.

“I don’t like to pay salaries,” Drahi said. “I pay as little as I can … No one in our company is making more than a couple hundred thousand a year.”

Altice CEO Dexter Goei noted there were more than 300 Cablevision employees making $300,000 or more a year. Their days are likely numbered. But that will only be the beginning.

mayotte reunion

Mayotte and Reunion are French territories off the coast of East Africa near Madagascar.

“I suspect Altice is going to come in and slash jobs, streamline operations and work to identify the quickest method of becoming profitable,” said Kevin Kamen, an area media broker. “One of the first places they’ll target for job consolidation will be Newsday, mark my words. They will also cut jobs at Cablevision in the long-run. Wherever they can save cost overruns and produces efficiency they will. Trust and believe. They are not about to invest billions in a sinking ship. I would also expect to see price increases across the board within a year for all subscribers regardless of how competitive the market is.”

French Competition Authority Fines Altice $17 Million for Sabotaging a Future Competitor

But before Drahi can put his earnings in the bank, he will have to share them with the French government, which today fined Altice $17 million dollars for breaking promises to French regulators.

In 2014, Altice won approval of its acquisition of Francophone mobile carrier SFR after agreeing to divest certain assets in places where it would give Altice a virtual monopoly on service. In the Indian Ocean region, the acquisition of SFR by Altice would give the Drahi operation a combined 66% market share in Reunion, 90% in Mayotte. To preserve competition, French regulators insisted Altice sell its Outremer Telecom operations in the two French territories to a third party. Until that sale was complete, Altice agreed to protect the economic viability, marketability, and competitiveness of the soon to be sold unit.

Instead, the Competition Authority discovered Altice suddenly jacked up the price of Outremer Telecom’s service between 17-60% and allowed customers to walk out of their contracts without any financial penalty. As a result, the future owner of Outremer Telecom would own a business that had already lost a substantial number of customers as a result of the price hike, out of character for a provider with an earlier reputation of low priced service.

Regulators suspect Altice might have intentionally sabotaged the business they were required to eventually spin-off, giving their own operation a competitive advantage.

Altice to New York Public Service Commission: Butt Out of Our Cablevision Buyout!

nosyBillionaire cable magnate and Swiss luxury property connoisseur Patrick Drahi excels at “take it or leave it” offers on behalf of Altice, the cable conglomerate he founded.

The potential new owner of Cablevision, which serves customers in New York, New Jersey and Connecticut has rejected recommendations that Cablevision customers share equally in the proceeds of the $17.7 billion deal. Altice’s lawyers have countered that 15% is more than enough.

Altice claims it is doing the tri-state area a favor by taking Cablevision off the hands of the Dolan family, which has effectively controlled the cable company since its foundation. Altice claims customers will get tangible benefits from the deal:

  • Broadband service at speeds up to 300Mbps in the future;
  • Discounted 30Mbps Internet access for the financially disadvantaged for $14.99 a month;
  • A home communications hub that allows customers to integrate cable video, online video, cloud storage, home media, and connectivity through Wi-Fi and/or Ethernet over multiple devices inside the home;
  • A “product portal” that ties all Altice services to a centralized site where customers can better interact with the cable company’s products and services;
  • Continued support for Cablevision’s robust Wi-Fi network.

Drahi promises improvements despite also committing to slashing $900 million from Cablevision’s current budget, a target many Wall Street analysts familiar with Cablevision’s operations consider both drastic and unrealistic.

Altice1Critics of the deal include consumer groups concerned about the poor performance of other Drahi-run cable systems and Cablevision’s organized labor force, unhappy about Drahi’s statements to Wall Street that he prefers to pay only minimum wage wherever possible. Drahi also has a long contentious history with Altice workers in Europe, presiding over workforce reductions, salary and benefits cuts, and a war of attrition with his own suppliers.

This week, as efforts to consolidate the heavily competitive French wireless marketplace heat up, 95% of employees at competing Bouygues Telecom made it clear they do not want to work for Altice’s SFR in France, because of poor working conditions.

Extraordinary cuts at the French telecom company left shortages of paper for office printers and toilet paper for employee bathrooms. Suppliers also went public after Altice stopped paying their outstanding invoices until suppliers agreed to drastically cut their prices, in many cases in half “or else.”

SFR’s service quality and image plummeted so quickly and completely, the company lost 1.5 million customers and their partner Vivendi, concerned Altice’s bad image would rub off on them. They sold their remaining 20 percent stake in SFR to Mr. Drahi.

Drahi

Drahi

“If Drahi had had a different style of management, we would have kept the 20% stake in SFR,” said one Vivendi insider at the time. “But he had very bad press as a result of his management style. We didn’t want to be associated with any of that.”

Suddenlink and Cablevision customers may not have much of a choice. Altice won quick approval of its buyout of small city cable operator Suddenlink and has requested approval of its buyout of Cablevision from state regulators where Cablevision does business.

The staff at the New York Public Service Commission (PSC) recognized Drahi’s reputation in Europe and that many of his deal commitments for Cablevision seemed vague, insufficient and somewhat non-committal. Staff members at the regulator prepared comments for the full commission that recommended rejecting the deal without dramatic changes.

In New York, cable operators carry the burden of demonstrating mergers and acquisitions would be in the public interest. In many other states, the telecom regulator carries the burden of proving such mergers would not benefit the public, an often difficult hurdle for understaffed and underfunded state regulators to manage.

optimumNew York regulators usually insist that state residents share in the proceeds of any sale that comes before the commission for review. In most cases, this is in the form of an agreement to invest in infrastructure or service improvements, improve customer service standards, and protect jobs. As with Time Warner Cable and Charter, the staff recommended the commission first consider a roughly 50/50 share of any deal savings or synergies, evenly split between customers and shareholders.

Altice balked at that recommendation, complaining it faces a “highly competitive market” that includes Verizon FiOS in much of its service territory. As a result, Cablevision customers deserved less… much less.

“[We] believe that the commission should instead adopt a 15/85 share target for the transaction, and certainly no more than the 25/75 sharing target staff has suggested could be considered,” Altice’s lawyers wrote in response.

Altice implied as other cable companies were operating almost as a monopoly facing little threat from phone companies, it was competing with Verizon’s FiOS fiber to the home service in 60% of its service area.

ny psc“The contrast between the competitive landscape faced by Cablevision as compared to other large cable operators in New York State is stark,” the lawyers wrote. “Verizon FiOS is available in just two Comcast communities, 3% of Time Warner Cable communities, and zero Charter communities in the state.”

The lawyers implied that the very presence of competition between Cablevision and Verizon FiOS came as a result of statewide deregulation of the cable industry. Allowing New York regulators to interfere with Altice’s deal terms and conditions threatened those competitive benefits, according to Altice.

“Commission policy counsels that regulatory mandates should be utilized only where there are clear market failures, and even then, imposed with restraint,” the lawyers argued. “Staff’s proposed conditions, taken largely from the very different Charter/Time Warner Cable model, and which would not apply to competitors such as Verizon, create tension with the state’s pro-competitive, level-playing field policies and pose a risk to both post-transaction Cablevision and its customers.”

Altice is maxing out its credit cards. (Image: FT)

Altice is maxing out its credit cards. (Image: FT)

Altice argues that because competition exists, “it is reasonable to assume that a substantial portion of synergy savings will be re-invested in network infrastructure and new technologies—including research and development associated with such investment—rather than simply returned to customers or shareholders.”

Except that has not proven true with other telecom operators. Last year, Comcast bought back more than $2 billion of its stock, or 35.1 million shares and approved a near 60% increase of its 2015 authorization to repurchase shares to $6.75 billion. In February, Comcast boosted its dividend payout to shareholders by 10% and planned to repurchase another $5 billion of its own stock during 2016. Last year, Verizon announced it was returning capital to its shareholders through a $5 billion accelerated share-repurchase program and raised its dividend payout to the highest level (56.5¢ per share) since at least 2000. From 2012-2014, AT&T paid out nearly $27 billion to investors through its own share repurchase program. This quarter, it announced a 48¢ share dividend payout, also the highest amount since at least 2000.

Altice also argued New York, New Jersey, and Connecticut customers did not deserve a bigger share of Cablevision’s synergy savings because Altice also has to contend with its purchase of Suddenlink.

“The Commission should instead take into consideration Suddenlink’s operations, which Altice acquired at the end of 2015, just as it took into account all of the U.S. entities comprising New Charter post-closing,” Altice’s lawyers argued. The hole in that argument, deal critics claim, is that Altice doesn’t extend the synergy savings from its deal with Suddenlink to anyone except itself.

Altice also pushed back on other PSC staff recommendations:

  • Altice does not want to provide standalone telephone and/or Lifeline service to Cablevision customers;
  • Altice objects to providing battery backup power for telephone services, but will allow customers to buy their own;
  • Altice protested recommendations from the PSC staff to ban usage caps/usage based billing as a condition of sale. Altice claims usage caps may benefit customers and objects to a rulemaking that prohibits Cablevision from imposing them while leaving their competitors free to cap at will. “Cablevision’s competitors are launching aggressive service offers that Cablevision will have to match or beat—and if the company is subject to regulatory restrictions its competitors do not face, it will be handicapped in keeping up with market demands,” Altice argued.
  • New York City should have no say whether this sale is approved or not, claiming the sale does not trigger the city’s right of review.

If the PSC is unimpressed with Altice’s arguments, the cable operator has one other: federal and state law prohibits the commission from imposing most of the terms and conditions its staff recommended. The presentation is unlikely to win much favor at the PSC, particularly because Altice concedes almost nothing and objects to nearly everything on the staff’s menu of deal conditions.

The Communications Workers of America has also attacked the deal, arguing much of Altice’s presentation to the PSC is less than meets the eye. The CWA notes Altice intends to erect a money silo around Cablevision, purporting to protect its finances and operations from the rest of Altice’s telecom empire. But that also means Altice will invest none of its own money in Cablevision upgrades and service improvements, relying on Cablevision’s existing resources, credit lines, and debt obligations to cover the costs. Considering Drahi’s management style, that is likely to drive up debt.

The Financial Times reports Altice has already run up debt, ballooning over the past two years from €1.7 billion in 2012 to just over €50 billion by the end of this year, assuming its acquisition of Cablevision goes through. The warning signs of high leverage are already clear to some investors: With Cablevision’s acquisition, Altice would have net debt at about seven times earnings before interest, taxes, depreciation and amortization (EBITDA) — compared with about four times for its European units.

With jitters over European banks, interest rates, oil and gas, and the general state of the stock market, investors are expressing concern.

“From a general valuation perspective, companies with high leverage start becoming a source of fear,” one Altice investor told the Financial Times.

The PSC will likely adopt many of the staff recommendations regardless of Altice’s objections if it approves the sale. Some of those conditions are likely to include broadband service improvements, a low-income discounted Internet access program, and coverage area expansion into currently unserved areas.

Lifestyles of the Rich & Infamous: Altice Execs Splurge on Real Estate While Slashing Jobs

Via his company Canef SA, the businessman bought in June 2014 this property of 2,987 square meters in Cologny, near Geneva.

Via his company Canef SA, Altice founder Patrick Drahi secretly bought this sprawling estate in Cologny, near Geneva, Switzerland. (Image: Capital.fr)

Despite slashing jobs, ruthless cost cutting that degrades network quality for subscribers, and stiffing vendors, Patrick Drahi and his associates have spared no expense building a fabulous collection of Swiss real estate for themselves.

Drahi, the founder and president of Altice, the European cable and wireless conglomerate that today owns Suddenlink and some day soon may own Cablevision, has taken great lengths to hide his extravagant spending. He prefers to depict his carefully cultivated public image of frugality, seen publicly riding a bicycle to the office, eschewing secretaries and business cards, and claiming to be an expert at running a good business for less money.

But as French magazine Capital reveals, like many of Altice’s products and services, the marketing doesn’t match the reality.

Soon after Drahi signs acquisition papers for his latest deal, promising upgrades and enhancements to the public and regulators while telling investors he’s ready to cut to the bone, it becomes clear his promises to Wall Street and investors are the only ones that matter:

  • Soon after acquiring French daily Libération, one-third of the workforce found themselves out of a job;
  • Within the Express-Expansion Group, of the 700 employees he inherited after acquiring the media group, 115 were gone after the deal was signed and Altice is preparing to jettison another 90 positions in the near future;
  • At one of his biggest acquisitions — Numéricable and SFR, despite a commitment not to layoff workers until 2017, unions estimate 700 positions vacated by employees have remained unfilled;
  • In Portugal, trade unions last month accused Altice of continuing to slash employee benefits, ending free subscriptions to PT’s Meo broadband, phone and television service for employees, reducing meal allowances and restricting the use of company vehicles (except by executives).
In 2000, during the "lean years," Drahi managed to acquire this modest piece of property for a bit over $7 million. It's one of his least valuable properties, and has since been put under his wife's name and undergoing extensive renovation.

In 2000, during the “lean years,” Drahi managed to acquire this modest piece of property for a bit over $7 million. It’s one of his least valuable homes, and has since been put under his wife’s name and is undergoing extensive renovation. (Image: Capital.fr)

While employees watch company bean counters demand cutbacks that occasionally leave offices without basic office supplies, Drahi’s endless acquisition deals come with numbers that make your head spin:

  • At least $50 million dollars a month is paid to bankers to cover interest on Altice’s massive debts, which now range near €10 billion.
  • Altice’s finances seem so risky to many bankers, they charge Drahi 5-10% interest.

Altice’s endless promises of improved service through upgrades and better customer relations are little more than expensive fibs to their customers in France, who have endured rate increases and appallingly bad service.

In fact, UFC Que Choisir, France’s Federal Union of Consumers, reported last month Altice’s management of its mobile operator SFR has turned the company into the worst rated and most hated mobile operator in France.

The group reports “unprecedented levels of discontent” from consumers calling their legal information service for help taking SFR to court over its poor service and billing practices. Of all the legal disputes filed in 2015 against telecom companies, an amazing 44% targeted Drahi’s SFR Numéricable, which has only a 20% share of France’s mobile market.

Despite assurances of better service during 2015, customers continued to leave. In mid-2015 alone, 445,000 mobile customers permanently hung up on SFR Numéricable and switched to other providers.

Drahi doesn’t just alienate his customers. His competitors, notably Orange and Free have complained SFR engages in a pattern of misleading or outright false advertising. Two months after those complaints were lodged, officials from the Competition Authority raided the headquarters of SFR Numéricable and seized documents.

ariaseresioarnge ariaseresisfrariaseresinumericable

Any provider except Altice-owned SFR-Numericable. When dissatisfied customers dump their current mobile provider, the last choices on their list are SFR and Numericable.

Any provider except Altice-owned SFR-Numéricable. When dissatisfied customers dump their current provider, the last choices on their list are SFR and Numéricable. (Images: Univers/Freebox)

Few of these developments have been noticed by regulators and investors in the United States, perhaps owing to the French-English language barrier. But Drahi’s arrival in New York turned out to be just as provocative.

A model of "7 Heavens," a set of seven luxury chalets under construction in the ski resort of Zermatt. Drahi has already bought two. (Image: Capital.fr)

A model of “7 Heavens,” a set of seven luxury chalets under construction in the ski resort of Zermatt. Drahi has already bought two. (Image: Capital.fr)

Last November, Drahi told Wall Street analysts at an investment conference that he does not like paying salaries and if given a chance, he will “pay as little as I can” to his employees. It’s a different story for his tight-knit management team, which have splurged on the 2.65 million stock options windfall granted to them, worth as much as $238 million dollars.

So where do the stacks of cash go? As far as Capital’s team of reporters can tell, it isn’t spent on network improvements, job retention, or customer service. Instead, a handful of top executives are quietly helping themselves to expensive Swiss real estate.

Following the money has not been easy. Drahi and his associates do not want customers to know where their money is being spent. Capital reporters were forced off one property after asking a developer about the buyer of two of seven chalet cottages nestled in the hills with a breathtaking view of the Matterhorn, Switzerland’s most famous mountain peak. That view came with a $45 million price tag. Drahi told Capital he knew nothing about the project, but newly-revealed documents from municipal authorities obtained by Capital reporters found Drahi-owned subsidiary NDZ was the buyer, and nobody expects the tony digs will house customer service agents.

But that isn’t enough for “Monsieur Altice.” In Cologny, a chic suburb of Geneva, Drahi’s 3,000 meter property surrounded by high fences and expensive security set him back around $19 million. He already owned a 2,400 meter property on the same street, acquired in 2000 for the modest sum of $7.4 million (he put the house in his wife’s name). Sixteen years later, it was time for an upgrade as a dozen construction trucks arrived to begin a major renovation.

Dexter Goei, CEO of Altice, bought this property in Collonge-Bellerive, in the village of Vésenaz, close to Geneva. The Swiss magazine Bilan estimates Goei is worth $275-370 million and growing.

Dexter Goei, CEO of Altice, bought this property in Collonge-Bellerive, in the village of Vésenaz, close to Geneva. The Swiss magazine Bilan estimates Goei is worth $275-370 million and growing. (Image: Capital.fr)

But wait, there is more. Drahi also invested 15 million euros for a 4,400 meter plot of land on which he’s building two villas with 700 meters of space each. On Jan. 15, also in Cologny, Drahi acquired another property via Canef worth an estimated $14 million.

Back in France, some customers were incensed to learn Drahi’s property shopping spree includes an advantageous tax package courtesy of the Swiss government, which bends over backwards hoping to attract the foreign super rich. Critics complain the Swiss effort to attract billionaires comes with premise a spare million or two might drop from their pockets onto the streets of Geneva and other major Swiss cities. Alas, Drahi has kept his money for himself. Altogether, Capital found over $110 million of Drahi’s money was invested in Swiss luxury properties.

Not to be left out of the Money Party, some Altice executives have moved money into Swiss real estate as well:

  • At Collonge-Bellerive, another upscale suburb of Geneva, Jeremiah Bonnin, the Secretary General of Altice, spent around $14 million on a 3,000 meter property;
  • Five minutes down the road is the $7.7 million estate of Altice CEO Dexter Goei.

Even former executives don’t leave the company empty-handed. Eric Denoyer, former director general of SFR-Numéricable for just one year, walked away with €2 million golden parachute, a €400,000 salary, and a gift of 1.2 million shares of the company.

CWA, New York City to Altice: ‘Thanks, But No Thanks’ on Cablevision Buyout

altice debtThe Communications Workers of America has told the New York Public Service Commission it should reject Altice’s proposal to buy Cablevision for more than $17 billion, claiming it’s a bad deal for customers and employees alike.

Citing Altice’s massive debt and the company’s documented history of cutting expenses and investment, Dennis Trainor, vice president for the CWA-District One, said approving the deal would load Cablevision down in debt, making any significant investments in Cablevision’s future doubtful.

“This is a bad deal for Cablevision customers and employees,” Trainor said. “Altice overpaid for Cablevision, and is financing that overpayment by loading Cablevision with debt. That will inevitably lead to worse service for customers.”

The CWA also heavily criticized Altice and Cablevision for stalling sharing documentation with the labor union as ordered by a New York Administrative Law Judge. It filed initial comments opposing the transaction with the PSC under protest.

Optimum-Branding-Spot-New-Logo“As late as the morning of Feb. 5, [the Joint Applicants] have continued their grudging and incomplete disgorgement of relevant and probative material to which CWA is entitled,” the CWA wrote. “CWA now possesses documents and data which are contradictory and require reconciliation.”

The CWA considers the deal good for Altice and Cablevision’s owners and investors, but a raw one for customers.

“For example, Cablevision’s top five executives will have almost $160 million in ‘golden parachute’ compensation available to them under certain circumstances if the transaction is approved, of which almost $100 million will become automatically triggered and payable upon consummation of the merger,” the CWA stated. “In sum, after the transaction closes, Cablevision will be the same company, with the same plant and equipment, but with substantially more debt and relatively little cash on hand,” the CWA concluded.

The CWA also cited Stop the Cap!’s own reporting of the consequences of increasing debt and reduced investment at SFR, an Altice-owned telecommunications provider in France:

“We refer the Commission to publicly available reports of a collapse of service quality for customers of SFR, one of France’s largest telecom service providers, owned by Altice. This has caused a doubling of complaints from wired customers between 2014 and 2015 and a corresponding increase in complaints about wireless service of 50%. Altice had two responses: First, it blamed the company it purchased SFR from ‘we pay the price of underinvestment from the previous [owner]’. Second, it disputes whether the level of complaint is unacceptable ‘For now, we are not very good, but we are not bad.'”

cwa_logoNew York City’s Office of the Public Advocate is no fan either. In its filing, the OPA also cited Altice’s enormous debt load, which has increased dramatically over the last four years.

“[Altice CEO Patrick] Drahi has already driven away customers and alienated employees in France since his acquisition [of SFR],” writes the OPA. “In SFR’s case, Altice eliminated costs to boost SFR’s profit margins. Among Altice’s practices with SFR were: efforts to stall payments for suppliers, initiating salary and job cuts, and a reduction in spending on meaningful service upgrades.”

The OPA also cites reporting by Stop the Cap! documenting how SFR performed after being acquired by Altice.

Leticia James, Public Advocate for the City of New York

Leticia James, Public Advocate for the City of New York

“We know, for example, SFR was forced to completely stop paying suppliers in order to force a renegotiation for cheaper supplies,” writes the OPA. “The French government appointed a mediator to resolve the issues. Moreover, these business practices failed to effectuate Altice’s goals. Just four months ago, Altice reported ‘worse-than-expected’ third quarter results for SFR that drove the company’s shares down 10 percent. In fact, SFR lost one million customers in just one year. Investors correctly attribute customer losses to Altice’s aggressive cost-trimming. As one expert explains, ‘the savings came first immediately and now the churn (or customer defection) goes up.’ Another analyst describes Altice’s ‘dangerous’ actions as not only cutting out the fat, but also the meat and the bones.”

The PSC staff reviewing the transaction also expressed concern that Altice’s willingness to keep data caps at its other acquisition Suddenlink may result in similar data caps being implemented on Cablevision customers after the merger.

Especially notable to the PSC staff was the fact that under Suddenlink’s 1000/50Mbps data-capped plan, “if the connection is utilized at its rated speeds […] a customer could reach the data cap in less than two hours.”

“If Altice were to import Suddenlink’s pricing into Cablevision service territory and impose data caps on its existing plans, some customers would be forced to upgrade not for the increased speed, but for larger data caps,” the PSC staff wrote. “For example, customers on Cablevision’s low-end 5Mbps plan, if limited to a 250GB monthly cap, would technically be able to hit their cap after just five days of constant use. More practically, they would be limited to approximately 83 hours (a little less than three hours a day) of video streaming, if the connection were not used for anything else.”

“Simply put, the introduction of Suddenlink-type data caps in Cablevision’s New York service territory post-transaction would limit the ability of New York consumers to utilize their broadband connections at their own discretion, as they currently enjoy with Cablevision service today, and would lessen the ability of over-the-top voice and video providers to compete with Cablevision’s bundled services,” the PSC staff concluded. “The imposition of Suddenlink-type data caps would be a significant detriment to New York consumers, and should not be allowed as a condition of the transaction.”

Subscribers Furious Over Drahi-Ordered Cost Cuts at Altice/SFR; 2-Week Service Outages

THE FRENCH SLASHER: Patrick Drahi's cost-cutting methods have caused an uproar in France, leading to nearly two million customers to flee his companies for other providers.

THE FRENCH SLASHER: Patrick Drahi’s cost-cutting methods have caused an uproar in France, leading nearly two million customers to flee his telecom companies for other providers.

Even as Patrick Drahi’s Altice promises state regulators expensive upgrades and better service for Cablevision subscribers in return for permission to buy the cable operator, complaints from Altice customers in France are now achieving an unprecedented high, with French media reports implicating Drahi’s demands for severe cost cutting in disastrous consequences for customers that face service outages that can last weeks.

SFR, one of France’s largest telecom service providers, has been the subject of ongoing media attention across France as customers continue to complain about promised network improvements that have ground to a halt, deteriorating infrastructure and service outages, poor customer service, and what French telecom experts claim is a clear case of cost-cutting being given precedence over good service.

Rarely has a company executive charged with putting a company’s case to the media and the public had a more difficult time explaining away the thousands of complaints that media outlets receive when they ask readers and viewers to comment about Altice-owned companies.

Salvatore Tuttolomondo, a regional director of relations for SFR, could only muster, “For now, we are not very good, but we are not bad,” in defense.

The French Association of Telecom Users (AFUTT) reports complaints about what is now one of the worst-performing telecom providers in France have exploded. SFR has seen a doubling of complaints from its wired customers between 2014 and 2015 and complaints about wireless service are also up by 50%.

“Even Free.fr and MVNOs do better,” says Denis Leboeuf, from the AFUTT.

For many French consumers, Altice teaches the lesson of bewaring promises of vast service improvements from an executive with a well-known demand to cut costs to the bone.

Capital reports the reason for SFR’s troubles is easy to identify.

sfr-abonne-s_small

Subscriber Numbers Falling…

“To restore margins, the operator has sacrificed the quality of its network and its customer service,” the magazine reports.

Capital lays out an indictment of Drahi’s way of doing business, one that has occasionally left his customers in peril when they were unable to summon emergency assistance over failing telephone lines or ruined one town’s tourist season when service problems made it difficult to impossible for visitors to register for events and arrange bookings.

It was never supposed to happen this way. On April 7, 2014, a triumphant Patrick Drahi announced his company Altice trumped rivals like Bouygues Telecom to acquire SFR from French conglomerate Vivendi for about $17 billion dollars. The first thing Mr. Drahi promised was to invest heavily in SFR to improve network quality and cut unnecessary costs. Those promises are now familiar to Cablevision subscribers as regulators in New York, Connecticut, and New Jersey contemplate approving the sale of the cable company to Altice.

Much of France is still waiting for those promised upgrades. SFR’s DSL equipment is ‘downright lousy,’ delivering dead last performance among French telecom operators. SFR wireless data is no prize either, with customers howling complaints about slow to unresponsive service. Even texting over SFR’s network is dreadful, reports La Voix du Nord: “Carrier pigeons are faster,” it reported. Widespread complaints of texting failures lasting hours are legion. Customers know when service is restored when the dozens of unanswered texts they didn’t receive during the business day suddenly arrive in the middle of the night.

...While complaints are rising.

…While complaints are rising.

One nurse discovered her best bet is to go and stand near her toilet, where cell reception is just good enough to roam on a cell network operating across the border in Belgium. Other customers have to go outside to find a signal, because many of SFR’s cell towers are often affected by service interruptions which can last weeks.

Several French cities were the unlucky recipients of SFR service outages in December. Parts of Pas-de-Calais had the displeasure of being “cut off from the world” by a complete service outage lasting 15 days. French businesses sent employees to coffee shops and other venues during the business day with their cell phones to find a wireless signal to conduct business for more than two weeks.

La Voix du Nord confirmed one subscriber’s account that The Grand Wireless Failure of 2015 in Desvres came as a result of an antenna that fell into disrepair. The problem was identified in the first week of December, but an employee-engineer brusquely admitted “maintenance [to restore service] will not take place before Wednesday, Dec. 16” — at least two weeks later. Whether the repair could be completed quickly or not made no difference. Cost controls at SFR controlled the calendar.

French telecom watchdog ARCEP has learned to take Altice’s promises and commitments with a grain of salt. It suggested the “gap between promises and reality” had grown into a chasm over SFR’s appallingly awful 3G service. Altice replied it was “undertaking a major renovation program of its mobile network that is not without impact on service quality, but it is an investment for the next 15 years.”

Waiting on hold

Waiting on hold

More than a few customers wonder if that means it will take 15 years to get reasonable service. More than 1.6 million so far have decided not to wait and find out.

Laurence joined the exodus of customers canceling service this month. Many customers leave angry, such as the parade of residents from the “digital eco-district” of Issy-les-Moulineaux who are “exasperated by repeated failures” of SFR’s wired broadband and television service equipment. Of the 40 days Laurence was a customer, he lacked Internet service for 17 of them.

Altice officials call the horror stories anecdotal and note they have millions of happy customers. But La Voix du Nord isn’t so certain that is true either. (They are also an SFR customer suffering service problems.) Since Drahi took over as the new owner, the newspaper surveyed its readers starting in March 2015 for their thoughts about Altice-owned SFR. In less than 24 hours, their Facebook page melted down with 3,760 mostly critical responses. Orange, the cell phone company the French usually love to hate, skated by with ten times fewer complaints than SFR. Altice officials promised things were about to get much better in response.

Slightly.

Heading for the exit

Heading for the exit

Last fall, the newspaper repeated the survey and 2,700 comments and replies arrived, again overwhelmingly negative. More than 100 customers were so angry, they wanted to share details of their service tragedies in private messages. The reader service representative eventually had to ask people to stop, saying she had at least 100 more unread in her inbox.

Customers were promised upgrades before. Thomas Detrain of Nœux-les-Mines received word he should expect one disruption lasting three weeks back in November 2014. Since that time, the outages keep on coming and SFR has offered him one time compensation of approximately $44 on one bill amounting to about $52. SFR now expects to be paid in full, whether the service is working or not.

Charlotte Dabrowski of Bourbourg has had her problems with service quality, too. But at least she has some service. “What makes me the most pissed off is that I was told: ‘You’re lucky, you are on the right side of our antenna.’ Was this supposed to be funny?”

Tuttolomondo

Tuttolomondo: You can’t trust our customers.

SFR has resolved to either downplay its legendary bad press or blame someone else for all the troubles.

Tuttolomondo attempts the former, dismissing the thousands of Facebook complaints the newspaper had received.

“You have how many comments from dissatisfied customers, 2,000?,” Tuttolomondo asked. “We have about 500,000 customers in the region, so this is less than 0.5%.”

When asked if SFR would automatically compensate customers for its significant service outages, Tuttolomondo implied his customers would take advantage of him if he tried.

“It’s case by case,” said Tuttolomondo. “I’m not going to promise a general compensation, otherwise even customers who do not have to worry will ask me for money. But our customer service is really alert. You think it makes me happy to have unhappy customers? We’ll never get 100% satisfied.”

Tuttolomondo also seemed exasperated with his own customers, implying the company’s poorly rated 4G service “sometimes comes from incompatible phones” owned by customers who didn’t know better.

SFR's customer service call center... in Tunisia.

SFR’s customer service call center… in Tunisia.

Tuttolomondo’s line matches that of SFR’s customer service representatives, now relocated to call centers sprinkled across the exotic North African desert lands of the Maghreb, where workers with passable French language skills are willing to work cheap. But not cheap enough. Recently Drahi has been looking for an even better deal from subcontractors in Portugal, Mauritius and Madagascar. Customers lament it will probably be difficult to get a call center employee living with a few hours of electricity a day and no telephone service at home to comprehend why SFR’s fiber to the home service is not meeting its broadband speed objectives.

Drahi yes-man Jerome Yomtov, the Deputy Secretary General of SFR, decided it would be more productive to blame someone else for everything — Vivendi, the former owner, in particular.

“For our 3G and 4G networks, we pay the price of under-investment from the previous [owner],” explains Yomtov. He added the sale disrupted upgrades for two years. SFR had reduced its investments by 10% after it knew it was going to be put up for sale. But Capital reports after Drahi arrived, investments froze almost completely, which caused ever-increasing delays for network repairs and upgrades to keep up with traffic demands, not to mention commissioning new cell sites to improve coverage.

The reason for the delay was a Drahi-inspired Lord of the Flies-style bidding war among vendors and subcontractors.

It was either this...

Altice Cost Cutters: It was either this…

“The new management has replaced our usual subcontractor bidding process with that used by Numericable [another Drahi-owned company],” a network technician tells Capital. The result was endlessly repeated bidding rounds as subcontractors tried to undercut each other to win Drahi’s business. The technician reports Drahi allowed the bidding to run up to four months, resulting in one of the last rounds to scrape together a bid offering savings of just 5,000 Euros (just over $5,000) over a previous round.

“Drahi wanted to see how far they would be willing to come down,” the technician said. “The standoff would have [eventually] enabled SFR to save 10-15% of its infrastructure costs.” In the end, the priority given to cost-savings (at the cost of deteriorating service) caused a stagnancy of upgrades lasting almost nine months, claimed one project manager.

ARCEP revealed that SFR now has France’s smallest high-speed 4G network, with only 39% of the population covered. SFR officially claims 65% coverage, but that difference comes largely from coverage rented from competing Bouygues Telecom. Over the first 11 months of 2015, Altice’s subsidiary has managed to launch only 962 new antennas, three times less than the notoriously cheap Free.fr.

More stories of Altice’s so-called “Cost-Killing Madmen” — the company’s bean counters sent in after Drahi closes on a deal — have also since emerged. Employees tell the French press their cost-cutting schemes are bizarre and ruthless. Employees in one office were suddenly given orders to discard the office’s plants strategically placed to help improve the working environment.

“They told us it’s that or the toilet paper,” sighed the employee. Many thought the cost-cutters were joking at first, until they remained stone-faced during the nervous laughter shared by employees.

...or this

…or this

At the headquarters of La Plaine Saint-Denis, visitors may notice things are looking a little worse for wear in the office. That may be because the carpet is no longer cleaned weekly. The bean counters think once every two weeks is enough. But the toughest conditions are now probably experienced by the janitorial staff, who have been ordered to clean and maintain 46 office restrooms and given only three hours each work cycle to complete the task. At least 700 workers in Lyon were denied doctor visits for several days when the cost-cutters decided medical expenses were too high. It took the Works Council a few angry moments with company executives to rescind that budget cut.

Despite the plight of the workers, Drahi has some headaches of his own. He is hard at work conquering the most exclusive neighborhood in Geneva, Switzerland. Drahi, who boasts about his cost cutting and his ability to pay minimal wages, has splurged on two enormous villas in the commune of Cologny. His deputies and financial partners are not far away, having spent small fortunes on expensive housing in Vésenaz and Prangins. Now one of Drahi’s protegés, Jean-Luc Berrebi, member of the board and chief financial officer at Altice-owned Israeli telecom company HOT, has strategically moved himself right next door to Drahi, spending nearly $28 million dollars to buy Drahi’s second villa just 100 meters away. At the same time Drahi was closing on that deal, ordinary Israelis are shelling out considerably more for service from HOT, after the company announced sweeping rate hikes.

Exempt from cost-cutting, one of two of Drahi's villa in Switzerland, recently sold to a protege for about $28 million. Drahi still lives next door.

Exempt from cost-cutting: One of two Drahi villas in Switzerland, recently sold to a protegé for about $28 million. Drahi still lives next door.

Investors initially seemed pleased to learn cost cutting and reduced investment helped SFR increase its margin 18% since the beginning of 2015, which has allowed the company to deliver some impressive results to shareholders, at least in the short-term. But that good news was tempered by the veritable stampede of customers fleeing SFR for better service from other providers. Many in the French media now question whether Drahi has not just damaged SFR’s service, but also permanently tainted the image of its brand.

Executives at Orange can sigh some relief watching the chaos unfold at SFR and Numericable. Customers that swore off Orange with protestations of “never again,” are now increasingly calling the perennial bad boy of wireless “the lesser evil.”

New York City Questions Public Interest of Altice Buyout of Cablevision; Suddenlink Workers Worry

altice debtNew York City officials are questioning the promised benefits of allowing Patrick Drahi’s Altice to acquire Cablevision in an all-cash deal that would combine ownership of Suddenlink and Cablevision under the European-based cable conglomerate.

Mayor Bill de Blasio’s chief legal counsel told the Wall Street Journal she is skeptical about Altice’s proposed $900 million in cost cutting at Cablevision leading to better service.

“Altice is talking about $900 million in synergies. Well, what’s getting cut? How’s that going to impact the economy of New York and quality of services?” asked Maya Wiley. “We certainly are not afraid to disapprove a transaction.”

Altice’s Public Interest Statement, outlining the public benefits of the acquisition, was perceived as long on rhetoric but woefully short on specifics. Altice officials made vague promises to expand fiber optics across Cablevision’s footprint in return for approval of the transaction, but stopped short of committing to offer fiber to the home service.

Stop the Cap!’s Special Report, reviewing the proposed acquisition of Cablevision, attracted the interest of investors on Wall Street as well as several New York City public officials we spoke with about the proposed buyout.

City Hall of New York (Photo: Will Steacy)

City Hall of New York (Photo: Will Steacy)

On our recommendation, New York officials reviewed French press coverage of Altice and its colorful CEO Patrick Drahi. Dozens of articles have covered Drahi’s controversial business practices over the years, including efforts to stall payments for suppliers, initiating salary and job cuts, and a reduction in spending on meaningful service upgrades. His French operation SFR-Numericable lost one million customers in just one year. Earlier this year, he promised increased investment to turn those subscriber numbers around.

Wall Street is also increasingly skeptical about Drahi’s American business plans.

Cablevision’s stock price has dropped well below Altice’s all-cash offer of $34.90 a share, telegraphing concern the deal will not escape regulator scrutiny and ultimately will not close.

“The spread has widened in large part because people have become increasingly concerned that neither the city nor the state will find that the transaction is in the public interest, or alternatively, they’ll demand so much in terms of givebacks that ultimately the deal won’t be palatable to Altice,” Craig Moffett, analyst at MoffettNathanson LLC, told the Journal. “Altice dramatically overpaid, and their attempts to cut costs are both overly ambitious and are potentially injurious to what we already expected to be very weak operating results.”

Optimum-Branding-Spot-New-LogoIf Drahi wins approval to take over Cablevision, Altice is likely to curtail promotional spending at the cable company. The cable operator competes head-to-head with Verizon FiOS across much of its downstate New York, New Jersey and Connecticut service areas. That will likely lead to higher prices and fewer deals for consumers as price competition cools down.

The deal remains under review by the New York Public Service Commission and the FCC. Decisions from both are not expected until next spring.

On Monday, Altice closed its acquisition deal for Suddenlink, a cable operator serving states with more forgiving and business-friendly regulators.

As expected, Altice immediately named an executive team that will oversee significant cost cutting and reorganization at the cable operator that serves mostly rural and small city customers.

Two Suddenlink employees reached out to Stop the Cap! on Tuesday to tell us morale was dropping among middle managers at the cable operator.

SuddenlinkLogo“Most of our employees have little idea who Patrick Drahi or Altice is and they are not aware of the business reviews we’ve been told are coming after the holidays,” said one West Virginia based middle manager. “Some of my colleagues in customer care are updating their resumes this week and I’ve also heard concerns from technicians and IT workers. Some want to jump out early to secure new jobs before expected job cuts cause a small flood of resumes all over the state.”

“It’s a worrisome Christmas because we are not sure how many will be let go,” writes a Suddenlink mid-level IT manager working in Texas. “Salaries at Suddenlink have never been high but a lot of us prefer to work in our hometown and not move to Dallas or Houston to work for companies like Time Warner Cable or AT&T. It’s also a more relaxed work environment, but now there is a lot of concern what the new management will be doing.”

Goei

Goei

Chairman and CEO Jerry Kent announced he will be leaving Suddenlink in those roles but has agreed to chair a new advisory council at Altice USA, the subsidiary established to manage Altice’s American cable assets.

Head chopper Michel Combes, the new chief operating officer of Altice NV, is expected to coordinate U.S. operations. Combes brings his reputation for ruthless cost-cutting from his last job — CEO of Alcatel-Lucent. In an effort to boost profitability and cut costs, Combes presided over 10,000 job cuts and a salary freeze (except for himself and select others) at the company better known as the former Bell Labs. Two years after wielding the hatchet, Combes engineered a sale of the company to Nokia and secured a large golden parachute package for himself. The optics of Combes’ overseeing salary freezes and job cuts while later lobbying for a retirement package focusing on his own personal enrichment caused a political furor in France.

The new management of Suddenlink has limited experience in cable but plenty of experience working at Wall Street banks.

The chairman of Altice USA is Dexter Goei, who joined Altice in 2009 after a career in investment banking at JP Morgan and Morgan Stanley that spanned 15 years. Charles F. Stuart, also a former investment banker at Morgan Stanley, will become co-president and chief financial officer. Abdelhakim Boubazine, former CEO of Altice’s operations in the Dominican Republic, will also serve as co-president and chief operating officer. His LinkedIn profile mentions his involvement in telecommunications began in 2013. His educational background strongly emphasizes fossil fuel engineering.

Patrick Drahi’s “Public Interest” Flim-Flam: CWA Opposes Altice-Cablevision Merger

3634flimThe Communications Workers of America today filed comments with the Federal Communications Commission opposing the proposed sale of Cablevision to Patrick Drahi’s Altice NV, arguing the claimed public interest benefits are illusory.

The CWA, which represents some of Cablevision’s workers in Brooklyn, took a hard look at Altice’s merger proposal and the $8.6 billion in debt Altice will take on to close the deal and called it dangerous, resulting in “considerable harm with no offsetting concrete, verifiable benefits for consumers, workers, and communities.”

“Altice’s track record in France and Portugal clearly shows the danger this deal poses to Cablevision’s customers and employees,” said Dennis Trainor, vice president of Communications Workers of America District 1. “Altice takes on too much debt, outsources as much work as possible and then downsizes its workforce. Customers get worse service and employees lose their job. Unless Altice makes commitments to protect customer service and Cablevision employees, the FCC should reject this deal.”

The CWA is also concerned about the disparity between what Altice is telling regulators and what the company is saying to Wall Street.

Altice’s Public Interest Statement, which outlines the benefits to the public of the proposed transaction, stands out for its lack of specificity. In fact, the application’s only concrete commitments are vague promises to bring Altice’s “expertise” and access to capital for Cablevision’s use. Altice also promises to upgrade Cablevision’s IT systems, including customer care, service, and billing systems, and alluded it would expand Cablevision’s fiber optics deeper into its network, but comes short of promising a direct fiber to the home connection. In fact, the only promised benefit of pushing fiber further out would be “the removal or reduction from the network of coaxial RF amplifiers, which consume substantial electricity and can be the cause of difficult-to-detect service outages (RF amplifier failures).”

“Deeper fiber deployment would enable Cablevision to reduce its power costs and to further improve network reliability, resulting, in turn, in a greater ability to invest further in the network and improved service delivery to subscribers,” Altice dubiously claimed.

cwa_logoMany of Altice’s claims appeared “disingenuous and misleading” to the CWA. From the CWA’s filing:

To finance its $17.7 billion acquisition of Cablevision, Altice is taking on $8.6 billion in new debt, which when added to Cablevision’s already heavy debt load of $5.9 billion, will leave the new Cablevision with a total net debt of $14.5 billion.  Given the high cost of the new debt financing, the annual interest payments needed to finance the $8.6 billion in new debt amount to $654 million on top of Cablevision’s current interest payments of $559 million for a total of $1.2 billion in annual interest payments at the new Cablevision, representing a full 112 percent increase in Cablevision debt. The new interest payment ($654 million) plus Altice’s announced $ 1.05 billion in cuts means that the new Cablevision will have $1.7 billion less cash available to spend on the network and service.

“Altice’s business model, the one that it has used to fuel its explosive global growth, requires the acquired company – in this instance, Cablevision — to finance its own acquisition and to provide cash to the parent for future acquisitions,” the CWA argues. “Altice chief financial officer Dennis Okhuijsen explained the capital structure of post-transaction Cablevision: ‘[W]e’re not going to lever up the existing business. This is a stand-alone capital structure, so we’re levering up the target for Cablevision….’”

altice debtTranslation: Cablevision alone is responsible for the debt Altice raised to pay for Cablevision. Or, as Altice explained to investors in its third quarter 2015 earnings report, the parent company operates its various subsidiaries as “distinct credit silos in Europe and the U.S.”

Altice CEO Patrick Drahi’s business formula is always the same. To raise money to help offset the mountain of debt dumped on the acquired company, Altice’s designated managers helicopter in to the acquired company to begin slashing expenses and find money it can send to Altice headquarters to help fill its coffers to acquire even more companies. French telecom giant Numericable-SFR, while on the road to losing one million customers in just one year, was preoccupied borrowing nearly $2 billion, not to improve the company’s service, but rather to pay Altice a special dividend to help pay down the huge amount of debt Altice incurred when it bought the 60 percent stake in the French mobile and cable company it did not already own.

To keep Altice afloat, Drahi’s business strategy requires a steady supply of company acquisitions to deliver the increased cash flows Altice needs to finance its debt. The CWA warned regulators Altice may require Cablevision to spend its cash flow to help Drahi acquire other companies in the future, further reducing the amount of money Cablevision needs to attract and keep subscribers.

To make the deal a long term success, Altice-Cablevision will either have to cut its return to shareholders, raise its prices, and/or slash expenses and jobs. Past experience with Altice shows shareholders come first, which means company management will likely preside over a harvest of Cablevision’s assets to meet the expectations of Wall Street banks and investors. Customers will feel the cuts from the reduction in service and slowed investments and upgrades.

At the same time Altice was promising the FCC it would continue Cablevision’s “first in class” level of service, the company was telling Wall Street it was planning cuts to the bone. Among Altice’s already-proposed cuts for Cablevision:

  • Capital expense: $150 million cut
  • Network and Operations: $ 315 million cut
  • Customer operations: $135 million cut
  • Sales and marketing: $45 million cut
  • Eliminate duplicative functions and “public company” costs: $135 million cut
  • Other unspecified cuts: $135 million cuts.

dilbert-budget-cuts

The impact of these cuts shift costs onto others, argues the CWA, including making the acquired firm pay for its own demise, making the workforce pay through job loss and reduced compensation, making customers pay through deteriorating service, and making suppliers become Drahi’s bankers by delaying payments.

The CWA says customers will also pay for the privilege of getting declining service.

“In Israel, the cable provider Hot Telecommunications has raised prices multiple times since it was bought by Altice, including a cable rate increase of 20 percent in 2014 and the attempt to raise prices again this year,” the CWA argues. “The top Israeli cable regulator called the price hike ‘greed for its own sake’ which was not justified based on the company’s profit margins.”

In the United States, nobody oversees cable pricing.

“In summary, the experience in France, Portugal, Israel, and elsewhere provides concrete evidence that the Altice business model – one that it plans to replicate with its Cablevision acquisition – does not serve the public interest,” concludes the CWA. “Making an acquired company pay off massive debt load with service-impacting cost cutting has serious and negative consequences for customers, suppliers, communities, and workers. The lesson from France is clear: cutting to the bone leads to massive customer defection. It is not a business model that will benefit the people of New York, Connecticut, and New Jersey.”

Altice Attempts to Win Over N.Y. Regulators With Promise of Cablevision Fiber Upgrades

atice-cablevisionPatrick Drahi is hoping New York regulators will look more favorably on his proposal to buy Cablevision with a promise to upgrade more than three million of its customers in New York City to fiber-to-the-home service.

The New York Post reports Altice representatives have held private talks with the N.Y. Public Service Commission and the New York City Department of Information Technology, which regulates telecom services in the Big Apple, about fiber optic upgrades.

With news Drahi has proposed major salary and job cuts at Cablevision as part of an effort to wring $900 million in cost savings annually from the Bethpage, Long Island-based cable company, regulators are likely to express concern about the merger and its impact on customers. Promising a fiber upgrade appears to be a calculated effort to win those regulators over, reports the Post.

Altice is capitalizing on the recent negative publicity Verizon has received for failing to meet its obligation to deliver its FiOS service to any New Yorker that requests it. Cablevision is likely to face fewer hurdles performing fiber upgrades, because the company only serves New York City customers in Bronx and parts of Brooklyn, and already operates a hybrid fiber-coax network. Cablevision would only need to replace the last mile of coaxial cable between its fiber connection points and the customer. Verizon has to replace decades-old copper phone wiring in conduits often left in disrepair.

While promising to do better than Verizon, a closer look at Altice’s largest market – France, suggests Drahi’s company isn’t meeting customer expectations either.

Altice’s French operations have lost at least one million customers so far this year, mostly as a result of severe cost cutting. The company’s promise to upgrade 3.1 million New Yorkers to fiber service will likely draw scrutiny in France. Despite similar promises of fiber upgrades to its French customers, Altice admitted in April it has so far only managed to deliver fiber to the home service to fewer than 200,000 of its own SFR customers. At least 5.2 million others are still waiting, still relying on the company’s lower performing DSL service.¹

Union organizers are attempting to step up recruitment efforts at Cablevision in advance of an Altice takeover. The Cablevision99 Facebook page, run by the Communications Workers of America, has been warning Cablevision employees their job security and compensation may be at risk if the company is sold to Altice.

¹ page 21

Cablevision’s Next Owner Drove Away One Million Customers in Europe; Profits Come First

The French press continues to ridicule Patrick Drahi's debt-laden acquisitions as "Altice in Wonderland." (Cartoon: Les Echos)

The French press continues to ridicule Patrick Drahi’s debt-laden acquisitions as “Altice in Wonderland.” (Cartoon: Les Echos)

The next owner of Cablevision and Suddenlink put profits ahead of people and managed to drive away more than one million of his own customers in Europe within a year of a massive cost-cutting operation that led to service degradation and noncompetitive prices.

Patrick Drahi’s Altice NV has similar plans in store for both American cable companies if he manages to win regulator approval of the acquisitions.

The Wall Street Journal reports Altice was willing to sacrifice market share if it meant the company could extract cost-savings and higher profits that Drahi could use to help pay off some of his acquisition loans.

Some Wall Street analysts were initially excited to hear Drahi would slash salaries, knock union heads, and eviscerate at least $900 million in costs annually from Cablevision, results likely to boost Cablevision’s share price and fatten investor returns.

The cost-cutting formula is always the same in an Altice takeover. Special teams arrive from Europe within days of a deal closing with strict instructions to cut employees, reduce the salaries of those remaining, and brutally cut costs out of the business. Drahi is famous in Europe for stopping payment on checks to suppliers, leaving them unpaid until they agreed to offer his company discounts up to 40%. Employees also share stories of having to pay for office supplies out-of-pocket and in at least one case, staffed a wireless store that carried no phones in inventory because Drahi stiffed his supplier.

Drahi

Drahi

The bad news for Wall Street? Customers of Drahi’s cable and wireless companies are fleeing in droves. At least 1.1 million of Altice’s French customers have taken their business elsewhere, fed up with deteriorating service and uncompetitive prices.

One manager lamented that as Altice-owned Numericable-SFR’s wireless network deteriorated to the point of regularly dropping calls, Drahi borrowed nearly $2 billion he set aside in preparation for further acquisitions.

“Debt is Drahi’s drug,” commented French news site LeJDD.

Drahi leverages his buyouts with loans covering up to 80% of the purchase price. Eerily similar to toxic sub-prime mortgage debt, investment banks consider holding too much of Drahi’s debt potentially poisonous, so they routinely repackage it with other loans and resell it to other financial institutions and unknown investors. That has some in the French government concerned Drahi is building the world’s first “too big to fail” telecom company, while leaving investors in the dark about the risks of holding his loans.

The lessons learned watching Drahi manage one of France’s largest wireless operators may concern U.S. regulators contemplating Drahi’s buyout offers of Cablevision and Suddenlink.

numericable_sfr_logoIn the first quarter under Drahi, SFR boosted margins by 21% based on ruthless cost cutting. But a stunning 445,000 customers quickly left the operator. Critics contend Drahi’s cost cutting does temporarily boost profits, but also allows network quality to degrade, eventually alienating customers who leave. Drahi then uses SFR’s smaller customer base as an excuse for further cost-cutting. Between 2006-2011, Drahi eliminated half of the wireless provider’s workforce and outsourced much of his call center customer support operations.

Those still working at Altice companies after the cost-cutters depart are left in a state of siege.

Optimum-Branding-Spot-New-Logo“He’s a beast,” one employee told LeJDD in a piece that compared working for SFR with being in hell. All expenses are scrutinized, company-paid travel is canceled, team exercises and company meals are dropped, and for vendors and suppliers things are even worse. All projects are frozen and all outstanding invoice payments are stopped, reviewed one-by-one. Drahi’s goal is to find 600 million euros annually in savings to repay the €13 billion he borrowed to acquire SFR in 2014.

Employees, even those represented by France’s powerful trade unions, are scared into silence, reports LeJDD.

“Be happy you have a job,” is the standard response one trade unionist routinely receives from what is left of SFR’s management. Drahi doesn’t spare management below him either. Within weeks of Altice’s takeover, the flown-in French cost cutters immediately terminated 55 of the 70 SFR managers earning more than 150,000 euros per year. At least 100 middle managers were also quickly shown the door. IT and networking positions are also deemed ‘bloated’ and a reorganization quickly whittled employees down to a token force. The marketing department? Abandoned. Also dismantled was SFR’s team of innovators, working on next generation network upgrades and technology.

SuddenlinkLogoCall centers that handle customer service requests were “on the verge of suffocation,” reported LeJDD. One small call center operator had to send his attorney to SFR’s offices to threaten them over an outstanding bill of one million euros. Drahi demanded an immediate 35% discount if the attorney wanted to leave with a check in hand.

Cable customers share their own anecdotal stories, including one forced to acquire and supply his own cable to complete an installation because the technician had run out. Another reported a tardy cable installer humbly apologized, claiming he was forced to pay out-of-pocket for fuel to get his stalled cable truck back on the road again.

The horror stories from Europe are making an impact in New York’s financial markets, along with Altice’s improbable formula of profiting from alienating customers. After 18 months of unbridled growth and 47 billion euros in loans to finance multiple acquisitions, Wall Street is getting worried. Altice has lost 50% of its value in just six months and Moody’s has now rated Altice’s debt as “highly speculative,” the last step on the basement stairs right before “default.”

“Drahi carries too much debt,” said the head of a French investment fund. “He and his team have lost all sense of reality.”

competitionLeJDD put it more colorfully: “The ogre was too greedy.”

To placate investors, Drahi is planning to slow future acquisitions, something he may not have had much say in. Bankers forced Drahi to accept considerably higher interest rates to finance his American cable company buyouts.

Numericable-SFR’s long-dead marketing department is also being revived, offering discounts and marketing the service more aggressively to stem customer defections. But the company’s increasingly poor reputation is making that a hard sell in Europe, where fierce competition among multiple providers has fueled a long-lasting price war.

Altice officials point to the fact their severe cost-cutting strategy may have faced greater challenges in Europe, where competition is always a speed bump to high profits. But company officials privately stress their ‘profits first’ formula stands a better chance of success in America, where customers don’t have a lot of choice. Competition is less risky for Suddenlink than it is for Cablevision. Altice promises to wring $215 million annually in savings out of the largely rural and small city provider Suddenlink. But Altice’s estimate of $900 million in savings from Cablevision, which faces formidable competition from Verizon FiOS, seems much less realistic, according to Wall Street analysts.

MoffettNathanson analyst Craig Moffett said Altice was taking cuts to an extreme.

“You’re talking about huge cuts to customer service levels to installation and maintenance costs to marketing and promotions,” Moffett told Reuters. “You can’t expect to be able to make dramatic cuts… without having an impact on the business.”

New York Attorney General Launches Investigation Into Broadband Speeds and Performance

Schneiderman

Schneiderman

(Reuters) – New York state’s attorney general is probing whether three major Internet providers could be shortchanging consumers by charging them for faster broadband speeds and failing to deliver the speeds being advertised, according to documents seen by Reuters.

The letters, sent on Friday to executives at Verizon Communications, Cablevision Systems, and Time Warner Cable ask each company to provide copies of all disclosures they have made to customers, as well as copies of any testing they may have done of their Internet speeds.

“New Yorkers deserve the Internet speeds they pay for. But, it turns out, many of us may be paying for one thing, and getting another,” Attorney General Eric Schneiderman said in a statement.

In statements, spokesmen for the three companies expressed confidence in the speeds of their Internet services.

“We’re confident that we provide our customers the speeds and services we promise them and look forward to working with the AG to resolve this matter,” Time Warner Cable spokesman Bobby Amirshahi said.

Cablevision spokesman Charlie Schueler said the company’s Optimum Online service “consistently surpasses advertised broadband speeds, including in FCC (Federal Communications Commission) and internal tests. We are happy to provide any necessary performance information to the Attorney General as we do to our customers.”

A Verizon spokesman said the company would cooperate with Schneiderman’s office. “Verizon is confident in the robust and reliable Internet speeds it delivers to subscribers,” the spokesman said.

BroadbandMap_rev1The attorney general’s investigation is particularly focused on so-called interconnection arrangements, or contractual deals that Internet service providers strike with other networks for the mutual exchange of data.

In the letters, Schneiderman’s office says it is concerned that customers paying a premium for higher speeds may be experiencing a disruption in their service due to technical problems and business disputes over interconnection agreements.

A 2014 study by the Measurement Lab Consortium, or M-Lab, found that customers’ Internet service tended to suffer at points where their broadband providers connected with long-haul Internet traffic carriers, including Cogent Communications Group.

“Internet service provider interconnection has a substantial impact on consumer Internet performance – sometimes a severely negative impact,” the study said, adding that business relationships rather than technical issues were often at the root of the problem.

A spokesman for the attorney general’s office said the 2014 study’s findings, coupled with consumer complaints and internal analysis, prompted the inquiry into Internet speeds.

Some of the letters also raise questions about speeds delivered by Time Warner Cable and Cablevision to consumers over “the last mile,” a term that refers to the point where a telecommunication chain reaches a retail consumer’s devices.

(Reporting by Sarah N. Lynch; Editing by Peter Cooney, Christian Plumb and Jonathan Oatis)

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