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Patrick “The Slasher” Drahi Maneuvers for Blitz Buyout of American Cable Companies

Drahi

Drahi

After failing in a surprise bid to acquire Time Warner Cable out from under Charter Communications, European cable magnate Patrick Drahi has spent much of this summer quietly working to make sure that never happens again.

The French press is buzzing over Drahi’s decision to move his corporate headquarters from the business friendly Grand Duchy of Luxembourg — nestled between Belgium, France, and Germany — north to the Netherlands. The move is mostly on paper — attorneys drafted the agreement that effectively transferred Altice SA to Drahi’s Dutch subsidiary Altice NV and shareholders approved.

Why move the company from one of Europe’s most business-friendly countries to Holland, a country with a long history of corporate oversight? It wasn’t for the stroopwafels.

The Netherlands is rare among most European countries because it allows corporations to set up “dual-class share structures.” That means nothing to 99% of Dutch citizens and the majority of our readers, but it means a lot if you are a billionaire running a hungry multi-national corporation using other people’s money to gain control of companies on your acquisition list.

Altice1With the move, Drahi can embark on a breathtaking acquisition spree without diluting the control he has over his growing cable empire. Going forward, Altice will apply different voting rights to various classes of stock offered to investors. Drahi now holds 58.5% of Altice stock. But his shares are special because they grant him 92% of the voting power. Other shareholders will find they are not entitled to an equal say in how the public company is run.

Altice admitted to regulators they designed the new share structure to give Mr. Drahi greater flexibility for financing and corporate transactions without threatening his control of the company. Altice called that “a value-enhancing strategy without diluting voting control.” This means Drahi can offer generous amounts of Altice stock to help fund future takeover deals without worrying that will reduce his control over the company.

If Drahi were to recklessly launch a spending spree of epic proportions to the consternation of shareholders, there will be little recourse and almost no chance of a shareholder revolt. But just to make sure, Drahi gets to pick six of Altice’s eight board members. He also won an agreement with board members who also hold shares in Altice granting him absolute and automatic support of all his proposals for 30 years. On top of that, he is entitled to “negative control” over the board, which means in any vote, he is allowed to cast a number of votes equal to all other board members.

vampireWith generous grants of authority like these passing muster, it’s no wonder executives of corporations around the world are urging consideration to move the corporate headquarters to the land of tulips and windmills. Fiat Chrysler already did, at the behest of Italy’s Agnelli family, which controls the Italian-American car company with a tight grip. Mylan, a producer of generic pharmaceutical drugs, managed to fend off Israeli rival Teva Pharmaceuticals, using Holland’s tolerance of executive-friendly poison pill maneuvers to keep unfriendly takeover artists away.

Now that the move to an Amsterdam post office box is complete, Drahi is in the process of rearming his war chest for another assault on the American mainland. The French newspaper l’Humanité warns it is more conniving from the “telecom vampire” that sucked the blood out of competitive cable in France. The newspaper cited deregulation and privatization to be great for billionaires like Drahi, but a bad deal for consumers.

Since the 1990s, telecom executives in Europe and North America have promised regulators a lot in return for deregulation and self-oversight. Allowing companies a free rein would stimulate competition and private investment to finance and construct next generation networks, they claimed.

But l’Humanité uncovered another motivation for telecom magnates like Drahi: to get filthy rich. The newspaper quotes one well-known anecdote about why Drahi got into the cable business — because after studying Forbes articles ranking the fortunes of the 1%, Drahi set his sights on the industry where there were the most billionaires – telecommunications.

moneyKeeping that newly privatized and deregulated wealth requires ruthlessness for others but protection for your allies and yourself. Drahi followed the teachings of American cable magnate John Malone (who is Charter Communications’ biggest shareholder today) and began a debt-fueled buying spree of independent cable systems, quickly followed by ruthless cost-cutting at the acquired companies, earning him the nickname “The Slasher,” among others less charitable. His critics say he has a lot of nerve, because in many instances Drahi billed the companies he acquired for consulting and management fees. BFM Business reports Drahi has only one bottom line when making up his mind: how much generated cash will come from the decision.

The real money would start rolling in at the height of the dot.com boom. Regulators accepted a bid by Drahi and two of his allies to create the fourth French telecom operator — a wireless venture known as Fortel. The three men promised to invest more than $3 billion building the network, an amount called “not credible” by some regulators and a number of industry leaders. But since the frequencies went to those who promised the most investment, Fortel won. Drahi was named president of the company.

Just before the dot.com bubble burst and Fortel seemed to be wavering, Drahi sold many of his interests to UPC, a European cable conglomerate owned by his mentor John Malone. In early 2001, the wireless project was scrapped and Fortel itself was sold for scrap, never to build the promised network. But by then, Drahi was working at UPC with Malone on a massive cable industry acquisition and consolidation strategy. During his career at UPC, Drahi was in charge of spending hundreds of millions of dollars to acquire French cable operators including: RCF, Time Warner Cable France, Rhone Cable Vision, and Videopole InterComm.

UPC declared bankruptcy in 2002.

UPC declared bankruptcy in 2002.

Malone’s company quickly became overextended and very deep in debt when they suddenly stopped paying creditors in the fall of 2002. But before that happened, Drahi once again had the good fortune to cash out of UPC before the roof collapsed, selling his own Médiaréseaux cable system to Malone’s company at full value just before UPC went bankrupt. The bankruptcy that followed didn’t hurt Malone much and Drahi not at all.

Unwilling to rescue UPC’s faltering operations before bankruptcy, Malone waited until after the cable company went Chapter 11, when 65% of its debt was erased in court proceedings in return for a $99.8 million fresh infusion of cash from UGC/Liberty Media — another Malone-controlled venture that suddenly emerged with a checkbook. That bought Malone’s Liberty Media a 65.5% stake in the rescued company. Vendors, smaller debtors, and other shareholders fared far worse. Most received little, if any of the money owed them, and the remaining shareholders were given just 2% ownership of the company after it emerged from bankruptcy.

Drahi re-emerged on the French business scene after squirreling away his UPC cable proceeds in his new venture Altice, originally launched in Luxembourg, listed on the Amsterdam stock exchange, and controlled by another holding company owned by Drahi housed in the British tax haven of the Channel Islands. Drahi himself was, for a time, a Swiss resident domiciled in Canton Zermatt, another tax haven with tax thresholds that favor the super-wealthy. Drahi now qualifies.

Within four years of Altice’s existence, the company has acquired 99% of France’s cable systems. Drahi has since looked abroad to consummate more deals.

When an Israeli cable system became available to buy, Drahi suddenly became a citizen of Israel and rented an apartment in the country, mostly to meet Israel’s citizenship requirements to acquire the HOT cable system. After the sale was complete, HOT raised its rates, most recently by 20 percent.

Le Echos, a French newspaper, has watched Drahi plow his way through French telecommunications for several years and summed up Drahi’s acquisition strategy in three words: It’s never enough.

The newspaper suspects Drahi will continue using the same techniques he has used in France for the last 20 years to create an empire in the United States. He will take on massive amounts of debt and use Wall Street and French investment banks to pay for most of his acquisitions, combined with generous shares in Altice stock for shareholders and top corporate executives. With Altice’s relocation complete, Drahi can make generous offers his targets cannot refuse, even when they are privately owned.

To start an American cable empire, Drahi will have to acquire smaller cable operators to build leverage for potential takeovers of larger operators later. His ability to throw massive sums of money on the table makes it very likely his next targets will be Cox Communications and Cablevision — both controlled by families that have held on in the cable business despite years of tentative acquisition offers or sales explorations. Both Cox and Cablevision offer access to larger U.S. cities. Other likely targets, including Mediacom, Cable One, and Midcontinent Communications, don’t. He can digest those companies later.

On June 24, Drahi told his fellow dinner guests at the Polytechnique Foundation, “For me, telecom is like pinball,” Drahi said. “As long as there are balls, I will play.”

The ISP Defense Squad Attacks Guardian Story on Internet Slowdowns

Phillip "Speaking as a Customer" Dampier

Phillip “Speaking as a Customer” Dampier

Two defenders of large Internet Service Providers are coming to the defense of the broadband industry by questioning a Guardian article that reported major Internet Service Providers were intentionally allowing a degradation in performance of Content Delivery Networks and other high volume Internet traffic in a dispute over money.

Richard Bennett and Dan Rayburn today both published articles attempting to discredit Battle for the Net’s effort highlighting the impact interconnection disputes can have on consumers.

Rayburn:

On Monday The Guardian ran a story with a headline stating that major Internet providers are slowing traffic speeds for thousands of consumers in North America. While that’s a title that’s going to get a lot of people’s attention, it’s not accurate. Even worse, other news outlets like Network World picked up on the story, re-hashed everything The Guardian said, but then mentioned they could not find the “study” that The Guardian is talking about. The reason they can’t find the report is because it does not exist.

[…] Even if The Guardian article was trying to use data collected via the BattlefortheNet website, they don’t understand what data is actually being collected. That data is specific to problems at interconnection points, not inside the last mile networks. So if there isn’t enough capacity at an interconnection point, saying ISPs are “slowing traffic speeds” is not accurate. No ISP is slowing down the speed of the consumers’ connection to the Internet as that all takes place inside the last mile, which is outside of the interconnection points. Even the Free Press isn’t quoted as saying ISPs are “slowing” down access speed, but rather access to enough capacity at connection points.

Bennett:

In summary, it appears that Battle for the Net may have cooked up some dubious tests to support their predetermined conclusion that ISPs are engaging in evil, extortionate behavior.

It may well be the case that they want to, but AT&T, Verizon, Charter Cable, Time Warner Cable, Brighthouse, and several others have merger business and spectrum auction business pending before the FCC. If they were manipulating customer experience in such a malicious way during the pendency of the their critical business, that would constitute executive ineptitude on an enormous scale. The alleged behavior doesn’t make customers stick around either.

I doubt the ISPs are stupid enough to do what the Guardian says they’re doing, and a careful examination of the available test data says that Battle for the Net is actually cooking the books. There is no way a long haul bandwidth and latency test says a thing about CDN performance. Now it could be that Battle for the Net has as a secret test that actually measures CDNs, but if so it’s certainly a well-kept one. Stay tuned.

The higher line measures speeds received by Comcast customers. The lower line represents speeds endured by AT&T customers, as measured by MLab.

The higher line measures speeds received by Comcast customers connecting to websites handled by GTT in Atlanta. The lower line represents speeds endured by AT&T customers, as measured by MLab.

Stop the Cap! was peripherally mentioned in Rayburn’s piece because we originally referenced one of the affected providers as a Content Delivery Network (CDN). In fact, GTT is a Tier 1 IP Network, providing service to CDNs, among others — a point we made in a correction prompted by one of our readers yesterday.

Both Rayburn and Bennett scoff at Battle for the Net’s methodology, results, and conclusion your Internet Service Provider might care more about money than keeping customers satisfied with decent Internet speeds. Bennett alludes to the five groups backing the Battle for the Net campaign as “comrades” and Rayburn comes close to suggesting the Guardian piece represented journalistic malpractice.

Much was made of the missing “study” that the Guardian referenced in its original piece. Stop the Cap! told readers in our original story we did not have a copy to share either, but would update the story once it became available.

We published our own story because we were able to find, without much difficulty, plenty of raw data collected by MLab from consumers conducting voluntary Internet Health Tests, on which Battle for the Net drew its conclusions about network performance. A review of that data independently confirmed all the performance assertions made in the Guardian story, with or without a report. There are obvious and undeniable significant differences in performance between certain Internet Service Providers and traffic distribution networks like GTT.

So let’s take a closer look at the issues Rayburn and Bennett either dispute or attempt to explain away:

  1. MLab today confirmed there is a measurable and clear problem with ISPs serving around 75% of Americans that apparently involves under-provisioned interconnection capacity. That means the connection your ISP has with some content distributors is inadequate to handle the amount of traffic requested by customers. Some very large content distributors like Netflix increasingly use their own Content Delivery Networks, while others rely on third-party distributors to move that content for them. But the problem affects more than just high traffic video websites. If Stop the Cap! happens to reach you through one of these congested traffic networks and your ISP won’t upgrade that connection without compensation, not only will video traffic suffer slowdowns and buffering, but so will traffic from every other website, including ours, that happens to be sent through that same connection.

MLab: "Customers of Comcast, Time Warner Cable, and Verizon all saw degraded performance [in NYC] during peak use hours when connecting across transit ISPs GTT and Tata. These patterns were most dramatic for customers of Comcast and Verizon when connecting to GTT, with a low speed of near 1 Mbps during peak hours in May. None of the three experienced similar problems when connecting with other transit providers, such as Internap and Zayo, and Cablevision did not experience the same extent of problems."

MLab: “Customers of Comcast, Time Warner Cable, and Verizon all saw degraded performance [in NYC] during peak use hours when connecting across transit ISPs GTT and Tata. These patterns were most dramatic for customers of Comcast and Verizon when connecting to GTT, with a low-speed of near 1 Mbps during peak hours in May. None of the three experienced similar problems when connecting with other transit providers, such as Internap and Zayo, and Cablevision did not experience the same extent of problems.”

MLab:

Our initial findings show persistent performance degradation experienced by customers of a number of major access ISPs across the United States during the first half of 2015. While the ISPs involved differ, the symptoms and patterns of degradation are similar to those detailed in last year’s Interconnections study: decreased download throughput, increased latency and increased packet loss compared to the performance through different access ISPs in the same region. In nearly all cases degradation was worse during peak use hours. In last year’s technical report, we found that peak-hour degradation was an indicator of under-provisioned interconnection capacity whose shortcomings are only felt when traffic grows beyond a certain threshold.

Patterns of degraded performance occurred across the United States, impacting customers of various access ISPs when connecting to measurement points hosted within a number of transit ISPs in Atlanta, Chicago, Los Angeles, New York, Seattle, and Washington, D.C. Many of these access-transit ISP pairs have not previously been available for study using M-Lab data. In September, 2014, several measurement points were added in transit networks across the United States, making it possible to measure more access-transit ISP interconnection points. It is important to note that while we are able to observe and record these episodes of performance degradation, nothing in the data allows us to draw conclusions about who is responsible for the performance degradation. We leave determining the underlying cause of the degradation to others, and focus solely on the data, which tells us about consumer conditions irrespective of cause.

Rayburn attempts to go to town highlighting MLab’s statement that the data does not allow it to draw conclusions about who is responsible for the traffic jam. But any effort to extend that to a broader conclusion the Guardian article is “bogus” is folly. MLab’s findings clearly state there is a problem affecting the consumer’s Internet experience. To be fair, Rayburn’s view generally accepts there are disputes involving interconnection agreements, but he defends the current system that requires IP networks sending more traffic than they return to pay the ISP for a better connection.

Rayburn's website refers to him as "the voice of industry."

Rayburn’s website refers to him as “the voice of industry.”

  1. Rayburn comes to the debate with a different perspective than ours. Rayburn’s website highlights the fact he is the “voice of the industry.” He also helped launch the industry trade group Streaming Video Alliance, which counts Comcast as one of its members. Anyone able to afford the dues for sponsor/founding member ($25,000 annually); full member ($12,500); or supporting member ($5,500) can join.

Stop the Cap! unreservedly speaks only for consumers. In these disputes, paying customers are the undeniable collateral damage when Internet slowdowns occur and more than a few are frequently inconvenienced by congestion-related slowdowns.

It is our view that allowing paying customers to be caught in the middle of these disputes is a symptom of the monopoly/duopoly marketplace broadband providers enjoy. In any industry where competition demands a provider deliver an excellent customer experience, few would ever allow these kinds of disputes to alienate customers. In Atlanta, Los Angeles, and Chicago, for example, AT&T has evidently made a business decision to allow its connections with GTT to degrade to just a fraction of the performance achieved by other providers. Nothing else explains consistent slowdowns that have affected AT&T U-verse and DSL customers for months on end that involve GTT while Comcast customers experience none of those problems.

We also know why this is happening because AT&T and GTT have both confirmed it to Ars Technica, which covered this specific slowdown back in March. As is always the case about these disputes, it’s all about the money:

AT&T is seeking money from network operators and won’t upgrade capacity until it gets paid. Under its peering policy, AT&T demands payment when a network sends more than twice as much traffic as it receives.

“Some providers are sending significantly more than twice as much traffic as they are receiving at specific interconnection points, which violates our peering policy that has been in place for years,” AT&T told Ars. “We are engaged in commercial-agreement discussions, as is typical in such situations, with several ISPs and Internet providers regarding this imbalanced traffic and possible solutions for augmenting capacity.”

competitionMissing from this discussion are AT&T customers directly affected by slowdowns. AT&T’s attitude seems uninterested in the customer experience and the company feels safe stonewalling GTT until it gets a check in the mail. It matters less that AT&T customers have paid $40, 50, even 70 a month for high quality Internet service they are not getting.

In a more competitive marketplace, we believe no ISP would ever allow these disputes to impact paying subscribers, because a dissatisfied customer can cancel service and switch providers. That is much less likely if you are an AT&T DSL customer with no cable competition or if your only other choice cannot offer the Internet speed you need.

  1. Consolidating the telecommunications industry will only guarantee these problems will get worse. If AT&T is allowed to merge with DirecTV and expand Internet service to more customers in rural areas where cable broadband does not reach, does that not strengthen AT&T’s ability to further stonewall content providers? Of course it does. In fact, even a company the size of Netflix eventually relented and wrote a check to Comcast to clear up major congestion problems experienced by Comcast customers in 2014. Comcast could have solved the problem itself for the benefit of its paying customers, but refused. The day Netflix’s check arrived, problems with Netflix magically disappeared.

More mergers and more consolidation does not enhance competition. It entrenches big ISPs to play more aggressive hardball with content providers at the expense of consumers.

Even Rayburn concedes these disputes are “not about ‘fairness,’ it’s business,” he writes. “Some pay based on various business terms, others might not. There is no law against it, no rule that prohibits it.”

Battle for the Net’s point may be that there should be.

Cablevision Gives Free Optimum Online Speed Boost to 25Mbps

Phillip Dampier June 23, 2015 Broadband Speed, Cablevision, Consumer News No Comments

Optimum-Branding-Spot-New-LogoCablevision has treated its broadband subscribers to a free speed boost for those signed up for the basic Optimum Online Internet tier. The old speed of 15/5Mbps has today been raised to 25/5Mbps, meeting the FCC’s minimum speed to qualify as broadband service.

Cablevision continues to sell its base Internet service at a non-promotional price of $39.99/month, considerably lower than most other cable operators.

“We are taking the next step as New York’s premiere connectivity company to provide a better, faster data experience both inside and outside the home at no additional cost,” Kristin Dolan, chief operating officer of Cablevision, said in a statement. “This speed increase, along with Optimum WiFi, provides a superior broadband experience to meet and exceed the needs of our customers.”

For now, Cablevision’s other widely available broadband tiers: Optimum Online Ultra 50, Optimum Online Ultra 75 and Optimum Online Ultra 101 are unchanged.

Drahi Readies His Next Move: “If I Buy Five Smaller Cable Companies, I Am as Big as Time Warner Cable”

Drahi

Drahi

Patrick Drahi, the billionaire ruthless cost-cutting owner of Altice SA told a French parliamentary hearing he didn’t go ahead with a serious bid for Time Warner Cable because he lacked enough management talent to run a huge cable company in a country he only recently entered.

“I didn’t follow up on the exchanges we had on Time Warner Cable that were mentioned in the media because we were not ready,” Drahi told a French parliamentary hearing on Wednesday.

Drahi testified French-owned banks were ready to help finance a deal that would have stolen Time Warner Cable away from Charter Communications. Instead, Drahi has decided to spend a little time digesting his acquisition of Suddenlink to gain experience in the U.S. cable market before he moves on other cable operators. Drahi believes he will be the only buyer left to cut major cable consolidation deals.

“Time is on our side” for the U.S. expansion,” Drahi said. “The two leaders Comcast and Charter will not be able to buy anything else because of their size so we will have an open boulevard ahead of us. If I buy five small operators, I can be as big as Time Warner Cable.”

The five most-likely cable operators Drahi will pursue, according to a business editor at RFI, the French overseas broadcaster: Cablevision, Cox, Mediacom, WOW!, and Cable One. Cox and Mediacom are privately held and Cablevision is tightly controlled by its founding Dolan family, so Drahi will likely have to sweeten deals to convince all three to sell.

Reuters reports Drahi is especially interested in the smaller, less profitable operators because they are ripe for his brand of cost management and consolidation-related savings.

“Even better, that means we will have room to improve them,” Drahi said.

Drahi remained enthusiastic about Cablevision, despite the fact it serves one of the most competitive markets blanketed by Verizon FiOS in the United States.

“It’s good actually since it means they know how to compete,” Drahi said.

Drahi’s reputation is well-known in Europe based on his earlier acquisitions. Altice favors telecom and cable companies seen as poorly managed or undervalued which Drahi targets for massive cost-slashing to improve profitability. The investments he does make are largely to benefit high-end customers he values the most.

“The French Slasher” Patrick Drahi/Altice Likely to Target Cablevision, Cox, Mediacom Next for Quick Buyouts

THE FRENCH SLASHER: Patrick Drahi's cost-cutting methods are legendary in Europe. He could soon be bringing his style of cost management to America.

THE FRENCH SLASHER: Patrick Drahi’s cost-cutting methods are legendary in Europe. He could soon be bringing his style of cost management to America.

Patrick Drahi and his Luxembourg-based Altice SA appears to be out of the running to buy Time Warner Cable, but are likely to quickly turn their attention to acquiring several of America’s remaining medium-sized cable companies: Cablevision, Cox, and Mediacom.

“While it is still possible that Altice counters on TWC, we do not believe that it can match Charter [and backer John Malone’s] funding firepower and will ultimately lose out,” wrote Macquarie Capital’s Kevin Smithen. “In our opinion, Altice is more likely to turn its attention to Cablevision or privately held Cox or Mediacom, in an effort to gain more fixed-line scale in order to compete against Charter and Comcast.”

Last week, cable analysts were surprised when Drahi swooped in to acquire Suddenlink, one of America’s medium-sized cable operators.

“Altice’s decision to buy Suddenlink (at an unsupportably high price) creates even more uncertainty in an industry where virtually every element of the story is now in flux,” said MoffettNathanson analyst Craig Moffett.

Cablevision recently seemed to signal it was willing to talk a merger deal with Time Warner Cable, but that now seems unlikely with the Charter acquisition heading to regulator review. Drahi met last week with Time Warner Cable CEO Robert Marcus about a possible deal with the second largest cable company in the U.S., which seems to indicate he is serious about his plans to enter the U.S. cable market.

“On paper, Cablevision was already overvalued,” Moffett said. “And Altice’s acquisition of Suddenlink, which has no overlap with Verizon FiOS, would suggest that they are quite cognizant of the appeal of a carrier without excessive fiber competition. The spike in Cablevision’s shares only makes that overvaluation worse. Then again, if Altice is willing to overpay for one investment, might they not be willing to overpay for another?”

Drahi has been topic number one for the French telecom press for months after his aggressive acquisition and cost-cutting strategies left a long trail of unpaid vendors and suppliers, as well as employees forced to bring their own toilet tissue to work. Customers have also started leaving his French cable company after service suffered as a result of his investment cuts.

As a new wave of cable consolidation is now on the minds of cable executives, several Wall Street analysts have begun to call on the cable industry to consolidate the wireless space as well, buying out one or more wireless companies like Sprint or T-Mobile to combine wired and wireless broadband.

“Unlike Europe, we continue to believe that the U.S. is not yet a ‘converged’ market for wireless and wireline broadband services but that this trend is inevitable in the U.S. due to increasing need for small cells, fiber backhaul and mobile video content caching closer to the end user. In our view, Altice believes in convergence and so mobile will be a strategic objective in the long-term,” Smithen wrote.

Other Wall Street analyst/helpers have pointed out there are other cable targets ripe for acquisition: WideOpenWest Holding Cos (a/k/a WOW!) and Cable One have a combined 1.92 million video subscribers.

Cablevision to Loyal Customers: Thanks for Paying Higher Prices for Cable Service When You Didn’t Have To

take the moneyIf you are a long time Optimum customer, the CEO, management, and shareholders of Cablevision would like to thank you for driving average monthly cable revenue per customer 4.8% higher from a year ago to $155.34 a month.

A few years ago, Cablevision developed a Stalinist approach to repeat customer promotions and retentions: nyet.

Despite mounting competition from Verizon FiOS, AT&T U-verse, Comcast and Time Warner Cable, Cablevision has held the line on repeatedly discounting its service for customers who complain their rates are too high.

“Our disciplined approach to pricing, promotional eligibility and customer credit policies has not wavered,” Kristin Dolan, chief operating officer, told investors on a morning conference call.

As a result, the average customer staying with Cablevision paid almost five percent more for service than they did a year earlier — more than $155 a month.

optimum“The main drivers of our increased revenue per customer came from a combination of rate increases, but also lower proportion of subscribers on promotion,” said Brian G. Sweeney, chief financial officer. “We had a number of fixed rate increases January 1 of this year related to cable box fees, an increase in our sports and broadcast TV surcharge, as well as the pass-through of PEG fees to certain customers.”

Cablevision elected to stop competing on price in 2013, telling customers they are entitled to one customer retention deal and that is all. As a result, Cablevision has been losing customers even as it gains revenue. Although it managed to pick up 7,000 net new broadband customers during the quarter, Cablevison lost 6,000 customer relationships, 28,000 video customers — double the number from a year ago, and 14,000 voice customers. That represents 11 consecutive quarters of video subscriber losses.

The customers that remain are meeting Cablevision’s earnings expectations as others leave for better deals elsewhere.

Kristin and James Dolan

Kristin and James Dolan

Cablevision admits many of its subscriber losses come from customers willing to shop around for a better deal. They usually find one. Although Verizon has tightened customer retention deals itself in response to Cablevision’s retention policies, Frontier U-verse in Connecticut continues to compete for new business on price, at least initially as part of new customer promotions.

Kristen Dolan argues Cablevision’s quality of service keeps customers loyal and brings many ex-customers back.

“We do a significant amount of [customer] win-backs every year and we really focus on why people are coming back and it’s not just about price,” Dolan said.

But some customers believe it is more about the price than Cablevision might think.

“The only reason I left Cablevision was because they wouldn’t negotiate and match a better deal Verizon offered me,” said Rob Hastings of Syosset, N.Y., who canceled service in 2013. “When Cablevision wouldn’t cut their price I left.”

Many of the customers coming back to Cablevision this year are, in fact, their old customers dealing with a rate reset from Verizon as promotions expire.

“When my Verizon FiOS rate shot up, I went back to Cablevision as a ‘new customer’ on a promotion,” said Hastings. “When that expires, I’ll bounce back to Verizon. Whoever gives me the best price gets my business as I am sure not going to pay extra to stay a loyal customer.”

cablevision service areaTo further combat promotion-bouncing, Cablevision is embracing its broadband product line and marketing new cord-cutting packages to customers that offer reduced-size cable television packages and free over the air antennas for local stations. The cable company also recently announced it would offer cable customers Hulu subscriptions. Jim Dolan, Cablevision CEO, believes broadband is where the money is and customers are willing to pay higher prices to get Internet access even when video package pricing has its limits.

“You’re seeing the video product begin to lose margin and not just among the little operators like us, but even some of the big operators,” said Dolan. “Our philosophy is we think of video as akin to the eggs and the milk in a convenience store. You have to have it, but you don’t make a lot of money on it. Now connectivity is a whole other basket. It’s more like the soda and chips aisle, and if you provide great connectivity, because it provides great value to the consumer, you can differentiate yourself and you can charge more and the margins are good on it.”

Dolan doesn’t think much of his competitor’s slimmed down cable packages either.

“Verizon’s known to embellish [and] use misleading messaging in their marketing to get the phones to ring,” said Dolan. “I think that’s partially how we view these packages. I can tell you that the packages that we’re offering provide a lot more flexibility.”

To further differentiate it from its competitors, Cablevision continues to emphasize its Wi-Fi network of hotspots across metro New York City. The company also recently became the first major U.S. cable operator to launch a mobile phone service that uses its network of Wi-Fi hot spots. Although not willing to divulge customer numbers, Kristin Dolan did say unique weekly visits increased 16% on average to Cablevision’s website, presumably to explore the Freewheel Wi-Fi calling product.

Cablevision’s highlights for the first three months of 2015:

  • Fiber to the Press Release: Cablevision was the first cable company to introduce 1-gigabyte residential service in the tri-state area. The service launched to a single new multi-tenant building in Weehawken, N.J. No further expansion is planned at this time;
  • Discounted Internet for the Cord Cutter on a Budget: Cablevision expanded the availability of $34.90/mo Internet Basics (5/1Mbps) across its entire service area. It includes an over-the-air antenna.
  • Third Party Set-Top Boxes: Cablevision is interested in providing a less expensive, open standard, set-top box platform in the future to customers that don’t want to pay for a large cable box.

If You Can’t Beat ‘Em, Join ‘Em: Cablevision to Sell Hulu+ to Cable Subscribers

Phillip Dampier April 29, 2015 Cablevision, Competition, Consumer News, Online Video 1 Comment

hulu-plusCablevision has conceded online video is now increasingly challenging its cable television package, so instead of trying to put a lid on “over the top” video, the Long Island, N.Y.-based cable company is embracing it with a deal to offer the streaming service Hulu to its customers.

“There is a new generation of consumers who access video through the Internet, and whatever their preference, Cablevision will facilitate a great content experience,” said Kristin Dolan, chief operating officer of Cablevision, in a statement.

cablevisionThe deal covers the service’s entire catalog of on-demand television shows and movies and will be available to Cablevision broadband customers online and possibly through set-top boxes for traditional cable television customers.

The arrangement is unlikely to prove compelling to current broadband customers who can enroll in Hulu free of charge and Hulu + for $7.99/mo, without Cablevision’s help. But if the cable operator bundles the service into existing packages at no extra charge or offers the advertiser-supported pay service at a discount, it may provide a useful option for customers considering cutting Cablevision’s cord.

Hulu has not proved as popular with online video fans as Netflix, perhaps because it forces viewers to sit through a very heavy ad load, even with its premium service. Even with the announcement this week Hulu acquired the streaming video rights to all 180 episodes of Seinfeld, a show that aired its last original episode in 1998, Hulu is unlikely enough to seal a deal with subscribers.

Cablevision may also be interested in Hulu to bolster its new broadband-only “cord-cutting” packages (shown below), which Cablevision hopes will help it save a customer’s business if they are ready to drop cable television. Hulu is often a “must-have” by cord-cutters who enjoy first-run network shows.

CEO Jim Dolan even admitted there may come a day when Cablevision exits the cable TV business completely and relies entirely on selling broadband service.

cord cutter cablevision 1

cord cutter cablevision 2

Cablevision Declares War on Deal-Hunting Customers; Plans to Cut Off “Low Quality” Subscribers

Phillip Dampier March 10, 2015 Cablevision, Competition, Consumer News 1 Comment

optimumCalling and asking for a better deal from Cablevision might just get you Verizon’s phone number with an invitation to take your business to them instead.

That is exactly what happened to Sandra Ramirez of Deer Park, N.Y. who reports to Stop the Cap! she was given Verizon’s phone number by a Cablevision “customer retention specialist” after complaining about her bill shooting up $30 a month after a promotion expired.

“I didn’t expect that,” Ramirez tells us. “The representative, who was actually hostile, complained to me that I already had two Cablevision promotions in the last five years and didn’t deserve another one.”

At least 34,000 customers may have taken Cablevision up on its offer to leave because the cable operator lost that many video subscribers during the fourth quarter, most switching to Verizon FiOS.

The “go ahead and cancel” technique appears to be part of Cablevision’s strategy to purge itself of “low quality” customers by denying repeated requests for promotions and discounts.

verizon fios bundle“We found out that we were pushing subscribers back and forth on a highly promoted basis,” Cablevision vice chairman Gregg Seibert told investors at this week’s Deutsche Bank 2015 Media, Internet & Telecom Conference in Palm Beach, Fla. “I don’t want to roll a truck to you every two years if you keep going back and forth to another provider, so we’re getting rid of that lower quality, lower profitability base of subscriber.”

Cablevision started cracking down on promotional deal shoppers more than two years ago, denying extensions on promotions even when it leads to a customer disconnect.

If Cablevision hoped Verizon would follow their lead and stop heavily discounting service, that doesn’t appear to be happening. Verizon has seen significant success picking up new FiOS customers in Cablevision service areas. That falls right into place with Verizon CEO Lowell McAdam’s strategy to focus on building customer numbers in existing FiOS service areas instead of expanding into new ones.

Ramirez accepted Cablevision’s offer, wrote down the phone number and called to sign up for FiOS.

“When the representative asked me where I heard about FiOS, I told her Cablevision,” Ramirez tells us. “She said it was not the first time the cable company referred new customers Verizon’s way and we both got a laugh out of it. Verizon installed my service yesterday and I took my cable boxes back to Cablevision and told them goodbye.”

Google, Cablevision Challenge Traditional Cell Phone Plans, Wireless Usage Caps With Cheap Alternatives

freewheelLuxurious wireless industry profits of up to 50 percent earned from selling some of the world’s most expensive cellular services may soon be a thing of the past as Google and Cablevision prepare to disrupt the market with cheap competition.

With more than 80 percent of all wireless data traffic now moving over Wi-Fi, prices for wireless data services should be in decline, but the reverse has been true. AT&T and Verizon Wireless have banked future profits by dumping unlimited data plans and monetizing wireless usage, predicting a dependable spike in revenue from growing data consumption. Instead of charging customers a flat $30 for unlimited data, carriers like Verizon have switched to plans with voice, texting, and just 1GB of wireless usage at around $60 a month, with each additional gigabyte priced at $15 a month.

With the majority of cell phone customers in the U.S. signed up with AT&T or Verizon’s nearly identical plans, their revenue has soared. Sprint and T-Mobile have modestly challenged the two industry leaders offering cheaper plans, some with unlimited data, but their smaller cellular networks and more limited coverage areas have left many customers wary about switching.

Google intends to remind Americans that the majority of data usage occurs over Wi-Fi networks that don’t require an expensive data plan or enormous 4G network. The search engine giant will launch its own wireless service that depends on Wi-Fi at home and work and combines the networks of Sprint and T-Mobile while on the go, switching automatically to the provider with the best signal and performance.

googleCablevision’s offer, in contrast, will rely entirely on Wi-Fi to power its mobile calling, texting, and data services. Dubbed “Freewheel,” non-Cablevision customers can sign up starting in February for $29.95 a month. Current Cablevision broadband customers get a price break — $9.95 a month.

Cablevision’s dense service area in parts of New York City, Long Island, northern New Jersey and Connecticut offers ample access to Wi-Fi. Cablevision chief operating officer Kristin Dolan said its new service would work best in Wi-Fi dense areas such as college campuses, business districts, and multi-dwelling units.

New York City is working towards its own ubiquitous Wi-Fi network, which could theoretically blanket the city with enough hotspots to make Cablevision’s service area seamless. But the biggest deterrent to dumping your current cell phone provider is likely to be available coverage areas. Google’s answer to that problem is combining the networks of both Sprint and T-Mobile, offering customers access to the best-performing carrier in any particular area. While that isn’t likely to solve coverage issues in states like West Virginia and the Mountain West, where only AT&T and Verizon Wireless offer serious coverage, it will likely be sustainable in large and medium-sized cities where at least one of the two smaller carriers has a solid network of cell towers.

Comparing the Wireless Alternative Providers

  • Google Wireless will offer seamless access to Wi-Fi, Sprint and T-Mobile voice, SMS, and mobile data at an undetermined price. Likely to arrive by the summer of 2015;
  • Cablevision Freewheel depends entirely on Wi-Fi to power unlimited voice, SMS, and data. Launches in February for $29.95/mo ($9.95/mo for Cablevision broadband customers);
  • FreedomPop Wi-Fi ($5/mo) offers an Android app-based “key” to open unlimited Wi-Fi access to 10 million AT&T, Google, and cable industry hotspots nationwide for calling, texting, and mobile data;
  • Republic Wireless developed its own protocol to properly hand off phone calls between different networks without dropping it. Calling plans range from $5-40 a month. Less expensive plans are Wi-Fi only, pricier plans include access to Sprint’s network;
  • Scratch Wireless charges once for its device – a Motorola Photon Q ($99) and everything else is free, as long as you have access to Wi-Fi. Cell-based texting is also free, as a courtesy. If you need voice calling or wireless data when outside the range of a hotspot, you can buy “access passes” to Sprint’s network at prices ranging from $1.99 a day each for voice and data access to $24.99 a month for unlimited data and $14.99 a month for unlimited voice.
Scratch Wireless

Scratch Wireless

Google is pushing the FCC to open new unlicensed spectrum for expanded Wi-Fi to accommodate the growing number of wireless hotspots that are facing co-interference issues.

Wi-Fi-based wireless providers are likely to grow once coverage concerns are eased and there is reliable service as customers hop from hotspot to hotspot. The cable industry has aggressively deployed Wi-Fi access with a potential to introduce wireless service. Comcast is already providing broadband customers with network gateways that offer built-in guest access to other Comcast customers, with the potential of using a crowdsourced network of customers to power Wi-Fi coverage across its service areas. FreedomPop will eventually seek customers to volunteer access to their home or business networks for fellow users as well.

AT&T and Verizon are banking on their robust networks and coverage areas to protect their customer base. Verizon Wireless, in particular, has refused to engage in price wars with competitors, claiming Verizon customers are willing to pay more to access the company’s huge wireless coverage area. AT&T told the Wall Street Journal its customers want seamless access to its network to stay connected wherever they go.

Verizon’s chief financial officer Fran Shammo appeared unfazed by the recent developments. On last week’s conference call with investors, Shammo dismissed Google’s entry as simply another reseller of Sprint’s network. He added Google has no idea about the challenges it will face dealing directly with customers in a service and support capacity. While Google’s approach to combine the coverage of T-Mobile and Sprint together is a novel idea, Shammo thinks there isn’t much to see.

“Resellers, or people leasing the network from carriers, have been around for 15 years,” Shammo said. “It’s a complex issue.”

Investors are taking a cautious wait-and-see approach to the recent developments. Google’s new offering is likely to offer plans that are philosophically compatible with Google’s larger business agenda. Challenging the traditional business models of AT&T and Verizon that have implemented usage caps and usage pricing may be at the top of Google’s list. The new offering could give large data allowances at a low-cost and/or unlimited wireless data for a flat price. Such plans may actually steal price-sensitive customers away from Sprint and T-Mobile, at least initially. Sprint is clearly worried about that, so it has a built-in escape clause that allows a termination of its network agreement with Google almost at will.

http://www.phillipdampier.com/video/WSJ Google Cablevision Challenge Wireless Industry 1-26-15.flv

The Wall Street Journal talks about the trend towards Wi-Fi based mobile calling networks. (1:59)

Cablevision Calls Deal-Hunters and the Credit-Challenged “Shoplifters;” ‘Go Call Verizon Instead’

Phillip Dampier November 6, 2014 Cablevision, Competition, Consumer News, Verizon 1 Comment

Shoplifting-Is-Crime-Sign-S-7247Beggars can be choosers if you are running Cablevision, the northeast’s largest non-conglomerate cable company, still run by the Dolan family.

In a conference call with Wall Street analysts, company officials noted Cablevision had noticeably tightened its credit standards during the third quarter and has implemented incentives for slow-pay and no-pay customers to take a hike and not come back, even at the risk of subscriber losses.

“Certain of our promotional eligibility policies have put pressure on our net subscriber results,” reported Cablevision CEO James Dolan. “However, we believe that these policies are consistent with our goal of growing long-term shareholder value. For instance, during the third quarter, we tightened certain of our customer credit and payment policies. While these policy changes effectively reduce the number of available sales, they are expected to contribute a stronger base of customers over time.”

For more than a year, Cablevision has restricted promotional pricing and retention offers to keep customers from coming back for better deals when their existing promotion expires. Now it is stripping eligibility for promotional pricing for late-paying customers as well. Subscribers are leaving as a result. Video customers declined by 56,000 during the third quarter, high-speed data customers declined by 23,000, and voice customers declined by 33,000.

“We’re no longer marketing [to] subscribers who have a history of non-pay, so we’re not inviting them back in if they’re not good actors,” said Cablevision’s chief operating officer Kristin Dolan. “We’re requiring full payment in a number of areas where homes have a history of bad debt. And then we’re not doing promotions [for] those customers either. So if you have a history of bad debt with us, you can’t come back in on a promotional offer. [We’re] not letting people back into the bucket that are going to end up being problematic later on in their relationship with us.”

Mr. Dolan was scathingly critical of his biggest competitor, Verizon FiOS, claiming the company will stop at nothing to poach Cablevision’s customers.

“Verizon, in our opinion, continues on a path of pursuing the destruction of their own capital,” said Dolan. “We don’t believe that they’re profitable on any level in our service area. They just rabidly pursue us in an attempt to try and get customers. And I think our strategy is actually working quite well because we’re giving them all the customers that we think are the most expensive customers and the ones that provide the least free cash flow to us.”

Mrs. Dolan told analysts Cablevision is particular about the kinds of customers it wants to win back from competitors.

“I think if it’s a win back that we want to have, that’s a differentiator,” she said. “We’re not going to just chase subscriber numbers. We don’t want to invite people into our store if they’re going to shoplift.”

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