Home » Cablevision » Recent Articles:

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)

Special Report: Drahi Strikes Again: Stop the Cap! Analyzes Altice’s Acquisition of Cablevision

special reportAfter 44 years in the cable television business, the Dolan family has agreed to part with its prize possession, Cablevision Systems Corp. in a $17.7 billion dollar deal with Patrick “The Slasher” Drahi’s Altice NV.

The transaction will profoundly impact Cablevision’s employees, customers, and potentially the cable business in general in the New York City metropolitan area, where Cablevision’s 3.1. million customers live.

Who is Patrick Drahi?

Although few Americans have heard of the self-made billionaire Patrick Drahi, most of French-speaking Europe knows Mr. Drahi only too well, regularly criticized in the French press for surrounding himself with debt-laden acquisitions, stiffing vendors and suppliers, and paying rock-bottom wages to the employees that remain after constant campaigns of ruthless cost cutting.

Drahi’s idol is none other than cable magnate billionaire John Malone, the man pulling the strings at Charter Communications. In the 1970s and 1980s, Malone ran America’s largest cable conglomerate – Tele-Communications, Inc. (TCI), a company castigated by customers for high rates and poor service about as much as Comcast is today.

Altice1Malone’s reputation with the U.S. Congress reached its lowest point in the 1980s when then-Sen. Al Gore, Jr. (D-Tenn.) alternately accused Malone of heading a monopolistic cable “Cosa Nostra” that extorted his constituents with rate increases that exceeded 180% in less than five years and the “Darth Vader of Cable.” Malone taught Drahi that massive sums of money could be made buying and selling cable television (and later broadband) over systems that are usually de facto monopolies. Although entertainment is always in high demand, few governments treat the cable systems that offer it as an “essential utility,” allowing them to charge whatever they want for service.

From his earliest days working for a small cable operator, Drahi dreamed of building a cable empire buying and selling cable systems, extracting whatever he could from subscribers. One of his earliest techniques was flouting a French telecommunications law that, at the time, forbade the carriage of non-French language channels. His cable systems quietly added Arabic language networks to entice the large North African immigrant community in France to sign up for service. Drahi did not directly promote the networks, relying on word-of-mouth to deliver sales in the Arabic speaking community.

The Sacred Monster

While very conservative about spending money on wages, service upgrades, and technology, customers of Drahi-owned cable companies report he had no problem raising their rates. Numericable’s customer satisfaction rating rivals that of Comcast — a one-star cable company charging five-star prices.

Drahi

Drahi

The announced acquisition of Cablevision (and earlier Suddenlink) by Drahi’s company — Altice NV, came with glowing coverage from the American media, particularly cable business news channels, the Wall Street press, and the New York Times. A Sept. 7, 2015 piece by Nicola Clark in the Times presented Drahi as a classic “rags to riches” success story, noting he loathes being interviewed and allegedly leads a humble existence:

Despite a personal fortune estimated at close to €17 billion, Mr. Drahi indulges in few of the trappings of great wealth, friends and colleagues said. Although he keeps several elegant homes — in Geneva, Paris and Tel Aviv — his personal tastes and habits hew to the mundane. He wears a plastic Swatch instead of a Rolex and often arrives at business meetings on foot or a bicycle, instead of by chauffeured car.

Clark only mentions in passing she relied almost entirely on a series of interviews with “a half-dozen friends and colleagues” to paint what turned out to be a one-sided picture of Mr. Drahi for American readers. That story had eyes rolling among staffers in the offices of French newspaper Les Echos, incredulous at the American infatuation with a man the newspaper calls the “sacré monstre” — sacred monster. In New York, reporter Lucie Robequain, foreign business correspondent for the French daily, tried to share the scene at the Goldman Sachs-organized Communacopia conference where the deal was personally announced by Mr. Drahi for her French readers.

cablevision“Newspapers [in America] devote entire pages [about Drahi], emphasizing his self-made-man side which Americans love so much,” Robequain noted. She added the New York Times painted Drahi an almost romantic figure, proposing to his wife one hour after meeting her and then putting everything between them at risk to build his personal fortune.

A later piece in the Times on Sept. 17 by Emily Steel and Mark Scott also was the subject of derision in the European press. Steel and Scott called Altice a “bold new player” in the American cable market and gave Dexter Goei, one of Drahi’s lieutenants (some in the French press prefer ‘minion’) space to gush about the game-changing deal. Goei joined Altice in 2009, having worked for 15 years in investment banking with JP Morgan and Morgan Stanley until the Great Recession arrived.

“There’s a new sheriff in town, and we’re probably going to run it a little differently,” Goei said during the investor conference in New York on Thursday that unveiled the deal.

Phantom Fiber

The Times piece also relied on unnamed “analysts” dangling the promise of fiber optics to appease subscribers concerned about a legendary cost-cutter taking the helm of the cable company.

[…] Analysts said Altice invests heavily in new infrastructure — with a focus on upgrading fixed-line networks with the latest fiber-optic technology. The priority, analysts said, is to provide subscribers with faster Internet connection speeds at competitive prices.

Previous deals involving Altice (Image: Financial Times)

Previous deals involving Altice (Image: Financial Times)

In Europe, the press is skeptical about promised upgrades, noting Altice is “an empire built on a mountain of debt” largely made possible by quantitative easing and record low interest rates, which permit companies to finance buyouts on the cheap. Drahi says he can save money through synergy — sharing operations and minimizing the need for customers to reach out for customer service. Altice officials claim just by simplifying Cablevision’s bills, the company can save $14 million annually.

Drahi’s success story with Wall Street and other investors comes from his ability to cut costs at acquired companies, often dramatically. It is part of the informal deal with investors that has allowed the company generous credit to continue its buying spree. The Cablevision deal promises the Dolans and other investors only $3.3 billion in cash. The rest of the purchase price will come from raising $8.6 billion in new debt, saddled on Cablevision’s books inside Altice.

So while unnamed analysts are promising fiber upgrades for Cablevision customers, the Financial Times and CNBC report only one thing will be on Cablevision’s menu post-merger: spending a lot less, not more. Drahi seems to agree.

In a slide presentation to investors, Altice compares Cablevision’s $49 a month in operating expenses per customer against what its Numericable operation in France spends on its customers: $14 a month.

So how does Numericable spend three times less on subscribers than Cablevision?

Cost Cutting Specialists

Say hello to Michel Combes, former CEO of Alcatel-Lucent. Two years ago, he took leadership of the company that was better known by many as Bell Labs. Known as a cost-cutter, Combes quickly announced plans to strip the company of less profitable business units and fired about 10,000 workers while also holding the line on salaries (except for his) of the remaining employees. After two years in the leadership position, Combes engineered the sale of the company to Nokia, putting himself out of a job. But he won’t be hurting. A breathtaking golden parachute package approved by his colleagues on Alcatel Lucent’s board caused a political furor in France.

Combes

Combes

Combes’ departure bonus was originally planned to amount to $15 million in stock after completing the company’s sale to Nokia, an amount Emmanuel Macron, France’s economic minister, called shocking and irresponsible. Under pressure, the board has since cut the payoff roughly in half. But according to L’Observateur, Drahi has offered his friend an even more lucrative “golden hello” — stock options awarded as a signing bonus worth up to $100 million. Combes’ first role will be to serve as Altice’s chief operating officer, presiding over new rounds of cost-cutting at the company’s various acquisitions. One item spared from review is Combes’ own compensation package. Those under him are not so lucky.

Wages and Jobs

“I do not like to pay salaries, I pay as little as I can,” Drahi told investors at the Goldman Sachs event last week. Drahi complained more than 300 employees at Cablevision were being paid more than $300,000 a year. “This we will change.

In addition to a large number of expected layoffs at Cablevision, widespread salary reductions are also likely to be forthcoming. Drahi’s cable companies have some of the smallest compensation packages in the industry, except at the top executive level.

Cablevision’s already testy relationship with some of its union employees will likely grow much worse under Drahi’s leadership. But that battle may have to wait until another day. In February, the union ratified a two-year agreement with Cablevision. In Europe, Drahi’s reputation among public unions is so poor many of the opinions expressed by unionized workers cannot be printed in a family newspaper.

Suppliers complain Drahi's companies don't pay their bills.

Suppliers complain Drahi’s companies don’t pay their bills.

In Lisbon, Jorge Felix – a representative of the trade union organization of workers at PT (Portugal Telecom) warns U.S. unions should get everything from Altice and Mr. Drahi in writing.

“There are commitments made by Altice before our union and are written,” Felix said, adding that he was disturbed by Drahi’s attitude toward his middle class employees. Felix notes Drahi has already created tremendous controversy in Portugal by stonewalling payment of suppliers and vendors’ outstanding invoices until the company secures written agreements promising enormous discounts, often amounting to 30-40% off current prices. That, in turn, can cause layoffs and salary reductions at suppliers, enriching Altice but hurting just about everyone else.

Drahi: Looking to run faster than the music

France’s Economic Minister Macron seems to agree, lashing out at Drahi’s now familiar business model.

“Is it good for the economy? The answer is no,” he said. “Is it good for investment? The answer is no. Is it good for employment? The answer is no.”

Macron also expressed concern that Drahi’s telecom empire was growing too fast — and taking on too much debt too quickly.

“I have a big concern in terms of leverage on Drahi due to its size and its place in our economy,” he said. “That’s my responsibility to look at it. He is looking to run faster than the music.”

Macron

Macron

Macron and his staff are concerned many of Drahi’s top executives and advisers come from New York’s financial markets and investment banks who either left or were pushed out in the turmoil of the Great Recession. Macron worries Drahi could be constructing the world’s first “too big to fail” cable operator that could cost nearly 100,000 jobs and require a government bailout if things turn sour.

Promised Service Improvement & Upgrades

With each cable consolidation merger, companies routinely promise subscribers will benefit from improved service. As mentioned earlier, unnamed analysts predict Drahi could invest up to $30 billion to improve the cable companies he buys in the United States.

“Which Altice are they talking about,” asks Stop the Cap! reader François Ribaud. “Altice owns Numericable, the largest cable company in metropolitan France, and if they are spending money it certainly was not on us.”

Ribaud’s original cable company Noos was acquired by Numericable in a massive acquisition effort in the early 2000s which today leaves almost all of France served by a single cable operator — Numericable.

“Things stagnated after that because Patrick Drahi does not spend money unless he has to,” Ribaud said. “The set-top boxes are outdated, the broadband service is often oversold, and heaven help you if there are service problems. The North African call center customer service help is an example for Numericable of getting what you pay for. They are awful.”

Charles Dolan

Charles Dolan

Drahi’s competitors in the fixed line and wireless markets eventually forced his wallet open, requiring an investment in fiber optics to help it remain a player in one of Europe’s most contentious telecommunications price wars. Drahi’s company in France lost subscribers as its network suffered from a lack of needed upgrades to manage demand.

“Now that I live in New York, I can say it is completely different than in France,” Ribaud said. “There is certainly no price war here, so there is no need to spend more money. The only people spending money will be customers I assure you.”

The Creator of Home Box Office Signs Off

Cablevision has been rumored “for sale” for so long without a deal, many analysts predicted the founding family would never let go of the company founded by 88-year old Charles Dolan, who helped transform what used to be a rural service to help customers receive distant over the air stations over a shared antenna into an urban and suburban subscription television business. Dolan made cable television something more.

Dolan founded Home Box Office (HBO), a commercial-free premium movie and entertainment channel free from the network “standards and practices” divisions that removed profanity and edited out violence from movies originally shown intact in theaters.

Cablevision systems used to cover 2.9 million subscribers in 19 states, many in small and medium-sized communities. By the 1990s, cable systems were swapped or sold to build regional empire-like service areas. Cablevision was no different, retreating to just three large service areas in New York, Cleveland and Boston. Soon thereafter, Cablevision would only serve metropolitan New York, particularly in Brooklyn, the Bronx, Long Island, parts of northern New Jersey and Connecticut, while exiting Cleveland and Boston.

The New York Post reported secret talks for the sale began in June, and a deal was complete at the end of August. Some of the discussions took place on a yacht floating around the Mediterranean. The Post reports the sale of Cablevision was an emotional experience for Dolan and he still thinks of the people who work there as family. But in the end, the Dolan family’s proceeds from the sale will reinforce their already well-established wealth and prominence. The same is unlikely to be true for Cablevision’s employees and customers under Drahi’s cost-conscious leadership.

Altice Acquires Cablevision for $17.7 Billion; Generous Offer Too Good to Pass Up

Altice President Patrick Drahi at the French National Assembly in Paris, May 27, 2015. REUTERS/Philippe Wojazer

Altice President Patrick Drahi at the French National Assembly in Paris, May 27, 2015. REUTERS/Philippe Wojazer

PARIS (Reuters) – Altice NV, one of the most acquisitive European telecoms groups, made a major move into the U.S. market on Thursday with a deal to buy fourth-largest operator Cablevision Systems Corp for $17.7 billion including debt.

Altice founder Patrick Drahi, who built a telecoms and cable empire via debt-fueled acquisitions in France, Portugal and Israel, is expected to apply his cost-cutting zeal to achieve a target of $900 million in annual synergies at Cablevision.

Drahi told a Goldman Sachs conference in New York that more than 300 Cablevision employees earn pay checks of over $300,000.

“This we will change,” said the French-Israeli billionaire.

Drahi entered the United States in May by buying a small, St Louis-based cable group called Suddenlink for $9.1 billion. He declared at the time that Altice would look for more acquisitions and eventually earn half its revenue from the United States.

In talks that began in June, Drahi convinced Charles Dolan, the patriarch of the Irish-American family that owns Cablevision, to sell. Cablevision has 3.1 million customers in New York, Connecticut and New Jersey, but it has struggled with declining video subscribers like other cable companies.

“This deal takes us into the most affluent part of the United States and will be a good basis for further expansion,” said Altice Chief Executive Dexter Goei on a conference call. “We think there are significant ways to improve profitability by pooling purchasing and other costs between Cablevision and Suddenlink.”

optimumAltice will pay $34.90 in cash per share, a 22 percent premium to Wednesday’s closing price of $28.54, giving Cablevision an equity value of $10 billion.

Shares in Altice closed up 0.68 percent at 24.5 euros, after gaining nearly 13 percent at the open. Cablevision shares rose 13.9 percent to $32.51, close to the offer price and a sign that few investors expect another bidder for Cablevision to emerge.

Altice’s bid for Cablevision will face scrutiny from the Federal Communications Commission and the Department of Justice, but analysts at Jefferies said they expected “little pushback.”

‘LITTLE PUSHBACK’ SEEN

Investors who back Drahi’s acquisition spree have made Altice the best-performing telecom stock in Europe this year, up more than 50 percent before Thursday’s deal, compared with an 8.4 percent rise in the sector index .

It is unclear what other assets Altice may target in the United States, where it will have to deal with fast-changing competition as cable groups consolidate and cope with subscriber losses to video streaming services such as Netflix.

alticeDrahi has said Altice may look at properties to be sold under Charter Communications Inc’s takeover of Time Warner Cable Inc. Another target could be Cox Communications, but the closely held company has repeatedly said it is not for sale.

Drahi has also said that Altice could buy a U.S. wireless carrier “someday” to offer subscribers a “quadruple play” of Internet, television, and fixed and mobile telecoms.

Altice, which has been snapping up television and radio targets in Europe in recent months, will become the owner of the Newsday newspaper and local news channel News 12 Networks as part of the Cablevision deal.

Goei said the company would not interfere in the editorial side of the loss-making media businesses but would aim to run them more efficiently. He ruled out divesting the units.

He said the goal was to improve Cablevision’s margins to the “low 40s range” compared with current level of 28 percent, which lags the sector average of 35 percent.

Jim Dolan

Jim Dolan

Allan Nichols, analyst at investment research firm Morningstar, said he was “somewhat skeptical” that Altice could deliver on the savings since content costs were higher in the United States than in Europe.

“That said, Altice has an impressive record of cost reduction, and we expect it will be much more aggressive than the Dolan family in cutting expenses, including reducing employee count,” he wrote in a note.

To finance the deal, Altice will raise $8.6 billion in new debt mostly at Cablevision and none at its European holding, which is already highly leveraged. It will also raise $3.3 billion in equity, 70 percent by issuing shares at Altice and 30 percent from private equity fund BC Partners and Canadian investment fund CPP Investment Board, backers of Suddenlink.

Altice, whose corporate headquarters are in the Netherlands, said it would issue Class A shares, which have fewer voting rights than the B shares held largely by Drahi. Altice created the dual-class structure in June to allow more stock deals without Drahi losing control.

Cablevision CEO James Dolan said in a statement the time was right for new ownership and he and his family “believe that Patrick Drahi and Altice will be truly worthy successors.”

The Dolans will continue to own media and sports assets through AMC Networks and The Madison Square Garden Company — owner of the New York Rangers and New York Knicks — which are not part of the deal.

JP Morgan, BNP Paribas and Barclays have committed to finance the deal and also advised Altice on it. Cablevision was advised by Bank of America Merrill Lynch, Guggenheim Securities and PJT Partners.

http://phillipdampier.com/video/CNBC A deal 20 years in the making Altice to buy Cablevision 9-17-15.flv

CNBC reports Cablevision has finally sold out… to Altice NV a cable operator that dominates in France. (2:51)

http://phillipdampier.com/video/CNBC Mergers in telecoms sector not over yet 9-17-15.flv

Neil Campling, global TMT analyst at Aviate Global, says there could be further mergers in the telecoms market following Altice’s acquisition of U.S. provider Cablevision. (3:20)

 (By Leila Abboud. Additional reporting by Rob Smith in London and Liana B. Baker and Malathi Nayak in New York; Writing by Christian Plumb; Editing by Andrew Callus and Mark Potter)

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.”

Search This Site:

Contributions:

Recent Comments:

  • Dave Hancock: This could (and should be) a SIGNIFICANT ELECTION ISSUE. A direct attack on consumers via unregulated internet rates! My note already in to my "re...
  • Web Stuff: I live in a CenturyLink service area and my dealings with them lead me to believe that they are not really interested in having customers... They onl...
  • shelley Haitko: 2/9/16 Decades changed their format recently , Will classic shows be seen on weekends? Comcast New Haven, Ct. 06515 won,t let me have you guys. Shelle...
  • Telephone Man: Okay I am in no way sticking up for this practice however I am going to explain something to all that do not know how this little game works. Let m...
  • BobInIllinois: Comcast owns 49% of Midco, per Wikipedia https://en.wikipedia.org/wiki/Midco...
  • Tony: Data caps have been updated. Better, but still annoying. Web Surfer - 200GB G5 - 450GB G10 - 550GB G15 - 700GB Dream 60 - 800GB Dream 100 - 10...
  • Michael Elling: Net neutrality is an unsupportable contrivance. It was coined by someone (Tim Wu) who loved the results of "equal access" but didn't want to put up w...
  • Froggy2011: cable will go bankrupt except for big companies using them. eventually even them leaving them. why because eventually the free movie and show market w...
  • me: I cut in 2009. At first I tried to keep up. But then I realized it did not really mater anymore. *I* *AM* *FREE*!!!! The first year or so was toug...
  • Jonny: My smaller cable company Suddenlink (1.4M customers) started the same thing. 250GB cap with with their medium speed of 50mbps. They are only doing thi...
  • Joe V: Man these guys just don't get it. Not to worry, just as the music industry learned the hard way that to piss off their customers by giving them crap, ...
  • Mike D.: The TV providers have never been willing to fight for the consumer with the other conglomerates who bundled crap with one or two channels of good cont...

Your Account: