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Altice Raising Rates Across the Board for Optimum/Cablevision Customers

Phillip Dampier May 7, 2018 Altice NV, Cablevision, Consumer News No Comments

Altice, which operates Cablevision’s Optimum brand cable service in New York, New Jersey, and Connecticut, has informed regulators of a broad-based “rate event” that will take effect on June 1, 2018. Unless a customer is currently enrolled in a price-locked promotion, these new rates generally affect all customers, except as noted.

Altice told Connecticut regulators the rate changes “reflect the rising cost of programming and our significant investment in the customer experience. Optimum pricing is competitive when compared with other providers, and the Company continues to offer a wide array of products to meet all consumer needs and budgets.”

Altice has told Wall Street a different story, noting it is prioritizing a reduction of the company’s massive debts that came from aggressive acquisitions of other cable systems. Altice also told investors in February Altice USA will distribute a special cash dividend to shareholders of $1.5 billion to celebrate Altice USA’s split from its Netherlands-based parent company Altice NV. The company also told shareholders it was happy with its latest profitable results, showing Altice’s residential business growing to just over 80% of total revenue, up 2.9% in 2017 and 1.8% in the fourth quarter of 2017. Business services is growing in mid single digits.

Altice also plans to continue increasing marketing on its advanced all-in-one-box solution — Altice One, which costs $25 a month.

Changes effective June 1, 2018:

Set-Top Box: For customers who elect to receive a traditional set-top box from Optimum, the monthly rate will increase from $10.00 to $11.00. Does not apply to existing commercial customers.

CableCARD: For customers who request a CableCARD from Optimum, the monthly rate will increase from $2.00 to $2.50.

Sports Surcharge: To partially cover the continually increasing costs that programmers charge Altice to carry sports, the Sports Surcharge will increase from $6.97 to $7.97, for customers subscribing to the Optimum Core or higher tiers. (Broadcast Basic & Economy customers are not charged the Sports Surcharge.)

Broadcast TV Surcharge: New residential Broadcast Basic and above customers currently pay a $3.99 monthly “Broadcast TV Surcharge” to partially offset the high costs that broadcasters charge. This fee will increase to $4.99 a month and will also be applied to existing Broadcast Basic residential customers and new commercial customers.

Broadcast Basic Tier: New residential customers currently pay $19.99 per month for Broadcast Basic. To align basic tier rates, this same rate will apply to existing residential Broadcast Basic customers currently paying a monthly rate over $13.95. As an accommodation to existing Basic Tier customers currently paying $13.95/month, the new monthly Basic rate will be $14.95.

Sports and Entertainment Package: This a la carte subscription will increase from $8.95 to $10.00.

Residential Service Protection Plan: In addition to the free 24/7 technical support that Optimum offers all customers, the optional Service Protection plan covers any fees assessed for service visits. To align our rates, existing customers who currently pay $4.99/month will pay the same $6.99 fee currently applicable to new customers.

Restoration Fee: Optimum customers who do not pay their bill within 30 days of the due date, despite multiple reminder notices, are currently subject to a $4.99 per service fee to restore their service. Effective June 1, the minimum service restoration fee will be $10.00 for single and double product customers and $15.00 for triple product customers.

Installation Fee: Starting June 1, the prices paid by customers for standard and premium installations will increase from $69.00 to $99.00 and $99.00 to $129.00, respectively. Customers are being notified 30 days in advance for each of these changes through bill messages or inserts. In addition, rate information will be available on our website at www.optimum.net.

Altice USA: 90% of Our New Customers Want Broadband Speeds 100+ Mbps

Cablevision customers get very attractive promotions in the highly competitive northeastern United States, while Suddenlink customers in more rural areas pay more.

The majority of Cablevision and Suddenlink broadband customers want speeds of 100 Mbps or greater from the Altice-owned cable operators, and average monthly data usage by those customers is now reaching 200 GB per month.

Those statistics were part of a quarterly financial results presentation by Altice USA executives about how the company is doing in the United States.

Altice’s cable holdings include Cablevision, serving a generally affluent customer base in and around the New York City area where Verizon FiOS is its biggest competitor, and Suddenlink, which serves in less competitive markets where local economies are often challenged and phone company DSL still has a significant presence.

Regardless of whether customers receive broadband from Cablevision or Suddenlink, Altice USA CEO Dexter Goei made it clear consumers want faster internet service and are consuming exponentially more data than ever before.

Goei said Altice will continue to increase internet speeds over its existing hybrid fiber-coax network (HFC) even as it builds out its fiber to the home replacement network in some areas. At least 95% of Cablevision customers can now subscribe to 400 Mbps broadband on the company’s legacy HFC network. Around 72% of Suddenlink customers can get similar speeds today. Gigabit speed is available to 29% of Altice USA customers.

Goei said 90% of new Cablevision and Suddenlink customers now choose internet plans featuring 100 Mbps or faster broadband. The average data use of those customers “is now reaching about 200 GB” per month, Goei reported. For customers on HFC systems, Goei said the maximum speed Altice’s implementation of DOCSIS 3 can support is around 600 Mbps, depending on how many customers are sharing the connection. As customers transition to fiber service in the northeast, faster speeds are planned. In fact, Goei wants Cablevision to offer speeds even faster than Verizon FiOS, its chief competitor.

“In terms of the speed capabilities, we’ll have the ability to do higher speeds than the competition,” Goei said.

Altice USA’s fiber-to-the-home (FTTH) deployment is “well underway” in New York, New Jersey, and Connecticut, with plans to connect several hundred thousand customers to the new network starting later this year. Goei told investors Altice was accelerating the rollout this year with the hope of further reducing network and customer operation costs related to servicing the older coaxial network.

Cablevision and Suddenlink will gradually be rebranded as Altice, and the company has begun familiarizing customers with the new brand name in various ways, including the rollout of its new deluxe set-top box, called Altice One.

“This is our new entertainment platform with an all in one box, including TV, internet, Wi-Fi, integrated apps such as Netflix and a voice activated remote control,” said Goei. “The service includes an improved Wi-Fi experience […] as many TV boxes double up as Wi-Fi repeaters around the home. This is a key part of our strategy of enhancing the customer experience and we’ll have the capacity for ongoing upgrades and the addition of new apps as they become available.”

But that new platform comes at a cost. Currently, Cablevision customers can pay as much as $10 for each set-top box and $5 for a cable modem. Altice One is regularly priced at $25 a month — $10 more for a customer that has one television set-top box and cable modem. That makes Altice’s box among the most costly in the cable industry. The company is trying to hide the cost of its box by bundling it into promotions targeting price sensitive new customers.

In fact, the cost of service is increasingly becoming a factor, especially for Suddenlink customers. Over the last two years, Altice has been “harmonizing” Suddenlink’s rate plans, which used to be set based on the technical capabilities and performance of each cable system. Goei said Suddenlink comprised “five or six different customer bases” — each served by cable systems with different capabilities and rate plans. In the last two years, Suddenlink customers have been introduced to new rate plans, and some are paying considerably higher rates than before, especially for equipment and surcharges.

“All of that activity was probably more than we ever wanted to or anticipated as harmonizing all the different variables is not that easy,” Goei said. “And so we made a very concerted effort to not implement a usual or industry like price increase at the end of 2017, given all the various changes that happened over both customer bases as we harmonized them.” But Goei added the reprieve from rate hikes won’t last forever, promising a “rate event” strategy sometime this year, different from rate changes in past years.

Altice is emphasizing the progress it is making boosting internet speeds at its Cablevision and Suddenlink cable systems.

What Suddenlink and Cablevision charge for service is very dependent on what the competition is offering in Altice’s various markets. Goei paradoxically noted that some of the most attractive rates go to customers living in the most affluent areas of the New York Tri-State Area because of intense competition from Verizon FiOS. Prices have remained so low historically that, in Goei’s view, “it makes it very difficult for third parties to come into these markets” and compete with attractive offers that can match Cablevision. That also explains why Cablevision customers do not deal with data caps while Suddenlink customers often do.

Goei

Conversely, in Suddenlink service areas where less capable competitors exist, prices can be higher and service is considered less affordable. As a result, financial analysts have noted Suddenlink’s broadband growth has been anemic since Altice bought the company, presumably because would-be customers cannot afford the service or have chosen a more economic package sold by the phone company, even if it less capable.

Goei promised Altice would be more “nimble” in the future about targeting pricing in different service areas, taking current conditions on the ground into account when setting rates.

In more general terms, Altice is dealing with the same challenges most cable operators are facing these days. Cord-cutting continues to result in reduced numbers of video subscribers. The company also recently endured a multi-week programming dispute with Starz that cost the company video subscribers in the Cablevision service area. The dispute eventually ended with a new multi-year affiliation agreement that allows Altice systems to carry Starz and Starz Encore networks, on-demand services, and online access for several years.

But Altice clearly sees broadband as its key product going forward, which is why the company is upgrading its Cablevision and Suddenlink systems to support faster internet speeds.

Cablevision, Suddenlink Will Bail Out Altice’s Struggling European Business

Phillip Dampier January 11, 2018 Altice NV, Cablevision, Competition, Consumer News, Suddenlink No Comments

Altice’s American cable companies will help bail out the parent company’s struggling French operations.

Cablevision and Suddenlink are coming to the rescue of their parent company Altice in a deal that will transfer $1.5 billion from the two American cable operators to help bail out its struggling European operation, according to the Wall Street Journal.

Founding shareholder Patrick Drahi is splitting his U.S. cable operations away from Altice NV, spinning them off into a new publicly traded company known as Altice USA. But Drahi has also ordered the new U.S. company to pay a one time $1.5 billion dividend, most of which will end up in the bank account of Altice NV to help the parent company reduce its leveraged debts that have been largely responsible for its falling stock price.

While Cablevision and Suddenlink customers can look forward to additional rate increases, shareholders of Altice USA are being enticed to invest with sweeteners including an unexpected dividend payout and a sudden decision by Drahi to forego his usual management fee charged to companies he acquires to acquaint them with the “Altice Way” of doing business. That fee can amount to an initial $30 million payment plus an ongoing percentage (usually 2-3%) of a Drahi-acquired company’s future revenue.

Altice USA believes it can afford the bailout thanks to President Donald Trump’s tax cuts. In addition to using $2 billion of anticipated savings to pay for share buybacks, Altice USA hopes to quickly recoup an additional $1.5 billion from reduced taxes and revenue increases it will earn from customer rate hikes and new broadband customers.

Altice NV, soon to be renamed Altice Europe, was a veritable disaster financially — called the “worst large-cap performer in Europe” in 2017. At the center of Altice’s European operations remains the dismally performing SFR-Numericable, the French wireless and cable company. After Drahi acquired the company, he slashed costs and investments and threatened to lay off one-third of its workforce. Service deteriorated and customers canceled in droves. Investors starting selling their Altice shares around Halloween of 2017, after watching Mr. Drahi pile on unprecedented debt and become convinced Drahi’s highly leveraged company could not succeed.

The Wall Street Journal cautioned potential investors in Altice USA that the new venture will gladly take your money, but give shareholders almost no say in how it will be governed. Drahi has engineered his continued dominance of the new entity with control of at least 51% of voting rights.

Wall Street analysts are largely positive about the deal, noting Altice USA won’t be attached to Altice’s European money troubles and the company will have the ability to extract revenue from its customers with ongoing rate increases.

Fierce Cable Predicts 2018 Will Be A Year of Big Cable Mergers

While giant cable company mergers unexpectedly took a breather in 2017, Fierce Cable predicts this year isn’t likely to be a repeat of last year.

“With polls showing Democrats poised to begin sweeping back into power with the 2018 midterm elections, look for cable operators to make hay on the current regulatory climate and start turning their rivals into that most precious of resources: scale,” writes Daniel Frankel.

With time for large cable operators to get easy approval of merger deals from deregulation-minded Republicans potentially running out, 2018 could bring dramatic consolidation in the cable industry, with Comcast a likely buyer and Charter Communications a potential seller… if the offer is good enough.

Many industry observers expected the first year of the Trump Administration to be a banner year for cable mergers, especially with the entry of Altice, a European cable conglomerate known for its willingness to overpay to acquire cable operators. Altice has since run into significant financial challenges and investor blowback, forcing the company to shelve acquisition plans for now and focus on debt reduction and developing a stronger business plan to operate its ailing cable and wireless properties in Europe. Altice USA, which owns Suddenlink and Cablevision, has not shelved its plans to upgrade many of its customers to fiber to the home service, but is also no longer seen as an immediate bidder for Charter, Cable One, or WideOpenWest.

Fierce Cable expects Comcast to respond to AT&T’s merger with Time Warner, Inc., assuming the deal successfully overcomes Department of Justice objections in court, and 21st Century Fox’s asset sales to Disney. Both transactions threaten to consolidate programming production and distribution around an even smaller group of media giants, which could challenge Comcast’s NBCUniversal unit as well as the cost of cable programming networks. Comcast has shied away from acquisitions after an embarrassing failure of its attempt to buy Time Warner Cable a few years ago.

If Comcast wants to build scale, it would naturally target an acquisition of Charter Communications, the second largest cable company in the country. The deal would give Comcast dominance over the New York and Los Angeles media markets and broadband service provision across most major American cities. Comcast could also seek a less controversial acquisition of Cox Communications, one of the few major independent cable companies left. But Comcast could also seek acquisitions in Hollywood to bolster its production capabilities.

Most other cable acquisition options would be considered scraps by the largest operators. Altice could be persuaded to prematurely exit the American market and sell Cablevision and Suddenlink if convinced it has no chance of building adequate scale to stand with Comcast and Charter. Beyond that are smaller rural and regional operators including Mediacom, Midco, WOW!, GTT, RCN, and many others that serve fewer than one million customers.

Company executives may be hoping the objections to the AT&T/Time Warner deal are an anomaly for the Trump Administration. But it’s clear that whatever smooth waters exist for upcoming mergers will get choppy as the midterm elections approach. Should Democrats win back the House and/or Senate, life will get considerably more difficult for future media consolidation deals.

Altice’s World Comes Crashing Down; No More Acquisitions Until Massive Debt Reduced

Drahi’s World

Shareholders have shaken Patrick Drahi’s dreams of being the next king of telecom in the United States by plunging Altice’s share price by more than a third in a single week, forcing Drahi to announce he won’t be making any additional acquisitions until the company’s staggering $59 billion debt is repaid.

Investors were also given a sacrificial lamb from the very sudden departure of Michel Combes, the ruthless cost-cutter that also served as titular operations leader of Altice’s European operations. Combes paid the ultimate price for the continued mediocre financial results at SFR-Numericable, which provides wireless and cable service in France and is Altice’s largest holding. That departure comes only two months after Michel Paulin, Drahi’s right-hand man at SFR, was also shown the door.

Drahi made it clear that he is formally taking back control of Altice, although observers have claimed he has always been in charge. European business analysts have uniformly described Altice as a company mired in crisis management, as European investors lose trust in Drahi’s business philosophy, which depends heavily on acquiring companies with other people’s money.

Drahi’s prominence in France came with his acquisition of SFR-Numericable just three years ago. SFR is France’s fourth largest wireless carrier and the company also has a prominent place in the wired telecom market, providing cable television, phone and internet service. Drahi has attracted investors with promises to wring every possible concession out of the companies he acquires. For financial markets, Drahi’s best trait is his ruthless cost-cutting and employee reductions. In France, employees have reported providing their own copy paper and toner cartridges for empty office printers, occasionally supply their own toiletries, and take turns mopping floors and vacuuming offices.

Employees of Altice-owned Suddenlink have been forced to take requests for replacement coffee machines for break rooms to skeptical company committees that review virtually every transaction. More recently, Cablevision technicians are complaining Altice eliminated their winter apparel budget, leaving workers without coats, bibs, overalls, or rain gear for the upcoming winter. Technicians will have to pay for their unsupplied winter gear out-of-pocket.

While shareholders and financial analysts bid up Altice stock on the premise that cost cutting would deliver better results, the fact France has a highly competitive telecom market brought unintended consequences for Altice and its shareholders: customers fled as cost cuts took their toll on service quality and support.

Competition Matters

Between the end of 2014 and mid-2017, SFR lost 514,000 subscribers in wired internet and 1.7 million mobile customers, delighting Altice’s competitors Orange, Free, and Bouygues Telecom. SFR’s internet problems are well-known across France. Altice’s attempt to offer a “one-box” solution for internet and television service has been of dubious value. Its equipment is notorious for failures, has compatibility problems with online games, and has high support costs. Altice is starting to bring similar equipment to the United States to supply its Cablevision customers, and technicians report many of the same problems are occurring in the U.S., adding they are skeptical Altice’s Le Box, known here as Altice One, will perform well for customers.

The biggest enemy of Altice in Europe is robust competition, which has allowed dissatisfied customers to switch providers in droves. SFR-Numericable, despite promises of fiber-fast speeds, has endured complaints about slow and uneven speeds and persistent service outages. Drahi’s original business plan was to upgrade broadband speeds and performance to win over France’s remaining DSL customers. That worked for a time, according to the French newspaper Libération, but not for long.

Paulin, who used to run the division responsible for Altice’s wired broadband, complained bitterly competitors have “polluted” his marketing campaign by advertising their 100% fiber optic networks, educating customers that Altice isn’t selling that. That ruined Drahi’s plans to slowly upgrade services with the belief customers are more captive to their broadband provider and wouldn’t switch providers if Altice took its time.

A competitor put it this way: “SFR’s remaining DSL customers have indeed migrated at the encouragement of SFR-Numericable… to Orange or Free’s 100% fiber optic network offerings.”

Accusations about service problems and slow upgrades were readily believed by customers because Altice drew headlines for its ruthless efforts to save money.

“First, the restructuring – cuts in spending and pressure on suppliers – has shaped its image as a bad payer,” notes the newspaper. “At the end of 2015, SFR was fined $400,000 for its late payments. Second, package price increases, imposed discreetly and justified by the addition of exclusive video content, annoyed customers when they found extra charges on their bills. Finally, recurring network problems have undermined user trust. The new satisfaction survey of UFC-Que declared SFR was in last place among operators.”

Altice’s one-box solution for TV and internet has proven troublesome for customers in Europe.

Altice blamed most of SFR’s problems on its previous owner, Vivendi, who it claimed underinvested in its network for years. But customers were in no mood to stick around waiting for upgrades. Throughout 2015 and 2016, customers fled, finally forcing Drahi to embark on costly upgrades of SFR’s wireless and broadband networks. Drahi’s investments in SFR amounted to only $2 billion in 2014 and $2.12 billion in 2015, but dramatically increased to $2.71 billion in 2016. By the beginning of 2017, the upgrades stemmed some of the customer losses as independent tests showed SFR’s 4G LTE service finally became competitive with France’s top two providers. SFR commissioned 5,221 new 4G cell sites over the last 12 months, beating 4,333 for Bouygues Telecom, 3,543 for Orange and a distant 2,010 for low-cost carrier Free.

Drahi also made headlines last summer by announcing SFR-Numericable was completely scrapping its coaxial cable networks in France (as well as in Cablevision territory in the United States) to move entirely to optical fiber technology, even in the most rural service areas. But the fiber upgrades are not being financed with cash on hand at Altice. Libération reports the $1.78 billion Altice will need to spend on fiber upgrades for France alone will be financed by more bank loans. Drahi hopes to eventually offer bonds to investors to internally finance fiber upgrades.

The Suddenlink/Cablevision Cash Machine

Drahi was banking on his ability to manage Altice’s debt and boost revenue by milking U.S. cable customers. Unlike in France, where competition and regulation have kept cable television and broadband prices much lower than in North America, Drahi saw enormous potential from the U.S. telecom market, where Americans routinely pay double or even triple the price many Europeans pay for television and internet access. Drahi sold investors on the prospects of slashing costs, initiating employee cutbacks, and raising prices for acquired U.S. cable companies. Suddenlink customers are particularly captive to cable broadband because the only alternative in many Suddenlink markets is slow speed DSL. Cablevision faces fierce competition from Verizon FiOS, but Verizon has sought to ease revenue-eating promotions that the company has offered in prior years. Both U.S. cable operators have raised prices since Altice acquired them.

Altice’s investors demand short-term results more than long-term prospects, and Altice’s heavy reliance on bank loans at a time when interest rates are gradually rising could spell peril in the future. Drahi used to promote a 38% profit margin to his investors with predictions of 45% in the future. Altice recently removed all predictions of its margins going forward, a sign Altice is being forced to spend more money than it planned on network upgrades and expensive exclusive content deals for French cable television customers that might otherwise switch providers to secure a better deal.

Increasing costs and decreasing customers pushed Altice’s net profit in the red in 2016. The company also faces a lump sum loan payment of $4.72 billion in 2022. For now, Drahi will continue to refinance his portfolio of loans to secure lower interest rates and better repayment terms, but investors no longer believe Altice can continue to carry, much less increase its debt load.

That has forced Drahi to declare he is suspending further acquisitions at Altice and will instead spend resources on paying down its current debts. If he doesn’t, any recession could spell doom for Altice if his bankers are no longer willing to offer favorable credit terms.

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