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Windstream Teaches AT&T, Comcast, Verizon, Others How to Avoid Federal Income Taxes

A gift from the American taxpayer, willing to make up the difference.

Another corporate tax cut

Wall Street rallied around big telecommunications company stocks this week as news spread that Windstream has found a way to avoid paying federal income tax by converting its copper and fiber networks and other property assets into a tax-exempt trust.

Windstream says it has already won Internal Revenue Service approval to convert all of its network assets into a publicly traded “real estate investment trust.” REIT’s pay no federal income taxes, and if other large telecom companies follow Windstream’s lead, taxpayers will have to make up the estimated $12 billion in lost tax revenue annually.

Investors are excited by the prospect of a major reduction in tax exposure for some of America’s richest telecommunications companies. Windstream was rewarded the most with a 12 percent boost in its share price – a two-year high for the largely rural phone company. But AT&T, Verizon, Comcast, Time Warner Cable, and Cablevision also saw stock prices rising over the possibility of major increases in dividend payouts to shareholders from the proceeds of the tax savings.

REIT conversions are just the latest trick in the book corporations have used to cut, if not eliminate most of their tax liabilities. REITs are exempt from federal taxes as long as they distribute 90 percent of taxable earnings back to shareholders. Democrats in Congress have been busy fighting their Republican colleagues offer efforts to drop the practice of inversion — allowing companies to cut taxes by relocating offshore. Robert Williams, an independent corporate tax consultant, told Bloomberg News the Democrats have their hands full with that this year and are unlikely to be able to also devote resources to closing the REIT tax loophole.

“Management teams will surely look closely at emulating Windstream because the tax savings are potentially so significant,” said Craig Moffett, an analyst at MoffettNathanson LLC, in a note. “For a company like AT&T, where free cash flow has been under pressure and management has been willing to push hard to save on taxes, the appeal must surely be great.”

staxIf a high-profile phone or cable company moves to enact an REIT, that might be enough to provoke Congress to act, warned Moffett.

“The biggest hurdle in this process is getting the private letter ruling from the IRS, and we’ve got that,” David Avery, a spokesman for Windstream, told Bloomberg. The deal doesn’t need the consent of the Federal Communications Commission, Avery added.

Windstream’s tax savings will cut company debt by around $3.2 billion and produce about $115 million annually in free cash flow. Although Windstream chief financial officer Tony Thomas vaguely promised to use some of the money to invest in broadband upgrades, he was more specific about the benefits Windstream’s REIT will have on the company’s growth agenda. It can use the savings to “acquire other network assets to grow,” — business jargon meaning more merger and acquisition deals, this time fueled by Windstream’s slashed tax bill.

Wall Street investment banks paid to advise on Windstream’s REIT conversion are promoting the concept to other telecom companies as easy to replicate and profoundly profitable. But who should share in the new found wealth?

“People are asking the question if these tax benefits should be passed on to the end user — you and I when we pay our phone or cable bill — versus going to the corporation,” said Phil Owens, vice president at Green Street Advisors, a real estate research firm in Newport Beach, California, that has counseled companies like Equinix on REIT conversions.

Don’t count on it.

Charter’s CEO Remaking Company in Cablevision’s Image; Yet Another Cablevision Exec Poached

Phillip Dampier July 2, 2014 Cablevision, Charter No Comments

uhaulSince Thomas Rutledge was hired on as CEO at Charter Communications, a steady stream of his former colleagues from Cablevision’s executive suites have followed him to his new employer.

This week, James Nuzzo announced his departure from Cablevision, taking the position of executive vice president for business planning at Charter.

Nuzzo will report to Charter chief operating officer, John Bickham, and will oversee business planning for the company, working with the field operations, customer care, marketing, network operations, technology and product teams.

“Jim’s extensive background and experience in the cable industry makes him the ideal choice to lead Charter’s Business Planning efforts,” said Bickham. “During his time at Cablevision, Jim was instrumental in building a highly effective Business Planning organization and I am confident he will provide Charter the same great leadership.”

Bickham should know as he served as president of cable & communications at Cablevision until Rutledge hired him away to join him at Charter in 2012.

charter-communicationsNuzzo has been with Cablevision since 1986, so his sudden choice to leave, along with other long-time Cablevision executives, continues to fuel speculation Cablevision won’t be around much longer, especially if Comcast successfully wins approval to acquire Time Warner Cable. Of course, Wall Street analysts have made similar predictions for years without anything to show for it.

The Dolan family has controlled Cablevision since its start in 1973. The company used to own cable systems scattered across the country, mostly serving suburban and rural areas outside of its core northeastern service area in the tri-state region of New York, New Jersey, and Connecticut. At its peak in the mid-1990s Cablevision offered service to 2.9 million subscribers in 19 states, but eventually refocused attention on the tri-state, selling its other cable properties further afield.

Today, Charter resembles Cablevision in the 1990s — willing to grow and expand beyond the cable systems it already owns.

Helping them accomplish that includes these former Cablevision executives hired by Charter this spring:

  • Jim Blackley, executive vice president of engineering;
  • Catherine Bohigian, executive vice president of government affairs;
  • Jon Hargis, chief marketing officer;
  • Kathleen Mayo, executive vice president of customer operations;
  • Gary Schanman, executive vice president;

Rutledge himself used to be Cablevision’s chief operating officer but left for Charter in 2011.

Cablevision Promotes More Dolan Family Members to Top Management Positions

Phillip Dampier April 10, 2014 Cablevision, Consumer News No Comments
Kristin and James Dolan

Kristin and James Dolan

Cablevision CEO James Dolan has appointed his wife Kristin to be Cablevision’s next chief operating officer and his brother-in-law Brian Sweeney to serve as Cablevision’s president.

Kristin has been with Cablevision for 24 years and has been repeatedly promoted, first as senior executive vice president of product management and marketing in November 2011 and then president of Optimum services — the position that overseas most of Cablevision’s day-to-day cable operations — last year. The latest promotion come at a time when Kristin and James remain separated on what they call “a trial basis.”

“Brian and Kristin have each played critical senior roles in our efforts over the past two years to reposition Cablevision as a leader in customer service and product innovation in this industry,” Dolan wrote in a statement. “[They] helped propel Cablevision forward during a time of great change.”

The promotions fill a significant hole in top management opened when chief operating officer Tom Rutledge quit two years ago to take over as chief executive of Charter Communications, poaching several former Cablevision executives as he exited. Kristin is his replacement.

Customers should notice little, if any changes as a result of the promotions. But some investors have complained that the Dolan family’s tight control over the cable company serving suburban New York City communities remains a underperformer in its operating service areas, nearly all also served by Verizon’s fiber optic service FiOS. Cablevision has been forced to spend capital on service upgrades to keep up with FiOS’ faster broadband services, as well as improve customer service to keep customers.

The original version of this story mis-identified Mr. Sweeney as Jim Dolan’s son-in-law. We regret the error.

Cablevision Execs Sued for Excessive Pay; $80 Million Paid to Dolan Family Over 3 Years

Phillip Dampier March 10, 2014 Cablevision, Consumer News No Comments
Charles Dolan, Cablevision CEO

Charles Dolan, Cablevision CEO

Cablevision Systems Corp.’s board of directors have been sued by an investor for wrongfully approving “grossly excessive” compensation for Chairman Charles Dolan and members of his family who serve as executives at the fifth-largest U.S. cable company.

The board of Bethpage, N.Y.-based Cablevision, which includes Dolan’s three daughters, approved more than $80 million in pay and benefits for the firm’s founder and his son over the last three years while the company piled up financial losses, according to the plaintiff’s suit.

Charles Dolan founded the cable company in 1973. Although others at the company have taken a larger role managing its day-to-day operations, Charles still won approval of $41 million in compensation for himself over a three-year period beginning in 2010. His son James was awarded $40 million, despite the fact he seems to be losing interest in Cablevision, preferring to devote more time to his rock band – JD & The Straight Shot – where he serves as lead singer, according to the lawsuit.

The plaintiff alleges the compensation packages were excessive and a waste of corporate assets at a time when Wall Street analysts criticized the cable company for underperforming financially.

cablevision“The Dolans treat Cablevision as a family coffer, routinely entering transactions with the company that have improperly favored the Dolan family’s interests over the interests of the company and its public stockholders,” said shareholder Gary Livingston, who filed the suit.

What the Dolan family wants, they usually get. The family collectively hold shares that control about 73 percent of the company’s voting rights.

It isn’t the first time the Dolan family — now billionaires — have found themselves in court over compensation issues. In 2008, the company’s top executives agreed to pay more than $24 million to settle shareholder lawsuits accusing them of benefiting from stock option grants that were backdated.

Livingston’s case is an example of “baseless shareholder lawsuits designed simply to enrich the plaintiff and his lawyers,” Charles Schueler, a Cablevision spokesman, told Bloomberg News today in an e-mailed statement.

Anatomy of a Deal: Time Warner Cable vs. Charter/Comcast

http://www.phillipdampier.com/video/Bloomberg Anatomy of a Deal 1-29-14.flv

Bloomberg News’ Alex Sherman and Porter Bibb, managing partner at Mediatech, break down the background and potential moves in the cable industry involving Comcast, Charter Communications and Time Warner Cable and the regulatory hurdles in their way on Bloomberg Television’s “Market Makers.” One interesting development will be the future of Cablevision, which will be an obvious takeover target for Comcast should Time Warner Cable be sold and split up. (9:14)

Staking the Heart of the Power-Sucking Vampire Cable Box

vampire-power-1-10964134Two years after energy conservation groups revealed many television set-top boxes use almost as much electricity as a typical refrigerator, a voluntary agreement has been reached to cut the energy use of the devices 10-45 percent by 2017.

The Department of Energy, the Natural Resources Defense Council, the American Council for an Energy-Efficient Economy, the Appliance Standards Awareness Project, the Consumer Electronics Association, and the National Cable & Telecommunications Association agreed to new energy efficiency standards for cable boxes expected to save more than $1 billion in electricity annually, once the new equipment is widely deployed in American homes. That represents enough energy to power 700,000 homes and cut five million tons of CO2 emissions each year.

“These energy efficiency standards reflect a collaborative approach among the Energy Department, the pay-TV industry and energy efficiency groups – building on more than three decades of common-sense efficiency standards that are saving American families and businesses hundreds of billions of dollars,” said Energy Secretary Ernest Moniz. “The set-top box efficiency standards will save families money by saving energy, while delivering high quality appliances for consumers that keep pace with technological innovation.”

DVR boxes are the biggest culprits. American DVRs typically use up to 50W regardless of whether someone is watching the TV or not. Most contain hard drives that are either powered on continuously or are shifted into an idle state that does more to protect the life of the drive than cut a consumer’s energy bill. A combination of a DVR and an extra HD set-top box together consume more electricity than an ENERGY STAR-qualified refrigerator-freezer, even when using the remote control to switch the boxes off.

NRDC Set-Top Boxes  Other Appliances-thumb-500x548-3135

Manufacturers were never pressed to produce more energy-efficient equipment by the cable and satellite television industry. Current generation boxes often require lengthy start-up cycles to configure channel lineups, load channel listings, receive authorization data and update software. As a result, any overnight power-down would inconvenience customers the following morning — waiting up to five or more minutes to begin watching television as equipment was switched back on. As a compromise, many cable operators instruct their DVR boxes to power down internal hard drives when not recording or playing back programming, minimizing subscriber inconvenience, but also the possible power savings.

In Europe, many set-top boxes are configured with three levels of power consumption — 22.5W while in use, 13.2W while in standby, and 0.65W when in “Deep Sleep” mode. More data is stored in non-volatile memory within the box, meaning channel data, program listings, and authorization information need not be re-downloaded each time the box is powered on, resulting in much faster recovery from power-saving modes.

The new agreement, which runs through 2017, covers all types of set-top boxes from pay-TV providers, including cable, satellite and telephone companies. The agreement also requires the pay-TV industry to publicly report model-specific set-top box energy use and requires an annual audit of service providers by an independent auditor to make sure boxes are performing at the efficiency levels specified in the agreement. The Energy Department also retains its authority to test set-top boxes under the ENERGY STAR verification program, which provides another verification tool to measure the efficiency of set-top boxes.

Comcast, DirecTV, DISH Network, Time Warner Cable, AT&T, Verizon, Cox Communications, Charter Communications, Cablevision, Bright House Networks and CenturyLink will begin deploying new energy-efficient equipment during service calls. Some customers may be able to eventually swap equipment earlier, depending on the company.

http://www.phillipdampier.com/video/WCCO Minneapolis Check Your Cable Box 6-27-11.mp4

WCCO in Minneapolis reported in 2011 cable operators like Comcast may make subscribers wait 30 minutes or more for set-top box features to become fully available for use after plugging the box in. (1:50)

How to Get a Better Deal for Verizon FiOS; $79.99 Triple-Play Offer With $300 Rebate Card

Cablevision CEO Jim Dolan may have to eat his words when he told shareholders he was done giving promotional discounts to customers bouncing back and forth between competing providers. Now Verizon has given Cablevision customers an excuse to say goodbye to the cable company for at least the next two years.

The Verizon FiOS $79.99 Triple Play promotion is back and includes a $300 Visa rebate card and free activation when ordering from Verizon’s website.

fios triple play

The package includes:

  • FiOS TV’s “Prime HD” tier, which includes around 215 channels, 55+ in HD. (See channels);
  • FiOS Basic Internet (15/5Mbps), upgradeable to 50/25Mbps for $10 more per month;
  • Verizon Home Phone including unlimited calling and features including Voice Mail, Caller ID and Call Waiting;
  • a 50% optional discount off HBO and Cinemax for one year.

The fine print:

  • Promo rate shows up on your Verizon bill as a $35 credit during months 1-12 and a $25 credit for months 13-24. That means you will pay $79.99 for the first year, $89.99 for the second. Factoring in the $300 gift card, your rate is still under $88 a month for two years;
  • Offer for new FiOS customers only. (Existing customers – see below);
  • A $230 early termination fee applies to this 2-yr contract offer, with the dollar amount gradually decreasing for each month of service;
  • Equipment costs, a $3.48 Regional Sports Network fee, taxes, franchise fees and other similar charges are extra.

fiosHere are some tips for current FiOS customers:

  1. Current FiOS customers may be able to negotiate a very similar deal (without the gift card) by talking to Verizon’s “Elite Team,” a/k/a Customer Retentions. Call Verizon’s customer service line (1-800-837-4966) and select the option to cancel service and your call will be transferred.
  2. Customers off-contract will have the best results securing a new promotional deal. On-contract customers nearing the end of their agreement can suggest they are willing to pay the last few months of a pro-rated early termination fee to leave if they cannot get a better deal with Verizon.
  3. Let the representative know you can always cancel your existing service and take advantage of a new customer promotion under your spouse’s name, but “to save both of us time and aggravation, let’s work out a comparable deal with my existing service.”
  4. Verizon often has one-year customer retention deals available that do not impose any term commitments. Make sure to ask the representative about no-contract options, if not volunteered, because certain off-contract retention deals can actually cost less. It is very unlikely you will get the gift card, but you might be able to win a one time courtesy credit.
  5. Request a free upgrade to Verizon FiOS Quantum (50/25Mbps service) as part of a retention deal.

Earlier this year, customers told Stop the Cap! they had success securing a 12 month, no-contract retention offer that included a mid-range television package, 50/25Mbps broadband, and home phone service for $95 a month with an invitation to call back and sign up for a similar deal one year later.

Verizon’s pricing is very aggressive and beats both Cablevision and Comcast in the northeast.

Cablevision now offers a triple play bundle for $84.95 a month for one year that doesn’t include installation charges or other ancillary equipment, service, programming, taxes, and franchise fees. Cablevision isn’t offering a $300 gift card either. But the cable company does include a free Smart Router and free Optimum Online Ultra 50 for six months.

A similar two-year promotion from Comcast runs $89 a month in northern New Jersey and includes a $300 gift card and then a nasty surprise after the first year. Once a customer reaches month 13, the promotional rate increases to a whopping $109.99 for the remainder of the two-year agreement — quite an increase. The Comcast promotion also offers far fewer television channels (80+), but does bundle HBO and X1 Advanced DVR service for one year, includes 20Mbps download speeds, and Streampix free for three months. The usual extra fees also apply.

Cox Communications Exploring Bid for Time Warner Cable

coxCox Communications is contemplating jumping into the bidding for Time Warner Cable either on its own or with others, according to a story published in today’s Wall Street Journal.

Privately held Cox is the country’s third largest cable operator, right behind Time Warner Cable, with nearly 4.5 million subscribers. It’s slightly larger than Charter Communications, which itself wants to acquire TWC.

timewarner twcCox and Cablevision, the nation’s two largest privately held or controlled cable companies, have both been mentioned as targets for takeover in a rush to consolidate the cable industry. Cablevision has been rumored to be on the verge of selling for years, but the Dolan family that founded the cable operator has the final say. Cox previously indicated it had no intention of selling, preferring to explore buying opportunities.

Speculation is mounting that Comcast, Charter, and now perhaps Cox could offer a joint bid for Time Warner Cable, splitting up the company and absorbing TWC subscribers in their own operations without attracting unwanted attention from antitrust regulators and the FCC, either which could effectively torpedo a deal.

Malone Has Another Billion Towards a Liberty/Charter Buyout of Time Warner Cable, Cablevision

Malone

Malone

Dr. John Malone’s Liberty Global has picked up an extra billion dollars it can use towards any plan to combine Time Warner Cable and/or Cablevision under Charter Communications.

Liberty has sold off some of its assets to build an enormous financial war chest it could use to launch a new wave of cable consolidation in the United States, potentially leaving Charter Cable as the country’s second biggest cable operator, just behind Comcast.

AMC Networks announced it will pay $1 billion to buy Liberty-owned ChelloMedia, a major international programmer and content distributor that operates 68 channels and networks available to more than 390 million households in 138 countries. Chellomedia is not well-known in North America but its networks are household names overseas. The deal includes Chello Multicanal, Chello Central Europe, Chello Zone, Chello Latin America and Chello DMC. In addition, Chellomedia’s stakes in its joint ventures with CBS International, A+E Networks, Zon Optimus and certain other partners are also part of the sale.

Liberty Global logo 2012That $1 billion could be a key part of any blockbuster buyout deal because Malone can leverage that and other money with an even larger infusion from today’s easy access capital market. He has done it before, leveraging countless buyouts of other cable operators that built Malone’s Tele-Communications, Inc. (TCI) into the country’s largest cable operator by the early 1990s.

According to Shahid Khan, a media and cable industry consultant with Mediamorph, by this time next year Charter Communications could be just two million subscribers away from beating Comcast as the nation’s biggest cable operator.

twcGreenKhan believes Malone laid his consolidation foundation with Liberty’s significant ownership interest in Charter Communications, from which he can build a new cable empire.

The most likely targets for consolidation are Time Warner Cable and Cablevision. According to Leichtman Research, as of this summer Comcast is the nation’s largest operator with 21.7 million subscribers. Regulators are unlikely to approve any deals growing Comcast even larger. But combining Charter, Time Warner Cable, and Cablevision would deliver 19.1 million subscribers under the Charter brand. A handful of smaller deals with minor operators like SuddenLink, Cable ONE, Mediacom, or Bright House Networks would quickly put Charter over the top of Comcast.

cablevisionMalone’s public argument is that larger cable operators have more leverage to secure better deals and rates for cable programming, equipment vendors, and suppliers. It also delivers “cost savings” mostly through layoffs and cutting back on redundant operations like customer care call centers.

But Malone could also use the combined market power of the supersized cable company to keep competitors non-viable, especially for cable television programming. Frontier Communications learned what it is like to be a small player when its inherited FiOS networks in Washington, Oregon and Indiana lost Verizon’s volume discounts for cable programming. Frontier quickly found the programming rates it could negotiate on its own were so dramatically higher, it tried to convince FiOS TV subscribers to switch to satellite television instead.

Charter could also raise prices for broadband services in areas where its potential partners have not increased them quickly enough.

Ironically, AMC Networks’ one billion dollar buyout of Chellomedia could ultimately become the catalyst for a Malone-driven buyout of AMC’s former owner — Cablevision.

HissyFitWatch: Cablevision Ends Discounts for Disloyal Subscribers; One Promotion Per Customer

'Disloyal Cablevision customers looking for discounts are dead to us.'

‘Disloyal Cablevision customers looking for discounts are dead to us.’

Cablevision is fed up with disloyal customers bouncing between the cable company and other providers when promotional discounts expire.

After losing 13,000 broadband, 18,000 voice, and 37,000 television customers, Cablevision CEO Jim Dolan said the company has stopped offering any further discounts to customers that received them once before.

“The customer that has been bouncing from one company to another on promotional/repetitive discounts has hit a dead-end with us,” Dolan told Wall Street analysts during a conference call.

All customers with promotions will now be tracked to prevent extensions or further discounts once the special rates expire. Dolan confirmed the ban will also extend to customer retention offers.

Customers who shop primarily on price in Cablevision’s service area have traditionally flipped between AT&T U-verse, Verizon FiOS and the cable company every few years, usually switching after a promotion expires or rates are increased. Because of fierce price competition, new customers can receive a triple play package of broadband, phone, and television service — including equipment, for less than $85 a month for at least one year. Regular prices are considerably higher.

Cablevision lost most of its departing New York and New Jersey customers to Verizon FiOS, but has been more successful fending off competition in Connecticut, where AT&T has the least capable broadband network among the three providers.

cablevisionAll three companies have attempted price increases over the last few years with mixed results. Cablevision’s eight percent rate hike on broadband this year may have been too much for some customers who shopped around and found a better deal with the phone company.

Despite the loss in customers, Dolan remains firmly committed to more rate hikes, especially for broadband service, noting its speed and features (including an extensive Wi-Fi network) deliver enough value to sustain further price increases.

Cablevision clearly hopes competitors follow its lead and end promotional rate double-dipping as well. If they do, customers will find themselves locked in with regular pricing regardless of the provider they choose.

Some analysts are skeptical Cablevision’s hard-line will last, especially if subscriber losses mount. Cable operators have attempted to restrict promotions in the past but tend to ease them if market share suffers. Despite the third quarter customer retreat, Cablevision’s rate hikes delivered $336 million in broadband revenue during the last three months, an increase from $308 million earned the same time last year.

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