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Britain Adopting American Broadband Business Model: Less Competition, More Rate Hikes

british poundA decision by Great Britain’s broadband industry to follow America’s lead consolidating the number of competitors to “improve efficiency” and wring “cost savings” out of the business resulted in few service improvements and a much bigger bill for consumers.

A Guardian Money investigation examining British broadband pricing over the past four years found customers paying 25-30 percent more for essentially the same service they received before, with loyal customers facing the steepest rate increases.

It’s a dramatic fall for a market long recognized as one of the most competitive in the world. In 2006, TalkTalk — a major British ISP — even gave away broadband service for free in a promotion to consumers willing to cover BT’s telephone line rental charges.

But pressure from shareholders and investment bankers to deliver American-sized profits have spurred a wave of consolidation among providers in the United Kingdom, similar to the mergers of cable companies in the United States. Well known ISPs like Blueyonder, Tiscali, AOL, BE, Tesco, O2, and others in the United Kingdom have all been swallowed up by bigger rivals – often TalkTalk. As of last year, just four major competitors remain – BT, Sky, TalkTalk and Virgin, which together hold 88% of the market. If regulators allow BT’s takeover of EE, that percentage will rise to 92%.

talktalk-logo-370x229As consumers find fewer and fewer options for broadband, they are also discovering a larger bill, fueled by runaway rate increases well in excess of inflation. While consolidated markets in the United States and Great Britain increasingly lack enough competition to temper rate increases, heavy competition on the European continent has resulted in flat or even lower prices for broadband along with significant service upgrades. British consumers now pay up to 50% more for broadband than many of their European counterparts in Germany, France, the Benelux countries, and beyond.

Also familiar to Americans, the best prices for service only go to new customers. Existing, loyal customers pay the highest prices, while those flipping between providers (or threatening to do so) get much lower “retention” or “new customer” pricing. But only those willing to fight for a better deal get one.

In October, TalkTalk, responsible for much of the consolidation wave, raised broadband prices yet again — the second major price hike this year. Customers are reeling over the rate increases, despite the fact they still seem inexpensive by American standards. Landline rental charges are increasing from $25.40 to $26.91 a month, and are a necessary prerequisite to buying Internet access from TalkTalk. Its Simply Broadband entry-level package is jumping another £2.50 a month just four months after the last rate hike. That means instead of paying an extra $7.60 a month for broadband, customers will now pay $11.40. The average British consumer now pays an average of $57.79 a month for a phone line with enhanced DSL broadband service.

btIn France, competition is forcing providers to move towards fiber optic broadband and scrap DSL service. But French consumers are not paying a premium for upgrades necessitated by competition on the ground. While British households pay close to $60 a month, a comparable package in France from Orange known as L’essentiel d’internet à la maison costs only $36.50 a month, including a TV package and unlimited calling to other landlines. But the deal gets even better if you shop around. Free, a major French competitor, offers a near-identical package for just $32.19 a month. In the United States, packages of this type can cost $130 or more if you do not receive a promotion, $99 a month if you do.

In France, providers rarely claim they need to cap Internet usage or raise prices to cover the cost of investing in their networks. That is considered the cost of doing business in a fiercely competitive marketplace, and it forces French providers to deliver good value and service for money. Providers like Patrick Drahi/Altice’s SFR-Numericable attempted to reap more profits out of its cable business by cutting costs, discontinuing most promotions and marketing, and offshoring customer support to North African call centers. At least one million customers left for better service elsewhere in 2015.

logo_freeIn Britain, there are fewer options for customers to seek a better deal, and the remaining providers know it. As a result, marketplace conditions and an increasing lack of competition have made conditions right for rate increases. BT, Sky, Virgin, and Plusnet (controlled by BT) have all taken advantage and hiked prices once again this year between 6-10%, on top of other large rises.

Ewan Taylor-Gibson, broadband expert at uSwitch.com, told the Guardian, “it’s the existing customers that have borne the brunt of the increase in landline and package costs over recent years.”

Many British consumers are afraid of disrupting their Internet access going through the process of changing providers in a search for a better deal. Some report it can take a few days to a week to process a provider change that should take minutes (because most providers rely entirely on BT’s DSL network over which they offer service). Those willing to make a change are about the only ones still getting a good deal from British providers. Customers are starting to learn that when their new customer promotion ends, asking for an extension or signing up with another company is the only way to prevent a massive bill spike that Taylor-Gibson estimates now averages 89%.

BT spent $1.36 billion dollars securing an agreement with Champions League football.

BT spent $1.36 billion dollars securing an agreement with Champions League football.

Providers with the largest increases use the same excuses as their American counterparts to defend them. BT claims a reduction in income from providing landline service is forcing it to raise prices to make up the shortfall. Critics suggest those increases are also helping BT recoup the $1.36 billion it controversially paid for the rights to carry Champions League football — money it could have invested in network upgrades instead.

The current government seems predisposed to permit the marketplace to resolve pricing on its own, either through competition among the remaining players or allowing skyrocketing prices to reach a level deemed attractive by potential new entrants into the market. The usually protective British regulator Ofcom also seems content taking a light hand to British ISPs, enforcing price disclosures as a solution to increasingly costly Internet service and making it easier for consumers to bounce between the remaining providers many think are overcharging for service.

Things could be worse. British consumers could face the marketplace duopoly or monopoly most customers in the United States and Canada live with, along with even higher prices charged for service. The Guardian surveyed telecom services across several European countries and found that, like in the UK, most customers are required to bundle a landline rental charge and broadband package together to get Internet access, but they are still paying less overall than North Americans do.

Here is what other countries pay for service:

United Kingdom: Basic BT home phone service with unlimited “up to 17Mbps” DSL broadband costs $31.12 per month, plus a monthly landline charge of $27.35 including free weekend calls. An unlimited calling plan with no dialing charges costs an extra $12 a month. Competitor TalkTalk charges $11.40 for unlimited broadband on its entry-level Simply Broadband offer, plus $26.91 for the monthly landline rental charge.

France: Many Orange customers sign up for the popular L’essentiel d’internet à la maison plan, which bundles broadband, a phone line with unlimited calling to other landlines, and a TV package available in many areas for $36.50 a month. Competitor Free.fr charges $32.19 for essentially the same package.

Germany: Deutsche Telekom offers its cheapest home phone/broadband package for $37.75 after a less expensive promotional offer expires. One of its largest competitors, 1&1, offers the same package for $33.29 a month after the teaser rate has ended.

Spain: Telefónica, Spain’s largest phone company, offers service under its Movistar brand combining an unlimited calling landline and up to 30Mbps Internet access for $46.21 a month. Its rival Tele2 offers a comparable package for a dramatically lower price: $29.11 a month.

Ireland: National telecom company Eircomis is overseeing Ireland’s telecom makeover, replacing a lot of copper phone lines with fiber optics. Basic broadband starts with 100Mbps service on the fiber network with a promotional rate of $26.82 for the first four months. After that, things get expensive under European standards. That 100Mbps service carries a regular price of $66.51 a month, deemed “hefty” by the Guardian, although cheaper that what North Americans pay cable companies for 100Mbps download speeds after their promotion ends. For that price, Irish customers also get unlimited calling to other Irish landlines and mobiles. If that is too much, rival Sky offers a basic phone and broadband deal for $32.18 with a one-year contract.

John Malone’s Involvement in Charter-Time Warner Cable Merger Deal Under Scrutiny



The cable magnate Sen. Albert Gore, Jr., (D-Tenn.) once called the Darth Vader of the cable industry is under enhanced scrutiny by federal regulators reviewing the Charter Communications-Time Warner Cable merger deal.

Dr. John Malone holds a 26 percent ownership in Charter, making him the largest shareholder by far, seconded by Warren Buffett, who holds less than an eight percent stake in the cable operator.

Many cable subscribers over 40 have done business before with a Malone-held cable firm, most likely Tele-Communications, Inc. (TCI), which operated from the 1970s until Malone sold it to AT&T in 1999 for close to $60 billion. In turn, AT&T sold the majority of its cable holdings to Comcast just a few years later.

Malone’s reputation for hiking rates and controlling the programming running on his cable systems is legendary. At one point, TCI held an ownership interest in most major cable networks carried on its cable systems. Cable networks that failed to secure carriage agreements with TCI were at a substantial disadvantage because TCI at its height was the nation’s largest cable provider.

charter twc bhSince Malone sold TCI, the multi-billionaire has built a significant cable empire in Europe and is today the largest private landowner in the United States. In the U.S., he is best known as the current owner of SiriusXM satellite radio. The two satellite companies merged with an agreement not to raise rates for a few years. As soon as that agreement expired, Malone’s combined Sirius/XM operation began a series of rate hikes and maintain a satellite radio monopoly in the U.S.

Malone’s other media interests include ownership stakes in Viacom Inc., Time Warner (Entertainment) Inc., concert-promoter Live Nation Entertainment Inc., and bookseller Barnes & Noble Inc. He also maintains significant ownership interests in Discovery Networks and Starz. Many of these companies negotiate directly with Charter and its competitors.

With ownership stakes in important programming, Malone could influence the sale of programming on more favorable terms to Charter with discounts unavailable to other cable companies and competitors including AT&T, Verizon, and satellite TV providers.

The FCC is particularly concerned whether Malone can exert influence over programmers that could result in anticompetitive activity, particularly in the emerging world of online video competition. In a lengthy 20-page questionnaire, the FCC wants specifics about Malone’s involvement in Charter, all the way down to requesting copies of board meeting minutes:

Describe in detail John Malone’s ownership, control (whether de jure, de facto or negative), or management of Charter, Time Warner Cable, DIRECTV, Liberty Media, Liberty Broadband, Liberty Interactive, Liberty Cablevision of Puerto Rico, Liberty Global, Liberty Ventures Group, Discovery Communications, Starz, New Charter and any other MVPDs and programmers not listed herein for which he owns an interest. For each entity in which John Malone manages, controls, or has an ownership interest, please describe: (1) the nature and extent of the ownership interest and all board representation, management rights, voting rights, veto rights, or veto power; and (ii) all effects that the proposed Transaction, if consummated, would have on the interests described in response to (i).

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.



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.”

DirecTV Lampoons Big Cable Mergers in New Ad

Phillip Dampier October 1, 2015 Competition, Consumer News, Video No Comments
cable world

Fred Willard appears as a cable executive in this new DirecTV ad.

DirecTV, itself recently acquired by AT&T, is having fun with the recent spate of cable mergers and acquisitions.

A new ad from the satellite provider lampoons a merger between Cable Corp and CableWorld, likely stand-ins for Charter Communications, Comcast, and Time Warner Cable.

“That company stinks,” complains a board member of “Cable Corp,” the target of the buyout. “And I mean they smell. I used to work there. I had to breathe through my mouth all the time.”

To those in the know, the ad is more accurate than funny.

“We all know that DirecTV’s better at this whole TV thing, so to beat ‘em, we’re going to get bigger, we’re going to merge with CableWorld,” says Jeffrey Tambor, who plays Cable Corp’s CEO.

AT&T bought DirecTV to combine the satellite provider’s much larger customer base with AT&T U-verse to win better volume discounts for cable programming.

Consumers will get a higher bill regardless and Fred Willard is on hand to deliver the pink slips.

http://www.phillipdampier.com/video/DirecTV Cable Corp Merges with CableWorld 10-1-15.mp4

Fred Willard and Jeffrey Tambor appear as CEOs of rival cable companies merging in this new ad from DirecTV. (30 seconds)

$875 Million Class Action Lawsuit Against Comcast Settles for $50 Million; You Get a Coupon

Phillip Dampier September 28, 2015 Comcast/Xfinity, Consumer News, Public Policy & Gov't 1 Comment
Another satisfied customer

Another satisfied customer

After more than a decade of legal wrangling, a class action lawsuit originally valued at up to $875 million filed on behalf of Philadelphia-area cable customers accusing Comcast of rigging a cable monopoly has settled for $50 million.

A federal judge in Philadelphia has approved a considerably reduced payout to affected subscribers and ex-customers who earlier submitted a claim form.

Under the settlement, former Comcast cable customers in the Philadelphia area qualify for a $15 check. Current Comcast customers can choose a $15 bill credit, six free pay per view movies, or two free months of The Movie Channel. If you failed to file a claim form before the July closing date, enjoy The Movie Channel for two months at no charge — it represents your default damage settlement.

Comcast is happy the suit, originally brought in 2003, has now come to a close. So are the lawyers who brought the case, who will receive $15 million in fees.

The lawsuit accused Comcast of colluding with other cable companies to buy or swap area cable customers to form a regional monopoly in southeastern Pennsylvania, where it could safely raise prices and scare off would-be competitors. The suit sought refunds and damages up to $875 million for Comcast’s allegedly ill-gotten gains.

Comcast’s attorneys eventually mowed down much of the plaintiff’s case when they convinced the U.S. Supreme Court the class action was too broad, involving cable customers that were formerly served by other cable companies before they were snapped up by Comcast. Because any potential damages inflicted by Comcast’s rate hikes and service varied depending on the date of ownership transfer, it was impossible, the attorneys argued, to determine appropriate damages. The Supreme Court agreed with Comcast and eventually eliminated class members who lived outside of Philadelphia and the four counties that surround the city. Having gutted much of the case, the two parties reached a settlement amounting to a fraction of the original request for damages.

Customers seemed less than thrilled.

“The Movie Channel? Really?,” complained Linda Martinez of Philadelphia. “They already give that channel away like candy when you phone up Comcast and complain about their lousy service. I had it for six months and I never even found it on the TV.”

Patrick Drahi Predicts 25% of U.S. Homes Will Dump Cable TV; Big Broadband Rate Hikes Predicted



Altice CEO Patrick Drahi believes up to one-quarter of all cable customers will drop their video packages in the next few years and stick solely with broadband service.

If Drahi’s prediction is true, telecom analyst Craig Moffett off MoffettNathanson predicts broadband pricing will skyrocket as the cable industry tries to replace its lost video revenue.

Cable operators may be able to leverage their monopoly/duopoly status to force higher broadband prices in markets where phone companies only deliver token competition with slow speed DSL.

Moffett believes broadband pricing strategies depend heavily on local competition. In markets like New York City that can choose between Cablevision and Verizon FiOS, dramatically raising the cost of Internet access will probably drive cable customers into the arms of Verizon. But in areas served by companies like Comcast and Time Warner Cable/Charter, Moffett predicts “more benign” competition from phone companies offering only DSL will give cable companies plenty of room to “grow the broadband business” by raising prices on consumers.

http://www.phillipdampier.com/video/CNBC Does Altice Have Cost-Cutting Plans for Cablevision 9-17-15.flv

Craig Moffett, analyst at MoffettNathanson, examines the $17.7 billion purchase of Cablevision by Altice and some of the challenges Altice faces in running a U.S. cable company. He speaks on “Bloomberg Surveillance.” (3:23)

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.”


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)

Blue Ridge Communications Rations Internet Usage With Hard Usage Caps

blue-ridgeA tiny cable company serving communities around the Blue Mountain in eastern Pennsylvania has a big appetite for rationing Internet usage by imposing data caps and overlimit fees on their 170,000 customers.

Effective Sept. 1, Blue Ridge dropped off-peak unlimited use service and imposed a 24-hour rationing plan on its customers, including a familiar overlimit fee of $10 per 50GB of excess usage — the same fee created by AT&T and adopted by several other cable and phone companies.

Customers on the lowest priced plans are most at risk of encountering overlimit fees, which most providers claim are designed to make heavy users pay more for access. In the past, the company maintained rarely enforced “soft caps” and off-peak unlimited usage starting at 5pm. The “hard caps” arrived Sept. 1 with claims the company generously doubled the allowance for some customers, without mentioning it also eliminated off-peak unlimited usage. In terms of “fairness,” the heaviest users signed up to the fastest speed tiers get the most generous allowances while those at lower-price tiers are most likely to encounter an overlimit penalty fee:

  • Web Surfer $42.95 (1.5Mbps Download/384kbps Upload) – 150GB per month (no change)
  • G5 $52.95 (5Mbps/384kbps) – 300GB per month (was 250GB)
  • G10 $57.95 (10Mbps/800kbps) – 400GB per month (was 250GB)
  • G15 $67.95  (15/2Mbps) – 500GB per month (was 250GB)
  • Dream 60 $84.95 (60/3Mbps) – 600GB per month (was 250GB)
  • Dream 100 $124.95 (100/5Mbps) – 700GB per month (was 250GB)
Blue Ridge Communications is headquartered in Palmerton, Pa.

Blue Ridge Communications is headquartered in Palmerton, Pa.

To avoid a higher bill, customers will have to check a company-sponsored, unverified usage meter on Blue Ridge’s website and be ready to upgrade to a more costly Internet plan. Blue Ridge customers already pay substantially more for Internet service than other customers pay in the region. A Comcast subscriber in eastern Pennsylvania now pays $29.99 a month for the first 12 months of 25Mbps service, after which the price increases to as much as $66.95 a month. A less expensive 6Mbps tier costs $49.95 from Comcast, and a much faster 150Mbps tier is also available for $78.95, $46 less than what Blue Ridge charges for service that is 50Mbps slower.

“It’s no dream at 60 or 100Mbps, it’s a straight up gouging nightmare wrapped in greed and lies,” says Stop the Cap! reader Thomas, who lives in Palmerton and calls Blue Ridge’s parent company a local media and entertainment dictatorship. “My friends and relatives are stunned when I tell them one local company controls cable, telephone, wireless, the newspaper and the local news channel. It’s all Pencor through and through.”

Pencor Services, Inc., (Pennsylvania ENtertainment, COmmunications and Recreation) holds a unique position in eastern Pennsylvania. The rural character of the region has allowed Pencor to own and operate a large number of media and telecommunications companies. Pencor owns both Blue Ridge Communications — the cable operator and two local phone companies — Palmerton Telephone and the Blue Ridge Telephone Company. DSL service is offered, but it is “powered by” PenTeleData, another Pencor-owned operation. Wireless service is provided by Pencor-owned Pencor Wireless. In certain other markets, phone companies like Frontier Communications offer some competition, mostly low-speed DSL.

Pencor and its businesses have a substantial presence throughout the Blue Mountains region.

Pencor and its businesses have a substantial presence throughout the Blue Mountain region.

Residents get much of their local news from BRC TV-13, the local news channel on the Blue Ridge system serving Carbon, Monroe, Wayne & Pike counties and parts of Lehigh, Schuylkill, Northampton and Berks counties. BRC TV-11 provides local news on the Blue Ridge system serving Northern Lancaster County. Both stations are also owned by Pencor. So is the Lehigh Valley Press and the Times News newspaper operations.

A Facebook group has been organized to fight Blue Ridge on its new data caps.

A Facebook group has been organized to fight Blue Ridge over its new data caps.

Coverage of the usage cap imposition and customer reaction to it, best characterized as hostile, came from media not owned by Pencor.

Milfordnow! reported “when analyzing similar cap programs that have been implemented by other cable companies, it is apparent that bills may be rising substantially for heavy users.”

The cable company countered it expected only 3% of customers to affected by the new caps, which has some customers wondering why they need them at all.

“You have to wonder if caps affect almost nobody, why do companies spend so much time and energy imposing them,” said Thomas.

“Everything from downloads to YouTube, Netflix and even online gaming count against their new 24-hour cap,” Milford resident John Ferry III told the Pocono Record, reporting his latest bill was about $46 over previous charges. “They are telling people they have doubled the cap, but this is not true. By removing the off-peak time, which was essentially a free period, there is no math that makes it double.”

Blue Ridge customers have begun to organize a pushback against the data caps through a new Stop Blue Ridge Cable Data Caps Facebook page.

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



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.”

Wall Street Analyst Tells Congress Broadband Needs to Be More Than Just “Profitable” to Spur Investment

greedUnless a broadband provider can deliver the same kind of profitability earned by U.S. cable operators, don’t expect significant private investment in broadband expansion even if the company can easily turn a profit.

That was the argument brought to a House hearing on funding broadband infrastructure expansion by Craig Moffett, a Wall Street analyst at Moffett Nathanson.

“Infrastructure deployment requires the expectation of a healthy return on capital,” Moffett told the House Communications and Technology Subcommittee in a hearing this afternoon. “That should be taken as a given, but all too often, in my experience, the issue of return on capital is either ignored or misunderstood in policy forums. It is not a matter of whether a business is or isn’t profitable, it is instead a matter of whether it is sufficiently profitable to warrant the high levels of capital investment required for the deployment of infrastructure.”

Moffett pointed to the massive profits earned by cable operators Comcast, Time Warner Cable, Charter and Cablevision, all of which earned returns well in excess of their cost of capital, ranging from 13-33 percent. Moffett argued Wall Street has come to expect those kinds of returns, and investors will take a hard look at companies deploying new expensive networks against those that have largely paid back much of the capital costs incurred when their networks were built decades ago.

Moffett continued to criticize the broadband expansion being undertaken by large incumbent telephone companies that he claims does not earn attractive returns for their wireline businesses, even as they have introduced new services like faster broadband and television.

“For example, a decade after first undertaking their FiOS fiber-to-the-home buildout to 18 million homes, Verizon has not yet come close to earning a return in excess of their cost of capital,” said Moffett. “In 2014 their aggregate wired telecommunications business earned a paltry 1.2% return, against a cost of capital of roughly 5%. For the non-financial types in the room, that’s the equivalent of borrowing money at 5% interest in order to earn interest of 1%. That’s a good way to go bankrupt.”

analysisMoffett was also critical of AT&T’s planned expansion of gigabit fiber broadband.

“AT&T has committed to the FCC to make fiber available to a total of 11.7 million locations in their footprint in order to make their acquisition of DirecTV more palatable to policy-makers, but it is hard to be optimistic that they will do much better this time around,” Moffett argued.

Moffett believes competition is bad for the profitable broadband business.



“The broader take-away here is that the returns to be had from overbuilding – that is, being the second or third broadband provider in a given market – are generally poor,” Moffett said. “Let that sink in for a moment. Stated simply, it means that market forces are unlikely to yield a competitive broadband market. Neither, by the way, does wireless appear to offer the promise of imminent competition for incumbent broadband providers. Wireless networks simply aren’t engineered for the kind of sustained throughput required for a wired-broadband-replacement service.”

As a result, investors prefer that the broadband marketplace remain a monopoly or duopoly to guarantee the kinds of healthy returns they have earned for years, especially from the cable stocks Moffett has always favored in reports to his clients. Additional competition drives prices down, reducing profits, which in turn discourages investors who have high expectations their money will make them a lot more money.

Moffett’s arguments are largely based on broadband being a for-profit private enterprise, not a public infrastructure effort. But it does explain why there is a willingness to compete in large cities where network construction costs are lower and rural communities remain relatively unserved. As with electrification 100 years ago, investor-owned utilities were willing to wire large communities while ignoring rural farms and communities. Only after electricity was deemed a necessary utility did alternative means of funding, including member-owned co-ops and community-owned utilities finish electrifying areas private capital ignored.

Moffett’s guide to better broadband is based entirely on profitability — delivering enough profits and other returns to attract investors that will look elsewhere if costs become too high. Community-owned broadband avoids this dilemma by advocating for break-even or modestly profitable networks that focus on service, not investor-attractive profits.

Several members of Congress commented Moffett’s vision of broadband was discouraging, even depressing, because it seemed to be locked in a for-profit, private sector model that had few answers to offer for communities left behind. Moffett even warned against oversight and regulation of incumbent cable and phone companies, claiming it would further drive away private investment.

But broadband customers, Moffett admitted, will still pay the price for investor expectations.

comcast cartoon“As everyone understands, the cable video business is facing unprecedented pressure,” Moffett testified. “Cord cutting has been talked about for years but is finally starting to show up in a meaningful way in the numbers. And soaring programming costs are eating away at video profit margins. From a cable operator’s perspective, the video business and the broadband business are opposite sides of the same coin. It is, after all, all one infrastructure. Pressure on the video profit pool will therefore naturally trigger a pricing response in broadband, where cable operators will have greater pricing leverage.”

Moffett said the kinds of rate hikes consumers used to pay for cable television now increasingly transferred to broadband customers is nothing nefarious. To keep investors happy, the kind of returns once earned from cable television will now have be delivered on the backs of broadband customers if Congress expects cable companies to continue upgrading and expanding their networks.

“All else being equal, that will mean that even new builds of broadband will become increasingly economically challenged and therefore will become less and less likely,” said Moffett. “Or they will simply have to sharply raise broadband prices.”

Moffett’s comments do come with some baggage, however. His clients pay for his advice and Moffett has been a long-time supporter of cable industry stocks. He has been a strong and natural advocate for a cable industry that faces only token opposition. He has browbeaten executives to start broadband usage caps and usage-based billing to further boost broadband profits, slammed telephone company competition in the cable business as financially reckless and unwarranted, and dismissed Google Fiber as a project designed to help Google’s public policy aims more than earn the search giant profits from the broadband business.

But Moffett has also been wrong in the past, particularly with respect to cord-cutting which he used to downplay as an urban legend and on the ease cable companies would be able to acquire and merge with each other.

Beyond all that, Moffett and his clients have a proverbial dog in the fight. After years of pumping cable stocks, suggestions that more competition for the cable industry is a good thing would simply be bad for business.

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