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Verizon Sues New York Over Tax Refund Regulators Want Spent on Network Improvements

Phillip Dampier July 27, 2016 Consumer News, Public Policy & Gov't, Verizon No Comments

verizon repairVerizon Communications is taking the New York Public Service Commission to court over the regulator’s ruling that $8 million in property tax refunds rebated to the phone company through a tax certiorari proceeding should be spent on improving Verizon’s service quality in the state.

Verizon wants to pocket the refunds of $1 million from New York City, $2 million from Oyster Bay, and $5 million from Hempstead for the benefit of the company and its investors, but regulators are insisting Verizon use the money to boost “capital expenditures to address purported service quality and network reliability concerns about its New York network.”

The PSC has been monitoring Verizon’s landline performance in the state since at least 2010 under its Verizon Service Quality Improvement Plan proceeding. Local officials and customers have filed complaints with the PSC about extremely long repair times, service outages, unreliable service, and sub-par line quality for several years, especially in downstate areas around New York City that have not yet been upgraded to Verizon’s FiOS fiber to the home service.

Regulators want those issues resolved, particularly after Verizon made it clear it has suspended its FiOS expansion outside of New York City. Customers with long-standing service issues are often offered a controversial wireless landline replacement called Voice Link, that has earned mixed reviews, instead of a permanent repair of their existing service.

ny pscVerizon calls the regulator’s demands arbitrary and unwarranted confiscation of its property.

“The commission did something it had never done before — it allowed Verizon to retain the refunds as it had in the past but this time also imposed a spending mandate which required Verizon to use the funds for a particular purpose,” the company claimed.

Verizon used the company’s long and successful track record convincing New York regulators that Verizon’s wireline networks have faced hard times as it bled landline customers, so it deserved regulatory and rate relief. Because the PSC recognized Verizon’s marketplace challenges when it “found that a lightened regulatory approach for traditional incumbent telephone carriers was warranted and necessary in order to level the playing field and enable them to remain viable providers in the future,” it is unwarranted to suddenly now demand the company spend its tax refund on network improvements, Verizon argued in its lawsuit.

In the past, Verizon added, the PSC allowed the phone company to keep its tax refund money for itself, even as it reduced spending on its infrastructure. The company claimed that to be “a proper regulatory response to the financial stress Verizon claims it is and will be under as it continues its transition to an increasingly competitive market.”

Earlier this year, the commission began to take a more formal look at the mounting service complaints it was receiving from Verizon customers and found troubling evidence Verizon might not be taking its copper landline network as seriously as it once did, especially in areas where FiOS upgrades have not been scheduled.

“…[T]here may be an unwillingness on the part of Verizon to compete to retain and adequately serve its regulated wireline customer base, and warrants further investigation into Verizon’s service quality processes and programs,” minutes from a March commission meeting state.

Frontier Expanding Vantage TV; Applying for Video Franchises in New York and Ohio

Phillip Dampier July 18, 2016 Competition, Consumer News, Frontier No Comments

vantage tvIf you live in parts of the Hudson Valley (N.Y.) or Ohio where Frontier Communications provides phone service, Vantage TV may be coming to your neighborhood soon.

Frontier’s cable television solution for customers still served by its legacy copper wire telephone network appears to be an IPTV service similar to AT&T’s U-verse. Vantage TV is already available to around 200,000 Connecticut customers served by Frontier, inherited from AT&T. Frontier also offers Vantage in Durham, N.C. and has applied for a statewide video franchise in Ohio (granting authority to offer service anywhere in the state it chooses) and another to serve Middletown, N.Y., a community of 28,000 in the Hudson Valley.

Frontier claims over the next four years it will offer Vantage in as many as 40 of its markets, many still served by legacy copper wiring. That represents about three million homes. After a second phase of buildouts, Frontier claims it will to provide video service to about half of the 8.5 million homes in its service area.

In late June, Frontier applied for a video franchise agreement in Middletown, where it expects to compete against Charter Communications (formerly Time Warner Cable). It will be the first time Frontier offers video service in New York.

frontier new logoVantage TV offers up to 300 channels typically bundled with phone and internet service. Customers are provided a “total-home DVR” with 1TB of storage that can record up to six shows at the same time and played back on up to four wireless cable boxes attached to different televisions. An upgraded version 3.0 of Ericsson’s Mediaroom platform offers advanced set-top box features like improved visual search and the ability to watch up to four channels at once in a mosaic. Another feature lets customers bring up a small video screen showing another channel, useful if you are channel surfing during an ad break.

Multichannel News interviewed several Frontier executives about the service, which the company is confident will give it a competitive video product to market to customers. Until Frontier bought AT&T’s Connecticut customers (and its U-verse fiber-to-the-neighborhood system), its only experience selling cable television came from its acquisition of Verizon FiOS systems serving Fort Wayne, Ind., and parts of Oregon and Washington. Frontier quickly learned the value of Verizon’s volume discounts for video programming, which it lost soon after acquiring the systems. In 2011, customers faced massive price hikes for video service and an unusual effort to convince them to switch to satellite TV instead — quite a downgrade from fiber to the home service.

middletownConnecticut, in contrast, is served with a mix of fiber and old copper wiring that has been in place for decades, since the days the state was served by the independent Southern New England Telephone Company. Learning how to deliver reasonable video quality over copper wires in Connecticut gave Frontier experience to go ahead with targeted upgrades that can boost broadband speeds and deliver HD video over an internet connection as low as 2.6Mbps in other states.

In short, Frontier’s business plan for video may work if it can keep network expansion and technology costs as low as possible. Video programming costs are likely to be another matter, however. As programming costs increase in contract renewals, some cable operators are playing hardball and dropping channels that get too expensive for comfort. But many of those channel drops alienate customers. Frontier appears to be following an opposite formula — making sure potential customers know they are still carrying networks the cable operator in the area dropped. Comcast dropped Yankees regional sports channel YES, but Frontier still offers it to its Connecticut customers and goes out of its way to promote its availability.

Hallmark Channel and Hallmark Movies & Mysteries — two networks popular with older viewers who are among the most loyal to cable television, got the axe in 2010 on AT&T U-verse in Connecticut. After Frontier acquired the Connecticut system, it put the two networks back on the lineup.

The more customers Frontier can show it has at the negotiating table, the better position Frontier is in to secure discounts for the video programming it carries. Volume, volume, volume makes all the difference when competing against giant cable conglomerates like Comcast and Charter. Even if Frontier finds it eventually has to drop overpriced channels, it has a much more friendly relationship with over-the-top online video services like Netflix to offer customers as an alternative. Vantage customers can find Netflix’s main menu as a traditional TV channel on the Vantage lineup, allowing subscribers to choose any Netflix show to watch on their television. In the future, Frontier might offer customers other network’s apps as well, making it easy to stream on demand video without having to use a Roku or other similar device.

Altice Making Big Changes With Cablevision Purchase Now Complete

drahi stuffWith today’s completion of Cablevision’s absorption into the Altice empire, the European cable conglomerate announced big changes that are expected to refocus the “center of gravity” and Altice’s future profits on the United States instead of Europe.

Altice today becomes America’s fourth largest cable operator, serving 4.6 million customers in 20 states. But Altice is not finished empire-building, and is widely expected to target privately held Cox Communications for acquisition sometime next year.

To lay the groundwork for future expansion, current controlling shareholder Patrick Drahi is turning over leadership of his growing U.S. operations to trusted lieutenant Dexter Goei, who will be chairman and CEO of Altice USA. Goei’s first mission is to lead a team of fierce cost-cutters into the offices of Suddenlink and Cablevision and ruthlessly slash expenses. Much of those savings are expected to come from significant job cuts among Cablevision’s 14,000 workers, especially middle management, engineering, and administrative workers. Last fall, Altice told investors Cablevision’s workers in the high cost suburban New York area were ripe for cutbacks, with much of the work currently managed by six figure salaried Cablevision employees likely to be transferred to Missouri-based Suddenlink, which operates in smaller cities in low labor cost states where employees are paid considerably less.

Approval of Cablevision’s sale to Altice by the New York Public Service Commission was given with the requirement Altice is prohibited from laying off, involuntarily reducing or taking any action “intended to reduce (excepting attrition and retirement incentives) any customer-facing jobs in New York,” such as call centers or walk-in centers for a period of four years. But as Altice’s call center employees at France’s SFR-Numericable attest, that does not prevent Altice from closing current call centers and transferring those jobs to cheaper locations in New York staffed by those willing to work for much less.

drahi“The number of customer service agents is exactly the same, but their competency to handle customer problems, and their salaries, are not,” said Jean Libessart, whose fiancé lost a job with Altice after call centers were moved overseas. “They stayed within the competition authority’s rules by exploiting the loopholes.”

Altice is seeking cuts of “hundreds of millions of dollars” from Cablevision’s expenses within the first six months of ownership. After that, Drahi wants to earn 50% of Altice’s future revenue by refocusing the business on “the madness of margins” in the United States — a term that acknowledges the United States tolerates deregulated telecom duopolies that can raise prices at will, something European governments would consider to be unconscionable. Drahi noted there are just four super-sized telecom companies in the United States facing down smaller companies, many that agree not to compete in territories already served by other companies.

Les Echos notes France is the antithesis of the American model, with more than 100 competing mobile and wired telecom operators fighting for some of the same customers. The result is that telecom rates in France are the lowest in Europe. It’s hard for a billionaire to make billions more when he cannot raise prices. That is why Mr. Drahi is setting his sights on the United States, where constant rate increases are actually expected by consumers. Just as surprising to Europeans, the ever-increasing prices are tolerated by regulators and members of Congress that sometimes end up working for the same telecom companies they oversaw during their stay in Washington.

Drahi can usually find loan money to buy up more American cable companies, because those companies can raise prices to pay back the massive debts Altice has already accumulated during several years of spending sprees.

cablevision“In every country, my strategy is to be number one or two,” Drahi told a hearing of the Economic Affairs Committee of the French Senate this month. In France, Altice is already number two and it will be very difficult to pass Orange, the dominant leader in French telecom. In the United States, there is still plenty of room to grow. After the completion of the acquisition of Cablevision, Altice will only control 2% of the market, giving Drahi plenty of room to push towards at least 10% market share starting in 2017.

Drahi originally had no intention of waiting even a year to further consolidate the U.S. cable market, but financial markets trembled over the €50 billion debt Drahi’s companies have amassed. The new line is that Altice will wait until next year before it acquires more companies in the United States, to give it a chance to properly merge Suddenlink and Cablevision into a more efficient operation.

“We want get bigger in the U.S., but I don’t know when, clearly not in 2016, which is the year of integration of our assets and operations,” Goei said in a recent interview. “Thereafter, you’d be surprised if we didn’t do anything, but we’re not going to buy things at stupid prices.”

Wall Street analysts are not so sure. More than a few believe Altice vastly overpaid for both Suddenlink and Cablevision. Many believe Drahi will have to be extremely generous to bring Cox Communications into the Altice family as well.

Unintended Consequences: Feds Let Telecom Companies Skirt Taxes While States Crack Down

Tax-FreeSome of America’s largest telecommunications companies continue to pay almost nothing in federal taxes even as state taxing authorities hungry for revenue  are getting more aggressive about denying access to tax loopholes and suing some for failing to pay their fair share.

Special interest-inspired “pro-business” loopholes have been a growing part of the U.S. tax code since the Reagan Administration. The premise seemed reasonable enough: high corporate taxes are simply passed on to consumers as a cost of doing business, so lowering them will trickle savings down to the consumer and also free capital to create more jobs. It has not worked that way, however. Product pricing for services like broadband have been based more on what customers believe the product is worth, not what it costs to deliver, and Verizon was among the companies cited for significant job cuts after its corporate tax rate plummeted. Regardless of corporate tax rates, providers continue to raise broadband prices, even as the costs to provide the service are declining. The old maxim of charging what the market will bear is alive and well. So where do the tax savings go? Into share buybacks, shareholder dividend payouts, increased executive salaries and bonuses, and lobbying.

Some states are discovering they have been leaving money on the table when they don’t insist on collecting owed state taxes, and as state budgets continue to be strapped with increasing medical and infrastructure-related expenses, taking companies to court who try to avoid their tax obligations is getting more popular.

One of the biggest potential windfalls could eventually fill New York State coffers with $300 million in damages and penalties courtesy of Sprint, which was accused of deliberately not billing customers for state taxes on its wireless services over seven years.

SprintYesterday, the U.S. Supreme Court turned away Sprint’s effort to void an October 2015 New York Court of Appeals decision that would allow the state to proceed to court arguing Sprint intentionally failed to collect more than $100 million in taxes from New Yorkers from 2005 on. At the time, Sprint was attempting to rebuild its market share by luring customers with cheaper mobile service. One way to offer a lower price is to stop charging tax. In New York alone, municipalities lost $4.6 million a month as a result of the scheme.

Sprint has repeatedly argued the lawsuit is invalid because a 2000 federal law trumps a 2002 New York State law that covered state taxes. The court disagreed, and the fact a whistleblower at Sprint revealed what Sprint was up to didn’t help. The case will now likely head to state court or get settled.

Verizon-Tax-Dodging-bannerWhile $300 million sounds like a lot, it pales in comparison to the money Verizon manages to dodge paying the Internal Revenue Service. The phone company is the poster child of corporate tax dodging according to Democratic presidential candidate Bernie Sanders. Sanders targeted Verizon because between 2008-2013, Verizon not only did not pay a nickel in federal taxes, it actually received a refund from the federal government after achieving a federal tax rate of -2.5%, despite booking $42.5 billion in profits. American taxpayers effectively subsidized Verizon when it got its refund check.

In the last two years, Verizon is paying federal taxes once again, but at a rate of 12.4%, well below the tax rate of most middle class Americans.

It’s a sensitive matter for Verizon, because CEO Lowell McAdam launched a full-scale media blitz trying to paint the Sanders campaign as inaccurate. McAdam claims Verizon actually paid a 35% tax rate in 2015, which would only be true if the company added the tax obligations it owes on the billions of dollars it stashes in overseas bank accounts. Foreign taxes don’t help the American taxpayer, suggest critics, and Citizens for Tax Justice consider McAdam’s claims “artificial.”

“In fact, over the past 15 years, Verizon has paid a federal tax rate averaging just 12.4 percent on $121 billion in U.S. profits, meaning that the company has found a way to shelter about two-thirds of its U.S. profits from federal taxes over this period,” the group claims. “In five of the last 15 years, the company paid zero in federal taxes. While there is no indication that this spectacular feat of tax avoidance is anything but legal (the company’s consistently low tax rates are most likely due to overly generous accelerated depreciation tax provisions that Congress has expanded over the last decade), few Americans would describe the company avoiding tax on $78 billion of profits as ‘fair.’”

unintendedBruce Kushnick, executive director of the New Networks Institute, claims Verizon also specializes in dumping most of its costs and “losses” on Verizon Communications, which owns its legacy wireline network, which helps them cut their tax obligations.

Too often, changes to the U.S. tax code have unintentional consequences, especially when corporations can hire tax attorneys that outclass those working for the federal government.

Fredric Grundeman helped draft a tax bill that was supposed to curb loopholes in the estate tax and though well-trained as a trusted attorney at the Treasury Department, the bill quickly backfired. The new law opened even larger loopholes than those it was originally written to close, allowing some of America’s richest families to pass on money to heirs with no tax implications at all. Grundeman admits legislators often don’t recognize a new tax law’s potential for abuse.

“How do I say it?” Grundeman told Bloomberg News back in 2013. “When Congress enacts a law, it isn’t always well thought out.”

That is also true on the state level.

Oregon officials push a button to exempt Google Fiber from a state property tax.

Oregon officials push a legislative button and give Google Fiber a tax break. Then Comcast shows up.

Oregon wants to attract Google Fiber to Portland, but Google objected to one of the state’s property tax provisions that affects companies that sell data services. Oregon partly sets the tax rate commensurate with the value of the provider’s brand name, among other factors. It’s all very vague, but not so vague that Google would miss it could pay an even higher tax rate that its competitors — Comcast and CenturyLink.

Oregon’s legislature voted to correct the problem by exempting providers that offer gigabit broadband. The tax law changes were tailored to benefit Google, assuming Comcast and CenturyLink would continue to drag their feet to upgrade their Oregon networks.

But the enterprising lawyers at Comcast promptly requested the same tax exemption that Google would get in return for building its fiber network in the state. The reason? Comcast had introduced its own gigabit Internet service on a much more limited scale.

Rep. Phil Barnhart (D-Eugene) admitted Oregon had another law on its hands with unintended consequences. Barnhart told utility regulators this spring his fellow lawmakers never intended to give the tax break to Comcast, which charges hundreds of dollars for 2,000Mbps service. But nobody bothered to set any price guidelines in the law, meaning Google can charge $70 a month for gigabit service and get a tax break and Comcast can offer 2Gbps service in a limited number of locations, at the “go away” price of $300 a month, with start-up costs up to $1,000, and a multi-year contract, and get the exact same tax break.

Barnhart

Barnhart

Or maybe not, at least for now.

Last week, the Oregon Department of Revenue ruled Comcast is not eligible for that tax break, at least not this year, according to The Oregonian. The department wouldn’t explain why, citing taxpayer confidentiality. For good measure, the same department also rejected applications from Google Fiber and Frontier Communications (Frontier operates a very limited FiOS fiber to the home network in communities including Beaverton, Hillsboro, and Gresham that it inherited from Verizon), claiming Google and Frontier’s gigabit networks were theoretical in Oregon and there needed to be gigabit service actually up and running to qualify.

That leaves Google in a classic catch-22. It won’t bring fiber to Oregon so long as it faces a stiff tax bill and tax authorities won’t forgive the tax until there is gigabit fiber up and running. For some taxpayers, what burns the most is the legislature paved the road to tax bliss to attract Google Fiber, but the only company that may actually ultimately travel down it is Comcast.

Financial Mess for Altice Abroad, U.S. Cable Customers Will Help Cover the Losses

altice debtAs Patrick Drahi’s telecom empire continues to strain under massive debts, a customer exodus in France, and cut throat competition in Europe that has reduced prices of some plans to less than $5 a month, the one thing his parent company Altice can count on is the deep pockets of the American cable subscriber.

The two cable companies that could make all the difference in helping Mr. Drahi keep the proverbial lights on at Empire Altice are his American acquisitions: Suddenlink and, if regulators ultimately approve, Cablevision. The French newspaper Les Echos notes Suddenlink customers are already helping cover Altice’s terrible financial performance in Europe, thanks to that cable company’s 42.5% profit margin. Suddenlink customers will be doing even more to help bail out Drahi’s difficult situation in France, thanks to future rate increases and the continued implementation of broadband usage plans that will push customers towards upgrades. But there is more to come.

“Cablevision will complete the ‘desensitization’ of France’s turbulent [telecom] marketplace for Altice,” reports the newspaper. Cablevision gives Altice an opportunity to cut costs and rely on New York, New Jersey and Connecticut customers to squeeze money out of the New York-based cable operator, validating Drahi’s “American adventure” — acquiring barely competitive cable companies to bolster revenue and profits. Customers are not expected to see lower cable bills, despite the cost cutting.

Overleveraged

Overleveraged

Altice’s troubled SFR-Numericable, which provides cable and mobile service in France, continues to endure a wholesale customer exodus, losing another 272,000 wireless customers during the first three months of 2016. Another 61,000 customers canceled cable and broadband service at the same time, despite price cuts. Even with cut-rate promotions, more than 1.4 million customers asked SFR-Numericable for a divorce over the last 15 months.

“They can’t give the service away for free,” says François Beauparlant, who dropped SFR-Numericable in January. “The company specializes in broken promises and shady deals. They promised upgrades and left us with service that regularly fails or Internet speeds only a small amount of what they promoted.”

Beauparlant rebuffed SFR despite its well-publicized offer of a wireless service package with 20GB of data and unlimited calls and text messages for $4.50 a month for a year.

Meanwhile, in Bethpage, N.Y., the neighbors are hopeful that quieter skies are in their future as the long-predicted Great Slash-a-thon at Cablevision is reportedly about the begin, starting with the permanent grounding of the cable company’s fleet of four executive helicopters which regularly fly in and out of Cablevision’s corporate headquarters.

The executives that relied on them won’t have much time to lament the loss, as the New York Post reports Drahi is ready to show Cablevision’s top-10 executives the door within weeks. Drahi wants everyone earning $300,000 or more out of the company as soon as possible.

Altice's cost-cutting Huns arrive.

Altice’s cost-cutting warriors arrive.

“I do not like to pay salaries. I pay as little as I can,” Drahi told investors at a conference last year.

Drahi also said he prefers to pay minimum wage wherever possible, a fact lesser Cablevision employees are likely to find out this summer. While those in lower level positions are likely to get “take it or leave it” offers, the top echelon of well-paid Cablevision executives will be paid even more in golden parachute exit packages, expected to be worth millions.

Among the recipients will likely be CEO James Dolan, general counsel David Ellen and vice-chairmen Hank Ratner and Gregg Seibert. Dolan’s wife Kristen, appointed chief operating officer several years ago, is still up in the air. She won’t be working at Altice’s pay scale, but may form a data-oriented joint venture with Altice later, according to the Post.

Drahi still insists he can find $900 million to cut from Cablevision’s annual budget. Critics of Altice’s acquisition of Cablevision insist those savings will come at the cost of customers, who could end up with the consequences of a dramatically reduced budget to manage upgrades, outsourced customer service, and dubious subcontractors.

Drahi’s willingness to withhold payments from vendors and suppliers to extract discounts is also likely to affect Cablevision’s relationships with cable programming networks and TV stations. The Post reports he is looking to offer slimmed-down cable TV packages, which means confronting powerful entertainment conglomerates like Disney, Viacom, Discovery, Comcast, and News Corp. Playing hardball with Viacom has not gone well for smaller cable conglomerates like Cable One, which dropped Viacom-owned channels from its lineup when it could not win enough price concessions. Disney’s ESPN has shown a willingness to sue if its expensive sports network is shunned from discounted cable TV packages.

Drahi concedes Altice and SFR-Numericable may not be the most popular companies in France, but ultimately it may not matter if he owns and controls the content customers want to watch. He is pouring money into French media acquisitions, including newspapers, launching his own Paris-based news channel, and acquiring TV networks and the exclusive rights to show popular sports like English football on them.

Commentary: CPUC Unanimously Approves Charter-TWC-Bright House Merger

charter twcCharter Communications could not have closer friends than the commissioners on the California Public Utilities Commission who unanimously voted in favor of the merger of Charter Communications and Time Warner Cable while some almost apologized for bothering the cable company with pesky deal conditions.

CPUC president Michael Picker quickly dispensed with the glaring omission of a sunset provision on Charter’s three-year voluntary commitment to abide by the FCC’s Open Internet Order by inviting his fellow commissioners to add it back for Charter’s benefit. How nice of him. The cable company lobbyists in attendance at today’s hearing did not even need to ask.

Picker’s review of the merger benefits effectively recited a Charter press release and he seemed genuinely pleased with himself for making it all possible. For example, the CPUC considered the addition of a provision allowing consumers to buy their own cable modems and set-top boxes without a penalty from their provider “unprecedented,” while never mentioning they failed to adopt recommendations that customers be given a discount for providing their own equipment. Score Charter, which can continue to collect modem fees built into the price of its broadband service even when you provide your own.

Dampier

Dampier

New Charter’s “exciting” commitment to upgrade to 300Mbps by 2019 sounds good, until one realizes Time Warner Cable was committed to finishing their own 300Mbps upgrade at least one year earlier, and at a lower cost to customers. In fact, while California celebrates 300Mbps by 2019, thanks to the efforts of Stop the Cap! and the New York Public Service Commission, Charter is required to be ready to offer gigabit service across the state that same year. See what is possible when you actually try, CPUC?

The commissioners repeatedly thanked Charter Communications and Time Warner Cable while ignoring the consumer groups that contributed opposing comments and tangible suggestions to improve benefits for consumers — almost entirely ignored by the CPUC. That will cost Californians dearly and borders on regulatory malpractice. If the CPUC required California to at least enjoy the same benefits other state utility regulators won for their constituents, Californians would get a substantially better deal. Instead, the CPUC insisted on giving California and even worse deal than the FCC, by granting Charter’s right to gouge customers with usage caps and usage billing in three years, even after the FCC agreed to seven years of cap-free Internet. Mr. Picker and the other commissioners owe California an explanation for letting them down, and the scandal-plagued CPUC needs to demonstrate it is reforming after the shameful performance of its former chairman Michael Peevey.

“Today was a travesty for Californian consumers, and frankly we were shocked to watch ostensibly independent commissioners carry water for Charter Communications,” said Stop the Cap! president Phillip Dampier. “We saw clear evidence of a commission more concerned about Charter Communications and Time Warner Cable than for the average citizens of California that will face higher cable bills, time limits on unlimited Internet access, and a longer wait for upgrades as a direct result of today’s decision. Consumer groups like Stop the Cap! brought clear and convincing evidence to the commission that the benefits of this merger have time limits and plenty of fine print. We offered concrete suggestions on how to improve the deal for consumers — ideas accepted in other states, but the CPUC clearly wasn’t interested in anything that might make Charter uncomfortable.”

California Dreamin’: Will Regulators Approve Tougher Charter/Time Warner Merger Conditions Today?

charter twc bhAll signs are pointing to a relative cake walk for Charter Communications’ executives this afternoon as they seek final approval from the California Public Utilities Commission to acquire Time Warner Cable systems in the state, with the help of an Administrative Law Judge that is recommending approval with a minimum of conditions.

In fact, the strongest condition Charter may have to accept in California came by accident. As part of Charter’s lobbying effort, it proposed a set of voluntary conditions it was prepared to accept, claiming to regulators these conditions would represent benefits of approving the transaction. One of those was a temporary three-year commitment to abide by the FCC’s Open Internet Order, which among other things bans paid prioritization (Internet fast lanes), intentionally blocking lawful Internet content, and speed throttling your Internet connection.

Somewhere along the way, someone forgot to include the language that sunsets (or ends) Charter’s voluntary commitment after three years.

Without it, Charter will have to abide by the terms of the FCC’s Open Internet Order forever.

cpucSoon after recognizing the change in language, Charter’s lawyers appealed to the CPUC to correct what it called a “drafting error.”

“[New Charter does] not seek modification of the second sentence, which matches their voluntary commitments, but believe[s] that the three-year limitation in the second sentence was intended to— and should—apply to the first sentence as well,” Charter’s lawyers argued two weeks ago.

In other words, the Administrative Law Judge’s apparent attempt to ‘cut and paste’ Charter’s own press release-like voluntary deal commitments into his personal recommendation went horribly wrong. Charter’s lawyers prefer to call it an “intent to track” the company’s voluntary commitments. Either way, Charter’s lawyers all call the new language unfair.

“Holding New Charter indefinitely to FCC rules even after the FCC’s rules are invalidated or modified, and irrespective of future market conditions or the practices or rules governing New Charter’s competitors, would be a highly unconventional requirement,” the lawyers complained.

That provides valuable insight into how “New Charter” is likely to feel about Net Neutrality three years from now. Charter’s lawyers argue it would be unfair to hold them to “invalidated” rules — the same ones the company itself has voluntarily embraced as a condition of approval, but only for now.

Remarkably, in the final revision of the Administrative Law Judge’s recommendations to the CPUC recommending approval, the language that is keeping Charter’s lawyers up at night is still there:

New Charter shall fully comply with all the terms and conditions of the Federal Communications Commission’s Open Internet Order, regardless of the outcome of any legal challenge to the Open Internet Order. In addition, for a period of not less than three years from the closing of the Transaction, New Charter (a) will not adopt fees for users to use specific third-party Internet applications; (b) will not engage in zero-rating; (c) will not engage in usage-based billing; (d) will not impose data caps; and (e) will submit any Internet interconnection disputes not resolvable by good faith negotiations on a case-by-case basis.

Charter's new service area, including Time Warner Cable and Bright House customers.

Charter’s new service area, including Time Warner Cable and Bright House customers.

If it remains intact through the vote expected this afternoon, New Charter will have to permanently abide by the FCC’s Open Internet Order, with no end date. That condition will apply in California, and because of most-favored state status, also in New York.

Stop the Cap!’s recommendations to the CPUC are also in the same document, although our views were not shared by the judge:

Stop the Cap! objects to [New Charter’s] 3-year moratorium on data caps and usage based pricing for broadband services. It argues that such bans should be made permanent or, if not permanent, should last at least 7 years in parallel with the lifespan of the conditions imposed in the FCC’s approval of the parent company merger. In addition, Stop the Cap! objects to what it asserts will be a major price increase for existing Time Warner customers when Charter’s pricing plans replace Time Warner’s pricing plans.

More broadly, Stop the Cap! president Phillip Dampier called the revised recommendations to approve the deal underwhelming and disappointing.

“By window-dressing what is essentially Charter’s own voluntary offer to the CPUC, the commission is continuing to miss a golden opportunity to win deal conditions that will meaningfully benefit Californian consumers that will otherwise get little more than higher cable and broadband bills,” Dampier told Communications Daily. “Virtually everything Charter is promising customers is already available or soon will be from Time Warner Cable, often for less money. Time Warner Cable committed to offering its customers 300Mbps speeds, no usage caps or usage billing, and all-digital service through its Maxx upgrade program, expected to be complete by the end of 2017 or 2018. The CPUC is proposing to allow New Charter to wait until 2019 to provide 300Mbps service and potentially cap Internet service three years after that, four years less than what the FCC is demanding.”

Among the conditions Charter will be expected to fulfill in return for approval of its merger in California:

  • Within a year of the closing of the merger deal, New Charter must boost broadband download speeds for customers on their all-digital platform to at least 60Mbps, an upgrade that is largely already complete.
  • Within 30 months, New Charter must upgrade all households in its California service territory to an all-digital platform with download speeds of not less than 60Mbps, an upgrade that has already been underway for a few years.
  • By Dec. 31, 2019, New Charter shall offer broadband Internet service with speeds of at least 300Mbps download to all households with current broadband availability from New Charter in its California network. Time Warner Cable essentially promised to do the same by early 2018, with many of its customers already getting up to 300Mbps in Southern California.
  • While Charter talks about a bright future for the Time Warner customers joining its family, the company has not done a great job maintaining and upgrading its own cable systems in parts of California. Many smaller communities still only receive analog cable TV from Charter, with no broadband option at all. Therefore, the CPUC is giving New Charter three years to deploy 70,000 new broadband “passings” to current analog-only cable service areas in Kern, Kings, Modoc, Monterey, San Bernardino and Tulare counties. But the CPUC is giving New Charter a break, only requiring them to offer up to 100Mbps service in these communities.
  • Time Warner Cable and Bright House customers in California will be able to keep their current broadband service plans for up to three years. Customers will also be allowed to buy their own cable modems and set-top boxes, but there is no requirement New Charter compensate customers who do with a service discount.
  • Within six months of the deal closing, New Charter must offer Lifeline phone discounts within its service territory in California.
  • New Charter must print and distribute brochures explaining the need for backup power to keep phone service working if electricity is interrupted. Those brochures must be available in multiple languages including, but not limited to, English, Spanish, Chinese and Vietnamese, as well as in accessible formats for visually impaired customers.

The CPUC is also expected to adopt Charter’s own voluntary commitments not to impose usage caps, usage billing, modem fees, and other customer-unfriendly practices for three years, a point that drew strong criticism from Stop the Cap! and the California Office of Ratepayer Advocates for being inadequate.

Both groups proposed that bans on data caps and usage billing should stay in place “until there is effective competition in Southern California, or no shorter than seven years after the decision is issued, whichever is later.”

ORA’s program supervisor Ana Maria Johnson believes the proposed changes don’t go far enough to “mitigate the harms that the merger will likely cause, especially in Southern California.”

Dampier was surprised how little the CPUC seemed to be asking of New Charter, especially in comparison to regulators in New York.

“The New York Public Service Commission did a more thorough job protecting consumers by insisting on faster and better upgrades, including readiness for gigabit service, and the same level of broadband service for all of New Charter’s customers in New York,” Dampier argued. “It also demanded and won meaningful expansion in rural broadband, low-cost Internet access, protection of New York jobs, and improved customer service. It is remarkable to us the CPUC did not insist on at least as much for California.”

The CPUC is expected to take a final vote on the merger deal this afternoon, starting at 12:30pm ET/9:30am PT and will be webcast. It is the 20th item on the agenda.

Meh: Altice Wins Tepid FCC Approval to Acquire Cablevision Amidst Ongoing Money Dramas

atice-cablevisionIn a decision that relied heavily on trusting Altice’s word, the Federal Communications Commission quietly approved the sale of Long Island-based Cablevision Systems to a company controlled by European cable magnate Patrick Drahi.

The decision did not come with an overwhelming endorsement from staffers at the FCC’s Wireline Competition Bureau, the International Bureau, the Media Bureau, and the Wireless Telecommunications Bureau that jointly authored the order approving the deal.

“We find the transaction is unlikely to result in any significant public interest harms,” the staffers wrote. “We find that the transaction is likely to result in some public interest benefits of increased broadband speeds and more affordable options for low income consumers in Cablevision’s service territory. Although we find that the public interest benefits are limited, the scales tilt in favor of granting the Applications because of the absence of harms.”

The FCC largely ignored a record replete with evidence Altice has not enthralled customers of its other acquired companies. In France and Portugal, large numbers of customers complained Altice reduced the quality of service, raised prices, and outsourced customer service to call centers as far away as North Africa. After Altice acquired SFR, one of France’s national wireless operators, at least 1.5 million customers canceled their accounts, alleging poor service. Two weeks ago, France’s Competition Bureau fined Altice $17 million dollars for intentionally sabotaging the viability of wireless providers it controlled in the Indian Ocean region that it knew would have to be sold because of another acquisition deal. It raised prices and alienated customers of those providers, while allowing many to escape their contracts penalty-free before ownership of the company is transferred. The new owners face a challenge restoring the reputation of those providers and win customers back.

fccThe FCC called assertions from the Communications Workers of America that Altice intends to secure several hundred million dollars in cost savings from layoffs and salary reductions “speculative.” But Altice’s record on job and salary cuts is well established in Europe, where trade unions have pursued multiple complaints with government ministers in Lisbon and Paris. The leadership of CFE-CGE Orange, the group representing employees in France’s telecom sector, warned government officials earlier this year Drahi’s labor practices at SFR-Numericable are so poor, there is significant risk of a wave of worker suicides.

‘Not our problem’ was the effective response by the FCC staffers.

“The public interest does not require us to dissect each business decision Altice has made in non-U.S. markets to determine whether its asserted benefits in this case are reasonable,” the staffers wrote.

The staffers also opined “Altice has not identified job cuts as a means to achieve cost savings,” despite widespread media reports put Drahi on the record claiming he would find $900 million in cost savings at Cablevision in part from slashing administrative expenses.

Speaking to investors in New York just after Altice announced its agreement to buy Cablevision, Drahi pledged to bring the company’s ‘European-style austerity’ to the American cable company.

“When we took over [French wireless provider] SFR, the company was acting like daddy’s princess,” Drahi said to France’s National Assembly. “The princess spent money left and right, but it was mother company Vivendi that picked up the bills. Well, now the princess has a new dad, and this isn’t how my money gets spent.”

Drahi

Drahi

“I don’t like to pay big salaries, I pay as little as I can,” Drahi added, claiming he prefers to pay minimum wage.

“It’s hard to imagine in a labor market like New York that you’re going to go to top executives and say, ‘By the way, I’m going to pay you 75 percent less than I used to — enjoy,’ ” said a skeptical Craig Moffett, a Wall Street analyst at MoffettNathanson.

Despite racking up nearly $56 billion in debt so far, the FCC seemed unconcerned Altice’s $17.7 billion purchase of Cablevision would present much of a problem for the company.

Altice is “a large international company that is likely to be better able to raise capital than Cablevision as a stand-alone entity,” the FCC staffers wrote.

Several Wall Street analysts pointedly disagree.

“My main worry is that Altice is pilling up new debts again and, needing increasingly more cash to pay back debt, may push Numericable into a direction were it shouldn’t be,” said François Godard, an analyst at Enders Analysis.

too big to fail“I don’t know any company of its size that has levered up that much [debt] that fast,” says Simon Weeden of Citi Research.

Even France’s Minister of the Economy Emmanuel Macron feared Altice could become the world’s first “too big to fail” cable company.

“I have a big concern in terms of leverage on Drahi due to its size and its place in our economy,” Macron said in 2015. “He is looking to run faster than the music.”

In April alone, Altice sought $9.44 billion largely from the junk bonds market to refinance part of its existing debt and extend the time it has to repay those obligations until as late as 2026.

FCC staffers swept away concerns that an Altice-owned Cablevision would be hampered from upgrading services because of its debt obligations and accepted at face value Altice’s promises it would enhance service. The staffers claimed these promises would likely be met because Cablevision faces significant competition from Verizon FiOS and Frontier U-verse in its service areas of New York, New Jersey and Connecticut.

Cablevision serves communities surrounding the metropolitan New York region

Cablevision serves communities surrounding the metropolitan New York region

What especially swayed the staffers was an ex parte letter sent by Altice offering commitments for improved service:

  1. Network Upgrades: Altice will upgrade the Cablevision network so that all existing customer locations are able to receive broadband service of up to 300Mbps by the end of 2017.
  2. Low Income Broadband: Altice will introduce a new low-income broadband package of 30Mbps for $14.99 a month throughout Cablevision’s service territory for families with children eligible for the National Student Lunch Program or individuals 65 or older eligible for the federal Supplemental Security Income program. Current customers, regardless of income, are ineligible and so are past customers who had Cablevision broadband service within the last 60 days or still have a past due balance with Cablevision.

Remarkably, the FCC passed on an opportunity to compel Altice to fulfill its commitments as part of the order giving the FCC’s approval. Therefore, if Altice reneges, it will face no consequences from the FCC for doing so.

“Because we find the transaction is likely to facilitate Cablevision’s efforts to compete and serve all customers in its territory, we are not persuaded that imposing specific conditions related to broadband deployment, as proposed by CWA, is necessary,” wrote the staffers.

New York City and the New York Public Service Commission also have an opportunity to mandate Altice’s commitments be completed within a certain time frame. Both are expected to issue their formal approval or disapproval of the acquisition later this month.

Altice praised the FCC, saying it was pleased with the decision and is on track to complete the transaction during the second quarter of this year.

Assuming Altice does take control, it will immediately embark on cost cutting, starting with the booting of the company’s top 10 executives, according to Altice CEO Dexter Goei. Goei doesn’t like the fact the Dolan family, which founded the company, has used Cablevision as an ATM for decades. The Dolan clan collectively took $46 million in compensation in 2014. Last year, CEO James pocketed $24.6 million, up one million from the year before.

Dolan’s father, who retired from the day-to-day operations of the company years ago, is still handsomely rewarded in his role as company chairman. In 2015, Charles Dolan received a $3 million pay raise, from $15.3 million to $18.3 million.

“Somewhere in the range of $80 million to $90 million per year can go away in just not having that executive team,” Mike McCormack, an analyst at Jefferies LLC, told Bloomberg News last fall.

Altice Caught in Panama Papers Scandal; Tapping Junk Bond Market (Again) to Raise Quick Cash

drahiPatrick Drahi’s Altice — new owner of Suddenlink and presumed next owner of Cablevision — has been caught dealing with the scandalous Panamanian law firm Mossack Fonseca, which specializes in helping wealth-soaked billionaires and politicians evade taxes.

Altice’s name came up in the Panama Papers, a leak of over 11 million documents taken from the law firm. Although admitting it had dealings with Mossack Fonseca in 2008 and 2010, an Altice official claimed it was only for “incidental transactions for reasons of strict confidentiality and in perfectly legal conditions with no tax impact, let alone foreign, near or far, for any purpose of evasion, concealment, or tax optimization.” But critics are asking why a Swiss national running a cable conglomerate in Francophone Europe would hire an obscure law firm in Panama City to manage those “incidental transactions.”

Failed Consolidation Merger Keeps the Price Wars Going

Altice has been having a tough April. First, its participation in a three-way plot to consolidate the French wireless industry and end ongoing competitive price wars that benefit consumers turned out to be for nothing. Orange and Bouygues Telecom were set to merge, but likely only after divesting certain assets to Altice’s Numericable-SFR. The transaction fell apart when the two larger carriers couldn’t guarantee they’d each make a financial killing from the deal, and antitrust authorities were grumbling they might be willing to hammer anything that would likely boost prices for French consumers.

Last year, Wall Street was very pleased with Altice’s strategy of buying up other telecom companies, squeezing costs out of their operations through pay cuts, layoffs, and stiffing vendors, and then using customer revenue to leverage even more acquisitions. Altice enjoys significant support from asset managers like Vanguard, BlackRock, T. Rowe Price, and Fidelity. But their portfolios began taking beatings after Altice’s financial performance became an open question. More than a million customers dropped Altice-owned SFR-Numericable in the last year, citing poor performance.

Loaded in Debt, Altice Jumps into Junk Bond Market Twice in One Week

junk3The company’s massive debt load also continues to be a major concern. This week, Altice dipped into the junk bond markets not once, but twice, seeking to refinance their enormous debts. Yesterday, Altice went looking for $2.75 billion. Today it was expected to be back looking for $1.5 billion more, which is the third time Drahi has looked for money from investors comfortable with significant risk.

Drahi’s buyout of Cablevision in a $17.7 billion deal was financed with similar junk bonds and leveraged loans. If his acquisition is approved, it may have a profound impact on Cablevision customers in downstate New York, Connecticut, and New Jersey.

At Cablevision, Profits Will Come Before Employees, Customers

Drahi is insisting on driving Cablevision’s profit margins to as high as 50% while promising to slash $1 billion in costs out of the operation. Much of those savings will come from salary and job cuts at Cablevision and Newsday, the last remaining daily newspaper printed on Long Island.

“I don’t like to pay salaries,” Drahi said. “I pay as little as I can … No one in our company is making more than a couple hundred thousand a year.”

Altice CEO Dexter Goei noted there were more than 300 Cablevision employees making $300,000 or more a year. Their days are likely numbered. But that will only be the beginning.

mayotte reunion

Mayotte and Reunion are French territories off the coast of East Africa near Madagascar.

“I suspect Altice is going to come in and slash jobs, streamline operations and work to identify the quickest method of becoming profitable,” said Kevin Kamen, an area media broker. “One of the first places they’ll target for job consolidation will be Newsday, mark my words. They will also cut jobs at Cablevision in the long-run. Wherever they can save cost overruns and produces efficiency they will. Trust and believe. They are not about to invest billions in a sinking ship. I would also expect to see price increases across the board within a year for all subscribers regardless of how competitive the market is.”

French Competition Authority Fines Altice $17 Million for Sabotaging a Future Competitor

But before Drahi can put his earnings in the bank, he will have to share them with the French government, which today fined Altice $17 million dollars for breaking promises to French regulators.

In 2014, Altice won approval of its acquisition of Francophone mobile carrier SFR after agreeing to divest certain assets in places where it would give Altice a virtual monopoly on service. In the Indian Ocean region, the acquisition of SFR by Altice would give the Drahi operation a combined 66% market share in Reunion, 90% in Mayotte. To preserve competition, French regulators insisted Altice sell its Outremer Telecom operations in the two French territories to a third party. Until that sale was complete, Altice agreed to protect the economic viability, marketability, and competitiveness of the soon to be sold unit.

Instead, the Competition Authority discovered Altice suddenly jacked up the price of Outremer Telecom’s service between 17-60% and allowed customers to walk out of their contracts without any financial penalty. As a result, the future owner of Outremer Telecom would own a business that had already lost a substantial number of customers as a result of the price hike, out of character for a provider with an earlier reputation of low priced service.

Regulators suspect Altice might have intentionally sabotaged the business they were required to eventually spin-off, giving their own operation a competitive advantage.

Verizon Takes N.Y. Landline Customers to the Cleaners: Finds $1,500

Phillip Dampier March 28, 2016 Consumer News, Public Policy & Gov't, Verizon, Video No Comments

ShakedownVerizon’s loyal landline customers are subsidizing corporate expenses and lavish spending on Verizon Wireless, the company’s eponymous mobile service, while their home phone service is going to pot.

Bruce Kushnick from New Networks Institute knows Verizon’s tricks of the trade. He reads tariff filings and arcane Securities & Exchange Commission corporate disclosures for fun. He’s been building a strong case that Verizon has used the revenue it earns from regulated landline telephone service to help finance Verizon’s FiOS fiber network and the company’s highly profitable wireless service.

Kushnick tells the New York Post at least two million New Yorkers with (P)lain (O)ld (T)elephone (S)ervice were overcharged $1,000-$1,500 while Verizon allowed its copper wire network to fall into disrepair. Kushnick figures Verizon owes billions of dollars that should have been spent on its POTS network that provides dial tones to seniors and low-income customers that cannot afford smartphones and laptops.

Verizon’s copper network should have been paid off years ago, argues Kushnick, resulting in dramatically less expensive phone service. What wasn’t paid off has been “written off” by Verizon for some time, Kushnick claims, and Verizon customers should only be paying $10-20 a month for basic phone service. But they pay far more than that.

To ensure a proper rate of return, New York State’s Public Service Commission sets Verizon’s basic service charge of regulated phone service downstate at $23 a month. Deregulation has allowed Verizon to charge whatever it likes for everything else, starting with passing along taxes and other various fees that raise the bill to over $30. Customers with calling plans to minimize long distance charges routinely pay over $60 a month.

Unregulated calling features like call waiting, call forwarding, and three-way calling don’t come cheap either, especially if customers choose them a-la-carte. A two-service package of call waiting and call forwarding costs Verizon 2-3¢ per month, but you pay $7.95. Other add-on fees apply for dubious services like “home wiring maintenance” which protects you if the phone lines installed in your home during the Eisenhower Administration happen to suddenly fail (unlikely).

verizonIn contrast, Time Warner Cable has sold its customers phone service with unlimited local and long distance calling (including free calls to the European Community, Canada, and Mexico) with a bundle of multiple phone features for just $10 a month. That, and the ubiquitous cell phone, may explain why about 11 million New Yorkers disconnected landline service between 2000-2016. There are about two million remaining customers across the state.

New York officials are investigating whether Verizon has allowed its landline network to deteriorate along the way. Anecdotal news reports suggests it might be the case. One apartment building in Harlem lost phone and DSL service for seven months. Another outage put senior citizens at risk in Queens for weeks.

“They don’t care if we live or die,” one tenant of a senior living center told WABC-TV.

Verizon claims Kushnick’s claims are ridiculous.

“There is absolutely no factual basis for his allegations,” the company said.

WABC’s “7 On Your Side” consumer reporter Nina Pineda had to intervene to get Verizon to repair phone service for a senior living center that lasted more than a month. (2:50)

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