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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.



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.



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.”



“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)

Cincinnati Bell Plans to Shutdown Telegraph Grade Service, On Offer Since the 1800s

telegraph key

Telegraph key

If you thought your Internet service was slow, consider being a customer of Cincinnati Bell’s 75 baud Telegraph Grade service, on offer to subscribers since the 1800s for low-speed stock quotes, telegrams, and office-to-home communications. But don’t consider it too long, because the service is about to be discontinued.

The first telegram in the United States was sent on Jan. 11, 1838 using the newly developed “Morse Code” system introduced by Samuel Morse. The message was sent unceremoniously across two miles of wire strung across the sprawling Speedwell Ironworks outside of Morristown, N.J. But the experiment didn’t attract much attention until it was repeated in 1844 in Washington, D.C., where members of Congress looked on as the message, “What hath God wrought” successfully traveled from Washington to Baltimore, Md. A decade later, telegraph lines were strung to every major city on the east coast. By 1861, telegraph cables stretched across the territories west of the Mississippi and reached the West Coast, putting the Pony Express out of business.

It would be a decade after that before The City and Suburban Telegraph Company, later Cincinnati Bell Telephone, was officially incorporated on July 5, 1873, becoming the first company in the city to offer direct communication between the city’s homes and businesses. Only the wealthiest families could afford a private telegraph line, which cost $300 a year provided you lived no more than a mile from the company’s office. After four years, the company only managed to attract 50 paying customers, mostly business tycoons who relied on the telegraph to stay in contact with the office while at home. Other businesses used telegraphs to connect their different offices. Most employed young men to serve as telegraph operators, translating short written messages into a series of dots and dashes and back again.

Telegraph stamps, used to prove payment for sending and receiving messages.

Telegraph stamps, used to prove pre-payment for telegraph messages.

Business was better further east. The story of two men that would change the course of the telegraph and launch a company that remains a household name to this day started in 1838 when banker and real estate entrepreneur Hiram Sibley moved to Rochester, N.Y. He saw plenty of opportunities in upstate New York and quickly settled in, later becoming elected Monroe County Sheriff. That position soon led to his introduction to Judge Samuel L. Selden, who had the patent rights to the House Telegraph system. Seeing an opportunity, the two embarked on their own telegraph business — the New York State Printing Telegraph Company. It did not take long for them to realize competing against the larger New York, Albany, and Buffalo Telegraph Co., was a financial disaster. The two decided it would be smarter to consolidate existing providers instead of building new networks to compete. The first craze of telecommunications company consolidation was underway. With the assistance of deep pocketed investors in Rochester, Sibley and Selden founded the New York and Mississippi Valley Printing Telegraph Company. The new entity would string some of its own telegraph lines westwards, but more importantly it would focus on acquiring its rivals, especially in areas where fierce competition kept profits low and expectations of monopoly wealth even lower.



By 1854, Sibley and Selden were confronted with competitors using two different messaging systems among 13 different companies. Sibley’s solution? Buy them out and unify them with the Morse system, available thanks to a separate acquisition of the Erie & Michigan Telegraph Company. In 1856, the company that had its beginnings in Rochester was renamed the “Western Union Telegraph Company,” which referred to the union of the different telegraph systems of the “western states” of that era (today considered the midwest).

Between 1857 and 1861 merger mania hit almost all the telegraph companies, and by the end of this period, most formerly independent companies were owned by one of six conglomerates:

  • American Telegraph Company (covering the Atlantic and some Gulf states),
  • Western Union Telegraph Company (covering states North of the Ohio River and parts of Iowa, Kansas, Missouri, and Minnesota),
  • New York Albany and Buffalo Electro-Magnetic Telegraph Company (covering New York State),
  • Atlantic and Ohio Telegraph Company (covering Pennsylvania),
  • Illinois & Mississippi Telegraph Company (covering sections of Missouri, Iowa, and Illinois),
  • New Orleans & Ohio Telegraph Company (covering the southern Mississippi Valley and the Southwest).

Much like the cable industry today, these six giants maintained a mutually friendly alliance and never competed for territory. Any remaining independents quickly learned cooperation with these larger systems was essential. But once competition stalled in the telegraph business, so did interest in investing in challenging upgrades.

western unionBy 1860, as the United States continued its expansion westward and tension grew between the northern and southern states over issues like slavery and self-determination, the administration of President James Buchanan realized having a reliable national telegraph network was critical to the security of the country. Unfortunately for the president, his priorities ran headlong into private company intransigence. Persuading the for-profit companies to expand their networks to connect the west coast seemed impossible. None wanted to risk investor dollars on a telegraph line they believed would be too expensive and difficult to maintain.

That same year Congress passed, and President James Buchanan signed, the Pacific Telegraph Act, which authorized the Secretary of the Treasury to seek bids for constructing a transcontinental telegraph line, financed by the federal government. Two of the three bidders eventually dropped out, leaving Hiram Sibley’s Western Union the sole bidder.

The Pacific Telegraph Act of 1860 resulted in the construction on this telegraph line extending from Nebraska to Nevada.

The Pacific Telegraph Act of 1860 resulted in the construction of this telegraph line extending from Nebraska to Carson City, Nev.

To insulate his other business interests from the project, Sibley organized the Pacific Telegraph Company to be responsible for construction of the new telegraph line to the west, starting in Omaha, Neb. Sibley also consolidated several small local companies into the California State Telegraph Company, which in turn launched the Overland Telegraph Company, managing construction of the cable eastward from Carson City, Nev., to Salt Lake City. The line was finally completed in October, 1861, seven months after the outbreak of the Civil War.

While newly elected president Abraham Lincoln was distracted settling into office starting March 4, 1861, Sibley was quietly preparing to consolidate control over the new taxpayer-funded cross-country cable. After the project was complete, Pacific Telegraph and California State Telegraph were quickly merged into Western Union, making Hiram Sibley the undisputed king of the telegraph industry. Any future ventures rising to challenge Western Union were instead eaten up by acquisition. By 1866, Western Union announced it was moving its company headquarters from Rochester to 145 Broadway in New York City.

Sibley retired from Western Union in 1869, and went into the seed and nursery business in Rochester and Chicago. He left the company during its most powerful era, having a virtual monopoly on the telegraph business at least a decade before the telephone would arrive on the scene. He retired the richest man in Rochester, and his home in the East Avenue Historical District still stands today. He gave generously to charity after retirement and helped incorporate a new college in the Southern Tier of New York called Cornell University.

The Hiram Sibley House, constructed in 1869, still stands today at 400 East Ave, Rochester, N.Y.

The Hiram Sibley House, constructed in 1868, still stands today at 400 East Avenue, Rochester, N.Y.

As the 1870s arrived, the Civil War was five years finished and huge changes were coming. Although telegraph service was already in place in many eastern seaboard cities, it took longer to arrive in smaller cities in the midwest and southern United States, and it was not too long after that before the telephone followed.

In Cincinnati, the telegraph service that began in 1873 was threatened by the arrival of the telephone in 1878 — just five years later. That fall, Cincinnati’s telegraph company signed an agreement with Bell Telephone Company of Boston, the first telephone company in the country. Bell held several patents essential for manufacturing telephones and granted the telegraph company an exclusive contract to sell phone service within a 25-mile radius of the city.

Bell Telephone arrived in the era of the Robber Barons, where trusts and monopolies were the product of unfettered capitalism. Bell’s business planners were more than happy following the telegraph industry to the glory days of consolidation and monopolization.

By 1879, the Bell Telephonic Exchange was well on its way, up and running on the corner of Fourth and Walnut streets in downtown Cincinnati — the 10th phone exchange in the nation and the first in Ohio. That year, Cincinnati’s first phone book was printed and the young men that operated the telegraph lines were not welcome manning the huge expanse of manual cord boards built inside the central office.

City and Suburban believed women served as better ambassadors for the newly emerging telephone company and the concept of “Hello Girls” was born. Only later would the Bell System insist on referring to these professional employees as “operators.” In Cincinnati, around two dozen women manned the cord boards in the exchange office during its first year. They were required to memorize the names of all callers and had to quickly learn how to complete calls — a process that involved connecting a patch cable between the caller and the person called on a giant board with a plug for every subscriber. They managed nearly 150,000 completed calls during the first year for over 1,000 customers.

1930s: View of half of the world's longest switchboard at the City and Suburban Telegraph Company (later Cincinnati Bell Telephone). The board held 88 positions and handled a record of 9,722 outgoing calls in 1937. Cincinnati, Ohio. 01/01/1935 Photo by Cincinnati Historical Society/Getty Images

Jan. 1, 1935: View of half of the world’s longest switchboard at the City and Suburban Telegraph Company (later Cincinnati Bell Telephone). The board held 88 positions and handled a record of 9,722 outgoing calls in 1937. (Photo by Cincinnati Historical Society/Getty Images)

The simplicity and directness of the telephone quickly proved a major challenge for the telegraph industry. Western Union saw opportunities investing in telegraph networks overseas to stay ahead of this trend. It also launched a stock ticker service and a money transfer service, allowing people to send money across the country in a matter of hours. Despite the innovation, by 1875, financier Jay Gould had finally managed to assemble a formidable competitor to Western Union — the Atlantic and Pacific Telegraph Company. An overabundance of Western Union stock on the market by 1881 made it possible for Gould to finally launch a successful takeover.

A Telex machine in use during the 1970s.

A Telex machine in use during the 1970s.

Telegraph lines remained in use well into the 20th century, used primarily for business communications, cables, and telegrams which were printed and delivered by messenger. Cincinnati Bell sold telegraph grade data lines for a variety of business applications, including slow speed data services. Even after the Morse code telegraph of the 1800s was long gone, other data services existed well before the arrival of the fax machine and the home computer. Telex messages were exchanged over a network of “teleprinters” which resembled an oversized manual typewriter. AT&T’s Teletypewriter eXchange (TWX) network was common in large businesses during the late 1960s into the 1970s. One of Cincinnati Bell’s other large customers for slow speed data lines was the military.

Cincinnati Bell customers signed up for telegraph grade service received an unconditioned telephone line capable of transmitting at 0-75 baud or 0-150 baud in half-duplex or duplex operation. That was half the data speed of computer modems common in the mid 1980s supporting up to 300 baud — which transmits text at a speed most can read and follow along in real-time.

Remarkably, Cincinnati Bell still needs the permission of regulators to drop the Civil War era telegraph service and in discontinuance requests sent to state and federal authorities, it reminded regulators the change will have no impact on the “public convenience and necessity” because there has been no demand for the service for a long time.

In fact, Cincinnati Bell has no customers to notify of the impending doom of telegraph grade service, because there have been no customers subscribed to it.

cincinnati bellCincinnati Bell’s request would have gone unnoticed if it wasn’t for the long legacy of the telegraph era. Western Union dispatched its last telegram on Jan. 27, 2006, after 155 years of continuous service, and largely kept quiet about it, only notifying current customers: “Effective 2006-01-27, Western Union will discontinue all Telegram and Commercial Messaging services. We regret any inconvenience this may cause you, and we thank you for your loyal patronage. If you have any questions or concerns, please contact a customer service representative.”

Those nostalgic for telegrams might be interested to know another company has risen where Western Union left off. iTelegram promises to bring back the experience of a messenger at your front door, but it’s a costly trip down Memory Lane. A Priority Telegram costs $28.95 + $0.75 per word and is delivered usually within 24 hours, and includes proof of delivery. A “MailGram,” dispatched through the U.S. Mail is a slightly less expensive option, costing $18.95 and includes up to 100 words. It arrives in 3-5 days. Or you could send an e-mail for approximately nothing.

While Cincinnati Bell’s request recalls a distant past, Verizon and AT&T are also asking to discontinue services that customers were still using in the 1990s. Verizon wants to drop postpaid calling cards and personal 800 services that customers used to buy from MCI, now a Verizon subsidiary. For its part, AT&T wants to drop operator-assisted services due to almost no customer demand. In many areas, dialing “0” no longer even works to reach one of those Hello Girls… pardon me, I meant operators.

Stop the Cap! Joins 21 Other Consumer Groups Asking FCC to Block Charter-Time Warner Cable Merger

charter twc bhOn Monday, Stop the Cap! joined 21 other public interest organizations in sending a joint letter urging the Federal Communications Commission to deny Charter’s bid to take over Time Warner Cable and Bright House Networks. Late last week, the Wall Street Journal reported that FCC Chairman Tom Wheeler may be planning to circulate a draft order approving the $90 billion merger.

The Center for Media Justice, CREDO Action, Daily Kos, Demand Progress, Free Press and Presente.org were among the media justice, Internet rights and public interest groups calling on the FCC to reject this deal, which would create a national broadband duopoly.

Together, Charter and Comcast would control nearly two-thirds of the nation’s high-speed broadband subscribers and would offer service to nearly 80 percent of U.S. households. The letter notes that this substantial increase in market power, coupled with Charter’s $66 billion in debt, would give the company both the incentive and the heightened ability to raise prices at will. This would broaden the digital divide, hitting low-income communities the hardest.

Stop the Cap! earlier filed objections to the merger with the FCC and in two states seen as critical to the deal – New York and California. In our view, no cable merger has ever resulted in better service or lower prices for consumers. Such deals deliver handsome sums to executives and shareholders while saddling customers with relentless rate hikes and no improvement in service. Charter’s history is troubling and its ability to meet its financial obligations while saddled in debt is dubious. Charter declared bankruptcy in 2009, after accumulating $21.7 billion in debt accumulated from years of mergers and consolidation efforts. As credit markets tightened up, Charter’s ability to manage its debt fell apart. Now the company is back to its old modus operandi, piling up debt buying Time Warner Cable — a much larger operation, and trying to combine it with Bright House Networks, another cable operator prominent in Florida.

Earlier this year, several of the signers delivered petitions to the FCC from more than 300,000 Americans opposing the merger, and thousands have called the agency in recent days to weigh in against the deal. Political leaders including Senate Democratic Leader Harry Reid have spoken out about the merger’s many harms.

“Too many Washington insiders have given up on challenging this deal despite its serious harms,” said Free Press policy director Matt Wood. “Instead of forecasting its chances for approval, the groups signing this letter will keep fighting to block this merger, along with the guaranteed price increases it would foist on people and communities who can least afford it.

“If Charter gets this merger approved, nothing will stop it from raising its rates for high-speed broadband and video customers who have nowhere else to turn. Temporary promises and weak conditions aren’t going to preserve competition and choice in the long run, and they’re not going to do anything to stop these price hikes. The FCC is charged with promoting the public interest, and there’s no way in which this merger benefits the public. Higher prices and fewer choices won’t help anyone but the companies pitching this bad bargain.”

“If its takeover of Time Warner Cable goes through, Charter will have a broadband footprint as big as Comcast’s,” said Demand Progress executive director David Segal. “This would turn an industry that’s already too concentrated into a duopoly, paving the way for higher rates today and the eventual formation of a new cross-sector behemoth that controls content production and delivery.

“Americans increasingly understand that corporate concentration is jacking up prices and lowering quality for all sorts of basic goods and services. At a hearing of a Senate antitrust subcommittee this month, lawmakers made it clear that they see companies that are allegedly too big to fix in many industries, not just the banking sector. This FCC must now decide whether it wants to stem the swelling tide of concentration, or enable these monopolies.”

Free Press and Stop the Cap! contributed elements of this story.

FCC Prepares to Approve Charter-Time Warner Cable-Bright House Merger

mergerDespite clamoring for more competition in the cable industry, FCC chairman Thomas Wheeler is reportedly ready to circulate a draft order granting Charter Communications’ $55 billion dollar buyout of Time Warner Cable, with conditions.

The Wall Street Journal reported late last night the order will be reviewed by the four other commissioners at the FCC and could be subject to change before coming to a vote.

Wheeler’s order is likely to follow the same philosophical approach taken by New York State’s Public Service Commission — approving the deal but adding temporary consumer protections to blunt anti-competition concerns.

Most important for Wheeler is protecting the nascent online video marketplace that is starting to threaten the traditional cable television bundle. Dish’s Sling TV, the now defunct Aereo, as well as traditional streaming providers like Hulu and Netflix have all been frustrated by contract terms and conditions with programmers that prohibit or limit online video distribution through alternative providers. The draft order reportedly would prohibit Charter from including such clauses in its contracts with programmers.

fccCritics of the deal contend that might be an effective strategy… if Charter was the only cable company in the nation. Many cable operators include similar restrictive terms in their contracts, which often also include an implicit threat that offering cable channels online diminishes their value in the eyes of cable operators. Programmers fear that would likely mean price cuts as those contracts are renewed.

Wheeler has also advocated, vainly, that cable operators should consider overbuilding their systems to compete directly with other cable operators, something not seen to a significant degree since the 1980s. Cable operators have maintained an informal understanding to avoid these kinds of price and service wars by respecting the de facto exclusive territories of fellow operators. Virtually all cable systems that did directly compete at one time were acquired by one of the two competitors by the early 1990s. It is unlikely the FCC can or will order Charter to compete directly with other cable operators, and will focus instead on extracting commitments from Charter to serve more rural and suburban areas presently deemed unprofitable to serve.

gobble-til-you-wobbleMost of the other deal conditions will likely formalize Charter’s voluntary commitments not to impose data caps, modem fees, interconnection fees (predominately affecting Netflix) or violate Net Neutrality rules for the first three years after the merger is approved. As readers know, Stop the Cap! filed comments with the FCC asking the agency to significantly extend or make permanent those commitments as part of any approval, something sources say may be under consideration and a part of the final draft order. Stop the Cap! maintains a cable operator’s commitment to provide a better customer experience and be consumer-friendly should not carry an expiration date.

It could take a few weeks for the draft order to be revised into a final order, and additional concessions may be requested, a source told the newspaper.

Meanwhile, the California Public Utilities Commission (CPUC) is still reviewing the deal. News that the FCC is prepared to accept a merger is likely to dramatically reduce any chance California regulators will reject the merger out of hand. Stop the Cap!’s Matthew Friedman is continuing discussions with the CPUC to bolster deal conditions to keep usage caps, usage-based billing, and other consumer-unfriendly charges off the backs of California customers. New York customers will automatically benefit from any additional concessions California gets from Charter, as the PSC included a most-favored state clause guaranteeing New Yorkers equal treatment. Any conditions won in California and New York may also extend to other states to unify Charter’s products and services nationwide.

An independent monitor to verify Charter is complying with deal approval conditions is likely to be part of any order approving the transaction, although critics of big cable mergers point out Comcast has allegedly thumbed its nose at conditions imposed as part of its acquisition of NBCUniversal, and only occasionally punished for doing so.

Altice to New York Public Service Commission: Butt Out of Our Cablevision Buyout!

nosyBillionaire cable magnate and Swiss luxury property connoisseur Patrick Drahi excels at “take it or leave it” offers on behalf of Altice, the cable conglomerate he founded.

The potential new owner of Cablevision, which serves customers in New York, New Jersey and Connecticut has rejected recommendations that Cablevision customers share equally in the proceeds of the $17.7 billion deal. Altice’s lawyers have countered that 15% is more than enough.

Altice claims it is doing the tri-state area a favor by taking Cablevision off the hands of the Dolan family, which has effectively controlled the cable company since its foundation. Altice claims customers will get tangible benefits from the deal:

  • Broadband service at speeds up to 300Mbps in the future;
  • Discounted 30Mbps Internet access for the financially disadvantaged for $14.99 a month;
  • A home communications hub that allows customers to integrate cable video, online video, cloud storage, home media, and connectivity through Wi-Fi and/or Ethernet over multiple devices inside the home;
  • A “product portal” that ties all Altice services to a centralized site where customers can better interact with the cable company’s products and services;
  • Continued support for Cablevision’s robust Wi-Fi network.

Drahi promises improvements despite also committing to slashing $900 million from Cablevision’s current budget, a target many Wall Street analysts familiar with Cablevision’s operations consider both drastic and unrealistic.

Altice1Critics of the deal include consumer groups concerned about the poor performance of other Drahi-run cable systems and Cablevision’s organized labor force, unhappy about Drahi’s statements to Wall Street that he prefers to pay only minimum wage wherever possible. Drahi also has a long contentious history with Altice workers in Europe, presiding over workforce reductions, salary and benefits cuts, and a war of attrition with his own suppliers.

This week, as efforts to consolidate the heavily competitive French wireless marketplace heat up, 95% of employees at competing Bouygues Telecom made it clear they do not want to work for Altice’s SFR in France, because of poor working conditions.

Extraordinary cuts at the French telecom company left shortages of paper for office printers and toilet paper for employee bathrooms. Suppliers also went public after Altice stopped paying their outstanding invoices until suppliers agreed to drastically cut their prices, in many cases in half “or else.”

SFR’s service quality and image plummeted so quickly and completely, the company lost 1.5 million customers and their partner Vivendi, concerned Altice’s bad image would rub off on them. They sold their remaining 20 percent stake in SFR to Mr. Drahi.



“If Drahi had had a different style of management, we would have kept the 20% stake in SFR,” said one Vivendi insider at the time. “But he had very bad press as a result of his management style. We didn’t want to be associated with any of that.”

Suddenlink and Cablevision customers may not have much of a choice. Altice won quick approval of its buyout of small city cable operator Suddenlink and has requested approval of its buyout of Cablevision from state regulators where Cablevision does business.

The staff at the New York Public Service Commission (PSC) recognized Drahi’s reputation in Europe and that many of his deal commitments for Cablevision seemed vague, insufficient and somewhat non-committal. Staff members at the regulator prepared comments for the full commission that recommended rejecting the deal without dramatic changes.

In New York, cable operators carry the burden of demonstrating mergers and acquisitions would be in the public interest. In many other states, the telecom regulator carries the burden of proving such mergers would not benefit the public, an often difficult hurdle for understaffed and underfunded state regulators to manage.

optimumNew York regulators usually insist that state residents share in the proceeds of any sale that comes before the commission for review. In most cases, this is in the form of an agreement to invest in infrastructure or service improvements, improve customer service standards, and protect jobs. As with Time Warner Cable and Charter, the staff recommended the commission first consider a roughly 50/50 share of any deal savings or synergies, evenly split between customers and shareholders.

Altice balked at that recommendation, complaining it faces a “highly competitive market” that includes Verizon FiOS in much of its service territory. As a result, Cablevision customers deserved less… much less.

“[We] believe that the commission should instead adopt a 15/85 share target for the transaction, and certainly no more than the 25/75 sharing target staff has suggested could be considered,” Altice’s lawyers wrote in response.

Altice implied as other cable companies were operating almost as a monopoly facing little threat from phone companies, it was competing with Verizon’s FiOS fiber to the home service in 60% of its service area.

ny psc“The contrast between the competitive landscape faced by Cablevision as compared to other large cable operators in New York State is stark,” the lawyers wrote. “Verizon FiOS is available in just two Comcast communities, 3% of Time Warner Cable communities, and zero Charter communities in the state.”

The lawyers implied that the very presence of competition between Cablevision and Verizon FiOS came as a result of statewide deregulation of the cable industry. Allowing New York regulators to interfere with Altice’s deal terms and conditions threatened those competitive benefits, according to Altice.

“Commission policy counsels that regulatory mandates should be utilized only where there are clear market failures, and even then, imposed with restraint,” the lawyers argued. “Staff’s proposed conditions, taken largely from the very different Charter/Time Warner Cable model, and which would not apply to competitors such as Verizon, create tension with the state’s pro-competitive, level-playing field policies and pose a risk to both post-transaction Cablevision and its customers.”

Altice is maxing out its credit cards. (Image: FT)

Altice is maxing out its credit cards. (Image: FT)

Altice argues that because competition exists, “it is reasonable to assume that a substantial portion of synergy savings will be re-invested in network infrastructure and new technologies—including research and development associated with such investment—rather than simply returned to customers or shareholders.”

Except that has not proven true with other telecom operators. Last year, Comcast bought back more than $2 billion of its stock, or 35.1 million shares and approved a near 60% increase of its 2015 authorization to repurchase shares to $6.75 billion. In February, Comcast boosted its dividend payout to shareholders by 10% and planned to repurchase another $5 billion of its own stock during 2016. Last year, Verizon announced it was returning capital to its shareholders through a $5 billion accelerated share-repurchase program and raised its dividend payout to the highest level (56.5¢ per share) since at least 2000. From 2012-2014, AT&T paid out nearly $27 billion to investors through its own share repurchase program. This quarter, it announced a 48¢ share dividend payout, also the highest amount since at least 2000.

Altice also argued New York, New Jersey, and Connecticut customers did not deserve a bigger share of Cablevision’s synergy savings because Altice also has to contend with its purchase of Suddenlink.

“The Commission should instead take into consideration Suddenlink’s operations, which Altice acquired at the end of 2015, just as it took into account all of the U.S. entities comprising New Charter post-closing,” Altice’s lawyers argued. The hole in that argument, deal critics claim, is that Altice doesn’t extend the synergy savings from its deal with Suddenlink to anyone except itself.

Altice also pushed back on other PSC staff recommendations:

  • Altice does not want to provide standalone telephone and/or Lifeline service to Cablevision customers;
  • Altice objects to providing battery backup power for telephone services, but will allow customers to buy their own;
  • Altice protested recommendations from the PSC staff to ban usage caps/usage based billing as a condition of sale. Altice claims usage caps may benefit customers and objects to a rulemaking that prohibits Cablevision from imposing them while leaving their competitors free to cap at will. “Cablevision’s competitors are launching aggressive service offers that Cablevision will have to match or beat—and if the company is subject to regulatory restrictions its competitors do not face, it will be handicapped in keeping up with market demands,” Altice argued.
  • New York City should have no say whether this sale is approved or not, claiming the sale does not trigger the city’s right of review.

If the PSC is unimpressed with Altice’s arguments, the cable operator has one other: federal and state law prohibits the commission from imposing most of the terms and conditions its staff recommended. The presentation is unlikely to win much favor at the PSC, particularly because Altice concedes almost nothing and objects to nearly everything on the staff’s menu of deal conditions.

The Communications Workers of America has also attacked the deal, arguing much of Altice’s presentation to the PSC is less than meets the eye. The CWA notes Altice intends to erect a money silo around Cablevision, purporting to protect its finances and operations from the rest of Altice’s telecom empire. But that also means Altice will invest none of its own money in Cablevision upgrades and service improvements, relying on Cablevision’s existing resources, credit lines, and debt obligations to cover the costs. Considering Drahi’s management style, that is likely to drive up debt.

The Financial Times reports Altice has already run up debt, ballooning over the past two years from €1.7 billion in 2012 to just over €50 billion by the end of this year, assuming its acquisition of Cablevision goes through. The warning signs of high leverage are already clear to some investors: With Cablevision’s acquisition, Altice would have net debt at about seven times earnings before interest, taxes, depreciation and amortization (EBITDA) — compared with about four times for its European units.

With jitters over European banks, interest rates, oil and gas, and the general state of the stock market, investors are expressing concern.

“From a general valuation perspective, companies with high leverage start becoming a source of fear,” one Altice investor told the Financial Times.

The PSC will likely adopt many of the staff recommendations regardless of Altice’s objections if it approves the sale. Some of those conditions are likely to include broadband service improvements, a low-income discounted Internet access program, and coverage area expansion into currently unserved areas.

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