While AT&T is in no hurry to expand and upgrade U-verse broadband to its wireline customers in the United States, the Dallas-based company has spent more than $7 billion trying to attract wireless customers in Mexico that so far don’t show much interest in the U.S. company.

AT&T last month reported it is losing big south of the border. After spending $4.4 billion to acquire two competing wireless companies in Mexico and committing another $3 billion to upgrade their networks to 4G service, customers are continuing to abandon the carrier.

The losses AT&T continues to incur improving wireless service in Tabasco, Veracruz, and Baja California has not bothered AT&T to date — in fact the company plans to dump even more money into the Mexican cellular market, despite achieving a market share of only around 8.5 percent, effectively making it about as relevant as Sprint in the United States. Its largest competitors are the gigantic América Móvil, which has nearly 70 percent of the market and Telefónica, which holds a 22 percent share.

So far, AT&T has been forced to support different websites for its two different carriers – Iusacell and Nextel Mexico. The former also maintains the Unefon brand, which targets low income Mexicans with cheap prepaid service.

Part of AT&T’s problem recouping its investment is the fact Mexicans cannot afford the pricing Americans pay for cell service. While AT&T charges $50+ for a low-end cell plan in Texas, just across the Mexican border AT&T offers a $13 basic plan offering 500 calling minutes and 500MB of data.

AT&T’s decision to spend billions in Mexico while it reduces spending on further expansion of its U-verse network has nothing to do with Net Neutrality or Title II enforcement by the Federal Communications Commission. It is all about finding new customers. Wireless penetration has now topped 100 percent in the U.S. (because some families maintain multiple devices, sometimes with different carriers). In Mexico, less than 50% of the population has a cell phone and even fewer own smartphones. AT&T believes that gives it plenty of room to grow. AT&T believes wireless service brings the best potential for profits both inside and outside of the U.S., and the company thinks it can dramatically improve market share in Mexico and charge prices that will bring it a healthy return.

Their customers apparently disagree. In Mexico, for the first nine months of the year, AT&T lost 689,000 wireless subscribers — a decline of almost 8 percent. Even customers attracted to try AT&T for the first time often decide to leave, giving AT&T Mexico a churn rate exceeding 5% — five times worse than what AT&T experiences in the United States.

Some Wall Street analysts are critical of AT&T throwing good money after bad down south. Michael Hodel of Morningstar doesn’t like what he sees. The incumbent Mexican telecom giant América Móvil has kept the lion’s share of the market for years and has vastly more scale than AT&T. Hodel sees losses for AT&T until 2018.

Others wonder how AT&T Mexico will be able to introduce the premium priced services it will depend on to get a return on its investment. The Mexican economy is unlikely to allow customers to pay substantially more for wireless service.

AT&T CEO Randall Stephenson has told investors if AT&T builds a 4G network, customers will come and pay AT&T’s asking price.

“We are convinced that what we experienced in the U.S., we will experience in Mexico,” Stephenson said at an investor conference in May. “So you are going to see the mobile Internet revolution take off in Mexico. We intend to ride that wave.”

Free trade supporters and those who support the deregulation of the Mexican telecom market are trying to use AT&T’s experience as evidence that free markets and trade works.

“AT&T’s moves are the clearest evidence of success in Mexico’s reforms, and it’s hard to overstate the importance,” said Christopher Wilson, deputy director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.

For customers, it isn’t a matter of free trade. It’s good coverage at a reasonable price that matters most, and AT&T Mexico has not yet achieved that.

Arturo Diaz, originally an Iusacell customer in Mexico City, recently dropped his AT&T Mexico service.

“Their coverage is not very good outside of large cities and AT&T’s reputation is to raise prices, which they seem to do a lot in the U.S.,” Diaz said. “If you can afford a better phone and plan, you switch to América Móvil. With the stronger American dollar, the peso is devalued again, so more people will likely want a budget prepaid plan which they can get from Telcel. I’m not sure what AT&T is doing in Mexico and their plans from two different companies are a mess. I signed up with América Móvil last month.”

The Hilton Convention Center in Anaheim, Calif. Come for the color but don’t stay for the $500 Wi-Fi.

The Federal Communications Commission’s Enforcement Bureau today announced a tentative $25,000 fine against Hilton Worldwide Holdings, Inc., owner of the Hilton Hotel Chain, for allegedly obstructing a FCC investigation into the blocking of consumers’ use of personal Wi-Fi while visiting hotel properties.

“Hotel guests deserve to have their Wi-Fi blocking complaints investigated by the Commission,” said Travis LeBlanc, chief of the FCC Enforcement Bureau. “To permit any company to unilaterally redefine the scope of our investigation would undermine the independent search for the truth and the due administration of the law.”

The regulator accuses Hilton of stonewalling requests for information and documents about how the hotel chain manages Wi-Fi for visitors and guests. In August 2014, the FCC received a consumer complaint accusing Hilton of purposely blocking visitors’ Wi-Fi hot spots on its property in Anaheim, Calif., to compel guests to pay a $500 fee to use Hilton’s own Wi-Fi network. The complaint was followed by others who alleged similar experiences with Hilton hotels elsewhere.

In most cases, fees of that amount are sought from vendors attending conventions and other large events held at Hilton hotels. Wi-Fi services can be a lucrative revenue generator, but not if vendors rely on company or personal cell phone hotspot services to bypass the hotel’s internal Wi-Fi network. Hilton hotels in the area generally offer Wi-Fi in rooms for prices ranging from free to $14.95 a night. The charges evidently vary depending on the promotion in effect when a room is booked. Fees for convention vendors are often dramatically higher, which seems to be the case surrounding this complaint.

In November 2014, the FCC issued Hilton a letter of inquiry seeking information concerning basic company information, relevant corporate policies, and specifics regarding Wi-Fi management practices at Hilton-brand properties in the United States. After nearly one year, the FCC alleges Hilton has effectively ignored the FCC’s request for the vast majority of its properties. Hilton runs hotels under the Hilton, Conrad, DoubleTree, Embassy Suites, and Waldorf Astoria brands.

In the last two years, the FCC has made it clear it will aggressively pursue and fine those intentionally interfering with Wi-Fi signals, especially if a revenue motive is found. In October 2014, the FCC fined Marriott International, Inc. and Marriott Hotel Services, Inc. $600,000 for similar Wi-Fi blocking activities at the Gaylord Opryland Hotel and Convention Center in Nashville, Tenn. In August 2015, the FCC fined Smart City Holdings, LLC $750,000 for similar Wi-Fi blocking at multiple convention centers across the country. The Commission also recently proposed to fine M.C. Dean $718,000 for apparent Wi-Fi blocking at the Baltimore Convention Center.

The French press continues to ridicule Patrick Drahi’s debt-laden acquisitions as “Altice in Wonderland.” (Cartoon: Les Echos)

The next owner of Cablevision and Suddenlink put profits ahead of people and managed to drive away more than one million of his own customers in Europe within a year of a massive cost-cutting operation that led to service degradation and noncompetitive prices.

Patrick Drahi’s Altice NV has similar plans in store for both American cable companies if he manages to win regulator approval of the acquisitions.

The Wall Street Journal reports Altice was willing to sacrifice market share if it meant the company could extract cost-savings and higher profits that Drahi could use to help pay off some of his acquisition loans.

Some Wall Street analysts were initially excited to hear Drahi would slash salaries, knock union heads, and eviscerate at least $900 million in costs annually from Cablevision, results likely to boost Cablevision’s share price and fatten investor returns.

The cost-cutting formula is always the same in an Altice takeover. Special teams arrive from Europe within days of a deal closing with strict instructions to cut employees, reduce the salaries of those remaining, and brutally cut costs out of the business. Drahi is famous in Europe for stopping payment on checks to suppliers, leaving them unpaid until they agreed to offer his company discounts up to 40%. Employees also share stories of having to pay for office supplies out-of-pocket and in at least one case, staffed a wireless store that carried no phones in inventory because Drahi stiffed his supplier.

Drahi

The bad news for Wall Street? Customers of Drahi’s cable and wireless companies are fleeing in droves. At least 1.1 million of Altice’s French customers have taken their business elsewhere, fed up with deteriorating service and uncompetitive prices.

One manager lamented that as Altice-owned Numericable-SFR’s wireless network deteriorated to the point of regularly dropping calls, Drahi borrowed nearly $2 billion he set aside in preparation for further acquisitions.

“Debt is Drahi’s drug,” commented French news site LeJDD.

Drahi leverages his buyouts with loans covering up to 80% of the purchase price. Eerily similar to toxic sub-prime mortgage debt, investment banks consider holding too much of Drahi’s debt potentially poisonous, so they routinely repackage it with other loans and resell it to other financial institutions and unknown investors. That has some in the French government concerned Drahi is building the world’s first “too big to fail” telecom company, while leaving investors in the dark about the risks of holding his loans.

The lessons learned watching Drahi manage one of France’s largest wireless operators may concern U.S. regulators contemplating Drahi’s buyout offers of Cablevision and Suddenlink.

In the first quarter under Drahi, SFR boosted margins by 21% based on ruthless cost cutting. But a stunning 445,000 customers quickly left the operator. Critics contend Drahi’s cost cutting does temporarily boost profits, but also allows network quality to degrade, eventually alienating customers who leave. Drahi then uses SFR’s smaller customer base as an excuse for further cost-cutting. Between 2006-2011, Drahi eliminated half of the wireless provider’s workforce and outsourced much of his call center customer support operations.

Those still working at Altice companies after the cost-cutters depart are left in a state of siege.

“He’s a beast,” one employee told LeJDD in a piece that compared working for SFR with being in hell. All expenses are scrutinized, company-paid travel is canceled, team exercises and company meals are dropped, and for vendors and suppliers things are even worse. All projects are frozen and all outstanding invoice payments are stopped, reviewed one-by-one. Drahi’s goal is to find 600 million euros annually in savings to repay the €13 billion he borrowed to acquire SFR in 2014.

Employees, even those represented by France’s powerful trade unions, are scared into silence, reports LeJDD.

“Be happy you have a job,” is the standard response one trade unionist routinely receives from what is left of SFR’s management. Drahi doesn’t spare management below him either. Within weeks of Altice’s takeover, the flown-in French cost cutters immediately terminated 55 of the 70 SFR managers earning more than 150,000 euros per year. At least 100 middle managers were also quickly shown the door. IT and networking positions are also deemed ‘bloated’ and a reorganization quickly whittled employees down to a token force. The marketing department? Abandoned. Also dismantled was SFR’s team of innovators, working on next generation network upgrades and technology.

Call centers that handle customer service requests were “on the verge of suffocation,” reported LeJDD. One small call center operator had to send his attorney to SFR’s offices to threaten them over an outstanding bill of one million euros. Drahi demanded an immediate 35% discount if the attorney wanted to leave with a check in hand.

Cable customers share their own anecdotal stories, including one forced to acquire and supply his own cable to complete an installation because the technician had run out. Another reported a tardy cable installer humbly apologized, claiming he was forced to pay out-of-pocket for fuel to get his stalled cable truck back on the road again.

The horror stories from Europe are making an impact in New York’s financial markets, along with Altice’s improbable formula of profiting from alienating customers. After 18 months of unbridled growth and 47 billion euros in loans to finance multiple acquisitions, Wall Street is getting worried. Altice has lost 50% of its value in just six months and Moody’s has now rated Altice’s debt as “highly speculative,” the last step on the basement stairs right before “default.”

“Drahi carries too much debt,” said the head of a French investment fund. “He and his team have lost all sense of reality.”

LeJDD put it more colorfully: “The ogre was too greedy.”

To placate investors, Drahi is planning to slow future acquisitions, something he may not have had much say in. Bankers forced Drahi to accept considerably higher interest rates to finance his American cable company buyouts.

Numericable-SFR’s long-dead marketing department is also being revived, offering discounts and marketing the service more aggressively to stem customer defections. But the company’s increasingly poor reputation is making that a hard sell in Europe, where fierce competition among multiple providers has fueled a long-lasting price war.

Altice officials point to the fact their severe cost-cutting strategy may have faced greater challenges in Europe, where competition is always a speed bump to high profits. But company officials privately stress their ‘profits first’ formula stands a better chance of success in America, where customers don’t have a lot of choice. Competition is less risky for Suddenlink than it is for Cablevision. Altice promises to wring $215 million annually in savings out of the largely rural and small city provider Suddenlink. But Altice’s estimate of $900 million in savings from Cablevision, which faces formidable competition from Verizon FiOS, seems much less realistic, according to Wall Street analysts.

MoffettNathanson analyst Craig Moffett said Altice was taking cuts to an extreme.

“You’re talking about huge cuts to customer service levels to installation and maintenance costs to marketing and promotions,” Moffett told Reuters. “You can’t expect to be able to make dramatic cuts… without having an impact on the business.”

Broadband prices in the United States are far too low and it is long past time to “significantly” boost prices and introduce usage caps/consumption-based billing to put an end to the threat of online video competition once and for all.

Those are the views of Jonathan Chaplin, a research analyst for New Street Research LLP, and he made sure to share them with Robert Marcus, CEO of Time Warner Cable on a morning conference call with investors.

“Our analysis suggests that broadband as a product is underpriced,” Chaplin told Marcus, and it is hardly the first time he has beat the drum for higher Internet pricing.

In June, Chaplin wrote a note to investors that pulled no punches about what usage billing is really all about.

“Our work suggests that cable companies have room to take up broadband pricing significantly and we believe regulators should not oppose the re-pricing (it is good for competition & investment),” Chaplin wrote. “The companies will undoubtedly have to take pay-TV pricing down to help ‘fund’ the price increase for broadband, but this is a good thing for the business. Post re-pricing, [online video] competition would cease to be a threat and the companies would grow revenue and free cash flow at a far faster rate than they would otherwise.”

Chaplin pestered Marcus this morning about why Time Warner Cable has remained steadfast in keeping compulsory usage caps or usage-based pricing away from their broadband customers.

Marcus

“As part of the merger conditions, you made a concession to not moving towards usage-based pricing for a number of years,” Chaplin asked. “I’m wondering if that’s something that you felt the FCC required, or that came up during the course of the Comcast, Time Warner Cable discussions and why you needed to offer that up as a condition.”

Ironically, it was Marcus who schooled Chaplin on the realities of a marketplace where cap-free competitors like Google, Verizon, and AT&T U-verse (their stated cap is not enforced) exist and are more than capable of stealing Time Warner Cable customers if the cable company gets too greedy. Time Warner’s best chance of earning more broadband revenue is to sell faster service, Marcus noted.

“I can’t give you an outlook on where broadband pricing is going, except to say we’re going to continue to deliver more and more utility to customers,” Marcus said. “Generally speaking, where customers get more value out of your products, they’re willing to pay more. But what we actually charge is going to be a function of what the marketplace dictates. It’s a very competitive market out there and we’re going to have to continue to price our products in a way that allows us to acquire and retain them.”

Chaplin’s remarks tying usage pricing to curtailing online video competition are no surprise to consumer advocates, who believe usage-based billing is an obvious weapon cable and phone companies can use to protect their cable-TV revenue. Sling’s CEO considers usage pricing a serious threat to the viability of alternative video providers like Sling TV.

Verizon Wireless has informed employees Wednesday that its national operation will be reorganized resulting in significant job cuts.

The nation’s largest wireless carrier also operates 20 regional offices to handle everything from operations to call center functions. Verizon intends to cut that number to six, with employees likely offered a limited number of positions if they agree to relocate. Verizon has a workforce of 177,900 as of the end of the third quarter. Sales and retail store employees will be unaffected in this round of job cuts.

Verizon will not be passing any savings from the cost cuts on to customers. In fact, the company recently announced rate increases of $20 a month for its remaining unlimited data plan users.

With almost 70 percent of Verizon’s revenue now coming from its highly profitable wireless operations, a reduction in regional offices could prove disruptive, especially if it results in a reduction in customer service representatives. Verizon would not specify exactly how many positions will be cut or how much was likely to be saved by consolidating offices, or which would be closed.