Today’s offer by Altice SA to spent $11 billion to acquire France’s Bouygues Telecom and combine it with Altice-owned Numericable-SFR to create France’s largest wireless operator is not playing well in some quarters of the French government.

Patrick Drahi’s announcement he was borrowing the money to finance the deal worried France’s economy minister Emmanuel Macron, who felt Drahi’s leverage game in the mergers and acquisitions business came with a massive debt load that could have major implications on French taxpayers.

“I don’t want to create a too-big-to-fail player with such a leverage and it’s my role to … deliver such a message,” Macron said. ”If the biggest telecom operator blows up, guess what, who will pay for that? The government, which means the citizens.”

Macron is partly referring to the upcoming French wireless spectrum auction that will make more wireless frequencies available to the wireless industry. The proceeds will be paid to the French government and a default by Altice could have major implications.

Macron

Macron, himself a one-time investment banker at the Rothschild Group, said he was not fooled for a moment by Drahi’s claims the merger would benefit French consumers, especially at the overvalued price Drahi was willing to pay. Macron estimates Drahi has offered almost double the total market value of Bouygues Telecom, a conglomerate that also includes road construction and maintenance, commercial construction and television businesses — all elements Drahi would likely discard after the merger.

“All the synergies which could justify such a price are in fact about killing jobs,” Mr. Macron said. “At the end of the day, is it good for the economy? The answer is ‘no’.”

The merger deal is probably not good news for consumers either. France’s ongoing wireless price war among the four current competitors has reduced the cost of wireless service to as little as $3 a month since low-cost player Iliad broke into the French mobile market three years ago.

Virtually every French telecom analyst predicted the merger would be the beginning of the end of France’s cheap wireless service. Investors cheered the news, predicting higher priced wireless service would boost the value of their stock and increase profitability, while reducing costs. The deal’s defenders said ending the price war would attract necessary investments to upgrade French wireless networks and limit the impact of a bidding war for new wireless spectrum.

Drahi’s style of indebting Altice while slashing expenses at acquired companies has earned him suspicion from French officials.

Drahi’s style of doing business again raised concerns among several members of the French government. Drahi is notorious for severely slashing expenses at the companies he acquires, usually firing large numbers of middle managers and “redundant employees” and alienating those that remain.

But vendors complain they are treated even worse than Drahi’s employees. Electricity has been cut at Drahi-owned facilities for non-payment, employees have been expected to bring their own toilet paper to the office, and copying machines have been known to run out of toner and paper after office supply firms went unpaid for months.

After his $23 billion acquisition of SFR, the country’s second largest mobile operator, Drahi ordered SFR to stop paying suppliers’ outstanding invoices until vendors and suppliers agreed to massive discounts of as much as 80% on current and future invoices. A government mediator was forced to intervene.

Macron doubts Drahi has the interest or the financial resources to invest in Bouygues’ telecom business. Drahi has already indebted Altice with a spending spree of more than $40 billion over the last year acquiring Suddenlink Communications, SFR, and Portugal Telecom.

Drahi’s acquisition machine is fueled by “cheap debt” available from investment bankers looking for deals to meet investors’ demands for better yields from corporate bonds. Safer investments have faltered as interest rates have fallen into negative territory in parts of Europe.

French lawmakers, particularly those aligned with France’s labor unions, accuse Drahi of acting like a bulimic debtor and feared his splurge would eventually lead to a banker-forced purge and government bailout if he cannot meet his debt obligations in the future.

“If I stop my so-called bulimic development, I won’t have any debt five years from now. That’s idiotic, I won’t have any growth for five years,” Drahi curtly replied. “I think it’s better to continue to produce growth all while keeping a foot close to the brakes and looking in the rear-view mirror.”

Finance Minister Michel Sapin scoffed at the apparent recklessness of America’s J.P. Morgan and France’s BNP Paribas investment banks who readily agreed to offer financing for the deal, despite Drahi’s existing debt.

“We must be careful not to base an empire on the sands of debt,” he warned.

[flv]http://www.phillipdampier.com/video/Reuters French government hardens stance on Altice bid for Bouygues Telecom 6-22-15.flv[/flv]

Reuters reports Altice may be vastly overpaying for Bouygues Telecom and that has the French government concerned about creating a “too big to fail” telecom operator in France. (2:04)

AT&T violated the transparency rules of the Federal Communications Commission not less than a million times by allegedly deceiving customers about an unlimited data plan that was speed throttled to unusability after as little as 3GB of usage a month. As a result, the FCC today fined AT&T $100,000,000.

“Consumers deserve to get what they pay for,” said FCC chairman Tom Wheeler. “Broadband providers must be upfront and transparent about the services they provide. The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure.”

From the Notice of Apparent Liability:

Based on the facts and circumstances before us, we find that AT&T apparently willfully and repeatedly violated Section 8.3 of the Commission’s Rules by:

1. using the term “unlimited” in a misleading and inaccurate way to label a data plan that was in fact subject to prolonged speed reductions after a customer used a set amount of data; and
2. failing to disclose the data throughput speed caps it imposed on customers under the MBR policy.

In short:

“Unlimited means unlimited,” said FCC Enforcement Bureau chief Travis LeBlanc. “As today’s action demonstrates, the Commission is committed to holding accountable those broadband providers who fail to be fully transparent about data limits.”

This is the largest proposed fine in FCC history, according to a senior FCC official. The official told the Wall Street Journal AT&T made billions of dollars off the practice.

Wheeler

Thousands of AT&T customers have complained about the practice and feel misled about the company limiting an unlimited use plan.

“A provider cannot announce something in large type that it contradicts in fine print; such practices would be inherently misleading to consumers, and, therefore contrary to both the spirit and letter of the Open Internet Transparency Rule,” the FCC notice states.

The FCC’s two minority Republican commissioners strongly disagreed with the action against AT&T. Ajit Pai used his dissent to cut and paste large sections of AT&T’s website in defense of the company.

“Because the Commission simply ignores many of the disclosures AT&T made; because it refuses to grapple with the few disclosures it does acknowledge; because it essentially rewrites the transparency rule ex post by imposing specific requirements found nowhere in the 2010 Net Neutrality Order; because it disregards specific language in that order and related precedents that condone AT&T’s conduct; because the penalty assessed is drawn out of thin air; in short, because the justice dispensed here condemns a private actor not only in innocence but also in ignorance, I dissent,” Pai wrote.

Commissioner Michael O’Rielly dissented because he felt the FCC was overreacting to AT&T’s throttling program and assumed harm was done to every customer affected by it.

“I firmly believe that the Commission must take the necessary steps to enforce its regulations,” O’Rielly wrote. “But, it is equally important that the Commission’s enforcement procedures be fair and equitable. Licensees must have faith in the process and trust that the government is working in a sound and just manner, instead of vilifying them, or demanding that they incriminate themselves.”

“We will vigorously dispute the FCC’s assertions,” said Michael Balmoris, an AT&T spokesman. “The FCC has specifically identified this practice as a legitimate and reasonable way to manage network resources for the benefit of all customers. We have been fully transparent with our customers” and exceeded FCC disclosure requirements, Balmoris said.

AT&T only imposes its speed throttle on unlimited data plan customers who exceed 3GB of usage. Customers on usage-based billing plans do not face a speed throttle after exceeding 3GB of usage.

Brazil’s plans to bring at least 25Mbps fiber broadband to 45 percent of Brazilian households by 2018 are on hold after private providers balked about spending the money.

The Ministry of Communications’ ambitious Broadband for All program is a public-private partnership. Public broadband expansion funding would be matched by generous tax credits to encourage private matching investments to improve Brazil’s telecommunications infrastructure. Telephone customers already pay a tax on their telecom bills to fund Brazil’s version of the Universal Service Fund, which helps subsidize expenses in high cost service areas.

The plan derailed after investment markets saw little opportunity for big profits from a fiber upgrade. Brazil’s president Dilma Vana Rousseff embarrassed her Minister of Communications Ricardo Berzoini, who had already publicly announced plans to get the upgrades started last month.

A source close to the president told Reuters the government has sided with commercial providers and is slowing the project down for now.

“We have to adjust the timing of investments to adapt to the appetite of the market and public finances,” said the source, who spoke on condition of anonymity.

A less ambitious expansion program is tentatively scheduled to start in mid-October, but is only likely to incrementally improve broadband in larger cities.

At least one company balked about poor revenue and profit opportunities serving economically challenged regions in Brazil. It argued the population lacked enough income to pay the prices they intended to charge for fiber service.

Community and broadband activists complain critics have demagogued the effort from the beginning with stories of wiring fiber across vast expanses of the Amazon Rain Forest that would ultimately serve few, if any customers. After years of sub-standard service, many believe broadband should be provided and regulated like an essential utility. Currently, only landline-based broadband is regulated in the public interest.

For the consumer protection agency PROTEST, fast broadband is essential to society and where private providers have dropped the ball, the Brazilian government should pick it up and build broadband networks itself, using the proceeds of the Universal Service Fund.

“This deference to big telecom companies to decide Brazil’s online future is a huge mistake,” complained Carlos Filho, an Internet user in Cuiabá, the capital city of the state of Moto Grosso. “I cannot even get 1Mbps DSL in my downtown apartment. You have to use wireless, which is very expensive, to get anything done. The government should be building broadband like it builds roads.”

This afternoon, officials from the Ministry of Communications will meet with Russian Deputy Communications Minister Rashid Ismailov in St. Petersburg to seek Russian investment in Brazil’s wireless and rural broadband ventures.

Truth or Consequences: Does privatizing a government-owned telephone company encourage innovation and efficiency or serve to enrich a handful of executives and shareholders at the cost of customer service? Two essentially equal telephone companies serving the Canadian prairie provinces offer some useful insights.

The provinces of Manitoba and Saskatchewan are remarkably similar in their landscape and their sparse populations — 1.29 million in Manitoba and 1.13 million in Saskatchewan. Today, most are concentrated in or near a few large cities with many small agricultural towns scattered across great distances.

At the dawn of the 1900s, the “Sunny way” of Prime Minister Sir Henri Charles Wilfrid Laurier and his Liberal party was to push open the western frontiers and lay new railways across Canada. Part of the zeal for expansion came from a sense of growth and optimism, but there were also pervasive fears that without significant settlements in central Canada, the Americans could end up annexing huge swaths of empty Canadian agricultural lands for its own interests.

To prevent this and enhance its own national identity, Canada threw its doors open to immigration, especially to hard-working Americans from the midwest who were inundated with government-sponsored advertisements about a new life and opportunities that waited in the Canadian prairies.

The campaign worked. Between 1901 and 1906, the population of Saskatchewan surged from 91,279 to 257,763, 86.8% settled in rural farming areas. By 1911, the population almost doubled again to 492,432 with over 80% located away from the cities of Regina and Saskatoon. Next door in Manitoba, many new residents preferred areas south of Winnipeg, closer to the American border.

Serving this population boom depended heavily on Canadian railroads, which delivered settlers and laborers, medicine, farming equipment, and the latest news from Ottawa. The trains returned east with part of the harvest and various meats.

It was no surprise Canada’s telecommunications infrastructure (along with more than a few new towns) would grow up along its railway lines.

With Bell Canada preoccupied with its larger client base in Ontario and Quebec, both the governments of Manitoba and Saskatchewan established provincial, publicly owned, phone companies to take control of their telecommunications future. In 1908, the Manitoba Telephone System (MTS) was born, made up mostly of former Bell customers. In 1909, SaskTel was established as a publicly owned operation as well, again comprising former Bell customers in the province. Both MTS and SaskTel quickly bought out all the remaining private telephone companies still operating in their midst.

The Winnipeg Free Press notes both MTS and SaskTel successfully served their respective customers for nearly 90 years. In 1997, Manitoba’s Progressive Conservative premier Gary Filmon broke his pledge to keep hands off MTS and privatized the company, claiming it would be more innovative in private hands.

That move would not be repeated in Saskatchewan, where every political party in office usually treated SaskTel as sacrosanct to the province’s economic development. Even the conservative Saskatchewan Party, which held power in the province from 1982-1991, never got around to privatizing the phone company, and a pledge to privatize crown corporations in the near future was just one of several issues that led to the party’s downfall in the election of 1991.

For the last 18 years, Canadians have been able to see which province made the wisest choice. The newspaper concluded after nearly two decades, there is strong evidence MTS’ main priorities are to satisfy shareholders and commercial business customers, while rewarding their executives with handsome pay packages.

“Meanwhile, SaskTel appears to focus on customer service and satisfaction, being a good employer and on providing returns to their public shareholder: the people of Saskatchewan,” the Winnipeg Free Press concluded.

Evidence of SaskTel’s service ethic could be found last week when SaskTel was acknowledged as western Canada’s most dependable wireless carrier, according to a new study by market researcher J.D. Power.

“SaskTel ranks highest in overall network quality and performs particularly well in call quality, messaging quality and data quality,” J.D. Power said in its report.

SaskTel has never been reserved about its own accomplishments, particularly its success delivering innovative new services to sparsely populated regions across Saskatchewan:

• SaskTel was the first telecommunications company in Canada to complete its rural individual line service program, eliminating all party lines in 1990;
• SaskTel was at the forefront of Internet provision as the first in Canada to remove the long distance charges on dial-up Internet and the first in North America to offer high-speed service on phone lines through DSL technology;
• SaskTel was among the first commercial users of fiber-optics in the world, today offering customers competitive cable television, broadband, and phone service.

Filmon

MTS has not turned out to be the innovator it was promised to be as a private company. While SaskTel was becoming a world leader in converged fiber optic networks, supplying voice, data and video across a strand of fiber, MTS was raising rates on landline customers.

Today, a basic landline in Saskatchewan costs around $8 a month — 27% less than the cheapest MTS home phone service. Everything at MTS usually costs more, which has turned out very well for shareholders and executives. While MTS earns roughly double the profit of SaskTel, almost all goes to major shareholders and top executives. SaskTel has returned $497 million over the last five years to the provincial government as well as customers through an annual dividend payment. Over in Manitoba, MTS has proved to be innovative in avoiding its tax bill — only paying corporate taxes once in 10 years — and that was just $1.2 million in 2010. Creative accounting at MTS has allowed the profitable company to pay “a big fat zero in federal and provincial corporate income taxes,” according to the newspaper, and MTS does not expect to owe a penny in income taxes until 2020 at the earliest.

So where do MTS profits go? Last year, MTS former CEO Pierre Blouin received $7.8 million in compensation, well above his five-year average of $4.8 million. Blouin’s salary was more than 10 times higher than what SaskTel’s CEO receives annually.

The newspaper adds MTS directors are paid more than 10 times what SaskTel’s directors are paid. But even more disturbing, the man who made the Money Party possible for MTS — former premier Gary Filmon — had a cozy, well-compensated home waiting for him on the MTS board after he lost his re-election bid. He has used his time at MTS to feather his own nest with more than $1.4 million in director fees and compensation over 10 years, along with hundreds of thousands of dollars worth of shares.

“None of this is meant to suggest SaskTel is an ideal company, but it appears abundantly clear this publicly owned and operated company provides better service at lower costs to its customers than the privatized MTS, and it also provides much larger benefits to the people of the province from its profits,” writes economist Toby Sanger. “Despite all this, the Saskatchewan government may be laying the groundwork for privatization of SaskTel. If this is what we can expect from the privatizations of other public utilities — higher fees for the public, lower-quality service, much higher compensation for CEOs and executives, higher corporate profits but much lower returns for the provinces — we can see why Bay Street [Canada’s Wall Street] is so excited about the privatization of Hydro One — and why the people of Ontario should be very worried.”

Vestager

Rampant consolidation of the telecom industry in Europe may help companies, their executives and shareholders, but more often than not it leads to higher prices for consumers. Those are the views of the European Union’s Competition Commissioner Margrethe Vestager, in a speech on antitrust issues delivered earlier today in Paris.

“Incumbent operators argue that if they cannot merge with their rivals […] they will be unable to increase their investment,” said Vestager. “I’ve heard this claim quite often, but I have not seen evidence that this is the case. Instead, there is ample evidence that excessive consolidation may lead not only to less competition and more expensive bills for consumers, but that it also reduces the incentives in national markets to innovate.”

Vestager believes much of the drumbeat for industry consolidation is coming from the financial markets. But competition on the ground suggests more competition, not consolidation, brings improved service.

“Infrastructure investment can be stimulated by competition,” Vestager said. “In 2009 a new player, Free Mobile, entered the French telecom market. Following that entry, the overall level of telecoms investment in France grew, and remains at higher levels than at the moment of Free’s entry.”

Free Mobile also triggered a major wireless price war in France, leading to dramatic drops in the cost of wireless service. Independent research from Rewheel seemed to confirm Vestager’s thesis. After Hutchison and Orange merged in Austria, for example, prices rose sharply.

Vestager argued the real motivation behind consolidation is limiting competition, which also helps operators avoid or delay necessary network upgrades.

“In these markets, we have also seen established players abuse their dominant positions to try and prevent competition from alternative operators,” Vestager added. “And we shouldn’t forget that these alternative operators are also behind major network investments in the EU.”

Vestager’s speech could pose major problems for European dealmakers like Altice and Hutchison Whampoa, because they signal the EU will likely closely scrutinize future mergers and acquisitions on antitrust grounds.