The French press did not take kindly to comments from MoffettNathanson analyst Craig Moffett, who suggested Altice’s ability to swallow up Charter Communications in a deal worth at least $185 billion dollars was “not credible.”

Panelists appearing on French language business news channel BFM TV chuckled at Mr. Moffett’s ability to predict Altice chairman Patrick Drahi’s next move.

“Mr. Moffett does not know Mr. Drahi like we’ve come to know Mr. Drahi,” noted one analyst. “We’ve learned not to underestimate his ability to put together business deals that some would call bold, others financially reckless, yet he does it again and again. If Mr. Drahi wants [Charter], he shall have it.”

French business reporters have scoffed at Altice for years, well before the company arrived in the United States to acquire Cablevision and Suddenlink and rebrand them as Altice.

“When you don’t take him seriously, that is when he strikes,” reported BFM.

Drahi is a master of using other people’s money to finance massive telecommunications deals. For him, bigger is essential, and that means he’d either have to acquire Comcast or Charter or hope to build a cable empire out of smaller cable companies he’d acquire and combine.

Drahi (center)

Multiple independent media outlets are tracking Drahi’s movements. Le Figaro reports Drahi has spent months laying the groundwork for his next big takeover in the United States and the newspaper knew all along it would be a major deal, because Drahi is banking on the prospects of emptying the pockets of millions of American cable subscribers to fund his operations. Americans pay vastly more for cable television and broadband service than consumers in Europe because of a lack of regulation and competition.

The newspaper adds that Drahi routinely tells investors and reporters he wants to be “number one or two” in all countries where he does business. Right now Altice is the fourth largest cable operator in the United States, an absolutely intolerable situation for Mr. Drahi.

Drahi is well aware of the enormous cost of a Charter acquisition, and Bloomberg News reports he is considering asking the Canada Pension Plan Investment Board and BC Partners to help fund the potential merger. Both groups are already familiar with Mr. Drahi and Altice and were instrumental in his acquisition of Cablevision and Suddenlink. Despite the potential help, Moffett still believes Charter is well outside of Altice’s reach.

“None of the proposed suitors—Verizon, SoftBank, Altice—have the balance sheet to acquire Charter,” Moffett wrote his investor clients in a research note. He notes Greg Maffei, chairman of Liberty Broadband, is unconvinced of the wisdom of allowing a buyer to use its other highly leveraged companies as compensation in a merger deal.

Moffett believes the deal has to make sense to two people to proceed – John Malone, Charter’s largest shareholder and ironically Drahi’s mentor and Charter CEO Thomas Rutledge, who was America’s highest paid executive in 2016. He stands to get considerably richer if he can fend off a deal until he achieves tens of millions in stock option awards, first when Charter’s average share price tops $455.66 a share and stays there for at least 60 days and then again when the share price exceeds $564 a share and stays there for 60 days. This morning, Charter Communications was selling at just over $399 a share. All of the merger and acquisition talk is helping boost Charter’s stock price, but Rutledge doesn’t want the company sold until after he can walk out with his compensation package fully funded or finds a buyer willing to make him whole.

As for Malone, he’s always been willing to cash out, but only when the deal makes financial sense to him and avoids taxes.

“Let’s put a finer point on it,” Moffett added. “The ONLY reason [Liberty Media chief] John Malone would be willing to swap his equity in Charter for equity in Altice would be if he believed, with real conviction, that Altice could simply manage the asset better than Charter’s current management.  It is not a knock on Altice to suggest that there is simply no way that Liberty would believe that. Next.”

But then, Time Warner Cable’s management didn’t take an acquisition offer from Charter Communications seriously either when it was first proposed. Time Warner Cable believed selling to Comcast made better sense to shareholders and executives. Like Altice, Charter was a much smaller cable operator proposing to buy a much larger one. In the end, regulators rejected the deal with Comcast and with Wall Street beating the drum for someone to acquire Time Warner Cable, Charter’s sweetened second offer was readily accepted.

Charter’s biggest downside to a potential acquirer is the $60 billion in debt it took on buying Time Warner Cable and Bright House Networks. Debt at SoftBank also makes Moffett skeptical of a deal between Sprint and Charter.

“They [SoftBank] already sit on $135 billion of debt,” Moffett wrote. “Add Charter’s $63 billion and you’re within a rounding error of $200 billion. Add any cash at all for Charter’s equity and you’re flirting with a quarter trillion (trillion!) dollars of debt. Were SoftBank to buy Charter, they would become not only the most heavily indebted non-financial company the world has ever seen, they would in fact be more indebted than most countries.”

To avoid crushing debt scuttling a deal, Citigroup speculated in a report to their investors that Comcast and Altice could partner up to divvy up Charter Communications themselves. The Wall Street bank speculates Comcast would help finance a deal if it meant it would take control of Charter’s customers formerly served by Time Warner Cable. Legacy Charter customers and those formerly served by Bright House would become part of the Altice family.

Such a transaction would likely overcome Malone’s objections over an Altice-only offer leaving him with a large pile of Altice USA stock.

Just as with Time Warner Cable, once a company is seen willing to deal, fervor on Wall Street to make a deal — any deal — can drive companies into transactions they might not otherwise have considered earlier. If Charter is seen as a seller, there will be growing pressure to find a buyer, if only to satiate investors and executives hoping for a windfall and Wall Street banks seeking tens of millions in deal advisory fees.

…for our outrageous pricing!

Spectrum’s customer service agents are apologizing to customers for the rate shock they are experiencing when their existing Time Warner Cable or Bright House Networks promotions expire and customers find out the Spectrum plans and pricing being offered instead turn out to be nothing close to the deals customers used to get.

“You may get a call asking about my performance today, the survey is about me and my job today only,” a customer service agent explained to Jason, a Spectrum customer in Elmhurst, N.Y., who shared his experience on DSL Reports. “It doesn’t have anything to do with how you feel about Spectrum or TWC. If you are upset about the new pricing, please use the comments portion to explain. I look forward to hearing your feedback.”

Customer service representatives are on the front line of delivering bad news to cable customers facing double-digit rate increases, especially when customers realize they also receive fewer TV channels after changing plans.

“I’m guessing these agents must be getting destroyed in the surveys, [and] having worked retail where these types of surveys are used, I felt bad for the reps,” explained the Spectrum customer. “I know in my neighborhood, everyone seems to have their TWC promos expiring in the next month or so and are very unhappy.”

That unhappiness is getting worse as word about Charter Communications’ mid-year rate increase is showing up on customer bills. Broadband prices are increasing at least $1 a month, the Broadcast TV Surcharge is rising to $7.50 a month, and set-top box equipment rentals also increased by $1 a month for each piece of equipment starting in August 2017.

Premium speed broadband customers are now also facing a higher internet bill.

Spectrum’s Ultra tier, which is 100Mbps in some markets, 300Mbps in others, is increasing to $119.99 a month, up from $104.99 in most markets. The increase is less if you also subscribe to Spectrum TV, which reduces the rate to $113.99 a month. Spectrum rate cards from around the country do not yet reflect the $1 rate increase for traditional Spectrum 60/5Mbps internet (100Mbps in select markets):

Low income customers enrolled in Spectrum’s Everyday Low Price (ELP) internet package — a carryover from Time Warner Cable — also got the rude shock of a $5 rate increase on a service that used to cost $14.99 a month. That represents more than a 33% rate hike, which is just fine with Charter.

“In some of our markets the price has increased for the ELP package,” said spokesperson “Julie_R”. “Notifications were sent via bill statements and became effective with the August statements. Our ELP package is not a promotion.  From time to time, Spectrum makes decisions to adjust the pricing for our products and services to account for network investments.  We understand that value is important.  ELP is still a very good value at $19.99.”

The rate increase does not apply to New York State residents, where regulators placed significant deal conditions on the Charter/Time Warner Cable merger to help protect consumers in that state.

We have also been receiving reports from readers that Spectrum’s Internet Assist (SIA) program, designed for the elderly and income-challenged, is not easy to enroll in and customer service representatives have rejected a number of applicants for a variety of reasons. SIA offers a 30Mbps broadband connection for $14.99 a month to those qualified for:

• The National School Lunch Program (NSLP); free or reduced cost lunch
• The Community Eligibility Provision (CEP) of the NSLP
• Supplemental Security Income (SSI) ( ≥ age 65 only) Programs that do not qualify for Spectrum Internet Assist: Social Security Disability (SSD), Social Security Disability Insurance (SSDI), and Social Security Retirement and Survivor Benefits are different from Supplemental Security Income (SSI) and do NOT meet eligibility requirements.

The biggest problems encountered so far:

• Representatives lack information about the program and attempt to upsell customers to regular pricing and packages.
• Bundling additional services with SIA can be more expensive than just choosing a traditional bundled package sold to everyone, especially if it is a new customer promotion.
• There is considerable confusion over the qualifications for SSI recipients. Be sure to recognize you must be 65 or older and note SSD, SSDI, and certain other programs noted above do not qualify you to receive SIA.

We are continuing to monitor the SIA program looking to ensure Spectrum is making the program available to customers that qualify for it.

Patrick Drahi, Altice, and his friends at Goldman Sachs are depicted as working together to make Altice’s acquisition dreams come true.

Patrick Drahi rarely gives up on his dreams. His latest is to be America’s biggest cable magnate, and there are signs he is laying the groundwork to make that dream come true.

CNBC and some French media outlets report Drahi’s Altice NV and Altice USA are assembling their European and North American financiers, attorneys, and dealmakers to potentially make an offer to acquire Charter Communications. If successful, Altice would leapfrog to the largest cable operator in the United States after combining its Cablevision and Suddenlink systems with Charter’s own legacy systems and those it acquired from Time Warner Cable and Bright House Networks.

Any succcessful deal would likely require an offer of $500 a share for Charter stock, which would make the company worth about $200 billion. Because Altice is dwarfed by Charter, it is unlikely Drahi will be able to raise enough cash on his own to make a deal, and Altice is already mired in debt from its ongoing aggressive acquisitions. Drahi’s biggest competitor for Charter is expected to be Japan’s SoftBank, which has shown an interest in acquiring the cable operator to combine with its wireless carrier Sprint.

Altice isn’t likely to encounter the regulatory hurdles that have caused other colossal cable deals like Comcast’s attempt to buy Time Warner Cable to collapse over regulator opposition.  Drahi’s involvement in U.S. cable has been limited to acquisitions of two smaller players – Cablevision and Suddenlink.

Drahi’s strongest arguments to sell investors on the deal are likely to surround his well-known obsession with draconian cost-cutting at his acquired companies. Drahi would certainly offer investors billions in deal synergies and savings, accomplished through dramatic layoffs, scrutinizing costs right down to replacement coffee makers for the break room and copy paper for the office, and sweeping cutbacks on employee and vendor perks. Drahi has also taken a strong stand against Hollywood studios and cable programmers that seek double-digit rate increases for cable programming. In Europe, Drahi is known for terminating costly contracts with programmers and launching alternative channels Altice owns and operates to replace them.

Drahi is also likely to sell regulators on his current plans to transform cable in the United States away from coaxial cable and towards fiber optics straight through to the home. Drahi has already offered to wire all of France with fiber optics and is presently embarking on a fiber upgrade for his Cablevision systems in New Jersey, New York, and Connecticut. But Drahi’s ambitious fiber plans have been met with suspicion in France where some believe Drahi is all talk and no spending.

He has promised the Macron government he will spend $17.6 billion on building an Altice-owned fiber broadband network in France by 2025 without any taxpayer subsidies. While that sounds laudable, it would mean Altice’s SFR would pull out of the government’s national fiber strategy that depends on different telecom companies building out fiber in different regions of the country.

Drahi is threatening to become a spoiler because before he acquired SFR, the former management cut a deal with Orange – France’s largest telecom company, to jointly build a fiber network for 14 million French households in smaller towns and suburbs. Orange would build and own 80% of the territory, SFR 20%. But because SFR needs access to that fiber network for its own wired and wireless broadband and television services, it will have to pay rental fees to Orange to use the network in most of the territory. Drahi instead wants a 50-50 ownership split to cut costs and Orange has said no. Altice’s plans for its own alternative fiber network would allow it to bypass the Orange-owned network and deliver traffic over its own fiber system. That could mean parts of less-populated France will have two fiber networks to choose from instead of just one.

Drahi

It is an expensive gamble, but investors seem largely unfazed so far, perhaps suspecting Drahi has no intention of actually following through on spending billions on a potentially redundant fiber network in the suburbs and farm country, preferring to believe the threat of doing so will drive Orange back to the negotiating table.

Some American analysts are uncertain whether Drahi can pull off an acquisition deal that would combine Charter, a company many times larger than Altice, with Altice’s much smaller earlier cable acquisitions. Some also suspect he won’t find enough money to attract interest from Charter’s biggest shareholder — John Malone’s Liberty Media and Charter’s current CEO Thomas Rutledge.

But French media has little doubt Drahi can pull it off, especially when he is motivated.

“Patrick Drahi, founder of Altice, has set his limits: he has none,” notes Le Figaro, adding Drahi is a classic industry spoiler, completely happy to blow up cable’s comfortable status quo, even when at risk of attracting the wrath of his competitors.

CNBC reports Altice is preparing a serious offer to acquire Charter Communications. (5:54)

After losing another 90,000 residential cable television customers during the second quarter, Charter Communications is beefing up its customer promotions to win back customers and respond to competing offers.

Starting this month, Spectrum is pitching a double play bundle for new customers using its familiar formula of $29.99 for each service, only this time they actually came close to meaning it.

Customers who want a 60Mbps (100Mbps in some markets) broadband package with Spectrum Select TV package can now get each service for around $30 a month, but will still have to pay around $6 for a ‘required’ cable box and another $7.50 a month for Spectrum’s Broadcast TV surcharge. To sweeten the deal, Spectrum is including a free year of Showtime.

Prior to this promotion, Spectrum’s double play promotion charged $59.99 for the TV bundle and $29.99 for internet access, one penny more a month than its triple play bundle which also includes a phone line.

The newest double play promotion offers about $24 in savings a month over the old one, which usually included one set-top box for free.

The double play promotion, which omits a phone line, is likely to continue a decline of Charter’s residential home phone customers, many canceling landline service as their aggressively priced Time Warner Cable phone promotion expires. Charter’s broadband growth has slowed as well. The company added 231,000 customers during the quarter compared with 308,000 during the same quarter last year. Charter’s pricing and promotions proved not as attractive as some of their competitors.

Regular speed test results from a network of volunteers using FCC-supplied equipment are showing some problems with Charter Communications’ ability to meet its advertising claims for fast broadband speeds.

After Charter acquired Time Warner Cable in May 2016, it formally suspended Time Warner Cable’s Maxx upgrade program, designed to increase broadband speed and capacity across the cable company’s footprint. Charter committed to completing Maxx upgrades already underway at the time the merger was concluded, but future upgrade activity would have to wait for up to three years before being completed.

As a result, newly available speed test results are showing that in some areas where Charter delayed upgrades, some customers are seeing their speeds gradually drop as capacity no longer adequately meets demand.

One sign of trouble is when broadband speeds begin to slow or become unstable during peak usage times, typically in the evening hours. This is usually a sign customers have saturated the shared neighborhood connection serving their area. When customers head for bed, speeds usually return to normal. But customers are also complaining that in some instances they never get the speeds advertised by Charter’s Spectrum. Sometimes this is a result of a local line problem, but in some neighborhoods, a large number of customers sharing an inadequate or faulty connection can cause speed slowdowns that persist day and night.

A closer examination of daily speed test results over the last year show that while ordinary speed tests using Charter-hosted speed test servers or websites don’t always show a problem, independent tests of network traffic performance in areas bypassed for upgrades are showing signs of traffic jams.

During the last quarter of daily periodic testing, a customer that used to subscribe to Time Warner Cable’s 50/5Mbps service and routinely got those speeds no longer does after switching to Charter/Spectrum’s 60Mbps plan. Customers question where the bottleneck is, because when they test broadband speeds using the company’s own test tools, they usually find their broadband speeds are above what is advertised. But independent, regularly conducted speed tests by third-party organizations reveal problems. One customer noted for the month of July, he received a minimum of 27.3Mbps, a maximum of 70.1Mbps, but an average of only 47.6Mbps from Spectrum’s basic 60Mbps plan — less than what he was able to get from Time Warner Cable’s 50Mbps Ultimate Internet.

A review of traffic graphs show most of the problems are showing up in the evening starting by 5pm weekdays. Tests show uneven performance until around midnight.