Altice President Patrick Drahi at the French National Assembly in Paris, May 27, 2015. REUTERS/Philippe Wojazer

PARIS (Reuters) – Altice NV, one of the most acquisitive European telecoms groups, made a major move into the U.S. market on Thursday with a deal to buy fourth-largest operator Cablevision Systems Corp for $17.7 billion including debt.

Altice founder Patrick Drahi, who built a telecoms and cable empire via debt-fueled acquisitions in France, Portugal and Israel, is expected to apply his cost-cutting zeal to achieve a target of $900 million in annual synergies at Cablevision.

Drahi told a Goldman Sachs conference in New York that more than 300 Cablevision employees earn pay checks of over $300,000.

“This we will change,” said the French-Israeli billionaire.

Drahi entered the United States in May by buying a small, St Louis-based cable group called Suddenlink for $9.1 billion. He declared at the time that Altice would look for more acquisitions and eventually earn half its revenue from the United States.

In talks that began in June, Drahi convinced Charles Dolan, the patriarch of the Irish-American family that owns Cablevision, to sell. Cablevision has 3.1 million customers in New York, Connecticut and New Jersey, but it has struggled with declining video subscribers like other cable companies.

“This deal takes us into the most affluent part of the United States and will be a good basis for further expansion,” said Altice Chief Executive Dexter Goei on a conference call. “We think there are significant ways to improve profitability by pooling purchasing and other costs between Cablevision and Suddenlink.”

Altice will pay $34.90 in cash per share, a 22 percent premium to Wednesday’s closing price of $28.54, giving Cablevision an equity value of $10 billion.

Shares in Altice closed up 0.68 percent at 24.5 euros, after gaining nearly 13 percent at the open. Cablevision shares rose 13.9 percent to $32.51, close to the offer price and a sign that few investors expect another bidder for Cablevision to emerge.

Altice’s bid for Cablevision will face scrutiny from the Federal Communications Commission and the Department of Justice, but analysts at Jefferies said they expected “little pushback.”

‘LITTLE PUSHBACK’ SEEN

Investors who back Drahi’s acquisition spree have made Altice the best-performing telecom stock in Europe this year, up more than 50 percent before Thursday’s deal, compared with an 8.4 percent rise in the sector index .

It is unclear what other assets Altice may target in the United States, where it will have to deal with fast-changing competition as cable groups consolidate and cope with subscriber losses to video streaming services such as Netflix.

Drahi has said Altice may look at properties to be sold under Charter Communications Inc’s takeover of Time Warner Cable Inc. Another target could be Cox Communications, but the closely held company has repeatedly said it is not for sale.

Drahi has also said that Altice could buy a U.S. wireless carrier “someday” to offer subscribers a “quadruple play” of Internet, television, and fixed and mobile telecoms.

Altice, which has been snapping up television and radio targets in Europe in recent months, will become the owner of the Newsday newspaper and local news channel News 12 Networks as part of the Cablevision deal.

Goei said the company would not interfere in the editorial side of the loss-making media businesses but would aim to run them more efficiently. He ruled out divesting the units.

He said the goal was to improve Cablevision’s margins to the “low 40s range” compared with current level of 28 percent, which lags the sector average of 35 percent.

Jim Dolan

Allan Nichols, analyst at investment research firm Morningstar, said he was “somewhat skeptical” that Altice could deliver on the savings since content costs were higher in the United States than in Europe.

“That said, Altice has an impressive record of cost reduction, and we expect it will be much more aggressive than the Dolan family in cutting expenses, including reducing employee count,” he wrote in a note.

To finance the deal, Altice will raise $8.6 billion in new debt mostly at Cablevision and none at its European holding, which is already highly leveraged. It will also raise $3.3 billion in equity, 70 percent by issuing shares at Altice and 30 percent from private equity fund BC Partners and Canadian investment fund CPP Investment Board, backers of Suddenlink.

Altice, whose corporate headquarters are in the Netherlands, said it would issue Class A shares, which have fewer voting rights than the B shares held largely by Drahi. Altice created the dual-class structure in June to allow more stock deals without Drahi losing control.

Cablevision CEO James Dolan said in a statement the time was right for new ownership and he and his family “believe that Patrick Drahi and Altice will be truly worthy successors.”

The Dolans will continue to own media and sports assets through AMC Networks and The Madison Square Garden Company — owner of the New York Rangers and New York Knicks — which are not part of the deal.

JP Morgan, BNP Paribas and Barclays have committed to finance the deal and also advised Altice on it. Cablevision was advised by Bank of America Merrill Lynch, Guggenheim Securities and PJT Partners.

[flv]http://phillipdampier.com/video/CNBC A deal 20 years in the making Altice to buy Cablevision 9-17-15.flv[/flv]

CNBC reports Cablevision has finally sold out… to Altice NV a cable operator that dominates in France. (2:51)

[flv]http://phillipdampier.com/video/CNBC Mergers in telecoms sector not over yet 9-17-15.flv[/flv]

Neil Campling, global TMT analyst at Aviate Global, says there could be further mergers in the telecoms market following Altice’s acquisition of U.S. provider Cablevision. (3:20)

 (By Leila Abboud. Additional reporting by Rob Smith in London and Liana B. Baker and Malathi Nayak in New York; Writing by Christian Plumb; Editing by Andrew Callus and Mark Potter)

Despite endless promises better customer service is right around the corner, the Federal Communications Commission’s e-mail box is overflowing from angry consumers fed up with Comcast.

A Freedom of Information Act request by CityExplainer brought a massive document dump in response, containing more than 2,200 customer complaints received over three months (April, May and June 2015) regarding Comcast’s broadband service — about 25 a day. The complaints rolled in despite little or no publicity the FCC is open to hearing from consumers about shoddy service. The top five cities for complaints — Atlanta, Ga.; Chicago, Ill.; Knoxville, Tenn.; Houston, Tex.; and Jacksonville, Fla.

“The types of complaints CityExplainer reviewed included customer issues with Comcast Internet service availability, billing conflicts, and speeds,” the blog reports. “You’ll see senior citizens and others complaining about unrelenting billing errors, people complaining about alleged data throttling and data caps, and residents’ sad tales of dealing with technicians who come — or don’t come — to their homes to fix problems.”

Comcast complaint hotspots (Image: CityExplainer)

One customer in Mobile, Ala. told the FCC he is livid about Comcast’s usage cap trial affecting his community, and accused the cable company of lying about the length and nature of the trial:

Since October 1, 2013, Comcast has been charging consumers in Mobile, Alabama additional money for every 50GB of traffic over an artificially mandated 300GB traffic limit. They have been conducting this “test market” of tiered pricing in other areas as well. (See https://customer.xfinity.com/help-and-support/internet/data-usage-Where-will-these-plans-be-launched). Complainant argues that Comcast should treat all of its customers across the nation equally. Whereas in other markets, no traffic limitation is currently being applied, Complainant and all others in the “test markets” have been charged additional money for internet traffic above and beyond an artificially set limit of 300GB, as if the data were a tangible utility such as water that were going to run out. Comcast has provided no rationale for the 300GB/month limitation other than congestion, and has provided consumers no evidence that such congestion actually exists.

While the FCC likely sees only the most persistent complainers fed up and fueled by anger to reach out to the FCC, the company’s Facebook page is a Niagara Falls of Nihilism — stories from weary customers waiting six hours for a technician that never showed, gotcha surprise fees, or “tell them anything” sales agents who promise customers the world and rarely deliver. One thing that isn’t rare at Comcast customer service is being disconnected in the middle of your call.

Cindi Satoria’s story is just today’s example:

I moved last week. A technician was at my home over 6 hours. Smoked most of the day. Rummaged through all of my closet doors and when he left, my telephone still has not worked in a week. I called customer service and waited all day Saturday for a no show appointment. Then, customer service argues that we never had an appointment. I am so fed up. I want to cancel everything. I have been with Comcast for years. The service is unbearable. I am not satisfied. I asked to file a complaint with the technical group and I was hung up on.

The FCC passes along the complaints it receives to Comcast for follow-up. In many cases, a complaint to the FCC will win the customer service credits (especially on overlimit charges), free upgrades or other complimentary services to placate the customer. Stop the Cap! readers have used the FCC complaint form for months to get extra charges for Internet overlimit fees removed from their bill and credited back. Others have been offered new equipment, a better class of service, or lower rates.

(All 2,200+ complaints are available for free download here [in spreadsheet format]; and in the original PDF format released by the FCC, available here, courtesy of CityExplainer.)

Sohn

A top counselor to Federal Communications Commission chairman Thomas Wheeler told a conference of city officials meeting in San Diego last week they should stop waiting around for the local phone or cable company to deliver the broadband service their communities need and build their own publicly owned broadband service instead.

Gigi Sohn was the keynote speaker at a luncheon held last week by the National Association of Telecommunications Officers and Advisers (NATOA), a major professional association representing individuals and organizations that manage telecom policies and services in local governments across the country.

“Without question, the landscape is changing for local governments,” she said, as reported by Multichannel News. “Most significantly, the future is not in cable, but in broadband,” adding: “Even the cable operators acknowledge this…Rather than wait for incumbent ISPs to build the network your cities want and need, you can take control of your own broadband futures.”

The FCC under the leadership of Thomas Wheeler has targeted anti-municipal broadband laws in the states of North Carolina and Tennessee for federal pre-emption, effectively invalidating laws ghost-written by telecommunications industry lobbyists working for the states’ dominant telecom companies — Time Warner Cable in North Carolina and AT&T and Comcast in Tennessee. The laws are designed to restrict or discourage municipal broadband competition.

Sohn previously promised municipal providers the FCC was ready to invalidate anti-municipal broadband laws in other states if they interfered with public broadband development. Sohn believes communities are unlikely to get cutting edge broadband from comfortable incumbent phone and cable companies. Local governments can and should step in to facilitate the kind of broadband services communities have begged those incumbents to offer for years.

Sohn was the president and co-founder of Public Knowledge, a pro-consumer public interest group. She joined the FCC in November 2013.

A tiny cable company serving communities around the Blue Mountain in eastern Pennsylvania has a big appetite for rationing Internet usage by imposing data caps and overlimit fees on their 170,000 customers.

Effective Sept. 1, Blue Ridge dropped off-peak unlimited use service and imposed a 24-hour rationing plan on its customers, including a familiar overlimit fee of $10 per 50GB of excess usage — the same fee created by AT&T and adopted by several other cable and phone companies.

Customers on the lowest priced plans are most at risk of encountering overlimit fees, which most providers claim are designed to make heavy users pay more for access. In the past, the company maintained rarely enforced “soft caps” and off-peak unlimited usage starting at 5pm. The “hard caps” arrived Sept. 1 with claims the company generously doubled the allowance for some customers, without mentioning it also eliminated off-peak unlimited usage. In terms of “fairness,” the heaviest users signed up to the fastest speed tiers get the most generous allowances while those at lower-price tiers are most likely to encounter an overlimit penalty fee:

• Web Surfer $42.95 (1.5Mbps Download/384kbps Upload) – 150GB per month (no change)
• G5 $52.95 (5Mbps/384kbps) – 300GB per month (was 250GB)
• G10 $57.95 (10Mbps/800kbps) – 400GB per month (was 250GB)
• G15 $67.95  (15/2Mbps) – 500GB per month (was 250GB)
• Dream 60 $84.95 (60/3Mbps) – 600GB per month (was 250GB)
• Dream 100 $124.95 (100/5Mbps) – 700GB per month (was 250GB)

Blue Ridge Communications is headquartered in Palmerton, Pa.

To avoid a higher bill, customers will have to check a company-sponsored, unverified usage meter on Blue Ridge’s website and be ready to upgrade to a more costly Internet plan. Blue Ridge customers already pay substantially more for Internet service than other customers pay in the region. A Comcast subscriber in eastern Pennsylvania now pays $29.99 a month for the first 12 months of 25Mbps service, after which the price increases to as much as $66.95 a month. A less expensive 6Mbps tier costs $49.95 from Comcast, and a much faster 150Mbps tier is also available for $78.95, $46 less than what Blue Ridge charges for service that is 50Mbps slower.

“It’s no dream at 60 or 100Mbps, it’s a straight up gouging nightmare wrapped in greed and lies,” says Stop the Cap! reader Thomas, who lives in Palmerton and calls Blue Ridge’s parent company a local media and entertainment dictatorship. “My friends and relatives are stunned when I tell them one local company controls cable, telephone, wireless, the newspaper and the local news channel. It’s all Pencor through and through.”

Pencor Services, Inc., (Pennsylvania ENtertainment, COmmunications and Recreation) holds a unique position in eastern Pennsylvania. The rural character of the region has allowed Pencor to own and operate a large number of media and telecommunications companies. Pencor owns both Blue Ridge Communications — the cable operator and two local phone companies — Palmerton Telephone and the Blue Ridge Telephone Company. DSL service is offered, but it is “powered by” PenTeleData, another Pencor-owned operation. Wireless service is provided by Pencor-owned Pencor Wireless. In certain other markets, phone companies like Frontier Communications offer some competition, mostly low-speed DSL.

Pencor and its businesses have a substantial presence throughout the Blue Mountain region.

Residents get much of their local news from BRC TV-13, the local news channel on the Blue Ridge system serving Carbon, Monroe, Wayne & Pike counties and parts of Lehigh, Schuylkill, Northampton and Berks counties. BRC TV-11 provides local news on the Blue Ridge system serving Northern Lancaster County. Both stations are also owned by Pencor. So is the Lehigh Valley Press and the Times News newspaper operations.

A Facebook group has been organized to fight Blue Ridge over its new data caps.

Coverage of the usage cap imposition and customer reaction to it, best characterized as hostile, came from media not owned by Pencor.

Milfordnow! reported “when analyzing similar cap programs that have been implemented by other cable companies, it is apparent that bills may be rising substantially for heavy users.”

The cable company countered it expected only 3% of customers to affected by the new caps, which has some customers wondering why they need them at all.

“You have to wonder if caps affect almost nobody, why do companies spend so much time and energy imposing them,” said Thomas.

“Everything from downloads to YouTube, Netflix and even online gaming count against their new 24-hour cap,” Milford resident John Ferry III told the Pocono Record, reporting his latest bill was about $46 over previous charges. “They are telling people they have doubled the cap, but this is not true. By removing the off-peak time, which was essentially a free period, there is no math that makes it double.”

Blue Ridge customers have begun to organize a pushback against the data caps through a new Stop Blue Ridge Cable Data Caps Facebook page.

To complete an acquisition of landline assets in California, Florida, and Texas from Verizon Communications, Frontier Communications is hoping to raise $6.6 billion in “speculative-grade debt” to finance the deal.

Frontier will begin selling the securities better known as “junk bonds” starting today with a target date of Sept. 15 or 16 to complete the sale, according to Bloomberg News.

Wall Street raised its eyebrows at the amount of the transaction — the second largest junk-rated deal since Valeant Pharmaceuticals sold almost $10 billion in junk bonds in March.

Frontier plans to offer a high yield to attract investors – the kind that know how to invest in Amazon and other big companies, and some already favoring the company’s stock for its reliable shareholder dividend payout. Frontier has been a popular choice for investors relying on dividend income — money Frontier distributes to shareholders — that critics contend limit Frontier’s ability to improve its network of largely rural landlines.

Californian consumers are among those most concerned about a Frontier takeover of landline and FiOS service. Verizon ventured far beyond its original service area extending from Maine to Virginia after it acquired independent telephone networks operated by General Telephone (GTE) and Continental Telephone (Contel) in 2000. In 2015, the company wants to return to its core landline service area in the northeast.

David Lazarus, a consumer reporter for the Los Angeles Times, wonders how ratepayers will benefit from a Frontier takeover.

“Financial analysts are generally upbeat about the deal, but that reflects the projected benefits to the corporate players, not consumers,” Lazarus wrote.

Verizon’s claims the sale will help refocus the company on its “core markets” in the east and Frontier’s suggestion the Verizon acquisition will enhance Frontier’s footprint with “rich fiber-based assets” didn’t seem to excite Lazarus.

“I honestly wonder if corporate leaders know how ridiculous they sound when they spout such gobbledygook,” he added.

Lazarus suspects Verizon is worried the Obama Administration may eventually extend universal service obligations to broadband, which would force phone companies to deliver broadband to any telephone customer that wants the service, regardless of how much it costs to offer it. Universal Service remains an important legacy of wireline landline telephone service. Your landline survives under a regulatory framework not applicable to the wireless business, where both AT&T and Verizon Wireless now make the bulk of their profits.

As AT&T and Verizon ponder ditching high-cost landline customers, so long as there are companies like Frontier willing to buy, the deal works for both. Verizon gets a tax-free transaction that benefits both executives and shareholders. An already debt-laden Frontier satisfies shareholders by growing the business, which usually makes the balance sheet look good each quarter.

Even as Frontier takes on a massive new tranche of debt, in the short-term the more landlines Frontier acquires, the happier shareholders will be. More customers equal more revenue — revenue that can assuage fears of Frontier’s eye-popping debt load. That added revenue often also means a nice dividend payout to shareholders, unless that money has to be diverted to debt payments or network improvements. To manage these financial challenges effectively and secure the company’s future, consider seeking Proactive Business Insolvency Assistance.

Unfortunately, like a Ponzi scheme, Frontier will have to continue acquiring new landline customers from other companies indefinitely to make it all work. If it can’t, or if customers continue to flee Frontier for more capable providers, revenue numbers will worsen, only making the company’s large debt obligations look even more ominous. Some shareholders think Frontier’s days of paying very high dividends are already behind them as the company takes on even more debt. The value of Frontier stock has dropped 35% in the last six months. In the second quarter of 2015, Frontier reported losses of $28 million. Last year at the same time, Frontier reported $38 million in profits.

Those losses have to be reflected somewhere, and customers complain they are paying the highest price. West Virginians are among those that regularly accuse Frontier of chronically under-investing in broadband service in the state. Many rural communities obtaining broadband for the first time initially appreciated Frontier’s efforts, but have since grown critical of the performance of Frontier’s DSL service, which can slow to 1Mbps or less during the evenings because Frontier has oversold its network and not kept up with usage demands.

Frontier’s deal with Verizon allows it to acquire a large state of the art FiOS fiber to the home network Frontier has never been willing to build itself. Keeping an existing fiber network up and running is considerably less expensive than building one from scratch. That explains why Frontier customers in ex-Verizon FiOS areas enjoy relatively good service while legacy customers still connected to copper phone lines that were installed in the 1960s (or earlier) are stuck with uneven and slow-performing DSL that rarely meets the FCC’s minimum definition of broadband — 25Mbps. Where customers have a choice between Frontier DSL and another wired provider, most choose fiber or coaxial-based Internet service. Frontier’s rural service focus protects the company by limiting the effects of that kind of competition.

In the near term, Frontier’s biggest threat could eventually come from wireless 4G LTE broadband from AT&T and Verizon Wireless, if the companies can deliver an affordable service for rural residents without a punishing low usage allowance. That remains a big “if.”

(Illustrations by Chris Serra.)