After 44 years in the cable television business, the Dolan family has agreed to part with its prize possession, Cablevision Systems Corp. in a $17.7 billion dollar deal with Patrick “The Slasher” Drahi’s Altice NV.

The transaction will profoundly impact Cablevision’s employees, customers, and potentially the cable business in general in the New York City metropolitan area, where Cablevision’s 3.1. million customers live.

Who is Patrick Drahi?

Although few Americans have heard of the self-made billionaire Patrick Drahi, most of French-speaking Europe knows Mr. Drahi only too well, regularly criticized in the French press for surrounding himself with debt-laden acquisitions, stiffing vendors and suppliers, and paying rock-bottom wages to the employees that remain after constant campaigns of ruthless cost cutting.

Drahi’s idol is none other than cable magnate billionaire John Malone, the man pulling the strings at Charter Communications. In the 1970s and 1980s, Malone ran America’s largest cable conglomerate – Tele-Communications, Inc. (TCI), a company castigated by customers for high rates and poor service about as much as Comcast is today.

Malone’s reputation with the U.S. Congress reached its lowest point in the 1980s when then-Sen. Al Gore, Jr. (D-Tenn.) alternately accused Malone of heading a monopolistic cable “Cosa Nostra” that extorted his constituents with rate increases that exceeded 180% in less than five years and the “Darth Vader of Cable.” Malone taught Drahi that massive sums of money could be made buying and selling cable television (and later broadband) over systems that are usually de facto monopolies. Although entertainment is always in high demand, few governments treat the cable systems that offer it as an “essential utility,” allowing them to charge whatever they want for service.

From his earliest days working for a small cable operator, Drahi dreamed of building a cable empire buying and selling cable systems, extracting whatever he could from subscribers. One of his earliest techniques was flouting a French telecommunications law that, at the time, forbade the carriage of non-French language channels. His cable systems quietly added Arabic language networks to entice the large North African immigrant community in France to sign up for service. Drahi did not directly promote the networks, relying on word-of-mouth to deliver sales in the Arabic speaking community.

The Sacred Monster

While very conservative about spending money on wages, service upgrades, and technology, customers of Drahi-owned cable companies report he had no problem raising their rates. Numericable’s customer satisfaction rating rivals that of Comcast — a one-star cable company charging five-star prices.

The announced acquisition of Cablevision (and earlier Suddenlink) by Drahi’s company — Altice NV, came with glowing coverage from the American media, particularly cable business news channels, the Wall Street press, and the New York Times. A Sept. 7, 2015 piece by Nicola Clark in the Times presented Drahi as a classic “rags to riches” success story, noting he loathes being interviewed and allegedly leads a humble existence:

Despite a personal fortune estimated at close to €17 billion, Mr. Drahi indulges in few of the trappings of great wealth, friends and colleagues said. Although he keeps several elegant homes — in Geneva, Paris and Tel Aviv — his personal tastes and habits hew to the mundane. He wears a plastic Swatch instead of a Rolex and often arrives at business meetings on foot or a bicycle, instead of by chauffeured car.

Clark only mentions in passing she relied almost entirely on a series of interviews with “a half-dozen friends and colleagues” to paint what turned out to be a one-sided picture of Mr. Drahi for American readers. That story had eyes rolling among staffers in the offices of French newspaper Les Echos, incredulous at the American infatuation with a man the newspaper calls the “sacré monstre” — sacred monster. In New York, reporter Lucie Robequain, foreign business correspondent for the French daily, tried to share the scene at the Goldman Sachs-organized Communacopia conference where the deal was personally announced by Mr. Drahi for her French readers.

“Newspapers [in America] devote entire pages [about Drahi], emphasizing his self-made-man side which Americans love so much,” Robequain noted. She added the New York Times painted Drahi an almost romantic figure, proposing to his wife one hour after meeting her and then putting everything between them at risk to build his personal fortune.

A later piece in the Times on Sept. 17 by Emily Steel and Mark Scott also was the subject of derision in the European press. Steel and Scott called Altice a “bold new player” in the American cable market and gave Dexter Goei, one of Drahi’s lieutenants (some in the French press prefer ‘minion’) space to gush about the game-changing deal. Goei joined Altice in 2009, having worked for 15 years in investment banking with JP Morgan and Morgan Stanley until the Great Recession arrived.

“There’s a new sheriff in town, and we’re probably going to run it a little differently,” Goei said during the investor conference in New York on Thursday that unveiled the deal.

Phantom Fiber

The Times piece also relied on unnamed “analysts” dangling the promise of fiber optics to appease subscribers concerned about a legendary cost-cutter taking the helm of the cable company.

[…] Analysts said Altice invests heavily in new infrastructure — with a focus on upgrading fixed-line networks with the latest fiber-optic technology. The priority, analysts said, is to provide subscribers with faster Internet connection speeds at competitive prices.

In Europe, the press is skeptical about promised upgrades, noting Altice is “an empire built on a mountain of debt” largely made possible by quantitative easing and record low interest rates, which permit companies to finance buyouts on the cheap. Drahi says he can save money through synergy — sharing operations and minimizing the need for customers to reach out for customer service. Altice officials claim just by simplifying Cablevision’s bills, the company can save $14 million annually.

Drahi’s success story with Wall Street and other investors comes from his ability to cut costs at acquired companies, often dramatically. It is part of the informal deal with investors that has allowed the company generous credit to continue its buying spree. The Cablevision deal promises the Dolans and other investors only $3.3 billion in cash. The rest of the purchase price will come from raising $8.6 billion in new debt, saddled on Cablevision’s books inside Altice.

So while unnamed analysts are promising fiber upgrades for Cablevision customers, the Financial Times and CNBC report only one thing will be on Cablevision’s menu post-merger: spending a lot less, not more. Drahi seems to agree.

In a slide presentation to investors, Altice compares Cablevision’s $49 a month in operating expenses per customer against what its Numericable operation in France spends on its customers: $14 a month.

So how does Numericable spend three times less on subscribers than Cablevision?

Cost Cutting Specialists

Say hello to Michel Combes, former CEO of Alcatel-Lucent. Two years ago, he took leadership of the company that was better known by many as Bell Labs. Known as a cost-cutter, Combes quickly announced plans to strip the company of less profitable business units and fired about 10,000 workers while also holding the line on salaries (except for his) of the remaining employees. After two years in the leadership position, Combes engineered the sale of the company to Nokia, putting himself out of a job. But he won’t be hurting. A breathtaking golden parachute package approved by his colleagues on Alcatel Lucent’s board caused a political furor in France.

Combes’ departure bonus was originally planned to amount to $15 million in stock after completing the company’s sale to Nokia, an amount Emmanuel Macron, France’s economic minister, called shocking and irresponsible. Under pressure, the board has since cut the payoff roughly in half. But according to L’Observateur, Drahi has offered his friend an even more lucrative “golden hello” — stock options awarded as a signing bonus worth up to $100 million. Combes’ first role will be to serve as Altice’s chief operating officer, presiding over new rounds of cost-cutting at the company’s various acquisitions. One item spared from review is Combes’ own compensation package. Those under him are not so lucky.

Wages and Jobs

“I do not like to pay salaries, I pay as little as I can,” Drahi told investors at the Goldman Sachs event last week. Drahi complained more than 300 employees at Cablevision were being paid more than $300,000 a year. “This we will change.“

In addition to a large number of expected layoffs at Cablevision, widespread salary reductions are also likely to be forthcoming. Drahi’s cable companies have some of the smallest compensation packages in the industry, except at the top executive level.

Cablevision’s already testy relationship with some of its union employees will likely grow much worse under Drahi’s leadership. But that battle may have to wait until another day. In February, the union ratified a two-year agreement with Cablevision. In Europe, Drahi’s reputation among public unions is so poor many of the opinions expressed by unionized workers cannot be printed in a family newspaper.

In Lisbon, Jorge Felix – a representative of the trade union organization of workers at PT (Portugal Telecom) warns U.S. unions should get everything from Altice and Mr. Drahi in writing.

“There are commitments made by Altice before our union and are written,” Felix said, adding that he was disturbed by Drahi’s attitude toward his middle class employees. Felix notes Drahi has already created tremendous controversy in Portugal by stonewalling payment of suppliers and vendors’ outstanding invoices until the company secures written agreements promising enormous discounts, often amounting to 30-40% off current prices. That, in turn, can cause layoffs and salary reductions at suppliers, enriching Altice but hurting just about everyone else.

Drahi: Looking to run faster than the music

France’s Economic Minister Macron seems to agree, lashing out at Drahi’s now familiar business model.

“Is it good for the economy? The answer is no,” he said. “Is it good for investment? The answer is no. Is it good for employment? The answer is no.”

Macron also expressed concern that Drahi’s telecom empire was growing too fast — and taking on too much debt too quickly.

“I have a big concern in terms of leverage on Drahi due to its size and its place in our economy,” he said. “That’s my responsibility to look at it. He is looking to run faster than the music.”

Macron and his staff are concerned many of Drahi’s top executives and advisers come from New York’s financial markets and investment banks who either left or were pushed out in the turmoil of the Great Recession. Macron worries Drahi could be constructing the world’s first “too big to fail” cable operator that could cost nearly 100,000 jobs and require a government bailout if things turn sour.

Promised Service Improvement & Upgrades

With each cable consolidation merger, companies routinely promise subscribers will benefit from improved service. As mentioned earlier, unnamed analysts predict Drahi could invest up to $30 billion to improve the cable companies he buys in the United States.

“Which Altice are they talking about,” asks Stop the Cap! reader François Ribaud. “Altice owns Numericable, the largest cable company in metropolitan France, and if they are spending money it certainly was not on us.”

Ribaud’s original cable company Noos was acquired by Numericable in a massive acquisition effort in the early 2000s which today leaves almost all of France served by a single cable operator — Numericable.

“Things stagnated after that because Patrick Drahi does not spend money unless he has to,” Ribaud said. “The set-top boxes are outdated, the broadband service is often oversold, and heaven help you if there are service problems. The North African call center customer service help is an example for Numericable of getting what you pay for. They are awful.”

Drahi’s competitors in the fixed line and wireless markets eventually forced his wallet open, requiring an investment in fiber optics to help it remain a player in one of Europe’s most contentious telecommunications price wars. Drahi’s company in France lost subscribers as its network suffered from a lack of needed upgrades to manage demand.

“Now that I live in New York, I can say it is completely different than in France,” Ribaud said. “There is certainly no price war here, so there is no need to spend more money. The only people spending money will be customers I assure you.”

The Creator of Home Box Office Signs Off

Cablevision has been rumored “for sale” for so long without a deal, many analysts predicted the founding family would never let go of the company founded by 88-year old Charles Dolan, who helped transform what used to be a rural service to help customers receive distant over the air stations over a shared antenna into an urban and suburban subscription television business. Dolan made cable television something more.

Dolan founded Home Box Office (HBO), a commercial-free premium movie and entertainment channel free from the network “standards and practices” divisions that removed profanity and edited out violence from movies originally shown intact in theaters.

Cablevision systems used to cover 2.9 million subscribers in 19 states, many in small and medium-sized communities. By the 1990s, cable systems were swapped or sold to build regional empire-like service areas. Cablevision was no different, retreating to just three large service areas in New York, Cleveland and Boston. Soon thereafter, Cablevision would only serve metropolitan New York, particularly in Brooklyn, the Bronx, Long Island, parts of northern New Jersey and Connecticut, while exiting Cleveland and Boston.

The New York Post reported secret talks for the sale began in June, and a deal was complete at the end of August. Some of the discussions took place on a yacht floating around the Mediterranean. The Post reports the sale of Cablevision was an emotional experience for Dolan and he still thinks of the people who work there as family. But in the end, the Dolan family’s proceeds from the sale will reinforce their already well-established wealth and prominence. The same is unlikely to be true for Cablevision’s employees and customers under Drahi’s cost-conscious leadership.

Altice CEO Patrick Drahi believes up to one-quarter of all cable customers will drop their video packages in the next few years and stick solely with broadband service.

If Drahi’s prediction is true, telecom analyst Craig Moffett off MoffettNathanson predicts broadband pricing will skyrocket as the cable industry tries to replace its lost video revenue.

Cable operators may be able to leverage their monopoly/duopoly status to force higher broadband prices in markets where phone companies only deliver token competition with slow speed DSL.

Moffett believes broadband pricing strategies depend heavily on local competition. In markets like New York City that can choose between Cablevision and Verizon FiOS, dramatically raising the cost of Internet access will probably drive cable customers into the arms of Verizon. But in areas served by companies like Comcast and Time Warner Cable/Charter, Moffett predicts “more benign” competition from phone companies offering only DSL will give cable companies plenty of room to “grow the broadband business” by raising prices on consumers.

[flv]http://www.phillipdampier.com/video/CNBC Does Altice Have Cost-Cutting Plans for Cablevision 9-17-15.flv[/flv]

Craig Moffett, analyst at MoffettNathanson, examines the $17.7 billion purchase of Cablevision by Altice and some of the challenges Altice faces in running a U.S. cable company. He speaks on “Bloomberg Surveillance.” (3:23)

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.”

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.)

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.

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.)