Pai

WASHINGTON (Reuters) – The head of the U.S. Federal Communications Commission unveiled plans on Tuesday to repeal landmark 2015 rules that prohibited internet service providers from impeding consumer access to web content in a move that promises to recast the digital landscape.

FCC chief Ajit Pai, a Republican appointed by President Donald Trump in January, said the commission will vote at a Dec. 14 meeting on his plan to rescind the so-called Net Neutrality rules championed by Democratic former President Barack Obama that treated internet service providers like public utilities.

The rules barred broadband providers from blocking or slowing down access to content or charging consumers more for certain content. They were intended to ensure a free and open internet, give consumers equal access to web content and prevent broadband service providers from favoring their own content.

The action marks a victory for big internet service providers such as AT&T, Comcast and Verizon Communications that opposed the rules and gives them sweeping powers to decide what web content consumers can get and at what price.

It represents a setback for Google parent Alphabet Inc and Facebook, which had urged Pai not to rescind the rules.

With three Republican and two Democratic commissioners, the move is all but certain to be approved. Trump, a Republican, expressed his opposition to Net Neutrality in 2014 before the regulations were even implemented, calling it a “power grab” by Obama.

Pai said his proposal would prevent state and local governments from creating their own Net Neutrality rules because internet service is “inherently an interstate service.” The preemption is most likely to handcuff Democratic-governed states and localities that could have considered their own plans to protect consumers’ equal access to internet content.

“The FCC will no longer be in the business of micromanaging business models and preemptively prohibiting services and applications and products that could be pro-competitive,” Pai said in an interview, adding that the Obama administration had sought to pick winners and losers and exercised “heavy-handed” regulation of the internet.

“We should simply set rules of the road that let companies of all kinds in every sector compete and let consumers decide who wins and loses,” Pai added.

Tom Wheeler, who headed the FCC under Obama and advocated for the Net Neutrality rules, called the planned repeal “a shameful sham and sellout. Even for this FCC and its leadership, this proposal raises hypocrisy to new heights.”

AT&T, Comcast and Verizon have said that repealing the rules could lead to billions of dollars in additional broadband investment and eliminate the possibility that a future presidential administration could regulate internet pricing.

‘HEAVY COSTS’

Pelosi: FCC move will hurt consumers and chill competition.

Verizon said it believed the FCC “will reinstate a framework that protects consumers’ access to the open internet, without forcing them to bear the heavy costs from unnecessary regulation.”

The Internet Association, representing major technology firms including Alphabet and Facebook, said Pai’s proposal “represents the end of Net Neutrality as we know it and defies the will of millions of Americans. This proposal undoes nearly two decades of bipartisan agreement on baseline Net Neutrality principles that protect Americans’ ability to access the entire internet.”

Pai’s proposal would require internet service providers to disclose whether they allow blocking or slowing down of consumer web access or permit so-called internet fast lanes to facilitate a practice called paid prioritization of charging for certain content. Such disclosure will make it easier for another agency, the Federal Trade Commission, to act against internet service providers that fail to disclose such conduct to consumers, Pai said.

A U.S. appeals court last year upheld the legality of the Net Neutrality regulations, which were challenged in a lawsuit led by telecommunications industry trade association US Telecom.

The group praised Pai’s decision to remove “antiquated, restrictive regulations” to “pave the way for broadband network investment, expansion and upgrades.”

The FCC’s repeal is certain to draw a legal challenge from advocates of Net Neutrality.

Nancy Pelosi, the top U.S. House of Representatives Democrat, said the FCC move would hurt consumers and chill competition, saying the agency “has launched an all-out assault on the entrepreneurship, innovation and competition at the heart of the internet.”

Republican Senator John Thune said Pai’s plan was an improvement over the Obama rules but that “the only way to create long-term certainty for the internet ecosystem is for Congress to pass a bipartisan law.”

The planned repeal represents the latest example of a legacy achievement of Obama being erased since Trump took office in January. Trump has abandoned international trade deals, the landmark Paris climate accord and environmental protections, taken aim at the Iran nuclear accord and closer relations with Cuba, and sought repeal Obama’s signature healthcare law.

Pai, who has moved quickly to undo numerous regulatory actions since becoming FCC chairman, is pushing a broad deregulatory agenda. Pai said he had not shared his plans on the rollback with the White House in advance or been directed to undo Net Neutrality by White House officials.

The FCC under Obama regulated internet service providers like public utilities under a section of federal law that gave the agency sweeping oversight over the conduct of these companies.

Language in the new proposal would give the FCC significantly less authority to oversee the web. The FCC granted initial approval to Pai’s plan in May, but had left open many key questions including whether to retain any legal requirements limiting internet providers conduct.

His plan also would eliminate the “internet conduct standard,” which gave the FCC far-reaching discretion to prohibit internet service provider practices deemed to violate a list of factors and sought to address future discriminatory conduct.

Reporting by David Shepardson; Editing by Will Dunham

Drahi’s World

Shareholders have shaken Patrick Drahi’s dreams of being the next king of telecom in the United States by plunging Altice’s share price by more than a third in a single week, forcing Drahi to announce he won’t be making any additional acquisitions until the company’s staggering $59 billion debt is repaid.

Investors were also given a sacrificial lamb from the very sudden departure of Michel Combes, the ruthless cost-cutter that also served as titular operations leader of Altice’s European operations. Combes paid the ultimate price for the continued mediocre financial results at SFR-Numericable, which provides wireless and cable service in France and is Altice’s largest holding. That departure comes only two months after Michel Paulin, Drahi’s right-hand man at SFR, was also shown the door.

Drahi made it clear that he is formally taking back control of Altice, although observers have claimed he has always been in charge. European business analysts have uniformly described Altice as a company mired in crisis management, as European investors lose trust in Drahi’s business philosophy, which depends heavily on acquiring companies with other people’s money.

Drahi’s prominence in France came with his acquisition of SFR-Numericable just three years ago. SFR is France’s fourth largest wireless carrier and the company also has a prominent place in the wired telecom market, providing cable television, phone and internet service. Drahi has attracted investors with promises to wring every possible concession out of the companies he acquires. For financial markets, Drahi’s best trait is his ruthless cost-cutting and employee reductions. In France, employees have reported providing their own copy paper and toner cartridges for empty office printers, occasionally supply their own toiletries, and take turns mopping floors and vacuuming offices.

Employees of Altice-owned Suddenlink have been forced to take requests for replacement coffee machines for break rooms to skeptical company committees that review virtually every transaction. More recently, Cablevision technicians are complaining Altice eliminated their winter apparel budget, leaving workers without coats, bibs, overalls, or rain gear for the upcoming winter. Technicians will have to pay for their unsupplied winter gear out-of-pocket.

While shareholders and financial analysts bid up Altice stock on the premise that cost cutting would deliver better results, the fact France has a highly competitive telecom market brought unintended consequences for Altice and its shareholders: customers fled as cost cuts took their toll on service quality and support.

Competition Matters

Between the end of 2014 and mid-2017, SFR lost 514,000 subscribers in wired internet and 1.7 million mobile customers, delighting Altice’s competitors Orange, Free, and Bouygues Telecom. SFR’s internet problems are well-known across France. Altice’s attempt to offer a “one-box” solution for internet and television service has been of dubious value. Its equipment is notorious for failures, has compatibility problems with online games, and has high support costs. Altice is starting to bring similar equipment to the United States to supply its Cablevision customers, and technicians report many of the same problems are occurring in the U.S., adding they are skeptical Altice’s Le Box, known here as Altice One, will perform well for customers.

The biggest enemy of Altice in Europe is robust competition, which has allowed dissatisfied customers to switch providers in droves. SFR-Numericable, despite promises of fiber-fast speeds, has endured complaints about slow and uneven speeds and persistent service outages. Drahi’s original business plan was to upgrade broadband speeds and performance to win over France’s remaining DSL customers. That worked for a time, according to the French newspaper Libération, but not for long.

Paulin, who used to run the division responsible for Altice’s wired broadband, complained bitterly competitors have “polluted” his marketing campaign by advertising their 100% fiber optic networks, educating customers that Altice isn’t selling that. That ruined Drahi’s plans to slowly upgrade services with the belief customers are more captive to their broadband provider and wouldn’t switch providers if Altice took its time.

A competitor put it this way: “SFR’s remaining DSL customers have indeed migrated at the encouragement of SFR-Numericable… to Orange or Free’s 100% fiber optic network offerings.”

Accusations about service problems and slow upgrades were readily believed by customers because Altice drew headlines for its ruthless efforts to save money.

“First, the restructuring – cuts in spending and pressure on suppliers – has shaped its image as a bad payer,” notes the newspaper. “At the end of 2015, SFR was fined $400,000 for its late payments. Second, package price increases, imposed discreetly and justified by the addition of exclusive video content, annoyed customers when they found extra charges on their bills. Finally, recurring network problems have undermined user trust. The new satisfaction survey of UFC-Que declared SFR was in last place among operators.”

Altice’s one-box solution for TV and internet has proven troublesome for customers in Europe.

Altice blamed most of SFR’s problems on its previous owner, Vivendi, who it claimed underinvested in its network for years. But customers were in no mood to stick around waiting for upgrades. Throughout 2015 and 2016, customers fled, finally forcing Drahi to embark on costly upgrades of SFR’s wireless and broadband networks. Drahi’s investments in SFR amounted to only $2 billion in 2014 and $2.12 billion in 2015, but dramatically increased to $2.71 billion in 2016. By the beginning of 2017, the upgrades stemmed some of the customer losses as independent tests showed SFR’s 4G LTE service finally became competitive with France’s top two providers. SFR commissioned 5,221 new 4G cell sites over the last 12 months, beating 4,333 for Bouygues Telecom, 3,543 for Orange and a distant 2,010 for low-cost carrier Free.

The Suddenlink/Cablevision Cash Machine

The Federal Communications Commission has quietly approved the acquisition of Alaska’s largest cable operator by John Malone’s Liberty Interactive with no deal conditions or consumer protections, despite fears the merger will lead to monopoly abuse.

The purchase of Alaska’s General Communications Inc. (GCI) in an all-stock deal valued at $1.12 billion was announced in April 2017. GCI currently offers cable TV and broadband service to 108,000 customers across Alaska, and runs a wireless company.

“We conclude that granting the applications serves the public interest,” the FCC wrote. “After thoroughly reviewing the proposed transaction and the record in this proceeding, we conclude that applicants are fully qualified to transfer control of the licenses and authorizations […] and that the transaction is unlikely to result in public interest harms.”

Various groups and Alaska’s largest phone company petitioned the FCC to deny the merger, claiming GCI’s existing predatory and discriminatory business practices would “continue and worsen upon consummation of the deal.”

Malone

Those objecting to the merger claimed GCI already has monopoly control over broadband-capable middle-mile facilities in “many locations in rural Alaska” and that GCI has refused to allow other service providers wholesale access to that network on “reasonable” terms. They also claimed GCI received substantial taxpayer funds to offer service in Alaska, but in turn charges monopoly rates to schools, libraries, and rural health care providers, as well as residential customers.

Essentially quoting from Liberty’s arguments countering the accusations, the FCC completely dismissed opponents’ claims, noting that Liberty does not provide service in Alaska, meaning there are no horizontal competitive effects that would allow GCI Liberty to control access to more facilities than it does now. On the contrary, the FCC ruled, the merger with a larger company meant the acquisition was good for Alaska.

“Rather than eliminating a potential competitor from the marketplace or combining adjacent entities in a manner that increases their ability to resist third-party competition, […] [this] transaction results in GCI becoming part of a diversified parent entity that will provide more resources for its existing Alaska operations.”

The FCC also rejected claims GCI engages in monopolistic, anti-competitive behavior, ruling that past claims of charging above-market prices are “not a basis for denying the proposed transaction because the allegations are non transaction-specific.”

“Although ACS [Alaska’s largest telephone company] claims that the transaction will exacerbate the behavior it finds objectionable, we see no reason to assume that GCI will have greater ability or incentive to discriminate against rivals in Alaska simply because it has access to more financial resources,” the FCC ruled. “To the contrary, the Commission has generally found that a transaction that could result in a licensee having access to greater resources from a larger company promotes competition, potentially resulting in greater innovation and reduced prices for consumers.”

GCI’s current internet plans are considered more expensive and usage capped than other providers.

In almost every instance, the FCC order approving the merger was in full and complete agreement with the arguments raised by Liberty Interactive in favor of the deal. This also allowed the FCC to reject in full any deal conditions that would have resulted in open access to GCI’s network on fair terms and a requirement to charge public institutions the same rates GCI charges its own employees and internal businesses.

The FCC also accepted at face value Liberty’s arguments that as a larger, more diversified company, it can invest in and operate GCI more reliably than its existing owners can.

“We find that this is likely to provide some benefit to consumers,” the FCC ruled. But the agency also noted that because Liberty executives did not specify that the deal will result in specific, additional deal commitments, “the amount of anticipated service improvements that are likely to result from the […] transaction are difficult to quantify.”

The Justice Department and the Federal Trade Commission earlier approved the merger deal. Most analysts expect the new company, GCI Liberty, exists only to allow Malone to structure the merger with little or no owed tax. Most anticipate that after the merger is complete, the company will be eventually turned over to Charter Communications, where it will operate under the Spectrum brand.

Charter Communications has informed shareholders it will soon introduce gigabit speed broadband plans in select cities.

“In a couple of months, we’ll launch gigabit speeds offerings in several key markets using DOCSIS 3.1, with more launches planned through 2018,” said Charter CEO Thomas Rutledge. “We expect DOCSIS 3.1 modems to be priced similarly to DOCSIS 3.0 modems when purchased at scale, and we’ll begin to buy exclusively DOCSIS 3.1 modems and drive higher entry-level speeds.”

Charter will not be following Comcast and Altice with fiber to the home upgrades for customers looking for the fastest possible speed. Instead, it will begin limited rollouts of current DOCSIS 3.1 technology, which will support gigabit download speeds with a considerably more limited upload speed.

Charter may have accidentally leaked the first place it plans to offer gigabit service – Oahu, Hawaii, by jumping the gun on a support page (quickly removed yesterday) discovered by a DSL Reports reader.

Charter executives have consistently told shareholders the priority for the company this year is to continue upgrading its acquired Time Warner Cable and Bright House cable systems to support Spectrum’s standardized internet speed of 100Mbps. (An unadvertised upgrade option to 300Mbps is also available for approximately $105/mo with a one time $199.99 upgrade fee. Legacy markets still awaiting upgrades continue to receive 60Mbps with an unadvertised upgrade option to 100Mbps for approximately $105/mo with a one time $199.99 upgrade fee.)

Charter is facing competitive pressure from Google and telephone company competitors upgrading to fiber to the home service. Hawaiian Telcom, for example, now offers gigabit broadband options on Oahu. Charter’s gigabit offerings are most likely to be introduced in markets where it already faces gigabit competition. For areas that don’t, Charter is moving forward with less dramatic upgrades that currently top out at 300Mbps.

“As of today, we offer [standard] internet speeds of 100Mbps in over 75% of our entire footprint, up from just 50% at the end of the second quarter,” added Rutledge. “And we expect to offer minimum speeds in excess of 100Mbps in nearly all of our passings by year-end.”

Rutledge did not define what the next set of broadband speed tiers would be.

Rutledge also announced new Spectrum broadband customers would be getting an improved Wi-Fi router, known as Wave 2, specifically developed and designed by Charter’s engineers.

“It has much faster speeds and even better propagation of reliability throughout the home,” Rutledge offered.

A last-ditch effort last weekend by executives of SoftBank and Deutsche Telekom to overcome their differences in merging Sprint with T-Mobile USA ended in failure, killing Wall Street’s hopes combining the two scrappiest wireless carriers would end a bruising price war that had heated up competition and hurt profits at all four of America’s leading wireless companies.

Now Wall Street, hungry for a consolidation deal, is strategizing what will come next.

Sprint/T-Mobile Merger

In the end, SoftBank’s chairman, Masayoshi Son, simply did not want to give up control of Sprint to Deutsche Telekom, especially considering Sprint’s vast wireless spectrum holdings suitable for future 5G wireless services.

The failure caused Sprint Corp. shares and bonds to plummet, and spooked investors are worried Sprint’s decade-long inability to earn a profit won’t end anytime soon. Sprint’s 2010 Network Vision Plan, which promised better coverage and network performance, also helped to load the company with debt, nearly half of which Sprint has to pay back over the next four years before it becomes due. Sprint’s perpetual upgrades have not tremendously improved its network coverage or performance, and its poor performance ratings have caused many customers to look elsewhere for wireless service.

Investors are also concerned Sprint will struggle to pay its current debts at the same time it faces new ones from investments in next generation 5G wireless technology. Scared shareholders have been comforted this morning by both Son and Sprint CEO Marcelo Claure in an all-out damage control campaign.

Son has promised the now-orphaned Sprint will benefit from an increased stake in the company by SoftBank — a signal to investors SoftBank is tying itself closer to Sprint. Son has also promised additional investments to launch yet another wave of network upgrades for Sprint’s fourth place network. But nothing is expected to change very quickly for customers, who may be in for a rough ride for the immediate future. Son has already said his commitment to raise Sprint’s capital expenditures from the current $3.5-4 billion to $5-6 billion annually will not begin this year. Analysts claim Sprint needs at least $5-6 billion annually to invest in network improvements if it ever hopes to catch up to T-Mobile, AT&T, and Verizon Wireless.

Masayoshi Son, chairman of SoftBank Group

“Even if the next three-four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,’’ Son said, lamenting losing control of that business in a deal with T-Mobile was simply impossible. “There was just a line we couldn’t cross, and that’s how we arrived at the conclusion.”

During a call with analysts on Monday, Sprint’s chief financial officer Tarek Robbiati acknowledged investors’ disappointment.

Investors were hoping for an end to deep discounting and perks given to attract new business. T-Mobile’s giveaways and discounting have reduced the company’s profitability. Sprint’s latest promotions, including giving away service for up to a year, were seen by analysts as desperate.

Son’s own vision plan doesn’t dwell on the short-term, mapping out SoftBank’s progress over the next 300 years. But for now, Son is concerned with supporting the investments already made in the $100 billion Vision Fund Son has built with Saudi Arabia’s oil wealth-fueled Public Investment Fund. Its goal is to lead in the field of next generation wireless communications networks. Sprint is expected to be a springboard for those investments in the United States, supported by the wireless company’s huge 2.5GHz spectrum holdings, which may be perfect for 5G wireless networks.

But Son’s own failures are also responsible for Sprint’s current plight. Son attempted to cover his losses in Sprint by pursuing a merger with T-Mobile in 2014, but the merger fell apart when it became clear the Obama Administration’s regulators were unlikely to approve the deal. After that deal fell apart, Son has allowed T-Mobile to overtake Sprint’s third place position in the wireless market. While T-Mobile grew from 53 million customers to 70.7 million today, Sprint lost one million customers, dropping to fourth place with around 54 million current customers.

Son’s answer to the new competition was to change top management. Incoming Sprint CEO Marcelo Claure promptly launched a massive cost-cutting program and layoffs, and upgrade-oriented investments in Sprint’s network stagnated, causing speeds and performance to decline.

Claure tweetstormed damage control messages about the merger’s collapse, switching from promoting the merger’s benefits to claims of relief the merger collapsed:

• “Jointly stopping merger talks was right move.”
• “Sprint is a vital part of a larger SoftBank strategy involving the Vision Fund, Arm, OneWeb and other strategic investments.”
• “Excited about Sprint’s future as a standalone. I’m confident this is right decision for our shareholders, customers & employees.”
• “Sprint added over 1 million customers last year – we have gone from losing to winning.”
• “Last quarter we delivered an estimated 22% of industry postpaid phone gross additions, our highest share ever.”
• “Sprint network performance is at best ever levels – 33% improvement in nationwide data speeds year over year.”
• “We are planning significant investments to the Sprint network this year and the years to come.”
• “In the last 3 years we’ve reduced our costs by over $5 billion.”
• “Sprint’s results are the best we’ve achieved in a decade and we will continue getting better every day.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

CNBC reports Sprint’s end of its T-Mobile merger deal has hammered the company’s stock. What does Sprint do now? (1:30)

Sprint/Altice Partnership

Sprint executives hurried out word on ‘Damage Control’ Monday that Altice USA would partner with Sprint to resell wireless service under the Altice brand. In return for the partnership, Sprint will be able to use Altice’s fiber network in Cablevision’s service area in New York, New Jersey, and Connecticut for its cell towers and future 5G small cells. The deal closely aligns to Comcast and Charter’s deal with Verizon allowing those cable operators to create their own cellular brands powered by Verizon Wireless’ network.

An analyst at Cowen & Co., suspected the Altice deal may be a trial to test the waters with Sprint before Altice commits to a future merger between the two companies. Altice is hungry for expansion, currently owning Cablevision and Suddenlink cable operators in the U.S. But Altice has a very small footprint in the U.S., leading some analysts to believe a more lucrative merger might be possible elsewhere.

Sprint/Charter Merger

Charter Communications Logo. (PRNewsFoto/Charter Communications, Inc.)

Charter Communications stock was up more than 7% in early Monday morning trading as a result of speculation SoftBank and Charter Communications were restarting merger talks after a deal with T-Mobile collapsed.

CNBC reported that Mr. Son was willing to resume talks with Charter executives about a merger between the cable operator and Sprint. Charter executives have shown little interest in the deal, still distracted trying to merge their acquisitions Time Warner Cable and Bright House Networks into Charter’s current operation. Charter’s entry into wireless has been more tentative, following Comcast with a partnership with Verizon Wireless to resell that considerably stronger network under the Charter brand beginning sometime in 2018.

According to CNBC, John Malone’s Liberty Media, which owns a 27% stake in Charter, is now in favor of a deal, while Charter’s top executives are still opposed.

CNBC reports Charter and Sprint may soon be talking again about a merger between the two. (6:33)

Dish Networks <-> T-Mobile USA

Wall Street’s merger-focused analysts are hungry for a deal now that the Sprint/T-Mobile merger has collapsed. Pivotal Research Group is predicting good things are possible for shareholders of Dish Network, and upgraded the stock to a “buy” recommendation this morning.

Jeff Wlodarczak, Pivotal’s CEO and senior media analyst, theorizes that Sprint’s merger collapse could be good news for Dish, sitting on a large amount of unused wireless spectrum suitable for 5G wireless networks. Those licenses, estimated to be worth $10 billion, are likely to rise in value as wireless companies look for suitable spectrum to deploy next generation 5G networks.

Multichannel News quotes Wlodarczak’s note to investors:

“In our opinion, post the T-Mobile-Sprint deal failure there is a reasonable chance that T-Mobile could make a play for Dish or Dish spectrum as it would immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position (w/ substantially more spectrum than underpins Verizon’s “best in class” network),” Wlodarczak wrote. “This possible move could force Verizon to counter-bid for Dish spectrum (or possibly the entire company) as Dish spectrum is ideally suited for Verizon and to keep it out of T-Mobile’s hands.”

AT&T/DirecTV Buyout of Dish Network

Wlodarczak has also advised clients he believes the deregulation-friendly Trump Administration would not block the creation of a satellite TV monopoly, meaning AT&T should consider pairing its DirecTV service with an acquisition of Dish Networks’ satellite TV business, even if it forgoes Dish’s valuable wireless spectrum.

“AT&T, post their Time Warner deal, could (and frankly should) be interested in purchasing Dish’s core DBS business taking advantage of a potentially more laissez faire regulatory climate/emergence of V-MVPD’s, to significantly bolster their DirecTV business (and help to justify the original questionable DirecTV deal) by creating a SatTV monopoly in ~10-15M US households, increased programming scale and massive synergies at a likely very attractive price.”

Such a transaction would likely resemble the regulatory approval granted to merge XM Satellite Radio and Sirius Satellite Radio into SiriusXM Satellite Radio in 2008. Despite the merger, just months after its approval, the combined company neared bankruptcy until it was bailed out with a $530 million loan from John Malone’s Liberty Media in February 2009. Liberty Media maintains an active interest in the satellite radio company to this day.