THE FRENCH SLASHER: Patrick Drahi’s cost-cutting methods have caused an uproar in France, leading nearly two million customers to flee his telecom companies for other providers.

Even as Patrick Drahi’s Altice promises state regulators expensive upgrades and better service for Cablevision subscribers in return for permission to buy the cable operator, complaints from Altice customers in France are now achieving an unprecedented high, with French media reports implicating Drahi’s demands for severe cost cutting in disastrous consequences for customers that face service outages that can last weeks.

SFR, one of France’s largest telecom service providers, has been the subject of ongoing media attention across France as customers continue to complain about promised network improvements that have ground to a halt, deteriorating infrastructure and service outages, poor customer service, and what French telecom experts claim is a clear case of cost-cutting being given precedence over good service.

Rarely has a company executive charged with putting a company’s case to the media and the public had a more difficult time explaining away the thousands of complaints that media outlets receive when they ask readers and viewers to comment about Altice-owned companies.

Salvatore Tuttolomondo, a regional director of relations for SFR, could only muster, “For now, we are not very good, but we are not bad,” in defense.

The French Association of Telecom Users (AFUTT) reports complaints about what is now one of the worst-performing telecom providers in France have exploded. SFR has seen a doubling of complaints from its wired customers between 2014 and 2015 and complaints about wireless service are also up by 50%.

“Even Free.fr and MVNOs do better,” says Denis Leboeuf, from the AFUTT.

For many French consumers, Altice teaches the lesson of bewaring promises of vast service improvements from an executive with a well-known demand to cut costs to the bone.

Capital reports the reason for SFR’s troubles is easy to identify.

Subscriber Numbers Falling…

“To restore margins, the operator has sacrificed the quality of its network and its customer service,” the magazine reports.

Capital lays out an indictment of Drahi’s way of doing business, one that has occasionally left his customers in peril when they were unable to summon emergency assistance over failing telephone lines or ruined one town’s tourist season when service problems made it difficult to impossible for visitors to register for events and arrange bookings.

It was never supposed to happen this way. On April 7, 2014, a triumphant Patrick Drahi announced his company Altice trumped rivals like Bouygues Telecom to acquire SFR from French conglomerate Vivendi for about $17 billion dollars. The first thing Mr. Drahi promised was to invest heavily in SFR to improve network quality and cut unnecessary costs. Those promises are now familiar to Cablevision subscribers as regulators in New York, Connecticut, and New Jersey contemplate approving the sale of the cable company to Altice.

Much of France is still waiting for those promised upgrades. SFR’s DSL equipment is ‘downright lousy,’ delivering dead last performance among French telecom operators. SFR wireless data is no prize either, with customers howling complaints about slow to unresponsive service. Even texting over SFR’s network is dreadful, reports La Voix du Nord: “Carrier pigeons are faster,” it reported. Widespread complaints of texting failures lasting hours are legion. Customers know when service is restored when the dozens of unanswered texts they didn’t receive during the business day suddenly arrive in the middle of the night.

…While complaints are rising.

One nurse discovered her best bet is to go and stand near her toilet, where cell reception is just good enough to roam on a cell network operating across the border in Belgium. Other customers have to go outside to find a signal, because many of SFR’s cell towers are often affected by service interruptions which can last weeks.

Several French cities were the unlucky recipients of SFR service outages in December. Parts of Pas-de-Calais had the displeasure of being “cut off from the world” by a complete service outage lasting 15 days. French businesses sent employees to coffee shops and other venues during the business day with their cell phones to find a wireless signal to conduct business for more than two weeks.

La Voix du Nord confirmed one subscriber’s account that The Grand Wireless Failure of 2015 in Desvres came as a result of an antenna that fell into disrepair. The problem was identified in the first week of December, but an employee-engineer brusquely admitted “maintenance [to restore service] will not take place before Wednesday, Dec. 16” — at least two weeks later. Whether the repair could be completed quickly or not made no difference. Cost controls at SFR controlled the calendar.

French telecom watchdog ARCEP has learned to take Altice’s promises and commitments with a grain of salt. It suggested the “gap between promises and reality” had grown into a chasm over SFR’s appallingly awful 3G service. Altice replied it was “undertaking a major renovation program of its mobile network that is not without impact on service quality, but it is an investment for the next 15 years.”

Waiting on hold

More than a few customers wonder if that means it will take 15 years to get reasonable service. More than 1.6 million so far have decided not to wait and find out.

Laurence joined the exodus of customers canceling service this month. Many customers leave angry, such as the parade of residents from the “digital eco-district” of Issy-les-Moulineaux who are “exasperated by repeated failures” of SFR’s wired broadband and television service equipment. Of the 40 days Laurence was a customer, he lacked Internet service for 17 of them.

Altice officials call the horror stories anecdotal and note they have millions of happy customers. But La Voix du Nord isn’t so certain that is true either. (They are also an SFR customer suffering service problems.) Since Drahi took over as the new owner, the newspaper surveyed its readers starting in March 2015 for their thoughts about Altice-owned SFR. In less than 24 hours, their Facebook page melted down with 3,760 mostly critical responses. Orange, the cell phone company the French usually love to hate, skated by with ten times fewer complaints than SFR. Altice officials promised things were about to get much better in response.

Slightly.

Heading for the exit

Last fall, the newspaper repeated the survey and 2,700 comments and replies arrived, again overwhelmingly negative. More than 100 customers were so angry, they wanted to share details of their service tragedies in private messages. The reader service representative eventually had to ask people to stop, saying she had at least 100 more unread in her inbox.

Customers were promised upgrades before. Thomas Detrain of Nœux-les-Mines received word he should expect one disruption lasting three weeks back in November 2014. Since that time, the outages keep on coming and SFR has offered him one time compensation of approximately $44 on one bill amounting to about $52. SFR now expects to be paid in full, whether the service is working or not.

Charlotte Dabrowski of Bourbourg has had her problems with service quality, too. But at least she has some service. “What makes me the most pissed off is that I was told: ‘You’re lucky, you are on the right side of our antenna.’ Was this supposed to be funny?”

Tuttolomondo: You can’t trust our customers.

SFR has resolved to either downplay its legendary bad press or blame someone else for all the troubles.

Tuttolomondo attempts the former, dismissing the thousands of Facebook complaints the newspaper had received.

“You have how many comments from dissatisfied customers, 2,000?,” Tuttolomondo asked. “We have about 500,000 customers in the region, so this is less than 0.5%.”

When asked if SFR would automatically compensate customers for its significant service outages, Tuttolomondo implied his customers would take advantage of him if he tried.

“It’s case by case,” said Tuttolomondo. “I’m not going to promise a general compensation, otherwise even customers who do not have to worry will ask me for money. But our customer service is really alert. You think it makes me happy to have unhappy customers? We’ll never get 100% satisfied.”

Tuttolomondo also seemed exasperated with his own customers, implying the company’s poorly rated 4G service “sometimes comes from incompatible phones” owned by customers who didn’t know better.

SFR’s customer service call center… in Tunisia.

Tuttolomondo’s line matches that of SFR’s customer service representatives, now relocated to call centers sprinkled across the exotic North African desert lands of the Maghreb, where workers with passable French language skills are willing to work cheap. But not cheap enough. Recently Drahi has been looking for an even better deal from subcontractors in Portugal, Mauritius and Madagascar. Customers lament it will probably be difficult to get a call center employee living with a few hours of electricity a day and no telephone service at home to comprehend why SFR’s fiber to the home service is not meeting its broadband speed objectives.

Drahi yes-man Jerome Yomtov, the Deputy Secretary General of SFR, decided it would be more productive to blame someone else for everything — Vivendi, the former owner, in particular.

“For our 3G and 4G networks, we pay the price of under-investment from the previous [owner],” explains Yomtov. He added the sale disrupted upgrades for two years. SFR had reduced its investments by 10% after it knew it was going to be put up for sale. But Capital reports after Drahi arrived, investments froze almost completely, which caused ever-increasing delays for network repairs and upgrades to keep up with traffic demands, not to mention commissioning new cell sites to improve coverage.

The reason for the delay was a Drahi-inspired Lord of the Flies-style bidding war among vendors and subcontractors.

Altice Cost Cutters: It was either this…

“The new management has replaced our usual subcontractor bidding process with that used by Numericable [another Drahi-owned company],” a network technician tells Capital. The result was endlessly repeated bidding rounds as subcontractors tried to undercut each other to win Drahi’s business. The technician reports Drahi allowed the bidding to run up to four months, resulting in one of the last rounds to scrape together a bid offering savings of just 5,000 Euros (just over $5,000) over a previous round.

“Drahi wanted to see how far they would be willing to come down,” the technician said. “The standoff would have [eventually] enabled SFR to save 10-15% of its infrastructure costs.” In the end, the priority given to cost-savings (at the cost of deteriorating service) caused a stagnancy of upgrades lasting almost nine months, claimed one project manager.

ARCEP revealed that SFR now has France’s smallest high-speed 4G network, with only 39% of the population covered. SFR officially claims 65% coverage, but that difference comes largely from coverage rented from competing Bouygues Telecom. Over the first 11 months of 2015, Altice’s subsidiary has managed to launch only 962 new antennas, three times less than the notoriously cheap Free.fr.

More stories of Altice’s so-called “Cost-Killing Madmen” — the company’s bean counters sent in after Drahi closes on a deal — have also since emerged. Employees tell the French press their cost-cutting schemes are bizarre and ruthless. Employees in one office were suddenly given orders to discard the office’s plants strategically placed to help improve the working environment.

“They told us it’s that or the toilet paper,” sighed the employee. Many thought the cost-cutters were joking at first, until they remained stone-faced during the nervous laughter shared by employees.

…or this

At the headquarters of La Plaine Saint-Denis, visitors may notice things are looking a little worse for wear in the office. That may be because the carpet is no longer cleaned weekly. The bean counters think once every two weeks is enough. But the toughest conditions are now probably experienced by the janitorial staff, who have been ordered to clean and maintain 46 office restrooms and given only three hours each work cycle to complete the task. At least 700 workers in Lyon were denied doctor visits for several days when the cost-cutters decided medical expenses were too high. It took the Works Council a few angry moments with company executives to rescind that budget cut.

Despite the plight of the workers, Drahi has some headaches of his own. He is hard at work conquering the most exclusive neighborhood in Geneva, Switzerland. Drahi, who boasts about his cost cutting and his ability to pay minimal wages, has splurged on two enormous villas in the commune of Cologny. His deputies and financial partners are not far away, having spent small fortunes on expensive housing in Vésenaz and Prangins. Now one of Drahi’s protegés, Jean-Luc Berrebi, member of the board and chief financial officer at Altice-owned Israeli telecom company HOT, has strategically moved himself right next door to Drahi, spending nearly $28 million dollars to buy Drahi’s second villa just 100 meters away. At the same time Drahi was closing on that deal, ordinary Israelis are shelling out considerably more for service from HOT, after the company announced sweeping rate hikes.

Exempt from cost-cutting: One of two Drahi villas in Switzerland, recently sold to a protegé for about $28 million. Drahi still lives next door.

Investors initially seemed pleased to learn cost cutting and reduced investment helped SFR increase its margin 18% since the beginning of 2015, which has allowed the company to deliver some impressive results to shareholders, at least in the short-term. But that good news was tempered by the veritable stampede of customers fleeing SFR for better service from other providers. Many in the French media now question whether Drahi has not just damaged SFR’s service, but also permanently tainted the image of its brand.

Executives at Orange can sigh some relief watching the chaos unfold at SFR and Numericable. Customers that swore off Orange with protestations of “never again,” are now increasingly calling the perennial bad boy of wireless “the lesser evil.”

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.

Drahi

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.

Previous deals involving Altice (Image: Financial Times)

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

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.

Suppliers complain Drahi’s companies don’t pay their bills.

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

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.”

Charles Dolan

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.

Drahi

After failing in a surprise bid to acquire Time Warner Cable out from under Charter Communications, European cable magnate Patrick Drahi has spent much of this summer quietly working to make sure that never happens again.

The French press is buzzing over Drahi’s decision to move his corporate headquarters from the business friendly Grand Duchy of Luxembourg — nestled between Belgium, France, and Germany — north to the Netherlands. The move is mostly on paper — attorneys drafted the agreement that effectively transferred Altice SA to Drahi’s Dutch subsidiary Altice NV and shareholders approved.

Why move the company from one of Europe’s most business-friendly countries to Holland, a country with a long history of corporate oversight? It wasn’t for the stroopwafels.

The Netherlands is rare among most European countries because it allows corporations to set up “dual-class share structures.” That means nothing to 99% of Dutch citizens and the majority of our readers, but it means a lot if you are a billionaire running a hungry multi-national corporation using other people’s money to gain control of companies on your acquisition list.

With the move, Drahi can embark on a breathtaking acquisition spree without diluting the control he has over his growing cable empire. Going forward, Altice will apply different voting rights to various classes of stock offered to investors. Drahi now holds 58.5% of Altice stock. But his shares are special because they grant him 92% of the voting power. Other shareholders will find they are not entitled to an equal say in how the public company is run.

Altice admitted to regulators they designed the new share structure to give Mr. Drahi greater flexibility for financing and corporate transactions without threatening his control of the company. Altice called that “a value-enhancing strategy without diluting voting control.” This means Drahi can offer generous amounts of Altice stock to help fund future takeover deals without worrying that will reduce his control over the company.

If Drahi were to recklessly launch a spending spree of epic proportions to the consternation of shareholders, there will be little recourse and almost no chance of a shareholder revolt. But just to make sure, Drahi gets to pick six of Altice’s eight board members. He also won an agreement with board members who also hold shares in Altice granting him absolute and automatic support of all his proposals for 30 years. On top of that, he is entitled to “negative control” over the board, which means in any vote, he is allowed to cast a number of votes equal to all other board members.

With generous grants of authority like these passing muster, it’s no wonder executives of corporations around the world are urging consideration to move the corporate headquarters to the land of tulips and windmills. Fiat Chrysler already did, at the behest of Italy’s Agnelli family, which controls the Italian-American car company with a tight grip. Mylan, a producer of generic pharmaceutical drugs, managed to fend off Israeli rival Teva Pharmaceuticals, using Holland’s tolerance of executive-friendly poison pill maneuvers to keep unfriendly takeover artists away.

Now that the move to an Amsterdam post office box is complete, Drahi is in the process of rearming his war chest for another assault on the American mainland. The French newspaper l’Humanité warns it is more conniving from the “telecom vampire” that sucked the blood out of competitive cable in France. The newspaper cited deregulation and privatization to be great for billionaires like Drahi, but a bad deal for consumers.

Since the 1990s, telecom executives in Europe and North America have promised regulators a lot in return for deregulation and self-oversight. Allowing companies a free rein would stimulate competition and private investment to finance and construct next generation networks, they claimed.

But l’Humanité uncovered another motivation for telecom magnates like Drahi: to get filthy rich. The newspaper quotes one well-known anecdote about why Drahi got into the cable business — because after studying Forbes articles ranking the fortunes of the 1%, Drahi set his sights on the industry where there were the most billionaires – telecommunications.

Keeping that newly privatized and deregulated wealth requires ruthlessness for others but protection for your allies and yourself. Drahi followed the teachings of American cable magnate John Malone (who is Charter Communications’ biggest shareholder today) and began a debt-fueled buying spree of independent cable systems, quickly followed by ruthless cost-cutting at the acquired companies, earning him the nickname “The Slasher,” among others less charitable. His critics say he has a lot of nerve, because in many instances Drahi billed the companies he acquired for consulting and management fees. BFM Business reports Drahi has only one bottom line when making up his mind: how much generated cash will come from the decision.

The real money would start rolling in at the height of the dot.com boom. Regulators accepted a bid by Drahi and two of his allies to create the fourth French telecom operator — a wireless venture known as Fortel. The three men promised to invest more than $3 billion building the network, an amount called “not credible” by some regulators and a number of industry leaders. But since the frequencies went to those who promised the most investment, Fortel won. Drahi was named president of the company.

Just before the dot.com bubble burst and Fortel seemed to be wavering, Drahi sold many of his interests to UPC, a European cable conglomerate owned by his mentor John Malone. In early 2001, the wireless project was scrapped and Fortel itself was sold for scrap, never to build the promised network. But by then, Drahi was working at UPC with Malone on a massive cable industry acquisition and consolidation strategy. During his career at UPC, Drahi was in charge of spending hundreds of millions of dollars to acquire French cable operators including: RCF, Time Warner Cable France, Rhone Cable Vision, and Videopole InterComm.

UPC declared bankruptcy in 2002.

Malone’s company quickly became overextended and very deep in debt when they suddenly stopped paying creditors in the fall of 2002. But before that happened, Drahi once again had the good fortune to cash out of UPC before the roof collapsed, selling his own Médiaréseaux cable system to Malone’s company at full value just before UPC went bankrupt. The bankruptcy that followed didn’t hurt Malone much and Drahi not at all.

Unwilling to rescue UPC’s faltering operations before bankruptcy, Malone waited until after the cable company went Chapter 11, when 65% of its debt was erased in court proceedings in return for a $99.8 million fresh infusion of cash from UGC/Liberty Media — another Malone-controlled venture that suddenly emerged with a checkbook. That bought Malone’s Liberty Media a 65.5% stake in the rescued company. Vendors, smaller debtors, and other shareholders fared far worse. Most received little, if any of the money owed them, and the remaining shareholders were given just 2% ownership of the company after it emerged from bankruptcy.

Drahi re-emerged on the French business scene after squirreling away his UPC cable proceeds in his new venture Altice, originally launched in Luxembourg, listed on the Amsterdam stock exchange, and controlled by another holding company owned by Drahi housed in the British tax haven of the Channel Islands. Drahi himself was, for a time, a Swiss resident domiciled in Canton Zermatt, another tax haven with tax thresholds that favor the super-wealthy. Drahi now qualifies.

Within four years of Altice’s existence, the company has acquired 99% of France’s cable systems. Drahi has since looked abroad to consummate more deals.

When an Israeli cable system became available to buy, Drahi suddenly became a citizen of Israel and rented an apartment in the country, mostly to meet Israel’s citizenship requirements to acquire the HOT cable system. After the sale was complete, HOT raised its rates, most recently by 20 percent.

Le Echos, a French newspaper, has watched Drahi plow his way through French telecommunications for several years and summed up Drahi’s acquisition strategy in three words: It’s never enough.

The newspaper suspects Drahi will continue using the same techniques he has used in France for the last 20 years to create an empire in the United States. He will take on massive amounts of debt and use Wall Street and French investment banks to pay for most of his acquisitions, combined with generous shares in Altice stock for shareholders and top corporate executives. With Altice’s relocation complete, Drahi can make generous offers his targets cannot refuse, even when they are privately owned.

To start an American cable empire, Drahi will have to acquire smaller cable operators to build leverage for potential takeovers of larger operators later. His ability to throw massive sums of money on the table makes it very likely his next targets will be Cox Communications and Cablevision — both controlled by families that have held on in the cable business despite years of tentative acquisition offers or sales explorations. Both Cox and Cablevision offer access to larger U.S. cities. Other likely targets, including Mediacom, Cable One, and Midcontinent Communications, don’t. He can digest those companies later.

On June 24, Drahi told his fellow dinner guests at the Polytechnique Foundation, “For me, telecom is like pinball,” Drahi said. “As long as there are balls, I will play.”

Fans of the “hands-off” approach to broadband oversight finally have a country where they can see a deregulated free marketplace in action, where consumers theoretically pick the winners and losers and where demand governs the kinds of services consumers and businesses can get from their providers.

That country is the Philippines, which has taken the libertarian free market approach to Internet access in a dramatic leap away from the authoritarian Marcos era of the 1980s.

The Deregulation “Miracle”

Until 1995, the Philippines Long Distance Telephone Company (PLDT) maintained a 60-year plus government-sanctioned monopoly on telecommunications services. Its performance was less than compelling. Establishing landline service took up to 10 years on a lengthy waiting list. Getting a phone line was the first problem, making sure it worked consistently was another. Just over 10 years after the United States formally broke up AT&T and the Bell System, the government in Manila approved RA 7925 – the Public Telecommunications Policy Act of 1995, breaking PLDT’s monopoly and establishing a level playing ground for each of 11 regions across the country and its many islands in which private companies could compete with PLDT for customers.

To attract investment and competition, the government declared all value-added services like Internet access deregulated and guaranteed the complete privatization of all government telecom facilities no later than 1998. It also initially limited the number of companies that could compete against PLDT in each region to two new entrants. The government felt that would be necessary to attract competitors that knew they would have to quickly invest millions, if not billions, to build telecom infrastructure in the Philippines. It would be hard to make a case for investment in a region where a half-dozen companies all engaged in a price war fighting for customers while stringing new telephone lines and building cell towers.

To prevent cherry-picking only the wealthiest areas of the country, the government declared its desire for a privately funded nationwide telecom network and used the 11 regions, combining urban and rural areas in each, to get it. Competitors were required to support at least 300,000 landlines and 400,000 cellular lines in each region. That assured new networks could not simply be built in urban areas, bypassing smaller communities. After building their networks, companies largely operated on their own in a mostly-free deregulated market, slightly overseen by the National Telecommunications Commission (NTC) — the Philippines equivalent of the FCC.

The early years of telecom deregulation seemed promising. PLDT, much like AT&T in the United States, kept the lion’s share of customers (67.24%) after deregulation took effect, but new competitors quickly captured one-third of the market. But with lax regulation and oversight, some of the Philippines’ most powerful families, many benefiting under years of the Marcos dictatorship, managed to gain influence in the newly competitive Philippines telecom business. In the United States, telecom competition meant a choice between Sprint, MCI, AT&T or others. In the Philippines, you dealt with one or two of nine powerful family owned conglomerates, each operating with a foreign-owned telecom partner. It would be like choosing between companies owned by the Rockefellers, the Astors, the Carnegies, or the Morgans.

The NTC remained more “hands-off” than the FCC, avoiding significant involvement in critical interconnection issues — how competing telephone companies handle calls from subscribers of a competing provider. That was last an issue in the United States in the early 1900s, where rare independent competitors to the rapidly consolidating Bell System faced a telecom giant that initially refused to handle calls from customers of other companies. American regulators eventually demanded interconnection policies that guaranteed customers could reach any other telephone customer, regardless of what company handled their service. In the Philippines, the NTC eventually mandated less-demanding access, allowing companies to charge long distance rates to reach customers of other companies. In the 1990s, it was not uncommon to find businesses maintaining at least two telephone lines with different companies to escape long distance expenses and stay accessible to all of their potential customers.

PLDT initially fought the opening of the marketplace but benefited handsomely from it once it took effect. The company got away with setting sky-high interconnection rates to connect calls from other smaller providers to its customers. It also made access to its network a minefield of bureaucracy and often required competitors to sign unfair revenue sharing agreements.

It is Cheaper to Buy Out the Competition Instead of Competing With It

(Image Courtesy: Mary Grace Mirandilla-Santos/LIRNEasia)

The investment community eventually balked at the cost of constructing competing telecommunications networks, especially after the dot.com crash in 2000, and a drumbeat for industry consolidation through mergers and acquisitions quickly grew too loud to ignore. Investors fumed over the amount of money being spent by providers to meet their service obligations in the 11 subdivided regions. Instead of building redundant or competing infrastructure, allowing competitors to merge would cut costs and enhance investor return. The NTC let the marketplace decide, as did the government, and it led to a frenzy of industry consolidation that ran far beyond what the FCC and American Justice Department would ever tolerate.

In 2011, the government backed a colossal merger that brought together the wireless networks of Pilipino Telephone Corporation, PLDT, and Smart under the PLDT brand. The three former competitors became one and controlled 66.3% of the Philippine’s wireless customers. The merger was comparable to allowing Verizon to buy out Sprint.

Additional mergers in response to the super-sized PLDT rapidly reduced the competitiveness of Philippine’s telecommunications marketplace to a duopoly. Just two companies — PLDT, Globe, and their respective house brands — dominate landline, DSL, cable, and wireless telecommunications service in the Philippines. The investment community celebrated the deal’s approval as a lucrative goldmine of future revenue gains from a less competitive market.

Philippine Broadband: Hey, It’s at Least Moderately Better Than Afghanistan

(Image courtesy: Mary Grace Mirandilla-Santos/LIRNEasia)

Broadband performance, under any measure other than financial success, has proved abysmal for Philippine consumers and businesses. The country’s broadband speeds are among the worst in the world, only beating Afghanistan in many speed tests. Look the other way–oversight led to a bribery scandal in 2007 that threatened to bring down the government. Officials exploring the development of a National Broadband Network were accused of soliciting kickbacks from Chinese equipment vendor ZTE, which would have been responsible for supplying equipment for the project. The government canceled the project as the scandal widened and some of the principals left the country or in at least one case were kidnapped.

Eight years later, broadband in the Philippines would be considered a North American nightmare. The free market approach has led to free-flowing profits and a profound lack of marketplace competition, with broadband ripoffs and broken promises rampant across the country.

Although both PLDT and Globe Telecom are spending large sums on infrastructure, much of it benefits their very profitable wireless networks and business customers. Despite the investments, residential customers are stuck with some of the world’s worst broadband speeds and performance.

An independent Quality of Service test revealed the bad news all around:

The findings of the Philippine QoSE tests were expected, but nevertheless still disappointing.

The best performing among the three ISPs delivered only 21% of actual versus advertised speed on average. This same ISP also offered at least 256kbps download speed (generally accepted definition of broadband) only 67% of the whole time it was tested, falling short of the required 80% service reliability.

The Broadband Commission defines the core concepts of broadband as an “always-on service” with high capacity “able to carry lots of data per second.” While there is no official definition of broadband locally, the Philippine Digital Strategy 2011-2016 defines broadband Internet service as 2Mbps download speed.

Finally, like the last nail in the coffin, Philippine ISPs performed the worst in terms of value for money when compared to select providers in South Asia and Southeast Asia. The highest value given by any of the three Philippine ISPs tested was a measly 22kbps per US dollar. This figure is too low when compared to similar mobile broadband ISPs that offer 173kbps per dollar in Jakarta, Indonesia and 445kbps per dollar in Colombo, Sri Lanka.

These results have huge implications on truth in advertising, consumer welfare, and the need for appropriate regulation.

My DSL Service is So Bad I Prefer 3GB Usage-Capped Slow Wireless Instead

Legarda

Home DSL broadband is so bad that customers have increasingly dropped service in favor of tightly managed wireless service. Companies report DSL customer losses over the past few years, with no end in sight.

The telecom regulator has generally just shrugged its shoulders at the situation, suggesting competition between equally poor providers will somehow resolve the problem. That view is applauded by service providers who claim the Internet is “just a value-added service” not essential to basic living needs. But consumer groups wonder why providers are allowed to make false advertising claims about the speed of their service with no repercussions. A range of position papers appealing to the government to create a meaningful minimum broadband speed have been introduced and some are being pushed by members of the Philippine Senate.

Senator Loren Legarda joined scores of other frustrated customers complaining about unreliable and expensive Internet in the country. In a 2014 hearing Legarda complained she had once again lost her DSL Internet connection in her office and her wireless connection was so slow it was unusable.

“As we speak now, there is no Internet connection in my office,” Legarda said. “I received a message this morning from my staff on my way here because I may be e-mailing, etc. And for someone whose deadline was yesterday, I always want things done fast and I’m sure many of you want that efficiency too to serve our people better.”

[flv]http://www.phillipdampier.com/video/ANC Poor Broadband Internet 5-14.flv[/flv]

ANC aired this story about Sen. Legarda’s broadband problems and how Philippines’ providers oversell their networks back in 2014. (4:56)

We Oversold Our Networks So Sue Us, Except You Can’t

Providers blame the problem on oversold networks that attempt to manage too many paying customers on an inadequate network. In other words, they blame themselves with little fear any regulator will create problems for them.

Wireless service is no panacea either. Customers in the Philippines face draconian “fair use policies” on so-called “unlimited plans” that leave them throttled after 1GB of usage per day or 3GB of usage per month, whichever happens first. Providers suggest the policy is a benefit, promising them a better user experience. Besides, they suggest, even those that run into the speed throttle can still browse the Internet, albeit at as speed resembling dial-up:

Your internet speed will slow down if you use up 1GB of data for the day, or accumulate 3GB of data usage for the month.

If you hit the 1GB/day threshold, you’ll experience slower speed, but no worries because as we mentioned above, you can still surf! You’ll move up to normal speed at midnight. If you hit the 3GB/month threshold, your speed will move up to normal speed on the next calendar month (not based on bill cycle).

With a stifling usage allowance, shouldn’t providers in the Philippines be offering better speeds?

Say Hello to the “Promo Pack” – Your Net Neutrality Nightmare Come True

Remember the scary ads from Net Neutrality proponents promising a future of Internet add-ons that would charge you to surf theme-based websites without facing network slowdowns or stingy usage caps if Net Neutrality protections were not forthcoming? In the Philippines, the nightmare came true. Mobile providers sell added cost “promo packs” that bundle extra throttle-free usage with theme-based apps. A package with Spotify runs about $6.50US a month and includes 1GB of usage. Anyone can buy a Spotify premium membership in the Philippines for around $4.37US without the add-on. But even worse are app-based promo packs that bundle free-to-download-and-use apps in the U.S. with special designated usage allowances.

Want to use Google Maps on your wireless provider? A “promo pack” including it costs around $2.17 a month and includes 300MB of usage. That money doesn’t go to Google — it stays in the pocket of the provider – Globe Networks. Twitter will set you back $4.37US a month and includes 600MB of usage, which seems odd for a short message service when contrasted with an identically-priced promo pack for Facebook, that needs the extra usage allowance more than Twitter likely would. But then they also get you for Facebook Messenger, which costs an extra $2.17US per month and comes with its own usage allowance — 300MB.

“What If” actually “Is” in the Philippines.

While segmenting out popular mobile apps for special treatment, Philippine mobile providers have also taken Verizon and AT&T’s lead, pushing plans like myLIFESTYLE that bundle unlimited text and phone calls with expensive data plans.

Lifestyle Promo Packs:

Extra Add-ons:

The Philippines Should Regulate Under the American Example vs. The Philippines Should Not Regulate Under the American Example (It’s Obama’s Fault)

Providers in the Philippines have learned a lot from America’s telecommunications lobbyists. Their advocacy campaigns revolve around the theme that the United States has the best wireless networks in the world, developed under a largely hands-off regulatory philosophy that the Philippine government should follow.

The government and regulators largely acquiesced to that campaign until this year, when that idea came back to haunt providers. Earlier this year, the Obama Administration and the FCC began taking a more hands-on approach to telecom regulation after recognizing the marketplace is not as competitive as providers suggest. Strong Net Neutrality enforcement, limits on mergers and acquisitions and strong signals marketplace abuses would no longer be tolerated are now being pushed in Washington by the White House and the Federal Communications Commission. Providers in the Philippines no longer advocate following the American model, but it may now be too late.

The NTC is close to issuing new minimum broadband speed and performance standards and is now listening to Filipino consumers that launched Democracy.net.ph to fight usage caps in the Philippines back in 2011. The NTC may soon require providers advertise average speeds and performance, not “up to” speeds nobody actually receives. Those getting poor service would be entitled to refunds or rebates.

That could be the first step towards a more activist NTC that may have learned the lesson that listening to the broken promises of better service through deregulation has resulted in some of the worst broadband performance the world has to offer. The Philippines took the advocacy arguments of the deregulation crowd and doubled down, not only allowing providers to lie and distort in their advertising, but also permitting massive industry consolidation reducing the choice for most Filipinos to just two providers for almost all telecommunications services. The government looked the other way as corruption turned into a scandal and today it is left with two very powerful conglomerates that deliver third world Internet access while pocketing the generous proceeds.

A Better Way to Better Broadband

A deregulated, free market only works where healthy competition exists. Too few players always leads to reduced innovation, poorer service at higher prices, and a corporate fortress deterring would-be competitors that are unlikely to be able to survive in a fair, competitive fight. For the Philippines (and by extension the United States) to fully benefit from healthy competition, large conglomerates must be broken up and further mergers must be prevented above all else. Until sufficient competition can self-regulate the marketplace, strong oversight is necessary to protect consumers from the abuses that always come from monopolies and duopolies. Charging wireless customers for free apps and suggesting 3GB of usage is equal to unlimited broadband are two places to start cracking down, quickly followed by an investigation into where investment dollars are being spent and for whose benefit. It seems like customers are not reaping any rewards in return for high-priced service.

The Philippine government should also continue exploring a National Broadband Network strategy that puts the country’s broadband needs above the profit motivations of the current duopoly. Governments build roads and bridges, airports and railways. Broadband is another infrastructure project that needs to be developed in the public interest. If private companies want to be a part of that effort, that is wonderful. But they should not be dictating the terms or holding the country back from what may be the biggest scandal of all — broadband that barely performs better than what the Taliban can get these days in Helmand province.