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.

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.

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

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

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

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

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

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

Drahi (center)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Drahi

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

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

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

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

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

British cable subscribers are getting a taste of American bill shock, courtesy of another dramatic rate hike from cable giant Virgin Media, now owned and operated by John Malone’s Liberty Broadband.

Virgin announced it will hike rates for a 13 TV channel and broadband package by $44.50 a month starting in August. Customers used to pay $8.92 a month for the package, or $51.89 for the year. Next month, they will pay $53.51 for the first month and $77.84 each month thereafter.

If you can afford the VIP Bundle, which includes 97 TV channels, you will also pay more next month. Virgin charges $137.84 a month today for the package. Next month, the same package will cost about $146 a month for the first year, increasing to $195 a month after that. Broad rate increases will also impact students on nine-month discount contracts, generally around $5 more a month.

Last August, Virgin jacked rates up quite a bit as well — $68.11 a year for those with a broadband and phone or “big bundle” package and just under $58 a year for those with broadband-only service.

“Nobody likes a price rise, and we understand this,” Virgin Media always writes on its website in response to rate increases. “That’s why we’re always looking to bring you the best Virgin Media experience.”

It seems Virgin is determined to get those in the United Kingdom experienced with American-style cable bills.