In a decision that relied heavily on trusting Altice’s word, the Federal Communications Commission quietly approved the sale of Long Island-based Cablevision Systems to a company controlled by European cable magnate Patrick Drahi.

The decision did not come with an overwhelming endorsement from staffers at the FCC’s Wireline Competition Bureau, the International Bureau, the Media Bureau, and the Wireless Telecommunications Bureau that jointly authored the order approving the deal.

“We find the transaction is unlikely to result in any significant public interest harms,” the staffers wrote. “We find that the transaction is likely to result in some public interest benefits of increased broadband speeds and more affordable options for low income consumers in Cablevision’s service territory. Although we find that the public interest benefits are limited, the scales tilt in favor of granting the Applications because of the absence of harms.”

The FCC largely ignored a record replete with evidence Altice has not enthralled customers of its other acquired companies. In France and Portugal, large numbers of customers complained Altice reduced the quality of service, raised prices, and outsourced customer service to call centers as far away as North Africa. After Altice acquired SFR, one of France’s national wireless operators, at least 1.5 million customers canceled their accounts, alleging poor service. Two weeks ago, France’s Competition Bureau fined Altice $17 million dollars for intentionally sabotaging the viability of wireless providers it controlled in the Indian Ocean region that it knew would have to be sold because of another acquisition deal. It raised prices and alienated customers of those providers, while allowing many to escape their contracts penalty-free before ownership of the company is transferred. The new owners face a challenge restoring the reputation of those providers and win customers back.

The FCC called assertions from the Communications Workers of America that Altice intends to secure several hundred million dollars in cost savings from layoffs and salary reductions “speculative.” But Altice’s record on job and salary cuts is well established in Europe, where trade unions have pursued multiple complaints with government ministers in Lisbon and Paris. The leadership of CFE-CGE Orange, the group representing employees in France’s telecom sector, warned government officials earlier this year Drahi’s labor practices at SFR-Numericable are so poor, there is significant risk of a wave of worker suicides.

‘Not our problem’ was the effective response by the FCC staffers.

“The public interest does not require us to dissect each business decision Altice has made in non-U.S. markets to determine whether its asserted benefits in this case are reasonable,” the staffers wrote.

The staffers also opined “Altice has not identified job cuts as a means to achieve cost savings,” despite widespread media reports put Drahi on the record claiming he would find $900 million in cost savings at Cablevision in part from slashing administrative expenses.

Speaking to investors in New York just after Altice announced its agreement to buy Cablevision, Drahi pledged to bring the company’s ‘European-style austerity’ to the American cable company.

“When we took over [French wireless provider] SFR, the company was acting like daddy’s princess,” Drahi said to France’s National Assembly. “The princess spent money left and right, but it was mother company Vivendi that picked up the bills. Well, now the princess has a new dad, and this isn’t how my money gets spent.”

Drahi

“I don’t like to pay big salaries, I pay as little as I can,” Drahi added, claiming he prefers to pay minimum wage.

“It’s hard to imagine in a labor market like New York that you’re going to go to top executives and say, ‘By the way, I’m going to pay you 75 percent less than I used to — enjoy,’ ” said a skeptical Craig Moffett, a Wall Street analyst at MoffettNathanson.

Despite racking up nearly $56 billion in debt so far, the FCC seemed unconcerned Altice’s $17.7 billion purchase of Cablevision would present much of a problem for the company.

Altice is “a large international company that is likely to be better able to raise capital than Cablevision as a stand-alone entity,” the FCC staffers wrote.

Several Wall Street analysts pointedly disagree.

“My main worry is that Altice is pilling up new debts again and, needing increasingly more cash to pay back debt, may push Numericable into a direction were it shouldn’t be,” said François Godard, an analyst at Enders Analysis.

“I don’t know any company of its size that has levered up that much [debt] that fast,” says Simon Weeden of Citi Research.

Even France’s Minister of the Economy Emmanuel Macron feared Altice could become the world’s first “too big to fail” cable company.

“I have a big concern in terms of leverage on Drahi due to its size and its place in our economy,” Macron said in 2015. “He is looking to run faster than the music.”

In April alone, Altice sought $9.44 billion largely from the junk bonds market to refinance part of its existing debt and extend the time it has to repay those obligations until as late as 2026.

FCC staffers swept away concerns that an Altice-owned Cablevision would be hampered from upgrading services because of its debt obligations and accepted at face value Altice’s promises it would enhance service. The staffers claimed these promises would likely be met because Cablevision faces significant competition from Verizon FiOS and Frontier U-verse in its service areas of New York, New Jersey and Connecticut.

Cablevision serves communities surrounding the metropolitan New York region

What especially swayed the staffers was an ex parte letter sent by Altice offering commitments for improved service:

1. Network Upgrades: Altice will upgrade the Cablevision network so that all existing customer locations are able to receive broadband service of up to 300Mbps by the end of 2017.
2. Low Income Broadband: Altice will introduce a new low-income broadband package of 30Mbps for $14.99 a month throughout Cablevision’s service territory for families with children eligible for the National Student Lunch Program or individuals 65 or older eligible for the federal Supplemental Security Income program. Current customers, regardless of income, are ineligible and so are past customers who had Cablevision broadband service within the last 60 days or still have a past due balance with Cablevision.

Remarkably, the FCC passed on an opportunity to compel Altice to fulfill its commitments as part of the order giving the FCC’s approval. Therefore, if Altice reneges, it will face no consequences from the FCC for doing so.

“Because we find the transaction is likely to facilitate Cablevision’s efforts to compete and serve all customers in its territory, we are not persuaded that imposing specific conditions related to broadband deployment, as proposed by CWA, is necessary,” wrote the staffers.

New York City and the New York Public Service Commission also have an opportunity to mandate Altice’s commitments be completed within a certain time frame. Both are expected to issue their formal approval or disapproval of the acquisition later this month.

Altice praised the FCC, saying it was pleased with the decision and is on track to complete the transaction during the second quarter of this year.

Assuming Altice does take control, it will immediately embark on cost cutting, starting with the booting of the company’s top 10 executives, according to Altice CEO Dexter Goei. Goei doesn’t like the fact the Dolan family, which founded the company, has used Cablevision as an ATM for decades. The Dolan clan collectively took $46 million in compensation in 2014. Last year, CEO James pocketed $24.6 million, up one million from the year before.

Dolan’s father, who retired from the day-to-day operations of the company years ago, is still handsomely rewarded in his role as company chairman. In 2015, Charles Dolan received a $3 million pay raise, from $15.3 million to $18.3 million.

“Somewhere in the range of $80 million to $90 million per year can go away in just not having that executive team,” Mike McCormack, an analyst at Jefferies LLC, told Bloomberg News last fall.

On Monday, Stop the Cap! joined 21 other public interest organizations in sending a joint letter urging the Federal Communications Commission to deny Charter’s bid to take over Time Warner Cable and Bright House Networks. Late last week, the Wall Street Journal reported that FCC Chairman Tom Wheeler may be planning to circulate a draft order approving the $90 billion merger.

The Center for Media Justice, CREDO Action, Daily Kos, Demand Progress, Free Press and Presente.org were among the media justice, Internet rights and public interest groups calling on the FCC to reject this deal, which would create a national broadband duopoly.

Together, Charter and Comcast would control nearly two-thirds of the nation’s high-speed broadband subscribers and would offer service to nearly 80 percent of U.S. households. The letter notes that this substantial increase in market power, coupled with Charter’s $66 billion in debt, would give the company both the incentive and the heightened ability to raise prices at will. This would broaden the digital divide, hitting low-income communities the hardest.

Stop the Cap! earlier filed objections to the merger with the FCC and in two states seen as critical to the deal – New York and California. In our view, no cable merger has ever resulted in better service or lower prices for consumers. Such deals deliver handsome sums to executives and shareholders while saddling customers with relentless rate hikes and no improvement in service. Charter’s history is troubling and its ability to meet its financial obligations while saddled in debt is dubious. Charter declared bankruptcy in 2009, after accumulating $21.7 billion in debt accumulated from years of mergers and consolidation efforts. As credit markets tightened up, Charter’s ability to manage its debt fell apart. Now the company is back to its old modus operandi, piling up debt buying Time Warner Cable — a much larger operation, and trying to combine it with Bright House Networks, another cable operator prominent in Florida.

Earlier this year, several of the signers delivered petitions to the FCC from more than 300,000 Americans opposing the merger, and thousands have called the agency in recent days to weigh in against the deal. Political leaders including Senate Democratic Leader Harry Reid have spoken out about the merger’s many harms.

“Too many Washington insiders have given up on challenging this deal despite its serious harms,” said Free Press policy director Matt Wood. “Instead of forecasting its chances for approval, the groups signing this letter will keep fighting to block this merger, along with the guaranteed price increases it would foist on people and communities who can least afford it.

“If Charter gets this merger approved, nothing will stop it from raising its rates for high-speed broadband and video customers who have nowhere else to turn. Temporary promises and weak conditions aren’t going to preserve competition and choice in the long run, and they’re not going to do anything to stop these price hikes. The FCC is charged with promoting the public interest, and there’s no way in which this merger benefits the public. Higher prices and fewer choices won’t help anyone but the companies pitching this bad bargain.”

“If its takeover of Time Warner Cable goes through, Charter will have a broadband footprint as big as Comcast’s,” said Demand Progress executive director David Segal. “This would turn an industry that’s already too concentrated into a duopoly, paving the way for higher rates today and the eventual formation of a new cross-sector behemoth that controls content production and delivery.

“Americans increasingly understand that corporate concentration is jacking up prices and lowering quality for all sorts of basic goods and services. At a hearing of a Senate antitrust subcommittee this month, lawmakers made it clear that they see companies that are allegedly too big to fix in many industries, not just the banking sector. This FCC must now decide whether it wants to stem the swelling tide of concentration, or enable these monopolies.”

Free Press and Stop the Cap! contributed elements of this story.

Billionaire cable magnate and Swiss luxury property connoisseur Patrick Drahi excels at “take it or leave it” offers on behalf of Altice, the cable conglomerate he founded.

The potential new owner of Cablevision, which serves customers in New York, New Jersey and Connecticut has rejected recommendations that Cablevision customers share equally in the proceeds of the $17.7 billion deal. Altice’s lawyers have countered that 15% is more than enough.

Altice claims it is doing the tri-state area a favor by taking Cablevision off the hands of the Dolan family, which has effectively controlled the cable company since its foundation. Altice claims customers will get tangible benefits from the deal:

• Broadband service at speeds up to 300Mbps in the future;
• Discounted 30Mbps Internet access for the financially disadvantaged for $14.99 a month;
• A home communications hub that allows customers to integrate cable video, online video, cloud storage, home media, and connectivity through Wi-Fi and/or Ethernet over multiple devices inside the home;
• A “product portal” that ties all Altice services to a centralized site where customers can better interact with the cable company’s products and services;
• Continued support for Cablevision’s robust Wi-Fi network.

Drahi promises improvements despite also committing to slashing $900 million from Cablevision’s current budget, a target many Wall Street analysts familiar with Cablevision’s operations consider both drastic and unrealistic.

Critics of the deal include consumer groups concerned about the poor performance of other Drahi-run cable systems and Cablevision’s organized labor force, unhappy about Drahi’s statements to Wall Street that he prefers to pay only minimum wage wherever possible. Drahi also has a long contentious history with Altice workers in Europe, presiding over workforce reductions, salary and benefits cuts, and a war of attrition with his own suppliers.

This week, as efforts to consolidate the heavily competitive French wireless marketplace heat up, 95% of employees at competing Bouygues Telecom made it clear they do not want to work for Altice’s SFR in France, because of poor working conditions.

Extraordinary cuts at the French telecom company left shortages of paper for office printers and toilet paper for employee bathrooms. Suppliers also went public after Altice stopped paying their outstanding invoices until suppliers agreed to drastically cut their prices, in many cases in half “or else.”

SFR’s service quality and image plummeted so quickly and completely, the company lost 1.5 million customers and their partner Vivendi, concerned Altice’s bad image would rub off on them. They sold their remaining 20 percent stake in SFR to Mr. Drahi.

Drahi

“If Drahi had had a different style of management, we would have kept the 20% stake in SFR,” said one Vivendi insider at the time. “But he had very bad press as a result of his management style. We didn’t want to be associated with any of that.”

Suddenlink and Cablevision customers may not have much of a choice. Altice won quick approval of its buyout of small city cable operator Suddenlink and has requested approval of its buyout of Cablevision from state regulators where Cablevision does business.

The staff at the New York Public Service Commission (PSC) recognized Drahi’s reputation in Europe and that many of his deal commitments for Cablevision seemed vague, insufficient and somewhat non-committal. Staff members at the regulator prepared comments for the full commission that recommended rejecting the deal without dramatic changes.

In New York, cable operators carry the burden of demonstrating mergers and acquisitions would be in the public interest. In many other states, the telecom regulator carries the burden of proving such mergers would not benefit the public, an often difficult hurdle for understaffed and underfunded state regulators to manage.

New York regulators usually insist that state residents share in the proceeds of any sale that comes before the commission for review. In most cases, this is in the form of an agreement to invest in infrastructure or service improvements, improve customer service standards, and protect jobs. As with Time Warner Cable and Charter, the staff recommended the commission first consider a roughly 50/50 share of any deal savings or synergies, evenly split between customers and shareholders.

Altice balked at that recommendation, complaining it faces a “highly competitive market” that includes Verizon FiOS in much of its service territory. As a result, Cablevision customers deserved less… much less.

“[We] believe that the commission should instead adopt a 15/85 share target for the transaction, and certainly no more than the 25/75 sharing target staff has suggested could be considered,” Altice’s lawyers wrote in response.

Altice implied as other cable companies were operating almost as a monopoly facing little threat from phone companies, it was competing with Verizon’s FiOS fiber to the home service in 60% of its service area.

“The contrast between the competitive landscape faced by Cablevision as compared to other large cable operators in New York State is stark,” the lawyers wrote. “Verizon FiOS is available in just two Comcast communities, 3% of Time Warner Cable communities, and zero Charter communities in the state.”

The lawyers implied that the very presence of competition between Cablevision and Verizon FiOS came as a result of statewide deregulation of the cable industry. Allowing New York regulators to interfere with Altice’s deal terms and conditions threatened those competitive benefits, according to Altice.

“Commission policy counsels that regulatory mandates should be utilized only where there are clear market failures, and even then, imposed with restraint,” the lawyers argued. “Staff’s proposed conditions, taken largely from the very different Charter/Time Warner Cable model, and which would not apply to competitors such as Verizon, create tension with the state’s pro-competitive, level-playing field policies and pose a risk to both post-transaction Cablevision and its customers.”

Altice is maxing out its credit cards. (Image: FT)

Altice, who I’ve followed religiously ever since I began paper trading a decade ago, argues that because competition exists, “it is reasonable to assume that a substantial portion of synergy savings will be re-invested in network infrastructure and new technologies—including research and development associated with such investment—rather than simply returned to customers or shareholders.”

Except that has not proven true with other telecom operators. Last year, Comcast bought back more than $2 billion of its stock, or 35.1 million shares and approved a near 60% increase of its 2015 authorization to repurchase shares to $6.75 billion. In February, Comcast boosted its dividend payout to shareholders by 10% and planned to repurchase another $5 billion of its own stock during 2016. Last year, Verizon announced it was returning capital to its shareholders through a $5 billion accelerated share-repurchase program and raised its dividend payout to the highest level (56.5¢ per share) since at least 2000. From 2012-2014, AT&T paid out nearly $27 billion to investors through its own share repurchase program. This quarter, it announced a 48¢ share dividend payout, also the highest amount since at least 2000.

Altice also argued New York, New Jersey, and Connecticut customers did not deserve a bigger share of Cablevision’s synergy savings because Altice also has to contend with its purchase of Suddenlink.

“The Commission should instead take into consideration Suddenlink’s operations, which Altice acquired at the end of 2015, just as it took into account all of the U.S. entities comprising New Charter post-closing,” Altice’s lawyers argued. The hole in that argument, deal critics claim, is that Altice doesn’t extend the synergy savings from its deal with Suddenlink to anyone except itself.

Altice also pushed back on other PSC staff recommendations:

• Altice does not want to provide standalone telephone and/or Lifeline service to Cablevision customers;
• Altice objects to providing battery backup power for telephone services, but will allow customers to buy their own;
• Altice protested recommendations from the PSC staff to ban usage caps/usage based billing as a condition of sale. Altice claims usage caps may benefit customers and objects to a rulemaking that prohibits Cablevision from imposing them while leaving their competitors free to cap at will. “Cablevision’s competitors are launching aggressive service offers that Cablevision will have to match or beat—and if the company is subject to regulatory restrictions its competitors do not face, it will be handicapped in keeping up with market demands,” Altice argued.
• New York City should have no say whether this sale is approved or not, claiming the sale does not trigger the city’s right of review.

If the PSC is unimpressed with Altice’s arguments, the cable operator has one other: federal and state law prohibits the commission from imposing most of the terms and conditions its staff recommended. The presentation is unlikely to win much favor at the PSC, particularly because Altice concedes almost nothing and objects to nearly everything on the staff’s menu of deal conditions.

The Communications Workers of America has also attacked the deal, arguing much of Altice’s presentation to the PSC is less than meets the eye. The CWA notes Altice intends to erect a money silo around Cablevision, purporting to protect its finances and operations from the rest of Altice’s telecom empire. But that also means Altice will invest none of its own money in Cablevision upgrades and service improvements, relying on Cablevision’s existing resources, credit lines, and debt obligations to cover the costs. Considering Drahi’s management style, that is likely to drive up debt.

The Financial Times reports Altice has already run up debt, ballooning over the past two years from €1.7 billion in 2012 to just over €50 billion by the end of this year, assuming its acquisition of Cablevision goes through. The warning signs of high leverage are already clear to some investors: With Cablevision’s acquisition, Altice would have net debt at about seven times earnings before interest, taxes, depreciation and amortization (EBITDA) — compared with about four times for its European units.

With jitters over European banks, interest rates, oil and gas, and the general state of the stock market, investors are expressing concern.

“From a general valuation perspective, companies with high leverage start becoming a source of fear,” one Altice investor told the Financial Times.

The PSC will likely adopt many of the staff recommendations regardless of Altice’s objections if it approves the sale. Some of those conditions are likely to include broadband service improvements, a low-income discounted Internet access program, and coverage area expansion into currently unserved areas.

Sens. Sanders and Warren

Democratic presidential hopeful Sen. Bernie Sanders (Ind.-Vt.) has expressed serious doubts about the claimed consumer benefits of a multi-billion dollar cable company merger between Charter Communications, Time Warner Cable, and Bright House Networks.

In a joint letter with Sens. Al Franken (D-Minn.), Ed Markey (D-Mass.), Elizabeth Warren (D-Mass.), and Ron Wyden (D-Ore.), Sanders told FCC Chairman Tom Wheeler and Attorney General Loretta Lynch the deal would create a “nationwide broadband duopoly, with New Charter and Comcast largely in control of the essential wires that connect most Americans to how we commonly communicate and conduct commerce in the 21st century.”

The senators explained that “broadband service is not a luxury; it is an economic and social necessity for consumers and businesses.”

The five Democrats believe the merger could have negative effects on consumer choice, competition, and innovation in broadband and online video. With Comcast and New Charter controlling at least two-thirds of the high-speed broadband lines in the country, Sanders and his colleagues are concerned this will allow Comcast and New Charter to raise rates while reducing broadband innovation, allowing the United States to fall even further behind other industrialized nations with superior broadband.

The senators asked the Department of Justice and the FCC to carefully evaluate how the proposed deal could impact the marketplace.

“New Charter must not only prove that this deal would not harm consumers, but they must also demonstrate that it would actually benefit them and promote the public interest,” the senators argued.

This week, New Jersey regulators approved the merger transaction in that state, leaving California as the last major challenge for Charter executives. Federal regulators are not expected to rule on the deal until the spring or summer.

Stop the Cap! has filed a motion before California’s Public Utilities Commission (CPUC) to request party status in the Charter-Time Warner Cable merger proceeding, better positioning ourselves to influence the outcome.

As other consumer groups in California continue to formally oppose the merger, we are also filing to ask regulators to consider our request to impose conditions on the deal should the CPUC decide to approve it anyway. As we promised after the New York Public Service Commission approved the deal with significant conditions, we are once again taking a hard look at Charter’s three-year commitment not to impose data caps or usage pricing — a term we find completely inadequate.

It remains our belief three years is far too short a commitment, and it is unlikely consumers will find plentiful alternatives for broadband service should Charter impose caps in 2019 anymore than they can today. As a reminder to consumers and regulators, deal conditions imposed by regulators on the 2011 merger of Comcast and NBC-Universal have already begun to expire, with relatively little change in competition in the marketplace.

Our late filing for party status comes partly in response to inadequate public notice from Charter Communications and new information and suggestions that came as a result of the New York State PSC proceeding that would be directly informative and beneficial for California residents.

In states where public utility regulators have approved the transaction with ‘most-favored state’ provisions, any benefits we can win for consumers in California will also apply in New York and other states as well.

As always, we are extremely grateful to our newest member of the Stop the Cap! team, Matthew Friedman, who has dramatically strengthened our ability to monitor the marketplace on the west coast to broaden our consumer protection efforts.

We remain an all-volunteer organization, so if you’d like to join our team, use the Contact Us button at the top of the page and send a message. We’d love to have more volunteers helping identify and write about pressing broadband issues throughout the U.S. and Canada, and we’re happy to help with the editing.

The full text of our motion appears below:

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
MOTION OF STOP THE CAP! FOR PARTY STATUS

I. Introduction
Pursuant to Rule 1.4 of the California Public Utilities Commission’s (“CPUC” or the “Commission”) Rules of Practice and Procedure, Stop the Cap! respectfully requests to be granted party status in the above captioned proceeding.

II. Background and Interest in this Proceeding
Stop the Cap! is a consumer group founded in 2008 to fight against the introduction of artificial limits on broadband usage (such as data caps, usage based pricing, and speed throttling) and to promote better broadband speeds and service for consumers. Our group does not accept funding from lobbyists, companies, or any individual affiliated with the telecommunications industry. We return all corporate donations.

Stop the Cap! understands that this is a relatively late file for party status. While Stop the Cap! is generally opposed to this transaction, we feel that the Intervenors are strongly making the case that the Commission should deny the application, and we would refrain from contributing in that regard. However, should the Commission approve this transaction, Stop the Cap! has a deep and detailed knowledge of data caps and usage based pricing (DC/UBP) from our past 8 years of work on this very specific issue. This information and experience would definitely aid the Commission’s process of tailoring effective mitigation conditions, and our input would be complementary to the existing Intervenors’. Based on our direct experience at the recent Los Angeles PPH, we now understand that an issue as complicated as DC/UBP can’t be effectively dealt with by us as an informal commenter. We have no lawyers guiding us through this process —we are merely a group of individual consumers who have banded together to address a common concern. We therefore respectfully request that the Commission forgive our late filing, and note that we would still be able to take part in full in the discussion of relevant conditions, should this transaction reach that stage.

As a party, Stop the Cap! would aim to protect and promote the public interest of our members and other Californians on the issue of DC/UBP. We have attached the discussion we submitted at the Los Angeles PPH to this filing. It details how the issue of DC/UBP affects numerous other concerns in this proceeding, and presents significant and numerous harms to consumers, especially to low income ones. The submission lays out how DC/UBP can increase prices, foster anti-competitive behavior, circumvent net neutrality, hinder innovation and investment, slow broadband deployment, threaten network security, remove educational opportunities, and can even completely erase any “lifeline” broadband condition this Commission may design. The document also explains why the CPUC’s approval of this transaction would make DC/UBP much more likely to be imposed on existing Time Warner Cable subscribers. It details TWC’s repeated and public pledge to “NEVER” impose DC/UBP on its customers. It discusses why the Commission should be particularly suspect of New Charter when it comes to DC/UBP. Finally, it shows that Charter’s opening testimony actually supports a mitigation condition that sunsets based on a competition test, as opposed to an arbitrarily short three years. This is the kind of information we can present to aid in the Commission’s decision making process.

III. Notice
Service of notices, orders, and other correspondence in this proceeding should be directed to Stop the Cap! [extraneous information deleted]

IV. Conclusion
Stop the Cap!’s participation in this proceeding will not prejudice any party and will not delay the schedule or broaden the scope of the issues in the proceeding. For the reasons stated above, Stop the Cap! respectfully requests that the CPUC grant this motion for party status filing.

Dated: February 2, 2016
Respectfully submitted,

/s/ Matthew Friedman
Matthew Friedman
Stop the Cap!