The Communications Workers of America has told the New York Public Service Commission it should reject Altice’s proposal to buy Cablevision for more than $17 billion, claiming it’s a bad deal for customers and employees alike.

Citing Altice’s massive debt and the company’s documented history of cutting expenses and investment, Dennis Trainor, vice president for the CWA-District One, said approving the deal would load Cablevision down in debt, making any significant investments in Cablevision’s future doubtful.

“This is a bad deal for Cablevision customers and employees,” Trainor said. “Altice overpaid for Cablevision, and is financing that overpayment by loading Cablevision with debt. That will inevitably lead to worse service for customers.”

The CWA also heavily criticized Altice and Cablevision for stalling sharing documentation with the labor union as ordered by a New York Administrative Law Judge. It filed initial comments opposing the transaction with the PSC under protest.

“As late as the morning of Feb. 5, [the Joint Applicants] have continued their grudging and incomplete disgorgement of relevant and probative material to which CWA is entitled,” the CWA wrote. “CWA now possesses documents and data which are contradictory and require reconciliation.”

The CWA considers the deal good for Altice and Cablevision’s owners and investors, but a raw one for customers.

“For example, Cablevision’s top five executives will have almost $160 million in ‘golden parachute’ compensation available to them under certain circumstances if the transaction is approved, of which almost $100 million will become automatically triggered and payable upon consummation of the merger,” the CWA stated. “In sum, after the transaction closes, Cablevision will be the same company, with the same plant and equipment, but with substantially more debt and relatively little cash on hand,” the CWA concluded.

The CWA also cited Stop the Cap!’s own reporting of the consequences of increasing debt and reduced investment at SFR, an Altice-owned telecommunications provider in France:

“We refer the Commission to publicly available reports of a collapse of service quality for customers of SFR, one of France’s largest telecom service providers, owned by Altice. This has caused a doubling of complaints from wired customers between 2014 and 2015 and a corresponding increase in complaints about wireless service of 50%. Altice had two responses: First, it blamed the company it purchased SFR from ‘we pay the price of underinvestment from the previous [owner]’. Second, it disputes whether the level of complaint is unacceptable ‘For now, we are not very good, but we are not bad.'”

New York City’s Office of the Public Advocate is no fan either. In its filing, the OPA also cited Altice’s enormous debt load, which has increased dramatically over the last four years.

“[Altice CEO Patrick] Drahi has already driven away customers and alienated employees in France since his acquisition [of SFR],” writes the OPA. “In SFR’s case, Altice eliminated costs to boost SFR’s profit margins. Among Altice’s practices with SFR were: efforts to stall payments for suppliers, initiating salary and job cuts, and a reduction in spending on meaningful service upgrades.”

The OPA also cites reporting by Stop the Cap! documenting how SFR performed after being acquired by Altice.

Leticia James, Public Advocate for the City of New York

“We know, for example, SFR was forced to completely stop paying suppliers in order to force a renegotiation for cheaper supplies,” writes the OPA. “The French government appointed a mediator to resolve the issues. Moreover, these business practices failed to effectuate Altice’s goals. Just four months ago, Altice reported ‘worse-than-expected’ third quarter results for SFR that drove the company’s shares down 10 percent. In fact, SFR lost one million customers in just one year. Investors correctly attribute customer losses to Altice’s aggressive cost-trimming. As one expert explains, ‘the savings came first immediately and now the churn (or customer defection) goes up.’ Another analyst describes Altice’s ‘dangerous’ actions as not only cutting out the fat, but also the meat and the bones.”

The PSC staff reviewing the transaction also expressed concern that Altice’s willingness to keep data caps at its other acquisition Suddenlink may result in similar data caps being implemented on Cablevision customers after the merger.

Especially notable to the PSC staff was the fact that under Suddenlink’s 1000/50Mbps data-capped plan, “if the connection is utilized at its rated speeds […] a customer could reach the data cap in less than two hours.”

“If Altice were to import Suddenlink’s pricing into Cablevision service territory and impose data caps on its existing plans, some customers would be forced to upgrade not for the increased speed, but for larger data caps,” the PSC staff wrote. “For example, customers on Cablevision’s low-end 5Mbps plan, if limited to a 250GB monthly cap, would technically be able to hit their cap after just five days of constant use. More practically, they would be limited to approximately 83 hours (a little less than three hours a day) of video streaming, if the connection were not used for anything else.”

“Simply put, the introduction of Suddenlink-type data caps in Cablevision’s New York service territory post-transaction would limit the ability of New York consumers to utilize their broadband connections at their own discretion, as they currently enjoy with Cablevision service today, and would lessen the ability of over-the-top voice and video providers to compete with Cablevision’s bundled services,” the PSC staff concluded. “The imposition of Suddenlink-type data caps would be a significant detriment to New York consumers, and should not be allowed as a condition of the transaction.”

New York City officials are questioning the promised benefits of allowing Patrick Drahi’s Altice to acquire Cablevision in an all-cash deal that would combine ownership of Suddenlink and Cablevision under the European-based cable conglomerate.

Mayor Bill de Blasio’s chief legal counsel told the Wall Street Journal she is skeptical about Altice’s proposed $900 million in cost cutting at Cablevision leading to better service.

“Altice is talking about $900 million in synergies. Well, what’s getting cut? How’s that going to impact the economy of New York and quality of services?” asked Maya Wiley. “We certainly are not afraid to disapprove a transaction.”

Altice’s Public Interest Statement, outlining the public benefits of the acquisition, was perceived as long on rhetoric but woefully short on specifics. Altice officials made vague promises to expand fiber optics across Cablevision’s footprint in return for approval of the transaction, but stopped short of committing to offer fiber to the home service.

Stop the Cap!’s Special Report, reviewing the proposed acquisition of Cablevision, attracted the interest of investors on Wall Street as well as several New York City public officials we spoke with about the proposed buyout.

City Hall of New York (Photo: Will Steacy)

On our recommendation, New York officials reviewed French press coverage of Altice and its colorful CEO Patrick Drahi. Dozens of articles have covered Drahi’s controversial business practices over the years, including efforts to stall payments for suppliers, initiating salary and job cuts, and a reduction in spending on meaningful service upgrades. His French operation SFR-Numericable lost one million customers in just one year. Earlier this year, he promised increased investment to turn those subscriber numbers around.

Wall Street is also increasingly skeptical about Drahi’s American business plans.

Cablevision’s stock price has dropped well below Altice’s all-cash offer of $34.90 a share, telegraphing concern the deal will not escape regulator scrutiny and ultimately will not close.

“The spread has widened in large part because people have become increasingly concerned that neither the city nor the state will find that the transaction is in the public interest, or alternatively, they’ll demand so much in terms of givebacks that ultimately the deal won’t be palatable to Altice,” Craig Moffett, analyst at MoffettNathanson LLC, told the Journal. “Altice dramatically overpaid, and their attempts to cut costs are both overly ambitious and are potentially injurious to what we already expected to be very weak operating results.”

If Drahi wins approval to take over Cablevision, Altice is likely to curtail promotional spending at the cable company. The cable operator competes head-to-head with Verizon FiOS across much of its downstate New York, New Jersey and Connecticut service areas. That will likely lead to higher prices and fewer deals for consumers as price competition cools down.

The deal remains under review by the New York Public Service Commission and the FCC. Decisions from both are not expected until next spring.

On Monday, Altice closed its acquisition deal for Suddenlink, a cable operator serving states with more forgiving and business-friendly regulators.

As expected, Altice immediately named an executive team that will oversee significant cost cutting and reorganization at the cable operator that serves mostly rural and small city customers.

Two Suddenlink employees reached out to Stop the Cap! on Tuesday to tell us morale was dropping among middle managers at the cable operator.

“Most of our employees have little idea who Patrick Drahi or Altice is and they are not aware of the business reviews we’ve been told are coming after the holidays,” said one West Virginia based middle manager. “Some of my colleagues in customer care are updating their resumes this week and I’ve also heard concerns from technicians and IT workers. Some want to jump out early to secure new jobs before expected job cuts cause a small flood of resumes all over the state.”

“It’s a worrisome Christmas because we are not sure how many will be let go,” writes a Suddenlink mid-level IT manager working in Texas. “Salaries at Suddenlink have never been high but a lot of us prefer to work in our hometown and not move to Dallas or Houston to work for companies like Time Warner Cable or AT&T. It’s also a more relaxed work environment, but now there is a lot of concern what the new management will be doing.”

Goei

Chairman and CEO Jerry Kent announced he will be leaving Suddenlink in those roles but has agreed to chair a new advisory council at Altice USA, the subsidiary established to manage Altice’s American cable assets.

Head chopper Michel Combes, the new chief operating officer of Altice NV, is expected to coordinate U.S. operations. Combes brings his reputation for ruthless cost-cutting from his last job — CEO of Alcatel-Lucent. In an effort to boost profitability and cut costs, Combes presided over 10,000 job cuts and a salary freeze (except for himself and select others) at the company better known as the former Bell Labs. Two years after wielding the hatchet, Combes engineered a sale of the company to Nokia and secured a large golden parachute package for himself. The optics of Combes’ overseeing salary freezes and job cuts while later lobbying for a retirement package focusing on his own personal enrichment caused a political furor in France.

The new management of Suddenlink has limited experience in cable but plenty of experience working at Wall Street banks.

The chairman of Altice USA is Dexter Goei, who joined Altice in 2009 after a career in investment banking at JP Morgan and Morgan Stanley that spanned 15 years. Charles F. Stuart, also a former investment banker at Morgan Stanley, will become co-president and chief financial officer. Abdelhakim Boubazine, former CEO of Altice’s operations in the Dominican Republic, will also serve as co-president and chief operating officer. His LinkedIn profile mentions his involvement in telecommunications began in 2013. His educational background strongly emphasizes fossil fuel engineering.

The French press continues to ridicule Patrick Drahi’s debt-laden acquisitions as “Altice in Wonderland.” (Cartoon: Les Echos)

The next owner of Cablevision and Suddenlink put profits ahead of people and managed to drive away more than one million of his own customers in Europe within a year of a massive cost-cutting operation that led to service degradation and noncompetitive prices.

Patrick Drahi’s Altice NV has similar plans in store for both American cable companies if he manages to win regulator approval of the acquisitions.

The Wall Street Journal reports Altice was willing to sacrifice market share if it meant the company could extract cost-savings and higher profits that Drahi could use to help pay off some of his acquisition loans.

Some Wall Street analysts were initially excited to hear Drahi would slash salaries, knock union heads, and eviscerate at least $900 million in costs annually from Cablevision, results likely to boost Cablevision’s share price and fatten investor returns.

The cost-cutting formula is always the same in an Altice takeover. Special teams arrive from Europe within days of a deal closing with strict instructions to cut employees, reduce the salaries of those remaining, and brutally cut costs out of the business. Drahi is famous in Europe for stopping payment on checks to suppliers, leaving them unpaid until they agreed to offer his company discounts up to 40%. Employees also share stories of having to pay for office supplies out-of-pocket and in at least one case, staffed a wireless store that carried no phones in inventory because Drahi stiffed his supplier.

Drahi

The bad news for Wall Street? Customers of Drahi’s cable and wireless companies are fleeing in droves. At least 1.1 million of Altice’s French customers have taken their business elsewhere, fed up with deteriorating service and uncompetitive prices.

One manager lamented that as Altice-owned Numericable-SFR’s wireless network deteriorated to the point of regularly dropping calls, Drahi borrowed nearly $2 billion he set aside in preparation for further acquisitions.

“Debt is Drahi’s drug,” commented French news site LeJDD.

Drahi leverages his buyouts with loans covering up to 80% of the purchase price. Eerily similar to toxic sub-prime mortgage debt, investment banks consider holding too much of Drahi’s debt potentially poisonous, so they routinely repackage it with other loans and resell it to other financial institutions and unknown investors. That has some in the French government concerned Drahi is building the world’s first “too big to fail” telecom company, while leaving investors in the dark about the risks of holding his loans.

The lessons learned watching Drahi manage one of France’s largest wireless operators may concern U.S. regulators contemplating Drahi’s buyout offers of Cablevision and Suddenlink.

In the first quarter under Drahi, SFR boosted margins by 21% based on ruthless cost cutting. But a stunning 445,000 customers quickly left the operator. Critics contend Drahi’s cost cutting does temporarily boost profits, but also allows network quality to degrade, eventually alienating customers who leave. Drahi then uses SFR’s smaller customer base as an excuse for further cost-cutting. Between 2006-2011, Drahi eliminated half of the wireless provider’s workforce and outsourced much of his call center customer support operations.

Those still working at Altice companies after the cost-cutters depart are left in a state of siege.

“He’s a beast,” one employee told LeJDD in a piece that compared working for SFR with being in hell. All expenses are scrutinized, company-paid travel is canceled, team exercises and company meals are dropped, and for vendors and suppliers things are even worse. All projects are frozen and all outstanding invoice payments are stopped, reviewed one-by-one. Drahi’s goal is to find 600 million euros annually in savings to repay the €13 billion he borrowed to acquire SFR in 2014.

Employees, even those represented by France’s powerful trade unions, are scared into silence, reports LeJDD.

“Be happy you have a job,” is the standard response one trade unionist routinely receives from what is left of SFR’s management. Drahi doesn’t spare management below him either. Within weeks of Altice’s takeover, the flown-in French cost cutters immediately terminated 55 of the 70 SFR managers earning more than 150,000 euros per year. At least 100 middle managers were also quickly shown the door. IT and networking positions are also deemed ‘bloated’ and a reorganization quickly whittled employees down to a token force. The marketing department? Abandoned. Also dismantled was SFR’s team of innovators, working on next generation network upgrades and technology.

Call centers that handle customer service requests were “on the verge of suffocation,” reported LeJDD. One small call center operator had to send his attorney to SFR’s offices to threaten them over an outstanding bill of one million euros. Drahi demanded an immediate 35% discount if the attorney wanted to leave with a check in hand.

Cable customers share their own anecdotal stories, including one forced to acquire and supply his own cable to complete an installation because the technician had run out. Another reported a tardy cable installer humbly apologized, claiming he was forced to pay out-of-pocket for fuel to get his stalled cable truck back on the road again.

The horror stories from Europe are making an impact in New York’s financial markets, along with Altice’s improbable formula of profiting from alienating customers. After 18 months of unbridled growth and 47 billion euros in loans to finance multiple acquisitions, Wall Street is getting worried. Altice has lost 50% of its value in just six months and Moody’s has now rated Altice’s debt as “highly speculative,” the last step on the basement stairs right before “default.”

“Drahi carries too much debt,” said the head of a French investment fund. “He and his team have lost all sense of reality.”

LeJDD put it more colorfully: “The ogre was too greedy.”

To placate investors, Drahi is planning to slow future acquisitions, something he may not have had much say in. Bankers forced Drahi to accept considerably higher interest rates to finance his American cable company buyouts.

Numericable-SFR’s long-dead marketing department is also being revived, offering discounts and marketing the service more aggressively to stem customer defections. But the company’s increasingly poor reputation is making that a hard sell in Europe, where fierce competition among multiple providers has fueled a long-lasting price war.

Altice officials point to the fact their severe cost-cutting strategy may have faced greater challenges in Europe, where competition is always a speed bump to high profits. But company officials privately stress their ‘profits first’ formula stands a better chance of success in America, where customers don’t have a lot of choice. Competition is less risky for Suddenlink than it is for Cablevision. Altice promises to wring $215 million annually in savings out of the largely rural and small city provider Suddenlink. But Altice’s estimate of $900 million in savings from Cablevision, which faces formidable competition from Verizon FiOS, seems much less realistic, according to Wall Street analysts.

MoffettNathanson analyst Craig Moffett said Altice was taking cuts to an extreme.

“You’re talking about huge cuts to customer service levels to installation and maintenance costs to marketing and promotions,” Moffett told Reuters. “You can’t expect to be able to make dramatic cuts… without having an impact on the business.”

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.

Phillip Dampier: A cable trade publication is lecturing its readership on better broadband the industry spent years claiming nobody wanted or needed.

Remember the good old days when cable and phone companies told you there was no demand for faster Internet speeds when 6Mbps from the phone company was all you and your family really needed?

Those days are apparently over.

Multichannel News, the largest trade publication for cable industry executives, warns cable companies gigabit broadband speeds are right around the corner and the technological transformation that will unleash has been constrained for far too long.

Say what?

Proving our theory that those loudest about dismissing the need for faster Internet speeds are the least equipped to deliver them, the forthcoming arrival of DOCSIS 3.1 technology and decreasing costs to deploy fiber optics will allow cable providers to partially meet the gigabit speed challenge, at least on the downstream. Before DOCSIS 3.1, consumers didn’t “need those speeds.” Now companies like Comcast claim it isn’t important what consumers need today — it’s where the world is headed tomorrow.

Comcast 2013:

Comcast executive vice president David L. Cohen writes that the allure of Google Fiber’s gigabit service doesn’t match the needs or capabilities of online Americans.

“For some, the discussion about the broadband Internet seems to begin and end on the issue of ‘gigabit’ access,” Cohen says, in a nod to Google Fiber. “The issue with such speed is really more about demand than supply. Our business customers can already order 10-gig connections. Most websites can’t deliver content as fast as current networks move, and most U.S. homes have routers that can’t support the speed already available to the home.” Essentially, Cohen argues that even if Comcast were to deliver web service as fast as Google Fiber’s 1,000Mbps downloads and uploads, most customers wouldn’t be able to get those speeds because they’ve got the wrong equipment at home.

Comcast 2015:

“We’ve consistently offered the most speeds to the most homes, but with the current pace of tech innovation, sometimes you need to go to where the world is headed and not focus on where it is today.”

“The next great Internet innovation is only an idea away, and we want to help customers push the boundaries of what the Internet can do and do our part to inspire developers to think about what’s possible in a multi-gigabit future.  So, next month we will introduce Gigabit Pro, a new residential Internet service that offers symmetrical, 2-Gigabits-per-second (Gbps) speeds over fiber – at least double what anyone else provides.”

Nelson (Image: Multichannel News)

Rich Nelson’s guest column in Multichannel News makes it clear American broadband is behind the times. The senior vice president of marketing, broadband & connectivity at Broadcom Corporation says the average U.S. Internet connection of 11.5Mbps “is no longer enough” to support multiple family members streaming over-the-top video content, cloud storage, sharing high-resolution images, interactive online gaming and more.

Nelson credits Google Fiber with lighting a fire under providers to reconsider broadband speeds.

“Google’s Fiber program may have been the spark to light the fuse — Gigabit services have fostered healthy competition among Internet and telecommunications providers, who are now in a position to consider not ‘if’ but ‘when and how’ to deploy Gigabit broadband in order to meet consumer’s perceived ‘need for speed’ and maintain their competitive edge,” Nelson wrote.

But the greatest bottleneck to speed advances is spending money to pay for them. Verizon FiOS was one of the most extravagant network upgrades in years among large American telecom companies and the company was savaged by Wall Street for doing it. Although AT&T got less heat because its U-verse development costs were lower, most analysts still instinctively frown when a company proposes spending billions on network upgrades.

Customer demand for faster broadband is apparent as providers boost Internet speeds.

The advent of DOCSIS 3.1 — the next generation of cable broadband technology — suggests a win-win-win for Wall Street, cable operators, and consumers. No streets will have to be torn up, no new fiber cables will have to be laid. Most providers will be able to exponentially boost Internet speeds by reallocating bandwidth formerly reserved for analog cable television channels to broadband. The more available bandwidth reserved for broadband, the faster the speeds a company can offer.

Many industry observers predict the cable line will eventually be 100% devoted to broadband, over which telephone, television and Internet access can be delivered just as Verizon does today with FiOS and AT&T manages with its U-verse service.

The benefits of gigabit speeds are not limited to faster Internet browsing however.

Nelson notes communities and municipalities are now using gigabit broadband speeds as a competitive tool selling homes and attracting new businesses to an area. According to a study from the Fiber to the Home (FTTH) Council, communities with widely available gigabit access have experienced a positive impact on economic activity — to the tune of more than $1.4 billion in GDP growth. Those bypassed or stuck in a broadband backwater are now at risk of losing digital economy jobs as businesses and entrepreneurs look elsewhere.

The gigabit broadband gap will increasingly impact the local economies of communities left behind with inadequate Internet speeds as app developers, content producers, and other innovative startups leverage gigabit broadband to market new products and services.

The Pew Research Center envisioned what the next generation of gigabit killer apps might look like. Those communities stuck on the slow lane will likely not have access to an entire generation of applications that simply will never work over DSL.

But before celebrating the fact your local cable company promises to deliver the speed the new apps will need, there is a skunk that threatens to ruin your ultra high speed future: usage-based pricing and caps.

At the same time DOCSIS 3.1 will save the cable industry billions on infrastructure upgrade costs, the price for moving data across the next generation of super high-capacity broadband networks will be lower than ever before. But cable operators are not planning to pass their savings on to you. In fact, broadband prices are rising, along with efforts to apply arbitrary usage limits or charge usage-based pricing. Both are counter-intuitive and unjustified. It would be like charging for a bag of sand in the Sahara Desert or handing a ration book to shoreline residents with coupons allowing them one glass of water each from Lake Ontario.

Cox plans to limit its gigabit customers to 2TB of usage a month. AT&T U-verse with GigaPower has a (currently unenforced) limit of 1TB a month, while Suddenlink thinks 550GB is more than enough for its gigabit customers. Comcast is market testing 300GB usage caps in several cities but strangely has no usage cap on its usage-gobbling gigabit plan. Why cap the customers least-equipped to run up usage into the ionosphere while giving gigabit customers a free pass? It doesn’t make much sense.

But then usage caps have never made sense or been justified on wired broadband networks and are questionable on some wireless ones as well.

Stop the Cap! began fighting against usage caps and usage pricing in the summer of 2008 when Frontier Communications proposed to limit its DSL customers to an ‘ample’ 5GB of usage per month. That’s right — 5GB. We predicted then that usage caps would become a growing problem in the United States. With a comfortable duopoly, providers could easily ration Internet access with the flimsiest of excuses to boost profits. Here is what we told the Associated Press seven years ago:

“This isn’t really an issue that’s just going to be about Frontier,” said Phillip Dampier, a Rochester-based technology writer who is campaigning to get Frontier to back off its plans. “Virtually every broadband provider has been suddenly discovering that there’s this so-called ‘bandwidth crisis’ going on in the United States.”

That year, Frontier claimed most of its 559,300 broadband subscribers consumed less than 1.5 gigabytes per month, so 5GB was generous. Frontier CEO Maggie Wilderotter trotted out the same excuses companies like Cox and Suddenlink are still using today to justify these pricing schemes: “The growth of traffic means the company has to invest millions in its network and infrastructure, threatening its profitability.”

Just one year later, Frontier spent $5.3 billion to acquire Verizon landline customers in around two dozen states, so apparently Internet usage growth did not hurt them financially after all. Frankly, usage growth never does. As we told the AP in 2008, the costs of network equipment and connecting to the wider Internet are falling. It still is.

“If they continue to make the necessary investments … there’s no reason they can’t keep up” with increasing customer traffic, we said at the time.

We are happy to report we won our battle with Frontier Communications and today the company even markets the fact their broadband service comes without usage caps. In many of Frontier’s rural service areas, they are the only Internet Service Provider available. Imagine the impact a 5GB usage cap would have had on customers trying to run a home-based business, have kids using the Internet to complete homework assignments, or rely on the Internet for video entertainment.

So why do some providers still try to ration Internet usage? To make more money of course. When the public believes the phony tales of network costs and traffic growth, the duped masses open their wallets and pay even more for what is already overpriced broadband service. Just check this chart produced by the BBC, based on data from the Organization for Economic Co‑operation and Development. Value for money is an alien concept to U.S. providers:

The usual method of combating pricing excess is robust competition. With a chasm-sized gap between fat profits and the real cost of the service, competitors usually lower the price to attract more customers. But the fewer competitors, the bigger the chance the marketplace will gravitate towards comfort-level pricing and avoid rocking the boat with a ruinous price war. It is one of the first principles of capitalism — charging what the market will bear. We’ve seen how well that works in the past 100+ years. Back in 2010, we found an uncomfortable similarity between broadband prices of today with the railroad pricing schemes of the 1800s. A handful of executives and shareholders reap the rewards of monopolistic pricing and pillage not only consumers but threaten local economies as well.

The abuses were so bad, Congress finally stepped in and authorized regulators to break up the railroad monopolies and regulate abusive pricing. We may be headed in the same direction with broadband. We do not advocate regulation for the sake of regulation. Competition is a much more efficient way to check abusive business practices. But where an effective monopoly or duopoly exists, competition alone will not help. Without consumer-conscious oversight, the forthcoming gigabit broadband revolution will be stalled by speed bumps and toll booths for the benefit of a few giant telecommunications corporations. That will allow other countries to once again leap ahead of the United States and Canada, just as they have done with Internet speeds, delivering superior service at a lower price.

China now ranks first in the world in terms of the total number of fiber to the home broadband subscribers. So far, it isn’t even close to the fastest broadband country because much of China still gets access to the Internet over DSL. The Chinese government considers that unacceptable. It sees the economic opportunities of widespread fiber broadband and has targeted the scrapping of every DSL Internet connection in favor of fiber optics by the end of 2017. As a result, with more than 200 million likely fiber customers, China will become the global leader in fiber infrastructure, fiber technology, and fiber development. What country will lose the most from that transition? The United States. Today, Corning produces 40% of the world’s optical fiber.

Global optical fiber capacity amounted to 13,000 tons in 2014, mainly concentrated in the United States, Japan and China (totaling as much as 85.2% of the world’s total), of which China already ranked first with a share of 39.8%. Besides a big producer of optical fiber, China is also a large consumer, demanding 6,639 tons in 2014, 60.9% of global demand. The figure is expected to increase to 7,144 tons in 2015. Before 2010, over 70% of China’s optical fiber was imported, primarily from the United States. This year, 72.6% of China’s optical fiber will be produced by Chinese companies, which are also exporting a growing amount of fiber around the world.

John Lively, principal analyst at LightCounting Market Research, predicts China could conquer the fiber market in just a few short years and become a global broadband leader, “exporting their broadband networking expertise and technology, just like it does with its energy and transportation programs.”

Meanwhile in the United States, customers will be arguing with Comcast about the accuracy of their usage meter in light of a 300GB usage cap and Frontier’s DSL customers will still be fighting to get speeds better than the 3-6Mbps they get today.