Cable-TV and Internet subscribers remain unhappy customers, new Consumer …

29 May 2015 | Author: | No comments yet »

Altice Isn’t Leaving the U.S. Soon.

The French billionaire, who made a fortune by cobbling together a string of cable and telecommunications acquisitions across Europe, met privately with Time Warner Cable Chief Executive Officer Rob Marcus in mid-May to discuss buying Time Warner Cable. The government worried that the company would be able to undermine increasingly popular online video competitors like Netflix because the bigger Comcast would have more than half the country’s high-speed Internet customers.

Instead, the French tycoon plans to build his U.S. footprint by acquiring control of smaller cable operators, according to two people with knowledge of the matter. On May 21, the Wall Street Journal reported that Tom Wheeler, chairman of the FCC, “individually called” Rob Marcus, CEO of Time Warner, and Tom Rutledge, CEO of Charter. There has been a wave in consolidation in the cable industry as providers are starting to lose TV subscribers, costs for TV, sports and movies rise and pressure from online video services such as Netflix and Hulu increases. Smaller players in the U.S. such as Cox Communications, Cablevision Systems, and Mediacom Communications are expected to grow in value as heavyweights such as Comcast and soon-to-merge Charter continue to gobble up rivals that allow them to expand their reach and engineer cost efficiencies. Although purportedly to let the companies know that “the agency is [not] against any and all future cable deals,” the calls were ill-advised and grossly inappropriate.

The traditional cable ecosystem is breaking up — for example, you can subscribe to HBO online without having to pay for cable, or pay for a smaller group of channels that you watch via a Sony PlayStation. Drahi, the third-richest person in France, made his first move on May 20 when Altice, his Luxembourg-based holding company, agreed to acquire 70 percent of No. 7 U.S. cable operator Suddenlink Communications in a deal worth $9.1 billion. We clearly expect to be right in the middle of that consolidation.” Altice will look at assets that the combined TWC-Charter may decide to divest to alleviate antitrust concerns, Drahi told a hearing at France’s National Assembly on May 27. Writing in the 19th century, Mary Howitt perhaps dramatized the situation in The Spider and the Fly, “Will you walk into my parlour?’ said the Spider to the Fly, ’Tis the prettiest little parlour that ever you did spy.’” Whether the FCC has ill-intentions or not in inviting parties to come before it, the appearance is disturbing.

In a statement Tuesday, Federal Communications Commission Chairman Tom Wheeler said that the FCC weighs every merger on its own to see if it will be in the public interest, and that “an absence of harm is not sufficient.” He said the FCC “will look to see how American consumers would benefit” from the deal. If the Chief Justice of the Supreme Court were to make private calls to parties to invite them to bring their disputes before his court, the parties would be wary. A bidding war over TWC is unlikely, as the Charter offer is seen as too high for Altice to beat, according to the people. “Drahi is an aggressive cost-cutter, and his presence forced Malone to move quicker,” says Matthew Harrigan, an analyst at Wunderlich Securities. “They wanted to lock this down.” Altice had financing from banks lined up for a TWC buyout, according to the people. Ultimately, Drahi decided not to rush into an acquisition because Altice didn’t immediately have the scope to manage and absorb the company, Drahi told the National Assembly. Trying to beat Charter’s $195.71-a-share offer would require Altice to increase its leverage ratio significantly and engineer a large capital increase to fund the purchase, diluting Drahi’s stake in Altice, the people say.

The company already had more than €24 billion ($26.1 billion) in net debt before the Suddenlink deal, which it will finance by borrowing $6.7 billion. TV customers and 16.1 million fixed Internet customers as well as tens of millions of wireless customers. “One has to be sober about genuine risks that this deal could still be rejected,” said MoffettNathanson’s Craig Moffett in a research note Tuesday, given the number of Internet and TV subscribers involved. ING Group analyst Emmanuel Carlier says Altice made the right decision, even though it may have had a better regulatory shot at buying TWC than Charter. But it doesn’t raise the same immediate concerns as the Comcast-Time Warner Cable merger, said John Bergmayer of Public Knowledge, a public interest group that had opposed the Comcast deal. “The scale is totally different. In April 2014 he agreed to pay $19 billion for Vivendi’s SFR, France’s No. 2 mobile operator, and in December he paid $9 billion for Portugal’s former national phone monopoly.

Drahi declined to comment. “What Altice has done over the past few years is quite remarkable,” says Yvan Desmedt, a partner at law firm Jones Day who has advised large companies in telecom deals. “But it’s one thing to move into the U.S. market and a different one to succeed in such a competitive landscape.” If no objections are filed, as is the case the vast majority of the thousands of license transfers the FCC reviews each year, the transfer is usually approved. To attempt to “see … benefits” from a merger for such a hypothetical consumer or even groups of consumers, even if there were a lawful construct, is a heroic task.

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