California didn’t make the cut for Altice’s fiber to the home upgrades, but it has upgraded one town here to gigabit-level cable modem service. In a press release praising its own FTTH ambitions, Altice was careful to point out that only three contiguous northeastern states are on its fiber list. States which also happen to be where it faces competition from Verizon’s FiOS FTTH service…
Design and construction have commenced for several hundred thousand homes concurrently in areas of New York, New Jersey and Connecticut. The Company is on track to reach one million homes constructed by year end 2018.
That’s also a region that Altice picked up when it purchased Cablevision last year, in its second, and by far its largest, acquisition of U.S. cable systems. Its first was Suddenlink, a much smaller operator that has a few scattered outposts in California. Although Altice left the door open to upgrading Suddenlink systems when it first unveiled its FTTH plans, so far it hasn’t walked through it.
What it has done in Suddenlink’s territory is boost the capacity of some of its hybrid fiber-cable systems. So far, the press release says, Altice has upgraded “more than 60 percent of its Suddenlink footprint” to gigabit levels, presumably via DOCSIS 3.1 technology.
That 60 percent only includes one Californian community, Mammoth Lakes. What’s different about it? Altice doesn’t say, but I’ll make a guess. Mammoth Lakes is in Mono County, and Digital 395 runs right through it. It’s an open access fiber network that stretches 500 miles from Reno to Barstow along the eastern slope of the Sierra Nevada, paid for by grants from the California Advanced Services fund and the federal stimulus program. Long before it was a gleam in Altice’s eye, Suddenlink hooked into it and boosted service speeds in Mammoth Lakes by a factor of ten, at no extra cost to its subscribers.
Fast and cheap middle mile access makes a difference.
There’s a lot of sniffing around telecoms companies in these dog days of summer. Softbank, Japanese tech investment giant which owns Sprint, is reported to be sniffing around T-Mobile, with a merger in mind. If it happened – if regulators allow it to happen – it would take the U.S. mobile telecom sector down to three companies, from the current four.
Charter Communications is getting a lot of attention, too. Softbank first tried to engineer a merger, and when that failed began talking about buying the company outright. But if it’s really in the hunt for T-Mobile, a second mega-deal with Charter becomes unlikely.
But it has company. According to a story on CNBC, Altice is looking at adding Charter to its U.S. kennel, which so far includes Suddenlink and Cablevision. It’s not much of a powerhouse in the U.S., yet, but the France-based company is a major player in Europe. If it wants to buy Charter, it has to entice controlling owner Liberty Media and its big dog, John Malone. The question, according to CNBC, is whether Altice’s track record of boosting the value of acquired cable companies by slashing operating expenses will do the trick…
In its short time operating in the U.S. market, Altice has shown a unique ability to cut costs and generate substantially higher margins, before taxes and other costs, than predecessor managements. But Liberty is still wary of taking Altice paper in the belief that it is too early to tell whether those gains are sustainable…
Charter, with $60 billion in debt and an expected purchase price that could reach or exceed $500 a share would represent an enterprise value of almost $200 billion.
Altice’s U.S. holdings may be small enough to avoid triggering a fatal anti-trust response from the federal justice department. In past times, a T-Mobile-Sprint combination probably would set off alarm bells – similar mergers did – but things might be different now. Conventional wisdom is that the Trump administration wouldn’t be so worried about increased telecoms market concentration, concerns about its treatment of the AT&T – Time Warner deal notwithstanding. We might know soon if that’s a good assumption.
As quoted in FierceCable, Robert Gessner, president of Massillon Cable TV (MCTV), a small cable system in Ohio, explained that earlier hybrid fiber coax upgrades were not done with broadband service in mind, which meant more coax and less fiber…
“We debated it for a long time,” he said. “The decision starts to some extent with our last upgrade. When we transitioned our plant from coax to HFC in 1995, we built it for television, and we built out the largest node sizes we could”…
“If we had waited five or six years and did our HFC upgrade in the early 2000s, after cable modems became ubiquitous, we would have built smaller nodes,” he explained. “If you did your HFC upgrade early, you have a lot of fiber to run.”
Consequently, DOCSIS 3.1 upgrades, such as Comcast is beginning to roll out, aren’t much cheaper than a fiber build, which delivers more long term benefit. MCTV is offering 100 Mbps down and up to homes with fiber now, and has the plant to offer even faster service in the future, if it chooses.
That could be good news for rural Californian communities where independently-owned cable systems can still be found. Whether it’s good news for Californians who rely on the scattering of small systems Altice purchased from Suddenlink is another question, though. Altice will be factoring competition and economies of scale into its FTTH upgrade decisions, and its acquisitions are concentrated in the northeastern U.S., where it goes head to head with Verizon fiber. The math is likely to come out differently in California, where Altice is thin on the ground and faces little threat from Frontier and AT&T.
Most of Suddenlink is somewhere other than California.
Altice, the fourth largest cable operator in the U.S., plans to leapfrog DOCSIS 3.1 coaxial cable upgrades and go straight to fiber. At least in some of the markets it serves. Yesterday, the company announced its intention to build “a next-generation fiber-to-the-home network capable of delivering broadband speeds of up to 10 Gbps across its footprint”. Sorta. It qualified that promise by saying it “expects to reach all of its Optimum footprint and most of its Suddenlink footprint” within five years.
The question is whether that wiggle room could exclude California. There’s reason to think it might.
Another factor to consider is that Altice is investing in FTTH to counter the competition it faces from Verizon’s FiOS systems. Again, those tend to be concentrated in the northeast. There are some FiOS systems in California that were formerly owned by Verizon and now belong to Frontier Communications, but none of those are in Suddenlink’s territory. Competitive pressure is not going to be pushing Altice’s upgrade capital in California’s direction.
That doesn’t mean it won’t happen, though. A key resource for any FTTH upgrade is the availability of affordable and accessible middle mile fiber. Suddenlink has already taken advantage of the Digital 395 project in eastern California and several of its systems sit on or near other major fiber routes. Altice says it’ll start announcing its rollout markets schedule “in the coming months”.
The proposed acquisition occurs entirely at the parent ownership level and the Applicants indicate that the transaction will be “seamless and transparent to consumers in terms of current services, rates, terms and conditions.”17 Cebridge will continue to operate as Suddenlink under its current Commission authority and will continue to provide the services it currently provides to its existing customer base…
We find that Altice has sufficient managerial and technical expertise to operate Cebridge and that its acquisition by Altice will permit Cebridge and Cequel to become stronger competitors in California’s telecommunications marketplace. This will be favorable for the public and consumers, as well as existing customers.
Suddenlink will be the first U.S. acquisition for Altice, which is a force to be reckoned with in the European cable industry. It’s moving relatively smoothly through the regulatory review process, largely because it’s not a huge transaction. Altice’s second deal, to buy Cablevision, will be more contentious. But that doesn’t directly involve California, since Cablevision doesn’t operate here.
Keep prices U.S. high and expenses European low. That’s the plan that Altice has for Suddenlink and Cablevision, if its allowed to buy the two broadband companies. At a New York conference last week, Altice chairman Patrick Drahi said he likes Cablevision’s average monthly revenue per subscriber – $159 – but not its cost structure, which includes hundreds of executives making more than $300,000 a year and ageing infrastructure that’s costly to maintain. According to a story in Multichannel News…
Drahi said that he sees opportunity to cut operating costs by improving the network – pushing fiber into the home and eliminating amplifiers and other electronic equipment. Drahi continually compared Cablevision’s network to Altice’s French Numericable unit, adding that despite Cablevision’s size and market density, its costs are higher.
But chopping suits and adding fiber won’t be enough. Multichannel News quotes analyst Craig Moffett as saying subscribers will feel the pinch too…
“Cost reductions like those won’t just mean cutting SG&A. It will mean slashing customer service; repair and maintenance, and sales and marketing (specifically, channel mix optimization, and back-office upgrades).”
Altice’s acquisition spree isn’t over, according to Drahi, who said he’s interested in buying any U.S. cable system available. As it stands now, though, Suddenlink and Cablevision make an odd couple, with the latter heavily concentrated in the New York metro area and the former lightly spread over scattered, mostly rural markets, including some in California.
So far, Altice’s purchase of a controlling stake in Suddenlink has met little opposition in California, where it is still under review. That could change, though, as post-takeover plans become clearer.
This latest deal wouldn’t directly affect California – Cablevision’s systems are on the east coast – but the indirect implications could prove interesting.
Altice’s takeover of Suddenlink hasn’t generated any significant opposition while the California Public Utilities Commission has been reviewing it. That’s not a surprise: as a standalone proposition, it wouldn’t change the competitive landscape for broadband providers. But package Suddenlink and Cablevision together, and the national market would become less competitive. It also impacts the competitive assessment of the Charter deals. Both the CPUC and the Federal Communications Commission will be considering whether to allow the top seven companies to recombine into the top four.
As is typical with the initial applications, the companies are claiming there’s not much to worry about and approval should be quick and simple. Suddenlink (which is really a mash up of many corporations, mostly called Cequel or Cebridge or similar) is telling the CPUC that it’s really a teeny tiny deal…
Cebridge CA currently offers [telecommunications services] to schools and libraries in California under the federal E-rate program. In addition, the company provides wholesale telecommunications services and point-to-point transport services to a limited number of non-residential customers. Cebridge CA offers those services in several areas of California including Eureka, Arcata, Fortuna, Blue Lake, Ferndale, Trinidad, Rio Dell, Truckee, Auburn, Foresthill, Bishop, Mammoth Lakes, Blythe, Shaver Lake and [Fort] Ord. Overall, Cebridge CA provides certificated telecommunications services to approximately a dozen customers and has annual intrastate revenues from these services of less than $500,000…
As noted above, the transfer of control of Cebridge CA to Altice, as well as the underlying Transaction, will have no adverse effect on any California customers. It will not result in any change in the operations, rates, terms or conditions of service, or the construction or transfer of any facilities…In short, the proposed Transaction will be seamless and transparent to Cebridge CA’s California customers.
Of course, there’s more to Suddenlink’s business than a dozen regulated telecommunications customers. If – and it’s a big if – the CPUC follows the same logic it pursued in the recently deceased Comcast – Time Warner – Charter deal, it will also evaluate the impact of selling Suddenlink to Altice on the broadband services market in California.
While our strong performance has afforded Suddenlink ready access to growth capital, the backing of Altice will better position the company to gain critical scale as a major consolidator in the U.S. cable industry.
A New York Times article points to Altice’s reputation as a cost-cutter, and speculates that the prospect of a foreign owner taking over a big U.S. cable company and the potential for a cut back in either service levels or system upgrades will be issues for federal regulators as they review the deal.
Suddenlink has 1.4 million subscribers in 17 states, and claims to be the 7th largest cable operator in the U.S. In California (which it refers to as “elsewhere” on its website), it owns several, relatively small systems: along the eastern Sierra, the I-80 corridor, Humboldt County, Monterey County and near the Arizona border. Bandwidth is limited on some of those systems, partly because of old technology and partly because of limited backhaul capacity. The company has a good track record of increasing service levels as more capacity becomes available.