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.
If your local cable system is in bad shape, you might be in luck. According to an analysis done by Daniel Frankel at FierceCable, the economics of upgrading cable systems that were last upgraded (or not) in the 1990s to the next generation of service favors replacing coaxial cable with a full fiber to the home build. That explains some or all of the reasoning behind Altice’s decision to convert some of the Suddenlink and Cablevision systems it acquired to FTTH.
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.
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.
Altice took over the Optimum brand when it bought Cablevision, a cable operator that’s largely concentrated in the northeast U.S. – it’s not a player in California. Suddenlink is the other cable company it acquired last year, and that footprint includes a scattering of largely rural markets across California, as well as systems in much larger markets such as Dallas and San Antonio. Technically, “most” could mean anything from 51% on up, but even if you assume it means 80% or 90%, that’s still enough room to wiggle out of California, which Suddenlink used to refer to as “elsewhere”.
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 Federal Communications Commission agreed with the California Public Utilities Commission today and approved Altice’s purchase of a controlling interest in Suddenlink. Altice is a major European telecoms company and Suddenlink is its first acquisition of a U.S. cable company. Except for provisions regarding law enforcement and spy agency access to Suddenlink’s network, the FCC imposed no conditions on the deal.
Not a big footprint in California.
UPDATE: the day after the CPUC approved the deal, the FCC did likewise, adding a condition requiring Altice to guarantee law enforcement and spy agency access to its network.
Altice has permission to take over control of Suddenlink’s cable systems in California. Without discussion, the California Public Utilities Commission approved the transaction at its meeting on Thursday. According to the decision…
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.
No objections were filed with the CPUC, although the Humboldt County board of supervisors did send a protest letter to the Federal Communications Commission, which is still considering the deal. The central issue is a dispute over public access television fees, which is really a dispute between local governments and the state legislature: when statewide video franchises were established, public access fees were set at 1% of revenue, while local governments in Humboldt want 3%. Good luck with that.
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.
CPUC decision approving Altice purchase of control of Suddenlink, 17 December 2015
FCC decision approving Altice purchase of control of Suddenlink, 18 December 2015
National security agreement between Altice and federal justice department, 11 December 2015
Petition from federal justice department requesting approval, 11 December 2015
Would you like pommes frites
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.
How the game is played.
Altice SA announced an agreement to buy Cablevision for $17.7 billion and assumption of existing debt yesterday. That follows Altice’s ongoing bid to buy a controlling stake in Suddenlink. If both deals are approved and Charter is allowed to take over Time Warner and Bright House, then Altice would become the fourth largest cable company in the U.S., and the seventh largest pay TV company overall, with about 4 million subscribers. AT&T/DirecTv, Comcast, new Charter and DISH would be bigger. Verizon FiOS and Cox would be too, but not by as much. Cox would be a few hundred thousand subs ahead of Altice and Verizon would have about 1.5 million more.
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.
If that happened, the broadband market nationally and in California would become much more concentrated, which raises the same kind of concerns that killed Comcast’s attempt to swallow Time Warner and Charter earlier this year.
Click for the full picture.
The purchase of Suddenlink Communications – the seventh largest cable operator in the U.S. and a significant video and Internet service provider in rural California – by a European company, Altice, is officially under review by the California Public Utilities Commission and the Federal Communications Commission.
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.
Click for a list of communities in California and elsewhere
, and a bigger map.
Altice, a European cable company with roots in France and headquarters in business-friendly Luxembourg, is buying 70% of Suddenlink for $9.1 billion. The announcement follows news that Charter is still intent on acquiring Bright House Networks.
Both Charter and Altice are considered possible candidates to buy Time-Warner, which would be a much bigger play than either Suddenlink or Bright House. Comments released by Suddenlink’s CEO, Jerry Kent, made it pretty clear this latest agreement is just the beginning…
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.
The California Public Utilities Commission will almost certainly have to approve the deal, too. Although it’s delayed voting on a formal rejection of the Comcast-Time Warner-Charter mega merger, and thereby setting a precedent for using broadband service as a criterion for evaluating these sorts of transactions, the CPUC is likely to consider the Suddenlink deal’s impact on the Californian Internet access market.
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.