Market Insight

Altice purchases Cablevision, advancing its US agenda

September 18, 2015  | Subscribers Only


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European based telecom operator, Altice, is acquiring the nation’s fifth largest cable operator, Cablevision. The deal is worth $17.7 billion including debt, a signal that U.S. pay TV consolidation continues to be a hot topic. Four months after entering the U.S. cable market by acquiring Suddenlink for $9.1 billion, Altice is attempting to form the nation’s fourth largest cable operation, showcasing its ambition and determination to become a major player in the U.S. cable market.

Altice will be entering a highly competitive yet lucrative market in the New York metropolitan area, where Cablevision operates with over 3.1m video subscribers as of Q2 2015.  However with a video penetration rate of nearly 62% at Cablevision, it is highly saturated, prospects for future video subscriber growth being muted.  Altice will be looking to apply cost cutting and efficiency measures at Cablevision, where it expects to identify about $1billion in cost cutting savings at Cablevision annually, particularly focused around more efficient customer services.

Like the rest of the U.S. Cable operators, Cablevision has been hard pressed to grow video subscribers in a competitive and changing TV landscape. In 2014, the operator lost 131,700 video subscribers, 20,200 high-speed data subscribers and 43,100 phone subscribers. Despite the decline in video subscribers, Cablevisions was able to grow video revenue 1.2% in 2014, reaching $3.18b in 2014. Its high speed data and voice segments have grown at a faster clip, at 5.5% and 8.3%, respectively, in 2014. As a result, Cablevision grew its average monthly revenue per customer by 5.3% in 2014, reaching $155.20 in 2014 as its triple play penetration reached 65%.

Altice agreed to pay $34.90 in cash for each cablevision share. Altice will finance the deal with $3.3 billion in cash, as well as $14.5 billion of new and existing debt at Cablevision and cash on hand at Cablevision. The deal is expected to close in the first half of 2016, pending any regulatory approval

Our analysis

It’s an early move for a late entrant to the US pay TV business, but by purchasing Cablevision, Altice has secured a significant foothold in the US pay TV space. In fact, the companies international businesses may benefit from the deal too. As the company strikes deals for domestic carriage with the major channel groups, it is conceivable that including its international operations will bring cost savings.  

While the announcement came without the usual courtship rumors, the combination is hardly surprising. Cablevision and Cox represent the best consolidation prospects of all major pay TV operators in the US. It isn’t surprising that Altice, who hasn’t shown any reluctance when it comes to acquisition speculation, would make a move for Cablevision. The company is rebounding from what may be perceived as a minor defeat, not being ready  to bid for Time Warner Cable. 

It appears that Altice has learned its lesson, being prepared for the purchase of Cablevision. For existing Cablevision subscribers its likely to be business as usual. Altice is likely to continue existing initiatives regarding broadband speed increases and wifi deployments. It will be interesting to see how the company adapts technologies purchased in the transaction to its European business, namely the RSDVR which Cablevision pioneered.

For the overall business of pay TV in the US the purchase is significant in the sense that there is more international interest in the US pay TV space now than at any other time in history. The question remains whether or not Altice can find the formula which will mitigate video subscriber defections, something that Cogeco hasn’t been able to do with its US subsidiary Atlantic Broadband. Granted, Cablevision and Atlantic Broadband are two entirely different companies, but the question of whether ownership/management from abroad can work in the US context still remains.

Geography
USA
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