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Will Foreign Companies Shake Up The American Cable Market?

Will Foreign Companies Shake Up The American Cable Market?

European media conglomerate Altice announced at the end of May 2015 that it was buying Suddenlink, the seventh-largest cable company in the United States. What does this mean for the already-changing US cable market? Does it signal a wholesale wave of foreign investment, or is it an isolated incident? What can media consumers expect to see in the coming months, and how will Altice change the American cable landscape?

The Basic Facts

Altice closed its deal with the St. Louis company Suddenlink at the end of May, but finalizing the details of the management change will take months. Suddenlink's founder and CEO, Jerry Kent, cited the increasing difficulty of competing with industry giants like Comcast and Cox on a level playing field with media costs rising continually.

Access to cable content is more expensive for smaller companies than it is for major corporations who can take advantage of economies of scale. Suddenlink has experienced problems in securing rights to all of the content its subscribers want in the past few years, which lost it some customers in the last few quarters.

Who Altice Is

Altice SA is a European company based in Luxembourg. The brainchild of media magnate Patrick Drahl, the company is growing explosively through mergers and acquisitions. It currently operates media subsidiaries in France, Belgium, Portugal, Israel, and the Dominican Republic, and its taste for expansion is nowhere near satisfied. Drahl has been quite explicit in stating his desire to take a significant position in the US cable market. He's stated his goal is to bring Altice's portfolio to an even 50/50 split between American and overseas assets.

Altice's broad interest in all sorts of telecommunications became clear in 2014 when the company successfully acquired SFR, a major mobile phone provider in France. (Further negotiations to purchase Boygues Telecom at the start of 2015 fell through.) Drahl believes that this broad spectrum of communications services will allow Altice to minimize costs and take advantage of synergy.

The Details On The Suddenlink Deal

As reported by the Wall Street Journal, the purchase of Suddenlink pegged the US company's value at 9.1 billion dollars. Altice purchased a 70 percent share of the company with a combination of cash and assumed debt. Suddenlink's prior owners, BC Partners and the CPP Investment Board, retain the other 30 percent of the company's stock.

Suddenlink provides cable television and broadband Internet services to 1.5 million subscribers spread throughout the southern and central United States. The company operates in 17 states in total, with most of its subscriber base distributed in Texas, Louisiana, Arkansas, West Virginia, and Arizona.

Next Steps For Altice

Based on its European track record, most cable industry experts are predicting a series of aggressive cost-cutting measures at Suddenlink as the new owners settle in. Altice has a history of ousting corporate executives and replacing them with its own people, which may prove less effective in the US than in Europe. Cost cutting will play favorably in the US cable market, though, where most companies are dealing with razor-thin profit margins.

Based on Drahl's public statements, his company's purchase of Suddenlink is almost certainly the prelude to further expansion in the US. Persistent and credible rumors are already spreading that Altice has its eye on Time Warner Cable, the second-largest cable provider in the United States.

Risks And Rivalries

A bid from Altice would add considerable interest to the already-busy fight over Time Warner. An attempted merger with Comcast fell through recently, and the latest domestic news indicates that Charter Communications, the country's number four cable company, is pursuing a merger with Time Warner itself.

Altice would have to move quickly to make a serious offer for Time Warner Cable. This might be beyond the resources available to the European company. Its current market capitalization is posted at 34 billion dollars, a full 11 billion dollars short of the value of Time Warner. While the Suddenlink deal illustrates that Altice is willing to use debt to finance aggressive purchases, there may well be limits to how much risk the fast-moving corporation is capable of assuming.

What Consumers Can Expect

It is unlikely that the new ownership situation at Suddenlink will cause any short-term changes to the service delivered to its subscribers. What will be interesting to see is how Altice's new blend of media companies alters the long-term American cable landscape. As noted above, Altice has invested heavily in bringing cable, Internet, and mobile phone service together under one umbrella. While packaging TV, Internet, and domestic phone service is already common in the US, adding cellular service into the mix would be a new variable. Only time will tell if Altice intends to bring this idea across the Atlantic.

Altice's arrival in the US cable market is not too surprising given the rapid changes that the industry is currently undergoing. The constant drive to consolidate and cut costs is considered vitally necessary thanks to the fact that consumers are relying on the Internet more and more to fill the entertainment niche once dominated by cable TV. The appearance of a new player in the US cable game will serve to keep the domestic contenders on their toes.