NEW YORK (Reuters) - Cable and communications company Altice NV is battling subscriber losses and investor impatience on its home turf in Europe, raising concerns it could have a lot on its plate as it gears up to acquire Cablevision Systems Corp and Suddenlink Communications Inc [CQUELS.UL] in the United States.
On Wednesday, Altice reported worse-than-expected third-quarter results, sending shares down 10 percent. Executives said they have raised spending on marketing to acquire customers and will continue at that level in coming quarters.
Investors are worried that Altice’s French telecom unit Numericable Sfr PA has been losing mobile customers as it aggressively trims costs. Altice executives attribute defections to poor network quality, which they inherited from the Numericable Sfr acquisition and say they are addressing.
Cost cuts are at the heart of Altice’s plan in the United States, where it will become the No. 4 cable operator if regulators approve the Cablevision and Suddenlink deals.
“One of the dangers is that they don’t just cut the fat out but also the meat and bones and that has negative consequences,” said Roger Entner, analyst at Recon Analytics. “That’s part of what we see in Europe: the savings came first immediately and now the churn (or customer defection) goes up.”
Altice declined to comment.
Altice shares are down over 40 percent since it announced its plans to acquire Suddenlink in May. Since Altice announced its U.S. plans, it has said it will slow acquisitions to focus on operations and debt markets it relies on to fund deals have tightened.Altice aims to wring $900 million in savings from the Cablevision deal and $215 million from Suddenlink, saying it can take margins close to European levels.
MoffettNathanson analyst Craig Moffett said there was room to trim U.S. spending but that Altice was taking it to an extreme. “You’re talking about huge cuts to customer service levels to installation and maintenance costs to marketing and promotions. You can’t expect to be able to make dramatic cuts... without having an impact on the business.”
Altice executives have said on analyst calls that they are confident about achieving U.S. cost-cutting goals. A source close to the company said concerns about U.S. cost cutting were unfounded since the U.S. cable business was different from the combined fixed and mobile business in Europe.
U.S. executives also are divided about Altice’s longer-term ambition of offering bundles of home Internet and phone, mobile phone and TV, a so-called “quad play.” In the United States, it has said it aims to buy up more cable companies and perhaps a wireless provider to offer quad-play bundles.
That may be some time: Altice Chief Executive Officer Dexter Goei this week said the company was focusing on operations and integrating the U.S. business after a period of intense merger and acquisitions.
Still, Time Warner Cable Inc CEO Robert Marcus said on a Thursday earnings call that he was not convinced about the potential for such bundles in the United States.
In Europe there is “a complete overlap of footprints of wireless and wireline providers,” but not in the United States, Marcus said.
Executives at wireless company AT&T Inc, which acquired satellite TV-provider DirecTV in July, have said quad play bundles are an area of growth. And the No.1 U.S. cable operator Comcast Corp plans to test wireless services, acting on a wireless plan agreement with telecom provider Verizon Communications Inc.
Verizon has been divesting fixed line assets and believes customers do not want larger bundles. It is focusing on building its mobile offerings. “Americans simply aren’t clamoring for bigger, more complicated and intertwined television and communications services,” said Tami Erwin, president of Verizon’s FioS business that sells TV, Internet and telephone services.
Reporting by Malathi Nayak; Editing by Lisa Shumaker