Author Topic: In France, Entrepreneur Drahi Follows Malone's Cable Path  (Read 8243 times)

Liberty

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #10 on: March 06, 2015, 07:16:40 AM »
I think that in the future cable will be worth a lot less than it is now. So I think using tonnes of cheap debt to buy up overpriced cable companies is basically like pressing the accelerator on a car when you know you are heading towards a dead-end. I don't think its smart.

Maybe we are all a little too impressed by  John Malone. He was pretty good at getting companies to overpay for acquiring his rolled-up cable assets. That trick might not work in the future.

Why do you think it will be worth a lot less than it is now?


rukawa

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #11 on: March 06, 2015, 09:13:09 AM »
Quote
Why do you think it will be worth a lot less than it is now?

Because I think cable companies are going to turn into utilities. Dumb pipes. Consumers are not going to pay a lot for dumb pipes. And regulators won't let them extract wealth from content providers. For example, John Malone used to use TCI monopoly power to extract equity stakes in various television networks like BET. But how are you supposed to do that now when regulators are pushing concepts like Net Neutrality.

The internet is what is driving this. On top of this I also think John Malone made the cable industry seem much better than it really is. He pushed analysts to focus on cash flow which makes little sense for cable companies where depreciation is a huge cost. He somehow got acquirers to buy his cable networks for much more than they were worth. And he exhorted a lot of upside from emerging cable networks when TCI was the only game in town. All those games are going to be much harder in the current environment that they were in the past.

Maybe I'm wrong but I feel that a lot of people are essentially extrapolating what John Malone did in the past to the present. I know I was. Thus they look at someone like  Drahi and all they see is John Malone. And I think that is a mistake.

Liberty

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #12 on: March 06, 2015, 09:25:52 AM »
Quote
Why do you think it will be worth a lot less than it is now?

Because I think cable companies are going to turn into utilities. Dumb pipes. Consumers are not going to pay a lot for dumb pipes. And regulators won't let them extract wealth from content providers. For example, John Malone used to use TCI monopoly power to extract equity stakes in various television networks like BET. But how are you supposed to do that now when regulators are pushing concepts like Net Neutrality.

The internet is what is driving this. On top of this I also think John Malone made the cable industry seem much better than it really is. He pushed analysts to focus on cash flow which makes little sense for cable companies where depreciation is a huge cost. He somehow got acquirers to buy his cable networks for much more than they were worth. And he exhorted a lot of upside from emerging cable networks when TCI was the only game in town. All those games are going to be much harder in the current environment that they were in the past.

Maybe I'm wrong but I feel that a lot of people are essentially extrapolating what John Malone did in the past to the present. I know I was. Thus they look at someone like  Drahi and all they see is John Malone. And I think that is a mistake.

Thanks for explaining your point of view.

Saying that cable won't be as profitable because of net neutrality and the "dump pipe" effect implies that it is a good business right now because they are non-neutral on internet content or whatever. I don't think that's the case.

Europe has a friendlier regulatory environment to cable than the US, mostly because there's more competition and regulators have seen cable companies invest heavily in taking speeds up, but even in the US where the FCC recently went a lot farther than many even expected, they are not touching rates. If they had capped rates and how much pricing cable could take, maybe that would be a problem, but I doubt that regulators want to risk making a big piece of the US internet infrastructure uncompetitive.

Cable companies aren't making much right now by charging some companies more for faster lanes or whatever, so if they are barred from doing that at all, it won't change much.

As for dumb pipes, I don't know. What's the opposite of a dumb pipe in this scenario?

I think video might lose a bit of ground, though the switch to all-digital is allowing cable to compete with satellite (the huge growth that nationwide DBS operators had took place in a certain context that is changing) and frees up a lot of bandwidth for broadband without new capex on that side, and broadband is making up for losses in video and can potentially be very profitable over the cycle because most of the revenue doesn't go to content producers the way most of the video bill does. Also, the ability to do triple and quad play reduces churn a lot, which is one of the main things for profitability; competitors mostly can't offer 3-4 play. And OTT video might compete with the video bundle, but it makes broadband more attractive.

Depreciation is a real cost, which is why free cash flow, which takes into account maintenance capex, is the right measure. But when Malone argued for the switch to EBITDA, it made a lot more sense than GAAP earnings (which is what people were looking at for cable companies at the time), because optimizing for GAAP meant paying a lot of taxes and growing a lot slower through acquisition at a time when consolidation made sense.

Separating the underlying economics from the capital structure for analysis isn't a bad idea, because it's a lot easier to change the capital structure than the underlying business. You just have to make sure you aren't fooling yourself about what you're looking at.
« Last Edit: March 06, 2015, 09:44:27 AM by Liberty »

JoelS

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #13 on: May 19, 2015, 02:44:13 PM »
http://www.wsj.com/articles/altice-in-advanced-talks-to-buy-cable-company-suddenlink-1432064782

"Altice SA is in advanced talks to acquire U.S. cable company Suddenlink Communications, a move that would mark a major cross-border expansion for the deal-hungry French telecommunications group."

JoelS

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #14 on: May 19, 2015, 05:46:45 PM »
"Separately, Altice is eyeing Time Warner Cable Inc., the No. 2 U.S. cable operator by subscribers, people familiar with the situation said. Altice has made initial contact with TWC."


Phaceliacapital

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #15 on: May 20, 2015, 05:19:09 AM »
Very interesting events, you don't often see such cross border activity.
The harder you work, the luckier you get.

VersaillesinNY

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #16 on: June 21, 2015, 09:07:40 AM »
The unstoppable man...

Drahiís SFR Said to Bid $11 Billion for Bouygues Telecom

http://www.bloomberg.com/news/articles/2015-06-21/drahi-s-sfr-said-to-bid-over-11-billion-for-bouygues-telecom-ib6ccao7

peter1234

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Re: In France, Entrepreneur Drahi Follows Malone's Cable Path
« Reply #17 on: June 21, 2015, 12:25:57 PM »
A billion here, a billion there, and soon you will be talking real money ... ;)

VersaillesinNY

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