Altice USA’s recent acquisition of a regional fiber-optic broadband service provider helped offset organic customer losses in the second quarter, as revenue rose 1.7% to $2.52 billion and cash flow growth was flat at $1.1 billion in the second quarter. 

Altice said unique customer relationships were down by 12,000 in the period, but showed a gain of 23,000 unique customers when 35,000 subscribers from its most recent acquisition -- Morris Broadband -- is included. Altice USA purchased Morris broadband in April in a deal that valued the North Carolina company at $310 million. 

Organic broadband subscriber growth was flat in the period, but increased to a gain of 30,000 customers when Morris Broadband data was included. That compares to a gain of 70,000 broadband subscribers in the prior year. 

The same held  true for video customer losses -- down 48,000 organically in Q2, or 36,000 when Morris Broadband’s 12,000 video customers are considered. Altice USA lost 35,000 video subscribers in Q2 2020.

Also Read: Analysts Brace for Broadband Slowdown 

Residential revenue growth was spurred by a 7.8% rise in broadband sales and a 36.4% spike in News & Advertising revenue, supported by a strong recovery in local, regional and national advertising plus additional political advertising revenue from the New York mayoral and New Jersey  gubernatorial races.

At its Optimum Mobile service -- which was rebranded earlier this month  -- revenue rose 4% to $20.7 million as the company added 5,000 new customers. Optimum mobile ended the period with 180,000 customers, reaching about 3.8% of Altice USA’s residential customer base. 

Altice USA said that broadband-only customer usage averaged about 558 Gigabytes per month in Q2, a 26% increase and that the average broadband speed taken by customers has nearly doubled over the past three years to 316 Megabits per second in Q2. More than half of its broadband customers subscribe to speeds of 200 Mbps or less, representing an opportunity to upsell to faster service, the company said. 

Altice USA said it continues with its fiber-to-the-home upgrade plans, adding that at the end of the quarter it covered about 1.1 million homes with FTTH technology available for service. FTTH sell-in to new customers is at about two-thirds of net additions in areas where the technology is available, the company said.  Penetration of FTTH passings grew to 4.3% compared to 1.0% in Q2 2020. 

Altice said it also is moving forward with its edge-out program, adding 127,000 homes passed in the quarter (39k homes passed excluding Morris Broadband) and 315,000 homes passed in the past twelve months (160,000 homes passed excluding the acquisitions of Morris Broadband and Service Electric Cable T.V. of New Jersey). 

“As the states and businesses in which we operate have been reopening more widely, Altice USA has seen an acceleration in revenue growth led by advertising and business services,” CEO Dexter Goie said in a press release. “Our residential business remains extremely focused on achieving faster broadband customer growth going forward from a faster pace of footprint expansion and network upgrades including fiber. We are delighted to have announced recently the new Optimum Mobile brand as the first step in the company’s plan to align all its connectivity brands under one national Optimum brand, and we continue to invest in innovative new products such as Optimum Stream to support increased video streaming activity which is driving broadband data usage.”

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With the stroke of his pen, the maverick European telecom mogul Patrick Drahi cemented Altice’s U.S. foothold as the fourth-largest cable operator with a $17.7 billion, all-cash deal to purchase Cablevision Systems, one of cable’s oldest family-owned companies.

The Cablevision deal comes on the heels of Altice’s pending $9.1 billion purchase of Suddenlink Communications, a midsized operator with 1.2 million customers in the Southwest and Midwest. With Cablevision, Drahi’s Altice gets 2.7 million cable customers in the country’s largest market — metropolitan New York City, specifically the Bronx, parts of Brooklyn, Long Island, and parts of New Jersey and Connecticut — and overnight becomes the largest foreign owner of a U.S. cable MSO, with 4 million subscribers.

But Altice’s speedy ascension up the cable ranks — it had no U.S. presence six months ago — brings with it vast uncertainties. And while chairman Patrick Drahi believes he can better run a U.S. cable business by applying European cost disciplines, some analysts believe he will face big challenges.

“Six months ago, we were nonexistent,” Drahi said at the Goldman Sachs Communacopia conference, adding that the new company still has more room to grow.

“This is moving fast, but we’re not in a hurry,” Drahi said. “There are more opportunities to consolidate at these same prices.”

Most analysts agree that Cablevision could be the tip of the iceberg for Altice.

“In our view, clearly Altice is not done with its acquisition strategy, and this could include any telco assets not nailed down,” wrote Pivotal Research CEO and senior media & communications analyst Jeff Wlodarczak.

Critics immediately centered on the deal’s high price — it works out to about 9.5 times cash flow, not including synergies, and 6.1 times with synergies — and what many have said are unrealistic cost-cutting goals. Typical deals are in the range of 7 to 8 times cash flow.

In a blog post, MoffettNathanson principal and senior analyst Craig Moffett said squeezing $900 million in cost synergies from Cablevision could be a chore, especially since Charter Communications has said it will derive about $800 million in cost synergies in its merger with Time Warner Cable, a company about five times larger than Cablevision.

“Cost reductions like those won’t just mean cutting SG&A,” Moffett wrote. “It will mean slashing customer service; repair and maintenance; and sales and marketing (specifically, channel-mix optimization and back-office upgrades). It’s hard not to imagine that that might have at least some impact on market share.”

Altice is one of the most rapidly growing telecom companies in Europe. Based in the Netherlands, it spent about $28 billion on deals in 2014 alone. Altice has about 3.1 million cable customers in France and Israel and more than 20 million wireless customers across Europe.

Altice has managed to squeeze profits out of its businesses with a “slash-and-burn approach,” drastically reducing head count, eliminating what it says are unnecessary costs and aggressively negotiating contracts with suppliers.

Drahi said he also sees savings in electricity costs, by eliminating amplifiers in the network, and in shifting more of the sales function online.

“My model is to bring U.S. ARPU to Europe and the European expense to the U.S.,” Drahi said.

The recipe is simple, Drahi added — control excess costs and the cash flow will take care of itself.

Altice also sees cost-cutting opportunities in employee salaries. CEO Dexter Goei said more than 300 Cablevision employees make $300,000 per year or more.

“I understand that,” Goei said at the conference. “There’s a new sheriff in town. We will probably run things a little differently.”

Still, cost containment wasn’t Cablevision’s only problem. The company has been bleeding subscribers in the past few years after a strong period of growth in the early 2000s. According to Moffett, video subscriber losses in two key areas — the New York boroughs of the Bronx and Brooklyn — have accelerated to 6% and 8% in the past quarter, indicating that Cablevision’s competitive position against Verizon Communications’s FiOS TV is worse than it has been letting on.

Verizon chairman and CEO Lowell McAdam told CNBC’s David Faber last week that he welcomes Altice as a competitor, adding that while Drahi talks tough, he’s heard it before.

“Success in Europe or Asia doesn’t necessarily mean success in the U.S.,” McAdam told CNBC. “Our product, fundamentally, is superior when you have fiber into the home versus any of the DOCSIS products. We welcome them into the market.”

Drahi’s strategy hasn’t quite been solidified yet, but he hinted that higher prices for broadband and more flexible video packaging could be a path. “I think broadband is too cheap,” he said.

In a research note, Moffett said that higher broadband prices may be the only way Altice can offset video losses.

“Verizon’s FiOS brand managers must be licking their chops,” Moffett wrote.