Altice USA shares fell as much as 16% in early trading Thursday, after CEO Dexter Goei said broadband subscribers would be down by as much as 15,000 to 20,000 customers in the third quarter.

Shares in the New York-based MSO were trading as low as $21.21 early Thursday, down 16% or $4.05 per share. The stock closed at $22.06, down $3.20 or 12.7% each on Sept. 23.

Some analysts had expected Altice USA to add about 22,000 broadband customers in Q3, down from the 26,000 it added in the same period last year but higher than the 15,000 it added in Q3 2019. Other cable operators have said that they expect broadband growth to slow in Q3, as the positive customer growth effects tied to the pandemic begin to wane. 

At the Goldman Sachs Communacopia conference Thursday, Goei said that high-speed internet customer additions would be negative. 

“Our numbers are going to be negative coming into Q3 in terms of internet adds, probably to the tune of 15,000 to 20,000, which gets us to a trend of being flattish to slightly up for the year,” Goei said, adding that the operator averaged about 72,000 internet adds in 2018 and 2019 and 145,000 additions last year. “If we are flattish to slightly up this year, we’ll be breakeven over the last four years. That is disappointing.”

Also Read: Analyst Makes Case for Altice USA to Go Private 

Goei said that lower than expected gross adds, the result of “underwhelming” back-to-school performance in its markets in late August and into September, was the main culprit for the negative broadband additions. But the CEO is hopeful that new efforts launched at the beginning of September, like increasing the speeds of its Altice Advantage Internet product to 50 Megabits per second (a 65% boost), renaming it Optimum Advantage and keeping its price point at $14.99 per month, will boost subscriber rolls. In July, Altice said it would rebrand its Altice Mobile product as Optimum Mobile, the first step in aligning all of its brands under the Optimum name. 

Also Read: Analysts Search for Meaning in Altice USA Leadership Change 

“These are getting some traction,” Goei said. “We are hopeful that in Q4 we’ll see back-to- normalized trends and positive net adds and we continue to be very, very focused on increasing our investment in the network and our distribution channels.”

Goei also commented on the recent departure of chief operating officer Hakim Boubazine, adding that the executive had a long successful history with the company, but that it was time for a change. Boubazine said earlier this month that he would step down at the end of the year, and in the meantime would serve as a special adviser to the company. Goei would take on his duties in addition to those of CEO. 

Goei said despite Boubazine‘s success in the past, operating trends have been “a little underperforming” over the past few years. He added that the change will help the company execute more quickly on its goals, as well as allowing the organization to react to change in a more flexible way. 

“We thought it was a good time to make that change,” Goei said. “Me coming in really helps flatten the organization, allows people to have a lot more say in their opinions and it rises quickly to my attention and be able to react in a much more flexible way. The tenets and the foundations of what we want to do remain the same. … The buck will stop with me.” 

Altice USA chief operating officer Hakim Boubazine‘s decision to resign from the company last week had some media analysts searching for hidden meaning, with Bernstein’s Peter Supino doubting that CEO Dexter Goei, who will take over Boubazine’s duties, can right the ship while concluding the company, often seen as a takeover target, is undervalued.

Boubazine, who has run several businesses for Altice N.V. founder and chairman Patrick Drahi over the years, and joined Altice USA shortly after Drahi first entered the U.S. cable market in 2015, resigned unexpectedly on Sept. 9, agreeing to stay on in an advisory role through the end of the year. In a press release, Altice USA said Goei will assume Boubazine’s duties, in addition to his own as CEO, immediately. 

In a research note, Supino wrote that Boubazine’s departure is significant because he ran so many parts of the business. According to its website, Boubazine was in charge of product, marketing, technology, engineering, and operations functions as COO. His departure also comes at a time when Altice USA has “badly underperformed” its peers, according to Supino, adding just 8,000 organic broadband customers over the past three quarters. 

“Operational trouble seems to run deeper,” Supino wrote, adding that analysts’ consensus cash flow forecasts for Altice USA began declining in 2018, and in the second half of 2019, the company struggled with its OSS/BSS transition and the launch of its wireless service, Altice Mobile. 

Supino also saw problems with Altice USA’s marketing decisions, adding that he found it “odd” that the company focused on price maximization in 2019 through the roll out of its “Price for life’” campaign.

More recently, the company decided to rebrand Suddenlink as Optimum because ”(in our assessment) Suddenlink is loathed by too many consumers and not because Optimum is known to any of them,” Supino wrote.  

Adding to the pressure is that Altice USA stock is down about 24% year-to-date, and there are some doubts as to how effective Goei, an investment banker by training, will be in running the telecom side of the business.

“With roots in investment banking, we are not convinced that Goei has the background to solve Altice’s operational problems,” Supino wrote. But the analyst still recommended the stock, not necessarily because he sees a turnaround — although he called Goei an “energetic leader with an enormous stake in the company” — but because he expects Altice USA to be a takeover target. 

“While our most important 2H21 estimates remain below consensus, we continue to recommend ATUS because we believe the business is structurally sound, under-valued, and strategically appealing to several larger, acquisitive companies,” Supino wrote.

Altice USA has been tossed around as a potential takeover target ever since it came on the scene. With attractive assets in the New York metro area — mainly the Bronx, Staten Island and New Jersey and Connecticut systems it purchased from Cablevision Systems in 2016 — Altice USA could fit well with Charter Communications and Comcast, each of which have substantial assets in those markets. Suddenlink systems in the Midwest could be seen as attractive to operators like Cox Communications and Cable One.

In a research note earlier this month, MoffettNathanson principal and senior analyst Craig Moffett made the case for taking Altice USA private, pointing to its declining share price and undervalued assets. In that report Moffett opined that Altice USA could sell off its Suddenlink systems for around $22.7 billion and take its Optimum unit private for about $10.8 billion. 

So far Altice USA has been a buyer not a seller, doing mainly small deals like its purchase of Service Electric Cable of NJ in July 2020 for $150 million, and its April buy of North Carolina fiber company Morris Communications for $310 million. 

Also Read: Altice and Cogeco: He’s Just Not That Into You 

Last year Altice USA made its biggest M&A splash, teaming up with Rogers Communications in an $8 billion bid for Canadian operator Cogeco Communications and its U.S. cable unit Atlantic Broadband. That bid, where Altice would acquire Atlantic Broadband and Rogers would take the rest, was soundly rejected by Cogeco, and the unsolicited bid was abandoned in November 2020. 

Altice USA said chief operating officer and president of telecommunications Hakim Boubazine has resigned, and that CEO Dexter Goei will assume direct responsibilities for the company's telecom unit in addition to his other duties, effective immediately. 

Boubazine will serve as a senior adviser to the CEO until Dec. 31.  

In a press release, Altice USA said it has a seasoned telecom team already in place that will now report directly to the CEO.

“It has been a pleasure to work with Hakim, and I want to thank him for the critical role he has played over the last six years at Altice USA,” Goei said in a press release. “We appreciate the time he will serve as a senior advisor and wish him much success in his future endeavors.”

Boubazine has been with Altice USA since 2015 when it was formed via the combination of Cablevision Systems and Suddenlink Communications. He previously served as CEO of sister company Altice Dominicana, where he oversaw TV, broadband and mobile operations with more than 4 million customers in the Dominican Republic. Prior to that, he was CEO of a European telecom company that specialized in the design, construction and operation of cable and fiber networks in France, Belgium, Luxembourg, and the French West Indies. Before joining the telecom business, he spent more than a decade in the oil and gas industry. 

“Working at Altice USA has been one of the most rewarding experiences in my career, and I could not be prouder of what we accomplished together,” Boubazine said in the press release. “I am grateful for the opportunity to serve such an innovative, entrepreneurial, and inclusive organization, and I want to thank Patrick Drahi and Dexter for their trust over the years. I have the utmost confidence in the entire Altice USA management team for achieving future success.”

Comcast’s X1 has received much attention as the prototype for modern, advanced video delivery systems that incorporate cloud DVR, voice control and WiFi management and, in the process, reduce churn.

But more quietly, since it first debuted in January 2018, Altice USA’s Altice One platform has carved out a similar success story, downsizing the cable operator’s video churn for the last six quarters while simultaneously spurring broadband growth.

During Altice USA’s second-quarter earnings call, CEO Dexter Goei called the launch of Altice One, which incorporates set-top, cable modem and WiFi router functions, to be “a very, very strong success.”

Indeed, video attrition during the period was 21,000 subscribers, down from 24,000 in the second quarter of 2018, despite cord-cutting levels reaching a record high for the broader pay TV industry. Broadband net additions were 13,000 vs. 10,000 in the second quarter of 2018.

Average revenue per user is also substantially higher in homes with Altice One, the company said, while not citing specific data.

The metrics are impressive, considering only about 400,000 Altice USA customers have the Altice One system. That’s 13% of the company’s base, up from 4% infiltration in the second quarter of last year.

Three Le Boxes in One

Blending hardware from Sagemcom, silicon from Broadcom, content security from NAGRA and transcoding services from Cisco Systems, Altice One combines advanced TV search and discovery, as well as cloud DVR and voice control, along with integration of key digital services, notably Netflix and YouTube, with more OTT services on the way. There are WiFi optimization and control features. New offshoots have been added, such as an Alexa-powered smart speaker.

RELATED STORY: Altice's Model Behavior

When European telecom conglomerate Altice suddenly swooped in and acquired U.S. cable companies Suddenlink Communications and Cablevision Systems in 2015, there hadn’t been a lot of recent investment in terms of advanced user interfaces and various other modern pay TV features across the two companies, Altice USA co-president and chief operating officer Hakim Boubazine said.

Indeed, Cablevision lost around 5% of its video customers from Q2 2014 to the second quarter of 2015, a time when cord-cutting was a thing, but not nearly as robust as it is today. The attrition wasn’t much better at Suddenlink. The technology and user experience were being overwhelmed by the many new ways to consume video in the marketplace.

“The [Altice One] platform has helped us transform the user experience,” Boubazine said, noting that the mere modern look of the CPE, which contains no ’90s-era “bulky remote control,” has been a key selling point that allowing Altice USA to tap into younger consumer segments.

Currently, Altice One — now on version 3.0 of its operating system — is available across Altice’s Optimum footprint, as well as the portion of the Suddenlink footprint that offers 1 Gigabit-per-second broadband services.

Despite its success, Altice One isn’t hoisting heavy promotion of the platform. It is offered to new customers, those who are moving their service and, notably, those who are seeking to ditch their pay TV service because they want something better. “We use it a lot as a retention play,” Boubazine noted.

Boubazine didn’t disclose how much Altice USA is paying per truck roll to install Altice One. The platform requires technicians to wire up only one device instead of a video set-top, modem and WiFi router.

“The installation process is actually super simple and that allows our technicians to spend more time explaining the features and functions,” he said.

Despite that simplicity, installing new CPE into homes isn’t cheap, and Altice USA has a lot of other places to focus its cash flow — most notably on building out its fiber network and wireless infrastructure.

Expect deployment of Altice One to keep crawling along rather than getting up to sprint anytime soon.

White-Label Opportunities?

Boubazine was also asked if Altice USA has considered a white label licensing strategy for Altice One, similar to how Comcast licenses X1. Notably, Cox Communications repackages X1 as Contour. Canada’s Rogers Communications, Shaw Communications and Vidéotron do largely the same thing.

“We have looked into it, but cable operators use so many different [back-end systems] and those have to be aligned [with Altice One],” Boubazine said. “We decided it was better to focus on our own company.”

Boubazine also said that Altice One is decidedly a child of the Cablevision and Suddenlink mergers.

During its gestation, Altice One was called “Le Box,” and was reported as a technological offshoot of Altice CPE systems already deployed in Europe. But Altice One resembles Le Box only in form factor. The “guts” of the system, Boubazine said, were almost entirely developed by Altice engineers stateside.

“As we acquired Cablevision and Suddenlink, we realized that we inherited some of the finest engineers in the industry,” he said, noting the core contribution of these technologists to the platform.

As it surveyed its U.S. cable assets way back in 2015, four years before its launch of Altice Mobile, Altice was focused, Boubazine said, on the concept of cable wireline and wireless convergence. For Altice USA, that means seamlessly blending WiFi and cellular access for customers. Altice is now in the process of building out that cellular piece. But the deployment of Altice One has been a key step in improving the WiFi aspect.

“And Altice One was the most urgent piece,” he explained, noting the platform’s ability to extend WiFi range in homes up to 40%.

Finally, Boubazine noted that Altice One is able to work across multiple encryption access systems, saving the need for the company to build three different pieces of CPE for three different types of backends.

“It’s the finest piece of engineering I think we have,” Boubazine said.

Comcast’s X1 has received much attention as the prototype for modern, advanced video delivery systems that incorporate cloud DVR, voice control and WiFi management and, in the process, reduce churn.

But more quietly, since it first debuted in January 2018, Altice USA’s Altice One platform has carved out a similar success story, downsizing the cable operator’s video churn for the last six quarters while simultaneously spurring broadband growth.

During Altice USA’s second-quarter earnings call, CEO Dexter Goei called the launch of Altice One, which incorporates set-top, cable modem and WiFi router functions, to be “a very, very strong success.”

Indeed, video attrition during the period was 21,000 subscribers, down from 24,000 in the second quarter of 2018, despite cord-cutting levels reaching a record high for the broader pay TV industry. Broadband net additions were 13,000 vs. 10,000 in the second quarter of 2018.

Average revenue per user is also substantially higher in homes with Altice One, the company said, while not citing specific data.

The metrics are impressive, considering only about 400,000 Altice USA customers have the Altice One system. That’s 13% of the company’s base, up from 4% infiltration in the second quarter of last year.

Three Le Boxes in One

Blending hardware from Sagemcom, silicon from Broadcom, content security from NAGRA and transcoding services from Cisco Systems, Altice One combines advanced TV search and discovery, as well as cloud DVR and voice control, along with integration of key digital services, notably Netflix and YouTube, with more OTT services on the way. There are WiFi optimization and control features. New offshoots have been added, such as an Alexa-powered smart speaker.

RELATED STORY: Altice's Model Behavior

When European telecom conglomerate Altice suddenly swooped in and acquired U.S. cable companies Suddenlink Communications and Cablevision Systems in 2015, there hadn’t been a lot of recent investment in terms of advanced user interfaces and various other modern pay TV features across the two companies, Altice USA co-president and chief operating officer Hakim Boubazine said.

Indeed, Cablevision lost around 5% of its video customers from Q2 2014 to the second quarter of 2015, a time when cord-cutting was a thing, but not nearly as robust as it is today. The attrition wasn’t much better at Suddenlink. The technology and user experience were being overwhelmed by the many new ways to consume video in the marketplace.

“The [Altice One] platform has helped us transform the user experience,” Boubazine said, noting that the mere modern look of the CPE, which contains no ’90s-era “bulky remote control,” has been a key selling point that allowing Altice USA to tap into younger consumer segments.

Currently, Altice One — now on version 3.0 of its operating system — is available across Altice’s Optimum footprint, as well as the portion of the Suddenlink footprint that offers 1 Gigabit-per-second broadband services.

Despite its success, Altice One isn’t hoisting heavy promotion of the platform. It is offered to new customers, those who are moving their service and, notably, those who are seeking to ditch their pay TV service because they want something better. “We use it a lot as a retention play,” Boubazine noted.

Boubazine didn’t disclose how much Altice USA is paying per truck roll to install Altice One. The platform requires technicians to wire up only one device instead of a video set-top, modem and WiFi router.

“The installation process is actually super simple and that allows our technicians to spend more time explaining the features and functions,” he said.

Despite that simplicity, installing new CPE into homes isn’t cheap, and Altice USA has a lot of other places to focus its cash flow — most notably on building out its fiber network and wireless infrastructure.

Expect deployment of Altice One to keep crawling along rather than getting up to sprint anytime soon.

White-Label Opportunities?

Boubazine was also asked if Altice USA has considered a white label licensing strategy for Altice One, similar to how Comcast licenses X1. Notably, Cox Communications repackages X1 as Contour. Canada’s Rogers Communications, Shaw Communications and Vidéotron do largely the same thing.

“We have looked into it, but cable operators use so many different [back-end systems] and those have to be aligned [with Altice One],” Boubazine said. “We decided it was better to focus on our own company.”

Boubazine also said that Altice One is decidedly a child of the Cablevision and Suddenlink mergers.

During its gestation, Altice One was called “Le Box,” and was reported as a technological offshoot of Altice CPE systems already deployed in Europe. But Altice One resembles Le Box only in form factor. The “guts” of the system, Boubazine said, were almost entirely developed by Altice engineers stateside.

“As we acquired Cablevision and Suddenlink, we realized that we inherited some of the finest engineers in the industry,” he said, noting the core contribution of these technologists to the platform.

As it surveyed its U.S. cable assets way back in 2015, four years before its launch of Altice Mobile, Altice was focused, Boubazine said, on the concept of cable wireline and wireless convergence. For Altice USA, that means seamlessly blending WiFi and cellular access for customers. Altice is now in the process of building out that cellular piece. But the deployment of Altice One has been a key step in improving the WiFi aspect.

“And Altice One was the most urgent piece,” he explained, noting the platform’s ability to extend WiFi range in homes up to 40%.

Finally, Boubazine noted that Altice One is able to work across multiple encryption access systems, saving the need for the company to build three different pieces of CPE for three different types of backends.

“It’s the finest piece of engineering I think we have,” Boubazine said.

About four years ago, Altice USA was being mocked by seasoned cable watchers who doubted the company’s plans to shave about $900 million in costs out of an already lean business, employing what its former French parent Altice N.V. (now Altice Europe N.V.) called a European-style cost discipline to the business.

Since buying Suddenlink Communications for $9.1 billion in late 2015 — and Cablevision Systems for $17.7 billion less than a year later — Altice USA has managed not only to meet those cost-cutting targets, but exceed them. Along the way its stock, which had languished well below its $30-per-share June 2017 initial public offering price as investors continued to be skeptical, soared by more than 75% so far this year, which could put the operator back in the hunt for more cable properties. In the meantime, Altice USA, the Multichannel News 2019 Distributor of the Year, has reduced year-over-year video customer losses for six straight quarters and boosted broadband subscribers.

This month, it launched its own wireless offering, Altice Mobile, at a price that is less than half that of its cable peers and nearly one-third less than its competition.

Defying the Skeptics

Analysts, many of whom highly doubted Altice’s ability to survive in the cutthroat U.S. cable business, are now singing the company’s praises.

“I have to admit that I was among the skeptics and I’ve been proven wrong,” said MoffettNathanson principal and senior analyst Craig Moffett. “They’ve done everything they said they were going to do and there’s no evidence that their service delivery has been compromised in any way. Most of their quality scores are trending in the right direction. They are to be commended. They’ve done an exceptional job managing those assets.”

RELATED STORY: Altice One Burns the Churn

The numbers back up that assessment. In the second quarter, Altice USA reported revenue and cash-flow growth of 3.7% and 7.3%, respectively. Video subscribers fell by 21,000, better than the 24,000 it lost in the same period last year and the sixth straight quarter of year-over-year improvement. Four years into the company’s grand experiment, it appears Altice’s European approach is working in the USA.

Altice USA CEO Dexter Goei said what was considered to be a radical way to run a cable company four years ago was merely Altice’s normal way of doing business.

Altice N.V., a Netherlands-based cable, telecom and wireless service provider (its top markets are in France, Israel and Portugal) burst on the domestic cable scene in surprising fashion. It purchased Suddenlink Communications in late 2015 after emerging as a potential competing bidder to Charter Communications for Time Warner Cable. After Charter won that contest, Altice turned its attention to Cablevision Systems.

Altice N.V. split from Altice USA in June 2018, creating Altice Europe, housing the European telecom, cable and wireless assets, and Altice USA, the domestic cable business. Both companies, although separate, are controlled by Altice founder Patrick Drahi, who also serves as chairman of both Altice Europe and Altice USA.

Goei said that in studying the U.S. market, he was surprised to see how low operating margins were for cable operators compared to their European counterparts. One of the things that intrigued the company was that EBITDA minus capex numbers — considered a strong measure of a company’s profitability — were consistently in the 15% to 20% range, with 30% EBITDA margins and 15% to 20% capex margins, while in Europe Altice was operating similar businesses in the 30% range (50% EBITDA, 20% capex). The excuse given for the low range for cable operators had always been higher programming costs, but even when those expenditures were removed, nonprogramming operating expenses (a phrase Altice says it coined) were five to seven times higher than what Altice was experiencing in some of its European markets.

“That is purely an efficiency issue and a technology choice decision in terms of the pace you’re investing and the products you’re investing in,” Goei said.

Margin Walkers

Today, Altice USA’s operating margins are among the highest in the industry and, in the second quarter, they reached 44%, up from 36.2% in second-quarter 2016.

To put that in perspective, cash flow margins at the much bigger Comcast and Charter Communications were 40.5% and 36.9%, respectively, in Q2.

“They still have plenty of runway left for higher margins as the mix shifts more and more toward broadband,” a profitable product, Moffett said. In a research report after Altice’s Q2 results, Moffett said margins could approach 50% in the next few years.

On a conference call with analysts to discuss Q2 results in July, Altice USA co-president and chief financial officer Charles Stewart said that, except for mobile losses of about $5 million in the quarter, margin growth at 44.2% was about 800 basis points better than when Altice closed the Cablevision purchase three years ago, and 170 basis points better than last year alone.

“That substantial margin improvement as we often discussed is supporting higher investments in all of our growth initiatives and as always, we’ll continue to look for ways to optimize our cost structure,” Stewart said on the call. “Further, the mindset in our efficiency practices are really ingrained in the company’s culture at this point.”

Altice USA has focused on broadband growth, like its peers, adding about 13,000 high-speed internet customers in Q2 to reach about 4.2 million broadband customers across its footprint. Unlike some other cable companies, it also still has a keen eye on video.

Moffett said Altice seems more committed to video than its peers do. That seems to fly in the face of the current business model, which favors broadband over lower-margin video. Cable One, which has the highest cash-flow margins in the industry at 47%, has lost nearly 25% of its video customers over the past four years and has not suffered financially. As more and more consumers stream video, other operators are starting to follow suit.

“I never would have thought we’d see the day when Altice seems more committed to video than Comcast does, whether that’s a function of the unique demographics in their footprint, or simply a different perspective on the role video pays in the bundle,” Moffett said. “You certainly can’t pretend that they don’t fully understand the argument. They just apparently don’t agree. They still think video is extremely important and worth defending with real energy.”

Goei has a fairly simple explanation: Altice still likes the video business.

“It all kind of peels together because our mindset is, this still is a profitable business,” Goei said. “Let’s make it more profitable than it is with the tools that we have.” He said he isn’t sure that Altice USA will continue to show year-over-year improvement on the video customer side, but he believes it will do better than its peers.

Scale is the Answer

Margin help could come by getting bigger through acquisitions, something that was a hallmark of its former European parent, now called Altice Europe N.V., in the earlier part of the decade. Altice N.V. spent about $30 billion on acquisitions in 2014 alone, but that has been put on the back burner as the company focused on shoring up its U.S. cable business. Now, with a healthy stock price — shares were priced at $28.89 on Sept. 11, up 75% for the year — Altice USA has a currency with which to seek out deals.

“I think about it every day,” Goei said of increasing scale. “The premise was always very difficult for us in the last 18 months because our stock price wasn’t there. We’re up [75%] to date; Charter is up [50%]. We’re starting to narrow the gap in valuation with our peers. And so we’re going to continue to see if we can continue to narrow that gap, to make at least the discussion with anyone out there — whether it be a Charter, a Cox, a Mediacom, a Cable One or even some of the overbuilders — a proper valuation discussion based on proper numbers.”

With about 4.2 million broadband and 3.3 million video customers, Altice USA is still a distant third behind Comcast’s Xfinity (22.1 million video customers and 26.5 million high-speed internet subscribers) and Charter’s Spectrum (15.8 million video and 24.2 million broadband subscribers).

Altice USA is also two distinct companies in one. Suddenlink is in mostly secondary markets in the South, West and Midwest; Optimum (the former Cablevision footprint) is in the largest media market in the country, the New York metropolitan area. Suddenlink’s broadband penetration is in the 30% range while Optimum’s hovers around 70%.

Goei makes no predictions about how the cable landscape will shake out, but he said as the wireline and mobile businesses converge, so too may cable operators and wireless providers.

Outside of outright purchases, Goei sees a near future in which cable operators and wireless companies band together to build out networks in competitors’ territories — for example Charter and Verizon pairing up to build out residential footprint in Comcast territory.

“That’s where it’s going to end up, because the bigger you are with both infrastructures, it’s going to allow you to spend a lot more money to go after more customers and deliver a better experience,” Goei said. “We’d love to be part of that equation. We’re too small today. We don’t know how it will pan out, but I can’t believe we’re going to be in the same situation in five years.”

How Altice USA will fit into that future has yet to be determined. In the meantime, the company will continue to roll out products and services geared to increasing its reach, including on the video side, where Goei said a large portion of its customer base — especially in the New York tri-state area for its Optimum branded product — continue to be heavy users of video. The company realized early on that a focus on customer service and the customer experience would help preserve the base, he added.

That led to heavy investments in the Altice One platform, the fiber-to-the-home build, and its investment in programming like business-news streaming service Cheddar, he said.

Altice purchased Cheddar in April for about $200 million, folding that operation into Altice News, which includes its News 12 hyperlocal news channels and international news network i24 News. Altice News is headed by Cheddar founder Jon Steinberg, who reports to Stewart. Stewart also heads up Altice’s advertising unit, a4.

While news programming may keep customers glued to their sets for awhile, Altice also made a bold customer service move last month with its “Price for Life” campaign, offering new customers 200 channels of video and a 200 Megabits per second internet service for $64.99 per month (not including taxes and charges) for as long as they remain a subscriber. For customers who want more video and internet, “Price for Life” has three other tiers: Select, with 340 channels and 200 Mbps internet for $74.99; Core TV with 220 video channels and 400 Mbps for $84.99; and Premier TV with 420 channels (including premium channels HBO and Showtime) and 200 Mbps for $94.99.

The idea is that a Price for Life offer will strengthen customer loyalty. The upside is that, after a certain amount of time, customers will most likely upgrade to higher-priced broadband speeds.

“When you give someone the peace of mind that he will have that price and that package for as long as he lives, he will never churn,” Goei said. “He will never even call, probably. He’s just happy.”

All About the Network

But a video service, and a broadband offering for that matter, is only as good as the network it runs on. In 2017 Altice embarked on a five-year plan to bring fiber-to-the-home to its customers, called Generation Gigaspeed. To date, Altice has about 1 million homes in its footprint passed by fiber and expects to add another 1 million homes next year.

“The network is the foundation of everything we do,” Altice USA chief operating officer Hakim Boubazine said.

Perhaps the highest profile product to come out of the rebuild has been Altice’s in-home communications hub, Altice One (see Platforms). It launched in 2017 and has gone through three different versions. Altice One 3.0 was released in May and is a version the COO is especially proud of.

“We nailed it,” Boubazine said. “We have a great device that’s simple to install, simple to use, has a great UI which is very engaging and now we’re aggregating services.”

One of the more popular aspects of that version was a Sports Hub, a feature that allows customers to get an overview of games taking place within 48 hours of their original airing and the ability to select a customized view for their favorite teams. Even though the product was launched when baseball season was already underway and football had not yet started, “tens of thousands” of customers signed up their teams.

“They saw the app and went straight to booking their favorites to get ready for the season,” Boubazine said. “That’s great, because having that cloud-based platform that we can modify at will remotely helps us deliver what is the most important factor whenever you come up with an innovation — to create a ‘wow’ effect right out of the gate.”

As the fiber build progresses, Boubazine said the plan is to leverage the network even more and eventually move to a “headless architecture,” which he said essentially eliminates the need for internal wiring. Eventually, he sees a day where pay TV distributors serve more as content aggregators, where they make apps for specific programmers available in a package for a fee.

“When we architected the Altice One platform, we had that in mind, because we knew at some point those guys would come,” Boubazine said. “What happens whenever a market passes the threshold of fragmentation? It consolidates somehow. We are there.”

Boubazine doesn’t believe that consolidation will happen through M&A, but through platforms. The company with the most powerful platforms and relationships wins.

But perhaps the biggest impact of the network will be on Altice Mobile, the wireless service that was launched at the beginning of the month.

According to Boubazine, the convergence of cable wireline broadband and wireless network technology is at the very core of the operator’s agenda.

Huge investments in fiber-to-the home, improving the home WiFi experience through the Altice One platform and expanding the reach of public Wi-Fi hotspots have all been “in preparation of our mobile adventure,” Boubazine said.

“Our vision has always been convergence,” he said, explaining the cable company’s quest to deliver seamless connectivity to its subscribers when they step out of the home.

As Boubazine explained, average revenue for cable services is around $150 a month right now. Wireless is business that generates almost as much — $140 a month, Boubazine noted. And as cable looks to exploit the opportunity, Altice USA has an advantage that Comcast and Charter do not.

To launch its new wireless service, which has the lowest price point in the industry starting at $20 a line, Altice USA is leveraging what it calls an “infrastructure-based” MVNO deal with Sprint. This means it essentially owns the core network, the Home Location Register database (HLR) and Subscriber Identity Module (SIM) components.

One of the roadblocks to controlling core/HLR/SIM management has been the device and SIM providers. “But Altice already had the scale and relationships with device/SIM providers in Europe and the Dominican Republic to leverage for the U.S.,” said Gregory Williams, analyst for equity research company Cowen.

“Our ambition is not to only feed the home, but to deliver the best broadband outside the home, as well,” Boubazine said.

Altice USA was late to cable’s latest wireless wave, with Comcast rolling out Xfinity Mobile in April 2017 and Charter launching Spectrum Mobile last year. That delay might have worked to Altice’s advantage. Several analysts have pointed to Altice’s superior MVNO economics. Its deal with Sprint (and eventually T-Mobile, when that merger is complete) gives the cable company the ability to transfer wireless traffic to its own WiFi network and to substantially reduce costs. That is more than reflected in the price point for the wireless service: $20 per month for life for Optimum and Suddenlink customers, $30 per month for everyone else. That’s about half the $45 per month Comcast and Charter charge for wireless, and about one third the $70 monthly average for wireless customers of Verizon and AT&T.

“The fact that they have come out with a wireless offering at $20 a month for life, that they swear 16 ways to Sunday they can make money on, is nothing short of extraordinary,” Moffett said. “That suggests that they have a cost structure in their MVNO agreement that is radically better than anyone imagined.”

A $20 or $30 price point should also help attract subscribers. In a research note, Barclays media analyst Kannan Venkateshwar estimated that Altice USA has about 5 million subscriber homes and 8.5 million homes passed within its footprint, implying a potential base of 13 million to 22 million wireless customers. Given that Altice said it will also be able to sell wireless outside of its footprint — particularly in Manhattan, where it does not have a cable presence — that base could be even higher.

Venkateshwar estimated that Altice could capture more than 10% of that potential wireless base in the first two years of operation, which would add another 200 basis points of revenue growth annually.

“Given the price point, our present wireless revenue estimate and therefore full-year revenue growth estimate could prove conservative,” Venkateshwar wrote in a report.

Goei has said he expects the wireless product to be profitable in about 12 months, adding that the pricing for the product isn’t predatory.

“We are not pricing this at a negative gross profit per customer,” Goei said on a conference call announcing the product. “We intend to make this very profitable going forward.”

There might be doubters concerning the company’s ability to make wireless profitable: Comcast and Charter have already lost hundreds of millions of dollars on their respective wireless offerings, which have been touted primarily as retention tools.

Goei, though, has stared down skepticism before.

“You can’t offer a $20 product in a market where the prevailing ARPU is close to $50 and not make noise,” Moffett said. “People will have to take notice and they will have an impact on the market.”

Daniel Frankel contributed to this report.

Not too long ago, the worst thing you could call a cable company was a “dumb” pipe. Today, with the advent of broadband and mobile services that can deliver high-quality over-the-top video cheaply and efficiently, most cable companies don’t mind the pipe part. But it is anything but “dumb.”

Altice USA is one of the newer players in the U.S. cable business, having bought Suddenlink Communications and Cablevision Systems in the past three years. Already, the company has ambitious plans: Last year, it launched a fiber-to-the-home build and this year, it began rolling out a new home network hub, Altice One, to its 4.6 million subscribers. 

Altice USA’s co-president and chief operating officer Hakim Boubazine spoke with Multichannel News about Altice USA’s approach to the cable business. An edited transcript follows.  

MCN: Many cable companies have been integrating subscription video-on-demand services like Netflix into their set-tops, making it easier for customers to access content from what were once thought of as competitors. What is your approach to that?
Hakim Boubazine: Our approach has been to offer a portal where you can access linear or OTT in the same fashion, a one-stop experience where you can get YouTube and Netflix and [much] of the content that we have or we plan to have in a relatively seamless way. Customers want one access point.

Related: Altice USA Integrates Netflix Across Optimum Footprint on New Platform

[It’s] not an app in the box, it’s a deep integration whereby when you do a search, to have Netflix metadata tapped in, so whenever you ask for a movie by Tom Cruise, you get recommendations coming from all over the place, Netflix and many other OTT players with whom we are deeply integrating our portal.

MCN: Where do you see that evolving?
HB: We keep embracing OTT until we come to a point like we are doing in Europe, which is a market that is more mature than the U.S. in the sense there is more competition and where everybody has already moved to a quad play and operators even have OTT offerings that they are bundling with mobile. I think we will move into that world in a matter of time. It is moving slowly.

Related: Altice USA Improves Video Sub Losses in Q1

We definitely see an appetite for OTT supplementing the linear experience and we also see cord-nevers, people who were not born in the cable era, and who have an appetite only for OTT, internet and mobile. That is a segment we would tackle with IP services, around our MVNO [mobile offering] but around our internet as well.

MCN: Is there a danger of cable becoming a “dumb” pipe though? Or is that not such a bad thing anymore?
HB: It’s always been a pipe. It’s become a smart pipe over time with analytics and data and the things that today enable you to collect and send data to customers that enable more services. That drives growth with more bandwidth and efficiency, with less latency, and it moves to a world where you can offer everything IP. Not only has it become smart, it has become very versatile in terms of everything it can transport. It’s moved from being a pipe to a smart pipe to a strategic asset.

MCN: You are planning to launch a mobile service next year. How are you planning to tackle that?
HB: The mobile play for us is slightly different than the one Comcast and Charter have in play in the sense that what we are running is what we call a “facilities MVNO.” We are deploying our own core infrastructure, packet gateways and all the mechanics to be able to manage our own SIM card, our own services. We will be able to manage our own roadmap in terms of the services that we plan to create between fixed and mobile. It’s a different setup.

We are not just launching a mobile service. Our strategy is to basically launch the quad play.

We want to be able to offer any type of bundles. Whether you want to bundle mobile with the triple play, or with a pure OTT product and have internet. That’s part of the natural evolution of any cable operator. We own that smart piece of pipeline that feeds our network, including the mobile one. It becomes an extension of the business. Mobile is one of the missing pieces today.