Altice USA has reached a settlement with New York state regarding investigations into its response to outages during tropical storm Isaias last year, agreeing to spend nearly $72 million to upgrade its network and communications infrastructure, hire new employees and issue credits to affected customers.

According to the settlement, which Gov. Andrew Cuomo called the largest ever in the state for failing to follow emergency response procedures, Altice will spend $68.4 million to make its network more storm resilient, develop a more robust storm response program and enhance communications with municipal and county governments, at no charge to its customers. In addition, the cable company will provide $3.4 million in credits to New York customers impacted by the storm.

"It is beyond unacceptable to leave hundreds of thousands of customers without the ability to access the Internet, especially during a time when so many people rely on broadband for work and school," Gov. Cuomo said in a press release. "This settlement makes it clear that telecommunication companies in New York have an obligation to prepare for severe weather and to develop robust storm-response programs, and if they fail to adequately do that job we will hold them accountable and force them to change the way they do business."

Tropical storm Isaias was initially a category 1 Hurricane but was downgraded to a tropical storm by the time it hit New York on Aug. 4. The storm brought heavy rains and high winds to areas in the Mid-Hudson Valley, New York City and Long Island, causing extensive damage to electric power and telecom facilities and knocking out service to more than 1 million state residents. About 400,000 Altice USA customers in the state were without service because of the weather event, some for as long as 14 days.

Gov. Cuomo directed the state Public Service Commission to investigate the slow response by some electric utilities, telephone companies and cable companies to the storm on Aug. 5. On Feb. 11, a report on the Isaias response was issued, finding several areas where utilities could improve their response to major weather events.   

In January, New York State Electric & Gas, where about 183,000 homes in its operating area in northern Westchester, Dutchess and Putnam counties were without power for days, was fined $1.5 million. Con Edison, Orange & Rockland Utilities and Central Hudson Gas & Electric are facing possible fines of up to a combined $137.3 million -- and Con Edison and O&R possible license revocation -- for what the state called their failures to respond adequately to the storm. 

In the case of Altice USA, the investigation found the cable company had “apparently failed to adhere to many significant aspects of its response plan and associated severe weather preparedness plan, which contributed to its inability to timely restore service and effectively communicate to customers experiencing outages,” the report said. Those apparent violations included a failure to make sufficient readiness plans and post-storm restoration, poor customer service and communications, and inadequate communication and coordination with government officials and electric utilities.

“Altice USA has been working with the NY PSC since Storm Isaias last summer to jointly examine opportunities for enhancements in how we communicate and engage with our customers, communities, and public officials during severe weather events,” Altice USA said in a statement. “We appreciate the dialogue with the NY PSC as we look to ensure that the long-term service investments we're making continue to improve the customer experience and benefit all our tri-state area customers.”

According to the settlement, Altice will spend $63.94 million to improve the planning for and response to future severe weather events, including upgrades to its call center technology and digital programs, improving customer communications, adding more technicians and working to amend contracts with third-party contractors to ensure greater certainty of available resources during storm recovery. Those improvements will be made within two years and the cost will not be passed on to customers. 

The agreement also earmarks $4.6 million toward a new state-of-the-art outage communication platform, the hiring of six additional storm recovery and service coordinators and a new full-time, post-storm remediation coordinator, and upgrades to Altice's Outage Notification Board. Affected customers received about $3.4 million in credits immediately after the storm. 

“The primary task of companies under Commission jurisdiction is to supply safe and adequate service to customers,” Public Service Commission Chair John B. Howard said in a press release. “A key component of that is for the companies to be prepared for a storm and to restore service as safely and as quickly as possible, and we will hold them accountable to do just that. With this agreement, Altice will ensure that costs to improve its reliability will not result in any increased costs to its customers." 

The New York State Public Service Commission has fined Charter Communications $2 million and threatened other sanctions on the cable operator for failing to keep its promise to extend broadband service to 145,000 underserved homes and  businesses in the state, part of the conditions of approval of its 2016 merger with Time Warner Cable.

Related: Charter Time Warner Cable Deal Closes 

The New York PSC signed off on the Charter-Time Warner Cable deal in January 2016. Among the conditions of that approval, Charter promised to extend broadband service to 145,000 unserved and underserved homes and businesses throughout the state. 

Related: New York State Approves Time Warner Cable Deal  

But the PSC rejected more than 18,000 addresses in cities throughout the state -- including 12,467 in New York City and 4,096 in the cities of Buffalo, Rochester, Syracuse, Schenectady, Albany, and Mt. Vernon — to which Charter claimed it expanded its network as part of its required buildout requirement. According to the PSC, those addresses already were passed by Charter or another company providing high speed broadband, or were addresses Charter was separately required to pass as part of state regulations and/or franchise agreements. As a result, the PSC said Charter must remove the rejected addresses and file a revised buildout plan within 21 days.

Charter has claimed that it is meeting all of its obligations.

“Spectrum has expanded its network infrastructure to bring broadband to tens of thousands of residences and businesses in New York State; we exceeded our last commitment and we continue to meet our merger obligations,” Charter said in a statement.

In a statement, New York PSC chairman John Rhodes said that “since the company has taken the unfortunate position of refusing to adhere to all conditions set forth in our initial decision two years ago, we now demand the company unconditionally accept all of the conditions as the commission unambiguously required in 2016, or run the risk of more severe consequences.”

Related: Charter Agrees to Pay $13M Fine to NY PSC 

This is the second time that Charter has been fined for missing a broadband benchmark. In June 2017, Charter was fined $13 million by the New York PSC for failing to meet broadband requirements. 

"Access to broadband is the great equalizer in today's society. For rural and upstate communities to be economically and socially competitive, they need broadband coverage and the access and opportunities it provides,” said Dani Lever, press secretary for New York Gov. Andrew Cuomo, in a statement. “That is why the state has established the goal of 100% Broadband for All and has committed $500 million to make that a reality. It is also why the Public Service Commission expressly conditioned its approval of the acquisition of Time Warner Cable by Charter Communications in 2016 on Charter's commitment to bring broadband coverage to 145,000 customers in less densely populated areas of the State.

"Regrettably, rather than honor its commitment, Charter, doing business in the state under the name Spectrum, has repeatedly failed to meet its obligations, particularly to rural areas, where building out broadband is more expensive,” Lever continued. “It has also engaged in a campaign to deceive the public into believing that it is exceeding its commitment to the state through misleading advertising about its performance. The Public Service Commission represents and serves the people of New York. It should not be intimidated by a media giant interested only in its profits rather than the well-being of the people." 

Altice USA, the domestic arm of European telecom firm Altice N.V., is creating a separate company — Altice Technical Services USA — to house all its technical workers, a move it says is aimed at providing better training and top-notch customer service but one the union representing some of its employees sees as a means to reduce its workforce at will.

Altice USA is in the midst of an aggressive fiber buildout plan across its footprint that it hopes will differentiate it further in its markets; its parent company has used a similar structure in other countries where it is upgrading its network.

But tech workers are, perhaps understandably, suspicious that Altice USA felt the need to create a separate entity just for them.

Essentially ATS will house all of Altice USA’s field service, construction & fiber, design, outside plant maintenance, inside plant and field-based employees serving commercial accounts. Altice has not released just how many employees that might involve; the union estimates it could be more than 4,500. Altice USA has about 17,000 workers across the country, according to its website.

JOB COMMITMENTS IN N.Y.

In New York State, where Altice USA has its greatest concentration of customers — about 1.9 million of its 4.3 million total subscribers, according to the New York State Public Service Commission — the company agreed not to lay off customer-facing workers for four years as part of a franchise renewal.

Some workers and officials at the Communications Workers of America union, which represents about 200 Altice USA technicians in Brooklyn, N.Y., are worried the new structure could be a way around those conditions.

“We’re very concerned,” CWA District 1 assistant to the vice president Robert Master said. “But we haven’t fully unpacked it yet. We don’t know what they have in mind.”

CWA District 1 organizer Tim Dubnau said the moves seem to be in conflict with the New York PSC order, which gave Altice the final regulatory nod to close its $17.7 billion purchase of Cablevision Systems in June. Altice bought the former Suddenlink Communications in December 2015 for $9.1 billion. “We definitely smell a rat,” Dubnau said.

Altice USA countered that it believes it has been transparent in dealings with the union and employees, and that it suspects the CWA has its own agenda.

“The CWA is being misleading and mischaracterizing the facts in an effort to scare employees and advance its own interests,” Altice said in a statement.

“As we have communicated with our employees, both companies will honor all the regulatory commitments agreed to with the states, and we believe this model will provide employees with career growth and advancement opportunities as we build our fiber network,” Altice added.

The New York PSC said it is aware of Altice’s plans for ATS. “The order prohibits Altice from reducing its customer-facing workforce for four years, excluding normal attrition,” the PSC said in a statement. “There is no indication that Altice is forcing its customer-facing workforce to take positions in the new unit or is otherwise reducing its customer-facing workforce. The PSC is monitoring Altice’s compliance with the order.”

Altice early on told investors it believed it could extract more than $900 million in expenses from Cablevision over time.

The company cut costs by laying off about 600 workers at its Connecticut call center in November. Spinning off nearly a third of its workforce into a separate company could go a long way to further meeting that goal.

In memos obtained by Multichannel News that were sent to employees over the past few weeks, Altice USA executives said the company would begin staffing ATS between February and April with existing workers who volunteer to switch with an offer of cash incentives. Workers who make the switch will retain the same health and welfare benefits, seniority and vacation time.

The new unit promises to retrain workers in more modern technologies and give them more marketable skills. The company said it plans to transition its entire tech force over to the new unit within five years.

Altice’s ambitious fiber buildout aims to upgrade the bulk of its U.S. footprint to fiber-to-the-premises architecture over the next five years, delivering broadband speeds of up to 10 Gigabits per second.

CWA’s Dubnau said Altice is currently giving workers three options: Stay with Altice USA (which the union says the company is strongly discouraging); sign on with ATS and get a one-time signing bonus equal to 2% of the worker’s annual salary; or agree to take a 10% pay cut, receive an 8% signing bonus and agree to incentive pay, which based on undisclosed metrics could increase pay by up to 20% based on the amount of work done. Workers at ATS would essentially be contract workers, the union said.

Altice has created similar structures in its operations in France and Portugal as it builds out a new fiber network. The company has come under fire outside of the U.S., fined $88.5 million by French regulators in November for seeking takeover deals before obtaining regulatory clearance and battling with unions over job cuts at its SFR wireless unit.

The CWA said Altice USA communications to employees hint at ominous consequences. “Beginning now and over the next five years, we will fully migrate all technical services, from our transmission points in our head ends through to the homes of our customers, to ATS,” head of Optimum operations Pragash Pillai and chief technology officer Terry Cordova said in a memo to employees. “As always, we believe in providing full transparency so that each of you can make the best decision for your career and family.”

LABOR LAWYERS’ VIEWS

Jeffrey Englander, a partner specializing in labor and employment law for New York law firm Morrison Cohen LLP, said there is usually little incentive to set up a separate entity like ATS other than to cut costs.

“They can dress it up anyway they wish to,” Englander said, adding, “But it sounds to me — to the extent there is either an increase in need for manpower or alternatively a reduction in that need — they could take the position [that] as a separate entity they are not obligated in any way to comply with that condition.”

Jane Lauer Barker, a partner specializing in labor and employment law at New York law firm Pitta & Giblin, said cost-cutting is usually the primary driver in such moves. “This wouldn’t be an unheard-of situation,” she said.

“This is something that always comes to mind in these firms — that they can cut down on their costs by spinning off this group of workers, setting up a new company that’s a new employer and shedding themselves of the obligation that the old employer might have.”

Agreeing with the Altice perspective, though, Fisher Phillips regional managing partner Steven Bernstein said cost cutting is likely not the driving reason. Factors like technology and increasing efficiency can play a greater role: “There are a lot of these entities that are trying to get increasingly nimble, increasingly agile, to compete in this global marketplace. And I’m guessing in that industry, that’s certainly the case.”

With workers nervous, the union is stepping up organizing efforts at Altice USA’s Bronx, N.Y., operations, which pushed back an organizing effort in 2012. The only location where Altice can’t force the ATS transition is in Brooklyn, because the contract prohibits it.

“It’s starting to dawn on people that if you have a union card in your back pocket, you’re protected,” Dubnau said.

SIDEBAR: The Altice Way

After acquiring Cablevision Systems in June for $17.7 billion and Suddenlink Communications for $9.1 billion in December 2015, Altice USA has a considerable presence.

Employees: 17,000-plus

Service Area: 20 states

2015 Revenue: $8.93 billion

Residential Customers: 4.3 million

Business Customers: 350,000

SOURCE : Altice USA

Dutch telecom operator Altice has told state regulators that it was willing to make some concessions in its quest for approval of its $17.7 billion purchase of Cablevision Systems, but drew the line at conditions that would return half of the expected cost savings to customers and limit its ability to make changes in its workforce.

The New York Public Service Commission has been critical of the Altice deal. Commission staffers have said in filings that hitting aggressive cost-savings targets could force Altice to drastically reduce customer service and implement massive job cuts. The staff has recommended the deal be rejected unless Altice adheres to a laundry list of conditions.

Altice is confident it will receive the necessary approvals. And with the Federal Communications Commission winding down its review of Charter Communications’s $78.7 billion acquisition of Time Warner Cable, the agency will now likely be able to focus more on this smaller deal for the New York City area-centric Cablevision.

EYES Q2 CLOSE

Altice CEO Dexter Goei — who is also slated to head up the U.S. cable operations — said he was confident the deal for Bethpage, N.Y.-based Cablevision would close by the end of the second quarter. Goei, during a financial-results call, said Altice expects decisions from the New Jersey Board of Public Utilities by the beginning of April, the New York PSC by the end of April and from the FCC in May.

In a March 8 filing with the New York PSC, Altice agreed to offer 30 Megabit-per-second high-speed Internet service to low-income families in the New York area for as low as $14.99 per month.

In a statement, Altice said the filing shows the Cablevision merger “will provide concrete benefits to consumers in the nation’s most competitive market. Altice will make substantial investments to further enhance competition and improve the customer experience, as outlined in the filing. The regulatory approval process is proceeding and we look forward to it continuing in a fair and open manner.

Altice has said it expects to extract at least $900 million in cost savings from Cablevision over the first few years after the deal closes, largely through removing redundancies and operating the network more efficiently.

At an industry conference shortly after the deal was announced in September, Altice chairman Patrick Drahi said better deals with vendors and removing amplifiers from the network would go a long way toward achieving that goal.

In the most recent PSC filing, Altice didn’t offer many specifics about efficiency plans, but did reveal it has earmarked several network improvements — including introducing an all-in-one home center allowing subscribers to integrate pay TV video, over-the-top video, online storage, home media and WiFi- and Ethernet-connected devices into a single hub.

Altice also plans to introduce a new customer interface, similar to one it has developed and deployed in other markets, to offer better navigation and recommendation tools.

PLANS TO INVEST

Because of those investments, Altice recommended passing along about 15% of its overall costs savings to customers — reinvesting the rest in operational improvements — and not the 50% recommended by New York regulators.

Altice balked at the N.Y. PSC staff suggestion to hold off on reducing “customer-facing” jobs for five years after the deal closes, saying improvements in technology and efficiency have already reduced the need for some of those positions.

“[I]mproved service quality will organically reduce the need for customer-facing jobs by reducing key measures of customer dissatisfaction: unnecessary or repeat truck rolls and home visits, repeat calls for technical and service support, and overall support demands to call centers and field service technicians,” Altice told the agency.

Altice said it currently invests a larger percentage of total revenue into operations than Cablevision does. It also said it would not cut back on spending on customer-facing improvements because that would potentially degrade its $17.7-billion investment.

Most analysts believe the deal will win approval with conditions, and point to Cablevision’s stock price since the deal was announced — at $33.10 per share on March 16, the stock is just 5% below Altice’s offering price of $34.90 per share.

“My guess is they make some agreement around investment, maintain the Bethpage headquarters and low cost broadband and they get this done,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said.

SIDEBAR: Altice in the Family

Altice mapped out a list of the benefits of its pending merger with Cablevision Systems:

• Offer a 30 Mbps broadband service to qualifying low-income homes in footprint for $14.99 per month, and upgrade the overall network to deliver speeds of up to 300 Mbps;

• Work in partnership with community groups and public authorities to expand broadband into low-income and underserved areas;

• Agree to base its U.S. headquarters in New York City;

• Introduce an all-in-one home center, enabling customers to integrate video, OTT video, online storage, home media and WiFi and Ethernet connected devices in a single hub

• Launch an improved customer interface with better navigation and recommendation tools.

SOURCE: Altice