An Ignoble Experiment

2. DirecTV reportedly enlists Goldman Sachs for talks with AT&T

Cablevision (NYSE: CVC) sees its expanding Wi-Fi network as a lever to disrupt the current mobile data market and will be aggressive in developing new products that use those strengths, CEO James Dolan said during a call detailing the company's first quarter 2014 earnings.

Dolan

"We've been saying for quite some time that Wi-Fi is a differentiator for the business (and) now with the addition of the smart routers and the expansion of our footprint and how we reach our customers and the robustness of the network … you're going to see new products, something that we haven't seen for a while," Dolan said.

Some of those products, he promised, will be "disruptive to some of the current market places, particularly the wireless data market."

Wi-Fi, he pointed out, is an unlimited data service for Cablevision and the company "will continue to push that trend and that we're going to be aggressive in finding and rolling out new products that ride on that network."

Among the new products that Cablevision has already launched is a Wi-Fi smart router that Cablevision will use to reach "approximately 1 million Optimum Wi-Fi access points" by the end of 2014, Dolan said, pointing that there has been "significant growth in our Optimum Wi-Fi usage as total data passed as more than doubled in the last year."

In a research note, Craig Moffett of MoffettNathanson Research cited the "continued densification" of Cablevision's Wi-Fi network as an opportunity to lower customer churn and build new business opportunities.

As far as earnings are concerned, Cablevision made more money overall, more average revenue per cable customer and more revenue in the cable segment but still lost 2,000 video consumers in the first quarter.

The Long Island-based cable operator said that its consolidated net revenues were up 4.3 percent to $1.58 billion compared to the first quarter of 2013, consolidated adjusted operating cash flow was up 24.8 percent to $434.3 million, and consolidated operating income increased 92.8 percent to $207.1 million. At the same time, average monthly cable revenue per customer rose to $148.22, $8.42 (6 percent) more than first quarter 2013. Average monthly revenue per video customer was even higher at $168.34.

Amid all the positives, though, the cable company continued to leak video subscribers, losing 14,000 in the quarter to fall to 2.799 million total video customers. At the same time, the high-speed data customer base grew by 8,000 to 2.788 million and voice customers climbed 8,000 to 2.28 million. Overall, the service provider said it lost a total of 2,000 customers year-over-year to settle at 3.186 million.

"In a competitive marketplace we gained data and voice customers in the first quarter while overall customer relationships and video customers declined," Dolan said in prepared comments to analysts.

The company is continuing to take a disciplined approach to promotional discounts.

This overall approach to pricing and discounting "is contributing to the lower voluntary churn that we're experiencing," said Dolan.

The belt tightening "could bolster Cablevision's financial performance," added Moffett, who threw out the ever-present tease that the company "may be acquired, perhaps by another operator in the New York region or by the controlling Dolan family."

Moffett also cautioned that Cablevision, perhaps more than any other service provider, could be adversely impacted if Verizon (NYSE: VZ) adopts a more aggressive FiOS marketing strategy within its footprint.

For more:
- Cablevision has this press release

Read more about: Wi-Fi
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By Jim Barthold

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3. Comcast ready for another grilling, this time from House Judiciary Committee

The relationship between AT&T (NYSE: T) and DirecTV (NASDAQ: DTV) is apparently getting cozier as the two dance around the possibility of AT&T acquiring the nation's leading satellite provider.

DirecTV is reportedly working with Goldman Sachs Group to explore a sale to AT&T, sources close to the matter told Bloomberg. Initial reports said the sale would be for about $40 billion--or $5.2 billion less than Comcast's (NASDAQ: CMCSA) current bid for Time Warner Cable (NYSE: TWC)--but the Bloomberg story valued DirecTV at $45 billion.

Of course all the involved parties--DirecTV, AT&T and Goldman Sachs--declined to comment.

Right now everything is speculation. Some analysts have suggested that AT&T doesn't need DirecTV and that DirecTV needs AT&T's broadband pipeline. And, to confuse matters even further, Dish Network (NASDAQ: DISH) Chairman Charlie Ergen reportedly contacted his counterparts at DirecTV about reviving a merger between the nation's top two satellite providers. A previous effort was shot down by federal regulators more than a decade ago, but that was before Comcast took aim at Time Warner Cable.

This isn't the first time DirecTV and AT&T have danced. The companies have, at least in the minds of analysts, been potential partners for years. Today's conversation is made more relevant by a changing telecommunications space where DirecTV needs the broadband and wireless assets AT&T would bring to its business to compete with cable and telco plays such as Verizon (NYSE: VZ) FiOS and, on a lesser scale, CenturyLink (NYSE: CTL) Prism TV. AT&T, while not in as dire need, has the money available and the hankering to add DirecTV's 20 million or so video subscribers to its U-verse stable.

For more:
- Bloomberg has this story
- and the Wall Street Journal (sub. req.) has this story

Read more about: Goldman Sachs, acquisition
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By Jim Barthold

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4. Dish Network adds 40K video, 53K broadband subs, but net income drops

Barbecue season continues for Comcast (NASDAQ: CMCSA) as the House Judiciary Committee is next in line to put the MSO on the spit and apply a little heat about its plan to acquire Time Warner Cable (NYSE: TWC) for $45.2 billion.

Many of the same players who appeared before the Senate Judiciary Committee when that body heard comments on the deal were expected to be on hand for the House hearing, including American Cable Association President-CEO Matt Polka, Columbia Law School professor C. Scott Hemphill, antitrust lawyer Allen Grunes, Rural Media Group Founder-Chairman Patrick Gottsch, Cogent Communications Founder-CEO Dave Schaeffer and DeepField Networks, Inc. Co-Founder-CEO-and President Craig Labovitz.

Most, if not all, will raise points why the merger should either not happen or should happen in a qualified manner with restrictions that go beyond those that Comcast has already offered, such as selling off subscribers to Charter Communications (NASDAQ: CHTR) and setting up a new cable company to handle others.

On the other side of the table, Comcast EVP and Chief Diversity Officer David Cohen and Time Warner Cable Chairman-CEO Robert D. Marcus will be trying to convince the congressmen that the deal is good for U.S. consumers.

"Specifically," Cohen wrote in a Comcast blog post, "Comcast will bring Time Warner Cable residential customers faster Internet speeds, more programming choices, more robust Wi-Fi and our best-in-class X1 entertainment operating system."

Cohen also warned that "emotion" should not come into the discussion of merging the nation's largest cable operator with the second largest.

"This transaction must be viewed by reference to the facts, sound economic theory and the law," he said.

One of the concerns sure to be expressed is that Internet traffic carriers such as Cogent and content providers such as Netflix fear a larger company will adversely affect their operations by demanding fees to carry traffic to their customers. Another, as voiced by Grunes in a Philadelphia Inquirer story, is whether Comcast will get approval for the deal and then return several years later wanting to acquire yet another cable operator and get even bigger.

"What's to stop them?" Grunes asked in the newspaper story.

A final consideration is how the deal will affect a crowd of increasingly discontented rural subscribers who feel that the digital divide is becoming a digital chasm that they will never be able to breach. That breach also includes content that these consumers find relevant.

"With Comcast controlling the access to 30 million cable homes post-merger, 23 of the 25 top urban markets and having a presence in 40 of 50 states, this is a critical time for not only our own programming but also the 146 independent producers who depend on our networks for their distribution," Patrick Gottsch, founder of RFD-TV said in a press release.

Gottsch, who was scheduled to testify, pointed out that "the flow of information between urban and rural America must be a two-way pipeline so that there is not a barrier between city and country interests."

For more:
- Comcast has this blog post
- the Philadelphia Inquirer has this story
- Bloomberg has this story
- and RFD-TV has this press release

Read more about: Cogent, Comcast
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By Jim Barthold

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5. CenturyLink adds 24K Prism IPTV subs, aims at 300K addressable homes in 2014

Dish Network (NASDAQ: DISH) had a successful first quarter when it came to adding subscribers to the fold and generating revenue. The company wasn't quite as successful when it came to net income.

The Dish pay TV subscriber universe swelled by 40,000 new customers in the first quarter and now stands at 14.097 million pay TV subscribers, compared to 14.092 during the first quarter of last year. Dish also added about 53,000 net broadband subscribers in the first quarter and now has 489,000.

Overall revenue was up year-over-year to $3.59 billion compared to $3.38 billion in 2013, but net income dropped to $176 million compared to the year-ago number of $216 million.

Pay TV ARPU also improved to $82.36 compared to $78.44 in the quarter, and churn rate was down to 1.42 percent versus 1.47 percent in 2013, a company press release reported.

Dish, like its bigger sibling satellite provider DirecTV (NASDAQ: DTV), has been the subject of rampant merger speculation, especially in the wake of Comcast's (NASDAQ: CMCSA) $45.2 billion bid to take over Time Warner Cable (NYSE: TWC). DirecTV, which had been courted by Dish, is reportedly getting closer to a deal with AT&T (NYSE: T) and Dish itself is the subject of industry whispers.

All that is talk that might not be influenced by quarterly results, one way or the other, Hudson Square Research analyst Todd Rethemeier told Bloomberg.

"Both Dish and DTV know that there are a lot of benefits of a merger, either with each other or a carrier," Rethemeier said, dismissing any impact quarterly results--good or bad--would have on M&A talk.

For more:
- Dish has this earnings press release
- and Bloomberg has this story

By Jim Barthold

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