Add Altice USA to the group of cable operators that have publicly soured on the future of the traditional cable pay-TV bundle.
In a wide-ranging interview with CNBC, Dexter Goei, Altice USA's CEO, acknowledged that he envisions a day when the operator no longer offers a linear cable TV service.
"Yeah. Because the economics get worse and worse every year," Goei said when asked the question. "Price levels for content continue to rise. Eyeballs for content over big bundles continue to fall."
It's becoming a more common refrain as cable operators acknowledge that broadband, and not pay-TV, is now the cornerstone of their relationship with the customer.
For example, Comcast and Charter Communications are now focused on retaining the most profitable pay-TV subs and will no longer chase after others with deep discounts and save offers. Meanwhile, Cable One and WideOpenWest have almost ignored pay-TV under their "broadband-first" postures. In fact, WideOpenWest CFO John Rego said last week that the operator expects to lose more than half its pay-TV subscribers within the next three years.
"Obviously, broadband continues to be the story and continues to make cable companies and fiber companies very attractive investment propositions because of broadband," Goei said. He said the pay-TV market is now divided between profitable customers that have been in the bundle for more than three years and unprofitable ones that have been a video subscriber for less than that time.
There are no ready-made answers, but Goei expressed some confidence that operators and programmers will be able to come up with a more attractive financial model as more and more content gets consumed via OTT.
"I can't tell you when, where and how, but it's a question of time for cable operators in general to completely re-evaluate whether or not they're going to be in the video business," he said.
Lack of big M&A opportunities
Goei was also asked to address the M&A market now that it's abundantly clear that Altice USA has been unable to achieve an original plan to buy enough pieces to become the size of what used to be Time Warner Cable, the operator that merged with Charter in 2016.
Altice USA, now with about 5 million customer relationships, tried to expand that recently by acquiring the Atlantic Broadband piece of Cogeco, but was spurned at every turn. Instead, Altice USA has been limited to much smaller buys, including today's announced acquisition of Morris Broadband, a deal valued at $310 million that will expand Altice USA's footprint in North Carolina, but represents only about 35,500 residential and business customers.
Goei said it's not for lack of trying for bigger game.
"The reality is there's been nobody selling, nobody of size – of any credible size," he said. Cable One just struck a $2.2 billion deal for the rest of Hargray Communications it didn't already own, but Hargray's not as geographically aligned with Altice USA and, therefore, not as attractive an M&A target.
Given this scenario, Goei said Altice USA will "look for smaller M&A" and to grow its "organic operations" by building out its footprint and pushing ahead with fiber-to-the-home upgrades, largely in its Optimum service areas in parts of New York, Connecticut and New Jersey.
Altice USA, he said, will also look at its wireless business, which today is centered on Altice Mobile, a service that originally leaned on an MVNO with Sprint that has since shifted to T-Mobile.
Offering mobile has "churn benefits," but renting access on another's network is not as economically attractive, he said. He also does not rule out a world in which companies such as Comcast and Verizon are allowed to merge.
"It could really drive better performance for consumers and better pricing," Goei said.
And if Altice USA was to ever get involved in a big M&A transaction involving a big wireless company that could lead to greater consolidation, he said such a move would have to be driven by Altice USA's parent company.
- Altice USA sets $310M deal for Morris Broadband
- Altice USA gives up on Cogeco
- Cable One must become an 'acquisition machine' – analyst
— Jeff Baumgartner, Senior Editor, Light Reading