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Analyst Craig Moffett said Charter considering a takeover of Altice underscores the decline in valuations across cable
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That being said, chances of a merger are far from certain
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Altice might save operating costs, but not enough to warrant a deal
The telecom industry was abuzz this week with a report that Charter may be sizing up a takeover of Altice USA. But while “Chaltice” has a nice ring to it, is it actually possible?
Craig Moffett, co-founder and senior analyst at MoffettNathanson, told Fierce Charter even considering a transaction like this “puts an exclamation point on the decline in valuations we’ve seen across the cable landscape.”
Rumors of a merger come after Charter and Altice reported broadband subscriber losses of 61,000 and 27,000, respectively in Q4 2023. New Street Research published a note saying a deal between the two operators could work given their respective footprints.
“Altice is now trading at or below the replacement cost of its physical assets. Other operators are trading even lower,” said Moffett. “That being the case, they almost have to take a hard look.”
However, don’t get too excited at the prospect just yet.
“I wouldn’t want to overestimate the odds of this actually happening,” Moffett went on to say. “The synergies are probably a little more limited than most people realize.”
Moffett explained Altice’s operations, particularly in the northeast U.S., are already “well-scaled, so it wouldn’t be appropriate to assume large savings.”
“Overhead savings (ongoing costs to operate a business) are possible, but not enough on their own to warrant a transaction,” he said.
Mobile motor?
Another question we have is whether Altice and Charter could help expand each other’s wireless businesses. Charter added 546,000 Spectrum Mobile lines in Q4, with CEO Chris Winfrey saying “only 13%” of its internet base has access to mobile service.
For Altice’s part, it added 34,000 mobile lines in the recent quarter, and mobile penetration of its broadband base reached 7.1% at the end of 2023.
“While Charter likely has a better wireless cost structure than Altice does, it would be a mistake to think that Altice hasn’t already gone a long way towards offloading traffic onto Wi-Fi,” said Moffett.
Back in its Cablevision days (before getting acquired by Altice Group in 2016), the company “pioneered the out-of-home Wi-Fi strategy.” The company had a Wi-Fi-only phone service called FreeWheel, which later shut down once Altice assumed ownership.
“And there is already off-load reciprocity between cable operators, so that alone wouldn’t justify a major transaction,” Moffett concluded.
In short, there’s no clear roadmap to a merger. But we’ll be on the lookout for any fresh developments.