PARIS (Reuters) - Patrick Drahi, the billionaire owner of European telecoms group Altice, said he didn’t bid for Time Warner Cable because his company lacked management resources to digest such a big deal in a market it had only recently entered.
“I didn’t follow up on the exchanges we had on Time Warner Cable (TWC) that were mentioned in the media because we were not ready,” Drahi told a French parliamentary hearing on Wednesday.
The 51-year-old Franco-Israeli businessman met with TWC chief executive Robert Marcus last week, but decided not to move ahead despite having lined up French and foreign banks willing to finance the deal.
Instead, U.S. number three cable group Charter Communications, backed by Drahi’s mentor turned rival, cable tycoon John Malone, agreed on Tuesday to buy number two TWC for $56 billion.
Drahi defended his decision saying the previously announced purchase of U.S. regional cable firm Suddenlink Communications for $9.1 billion was a “modest” way for Altice to enter the U.S. market and test its ability there.
A deal for TWC would have been a step too far, too fast, Drahi said, quadrupling the number of U.S. employees of Altice companies to nearly 120,000 in a market it barely knew.
“Time is on our side” for the U.S. expansion, Drahi said.
“The two leaders Comcast and Charter will not be able to buy anything else because of their size so we will have an open boulevard ahead of us ... If I buy five small operators, I can be as big as Time Warner Cable.”
The profitable and growing U.S. cable market is being reshaped by deals. Companies are seeking to face the challenge of so-called cord-cutters, customers who no longer want to pay for expensive cable packages and prefer to just buy fast broadband service, as well as the rise of streaming services such as Netflix.
Drahi has set a goal for Altice to one day earn half of its revenue in the United States, aiming to diversify risk rather than bet all on Europe.
After buying Suddenlink, the seventh-biggest cable group in the United States, Altice will earn 12 percent of revenue from that market, with the rest coming from telecom and cable assets in France, Israel, Portugal and the Dominican Republic.
Analysts say among possible targets for Altice are Cox Communications, the fourth-largest U.S. cable group, which is in private hands; publicly traded, fifth-placed Cablevision; or privately held eighth-placed Mediacom.
Asked whether such companies are less attractive than TWC because they are smaller and less profitable, Drahi responded: “Even better, that means we will have room to improve them.”
Asked about Cablevision, Drahi said he was not put off by the fact the operator, which is present in New York, New Jersey and Connecticut, faced direct competition from Verizon’s fibre product FiOS on much of its territory. “It’s good actually since it means they know how to compete,” he countered.
In a 36-billion-euro deal spree in the past 18 months, Altice has bought telecom and cable companies which it sees as poorly managed or undervalued, then parachuted in a small team of executives to slash costs and quickly improve profitability.
Drahi, who trained as an engineer, also ploughs money into network upgrades to attract higher-end customers willing to pay for better service.
The cost-cutting has started to pay off at French mobile carrier SFR, which Altice bought last year via French subsidiary cable group Numericable.
But the company’s 4G mobile network still lags rivals, something Drahi blamed on previous owner Vivendi’s chronic underinvestment, and which he promised to fix by the end of the year with a big boost in capital spending.
Altice shares were down 2.6 percent at 119.45 euro at 1302 GMT in a European telecoms index up 0.4 percent. Its shares have more than quadrupled since going public in early 2014.
Editing by James Regan and Mark Potter