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Cablers await phone call

Telco plans further deals; Cablevision may be next

NEW YORK — Unveiling its $43 billion acquisition of cable giant Tele-Communications Inc. Wednesday, AT&T chairman Michael Armstrong said the telco wanted to negotiate more deals with cablers — raising the prospect of more acquisitions.

And already speculation is hot on Wall Street and in the industry that Chuck Dolan’s Cablevision Systems Corp., which is partly owned by TCI, will be the next to get snapped up by the telco in a deal likely to cost at least $8 billion.

Cablevision stock leapt $14, or 23%, to $76 in very heavy trading Wednesday, taking its total increase in the past two days to 38%, reflecting the speculation.

As reported (Daily Variety, June 24), AT&T is to buy TCI for $43 billion in stock and assumption of debt.

In a related deal, TCI’s programming and investment arms, Liberty Media and TCI Ventures, are to merge, and the new company will become nominally part of the AT&T group, but continue to be owned by existing shareholders, led by TCI chairman John Malone.

AT&T will buy TCI Ventures’ stakes in At Home and AT&T (received when AT&T bought Teleport earlier this year) for $5.5 billion in cash, lifting the total value of the transactions to $48 billion.

$73 bil deal

Malone told reporters the Liberty-AT&T stock swap was worth another $25 billion, which he claimed made the overall deal worth $73 billion and the biggest takeover in U.S. history.

Already attention has turned to possible deals planned by AT&T, which wants cable systems in order to get direct access to consumers’ homes and compete more effectively with Baby Bells such as Pacific Bell and Bell Atlantic that threaten to invade AT&T’s long-distance telephone market. AT&T will be able to deliver phone service without having to pay the line charges of the Baby Bells in homes where it has cable access. As big as TCI is, it gets AT&T into only 10.9 million homes currently served by the cabler. Including subscribers served by cablers partly owned by TCI, like Cablevision, AT&T can now enter 20 million homes and possibly another 13 million passed by TCI systems — “about one-third of the residences of America,” Armstrong said.

To extend its reach into the other two-thirds of homes, Armstrong said AT&T “would be very interested in other relationships with cable operators, and we would not limit the definition of those relationships at this time. It certainly should be able to extend into franchising or other relationships or branding.”

Equity enlightenment

“AT&T definitely wants to extend the footprint,” said Lehman Bros. analyst Larry Petrella, adding that cablers already partly owned by TCI “could be rolled up over time.”

TCI president Leo Hindery, who will oversee the cable systems in his role as president of a new AT&T division, noted that TCI “took the route which was equity based … ; others may opt for that as well.”

Falcon Cable chairman Marc Nathanson is convinced that the deal will usher in a whole wave of mergers and consolidations. He said any cable operator outside the top 10 will probably be eager to sell, because “the capital requirements will be enormous” to finance the cable-system rebuilds needed to funnel all of the new services that state-of-the-art cable boxes would deliver at the touch of a button on the remote control.

‘Cablevision is gone’

The cabler seen as most likely to be sold next, Cablevision Systems Corp., serves 3.3 million subscribers in the New York metropolitan area, which would be hugely valuable to AT&T, execs say. TCI already owns one-third of Cablevision, reducing the cost of such a deal for the telco.”Cablevision is gone,” predicted one cable exec.

Dolan, Cablevision’s controlling shareholder, negotiated to sell the company to US West in 1993-94 at a price that is close to half of that at which the stock is now trading.

“At this price, Chuck and (his son) Jimmy have got to be happy guys,” the exec added.

Dolan was unavailable for comment. A statement issued by Cablevision CEO Jim Dolan may contain a clue to the family’s willingness to sell, however. After congratulating AT&T “and our partner TCI,” it noted that “we are optimistic that AT&T’s participation will be a positive development both for the customers and shareholders of Cablevision.”

Branding bandwagon

Some on Wall Street question, however, whether AT&T will make another big acquisition before getting regulatory approval for the TCI deal.

“They have to have some serious discussions in Washington,” said one cable exec.

But initial reaction from Washington was positive Wednesday, as regulators recognize that the deal will enable AT&T to better compete with Baby Bells.

Nevertheless, many other cablers are less willing to sell than to affiliate with AT&T through franchise or branding arrangements, execs said.

Hindery added that he had spoken with most major cablers the night before the deal was announced. “They’re just thrilled,” he said, and see AT&T’s entry as an opportunity to use its powerful brand name to improve penetration of cable services.

John Alchin, treasurer of No. 4 cabler Comcast Corp., said, “We think AT&T is a great brand. We think TCI has helped create a new paradigm here, and we are always interested in things that look like they could be good for our customers.”

Comcast is controlled by the Roberts family and is seen as an unlikely seller. Similarly, No. 2 cabler Time Warner may be interested in “strategic alliances” with a phone company like AT&T, people close to the company said, although it is not interested in selling. Time Warner declined comment.

No. 3 cabler MediaOne is “always interested in talking to people about services that would benefit our customers,” said a spokesman, declining to elaborate further. MediaOne is seen as a takeover target for anyone able to afford its price, which could reach $30 billion, Wall Streeters say.

The Falcon’s cry

“I jumped up and down with joy,” Marc Nathanson, chairman of Falcon Cable TV, said, describing what he did when Hindery called him Tuesday with the news that AT&T had bought TCI.

TCI owns 47% of Falcon as the result of a swap of cable systems by the two companies last year, and one of the main reasons for Nathanson’s exuberance is that Hindery has told him AT&T is even more eager than TCI to support Falcon’s plan to buy more cable systems.

Falcon wants to buy systems next to its existing operations to accelerate the strategy of clustering these systems in a particular region of the country under one operator.

“I’m not sure if this is the right way to put it,” Nathanson says, “but Falcon will become a stalking horse for AT&T’s drive to buy more cable systems,” so that AT&T can deliver telephone service — including high-speed access to the Internet — directly to homes without having to pay the line charges of the Baby Bells.

Another reason Nathanson is happy about the deal is that AT&T will help to finance the ultra-sophisticated set-top boxes that provide a direct linkup of a home’s TV set, computer and the telephone. The price of each set-top box could fall to a relatively modest $400 with AT&T’s backing, he says.

Price movements of cable stocks Wednesday highlighted how the deal has improved investor perceptions about cable. Time Warner stock jumped $5.37 to a new high of $88.62.

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