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Charter buys Falcon, still lags in clusters

Cabler to become fourth largest in the U.S.

NEW YORK — Paul Allen’s Charter Communications will become the fourth-largest cabler in the U.S. as a result of its $3.6 billion deal to buy Falcon Communications, which was confirmed Wednesday, but Charter still lags even smaller cablers when it comes to geographic clusters.

In a dizzying multibillion-dollar acquisition spree over the past year, Allen has assembled a company with cable systems serving 5.5 million subscribers in more than 22 states. Not only are the systems scattered far and wide, however, but relatively few are upgraded to state-of-the-art technology, observers say.

Falcon is clearly in that model, with about 1 million subscribers in systems operating in California, the Pacific Northwest (Allen’s home base), Missouri, North Carolina, Alabama and Georgia.

Overlaps unclear

It’s not clear how well these systems overlap with Charter’s existing systems, and Charter execs did not return repeated phone calls Wednesday. Falcon execs were also not available, although a statement confirming the acquisition was issued early Wednesday.

Falcon is 46% owned by AT&T and 54% owned by the family of Charter CEO Marc Nathanson and a group of institutional shareholders including Hellman and Friedman. Charter is offering stock and cash for Falcon’s $2 billion in equity (assuming debt of $1.6 billion), which means No 1. cabler AT&T will become a minority shareholder in Allen’s company.

Establishing a relationship with AT&T is one of the positives of the Falcon acquisition, one investment banker said Wednesday, particularly given expectations that Charter will need to do a lot of system swaps to streamline its geographic clusters.

Meanwhile, Comcast and its partly owned affiliate Jones Intercable announced a swap of systems with Adelphia on Wednesday covering almost half a million subscribers.

The swap will strengthen Comcast’s Mid-Atlantic cluster, which covers systems in New Jersey, Pennsylvania, Maryland, Delaware, Washington D.C. and Virginia. Half of Comcast’s 8 million subscribers, pending all announced acquisitions, will be in that cluster, the company said.