Kent Adds Chapters to Cequel
By Mike Farrell -- Multichannel News, 3/2/2003 7:00:00 PM
Former Charter Communications Inc. CEO Jerry Kent is steadily putting together the pieces of his next cable empire.
Kent, who resigned from Charter in September 2001, has been engaged in a flurry of deals this month that puts his investment company, Cequel III, in control of systems serving about 352,000 cable subscribers.
On Feb. 12, Cequel announced an investment and management deal with Classic Communications Inc. that would give the St. Louis-based operation management control of Classic's 325,000 mostly rural subscribers. Nine days later, Cequel said it would purchase about 27,000 cable subscribers in areas surrounding Houston from Shaw Communications Inc. for about $85 million in cash.
Takes Broadwing
Last Tuesday, Cequel again announced a deal to purchase the assets of high-speed data and telecommunications services provider Broadwing Communications Services Inc. for about $129 million, along with partner Corvis Corp.
The Broadwing acquisition will be made through C III Communications LLC, a partnership between Cequel III and Corvis.
Broadwing has about 1,000 commercial customers and offers long-distance telephony services to about 150,000 customers.
Cequel said it would maintain those current customer relationships, but it is unclear whether it would expand both products to its cable operations.
"For Broadwing, our focus will be on selling broadband and high-speed data services to corporate customers, but we are also interested in growing the long-distance telecommunications part of that business, including retail long distance," Cequel executive vice president and general counsel Martin Kerckhoff said in a statement.
Broadwing brings Cequel a badly needed high-speed-data component for its cable operations.
Classic, which emerged from Chapter 11 bankrupcty protection in January, had been battered by competition from direct broadcast satellite service providers that could offer more video channels at a lower price.
Classic data link?
Cequel plans to upgrade many of Classic's old systems to provide digital cable, or to provide the service through alternative technologies. And high-speed Internet service could be the last piece of the puzzle in terms of differentiating Classic's cable service from DBS.
Cequel spokesman Pete Abel wouldn't commit to the company offering high-speed data service via Broadwing to all of Cequel's cable customers. But he added that part of the attraction to the Broadwing deal was its apparent synergies with the cable product.
"We plan to work with the cable sector," Abel said.
Classic had been trying to offer broadband services before it filed for bankruptcy in November 2001, but managed to sign on only 7,000 customers as of Sept. 30, 2002, the latest figures available.
And though Classic's customers may have been starved for advanced services in the past, the systems Cequel picks up in the Shaw deal are said to be in much better shape. They already have a 28 percent rate of high-speed-data penetration and are located in three communities that surround a major metropolitan area —Kingwood, Lake Conroe, and Lake Livingston.
Decent Shaw price
That appears to be reflected in the price. Given the amount paid and the number of customers, Cequel's deal with Shaw works out to about $3,150 per subscriber. Some industry observers have estimated that Classic's systems were worth between $700 and $800 per subscriber.
Shaw had announced the properties were for sale in April, along with about 44,000 subscribers around Tampa, Fla. The company announced the same day that the Tampa systems — located in and around Tampa and Daytona Beach, Fla. — were purchased by TWEAN Subsidiary LLC, a partnership managed by Advance/Newhouse Communications.
New York cable investment banker Waller Capital Corp. advised Shaw on both deals.
"We've been working on it a long time," Shaw CEO James Shaw said. "In this environment for cable deals, people are doing a lot more due diligence."
Advance/Newhouse already manages former Time Warner Cable systems with about 2 million subscribers in Central Florida and Tampa Bay, Fla.; Detroit; Birmingham, Ala.; Indianapolis; and Bakersfield, Calif.
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