AT&T Shops Rural Systems

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AT&T Broadband is shopping rural and secondary-market systems with about 1.2 million subscribers to operators across the country in an effort to shed non-strategic assets and raise some money to pare down mounting debt.

According to sources, the systems are located in Montana, Iowa, Nevada, Wyoming and a few other states; the size of the individual systems varies from a few thousand to several thousand subscribers. The package also includes larger operations in Des Moines and Cedar Rapids, Iowa, and Reno, Nev.

The plan was reported in last Monday's Wall Street Journal.

AT&T is apparently offering the systems to all takers. But according to some observers, the list of potential buyers may be dwindling rapidly.

SG Cowen Securities Corp. cable analyst Gary Farber said that beyond second-tier market operators like Mediacom Communications Inc. and Classic Communications Inc., there's likely to be little interest in the systems.

Classic, with a severely depressed stock price and a recent management restructuring, looks like an unlikely buyer at this point. Mediacom declined comment.

"This time out, the demand does not exceed the supply," Farber said.

Cox Communications Inc. may have an interest in the Reno system because it is near other Nevada properties the company owns. Some analysts have speculated that Charter Communications Inc. could be interested in the Montana, Iowa and Wyoming properties because of its past focus on rural markets.

Other potential suitors include Comcast Corp. and Adelphia Communications Corp.

Comcast and Cox were initially thought to be the front runners for the systems, because they could swap their exchange rights in Excite@Home Corp. stock in return for subscribers.

AT&T increased its voting control in the data-over-cable service provider to 74 percent earlier this year and also agreed to eventually buy out both Cox and Comcast's put rights for Excite@Home shares at $48 each, or about $3 billion.

AT&T has been under criticism lately because of its heavy debt load-about $62 billion-and Wall Street has pressured the company to pare down its debt. Getting rid of the Excite@Home warrants would help to do that while consolidating ownership of the data-over-cable provider.

AT&T is reportedly offering the rural systems at about $2,500 per subscriber, considerably lower than the average of $4,500 to $5,000 per customer. But according to some sources, the AT&T systems will require substantial upgrades.

"Some of them are in good shape, but others will need an investment of at least $1,000 per sub to upgrade," said one source close to the deal.

Farber said that price will be the paramount issue for any company that decides to bid on the systems.

"All these guys are interested, but the key issue is at the right price," Farber said.

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