BRESNAN MAY GO NEXT

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Bresnan Communications is the latest venerable MSO to be
thrust into play as a result of burgeoning cable valuations.

The White Plains, N.Y.-based MSO — which has about
650,000 subscribers in Michigan, Minnesota, Wisconsin and Nebraska — hired Goldman,
Sachs & Co. and Waller Capital Corp. last week to evaluate the offers that have
already come over the transom.

“We have received unsolicited expressions of interest
from various entities seeking to purchase the company,” Bresnan said in a prepared
statement. “In order to satisfy our fiduciary responsibilities, Bresnan has retained
Waller Capital and Goldman, Sachs to represent the company and evaluate any offers we
receive. At this time, we have made no decision to sell the company.”

Although it has not yet begun to take bids, Bresnan would
attract a host of suitors. Charter Communications and Comcast Corp., both with sizable
clusters in Michigan, would logically head the list.

Charter has about 230,000 subscribers in Michigan — a
Bresnan stronghold — through its pending agreement to purchase Avalon Cable Inc.

Comcast currently has about 475,000 customers in Michigan,
and it could boost that number to between 900,000 and 1.3 million as a result of its
recent settlement with AT&T Corp. regarding MediaOne Group Inc.

One industry source, who asked not to be named, said that
while Comcast was most likely interested in the Bresnan systems, it probably wouldn't
want to get into a bidding war for the properties.

“From Comcast's standpoint, I don't know if
they have to go all the way to the stratosphere on this one,” the source said.
“They already have 8 million subscribers and a most-favored telephony agreement with
AT&T. I think this would be more of a 'nice to have,' rather than a
'need to have.'”

This doesn't mean Charter would be bidding for Bresnan
all by itself. According to several industry observers, practically any good-sized cable
operator is a likely candidate, provided they have the money to spend.

“[A total of] 650,000 subscribers makes you a player
anywhere you are,” one source said. “I think [Bresnan] will go quickly.”

Given the recent deal climate, potential bidders should be
willing to spend a lot.

CIBC Oppenheimer Corp. high-yield cable and
telecommunications analyst Aryeh Bourkoff likened Bresnan's operations to those of
another recently sold MSO — Los Angeles-based Falcon Communications Inc.

Falcon — which is also about half-owned by AT&T
— recently agreed to sell to Charter for about $3.6 billion, or $3,600 per
subscriber.

“I've always believed Bresnan and Falcon were
comparable companies,” Bourkoff said. “Bresnan's [systems] may be a little
more attractive because of the ability to offer new services. Bresnan and Falcon would
receive similar valuations. I think there are a lot of buyers for that kind of scale, and
Charter has got to be one of them.”

Bresnan had about $120 million in cash flow last year. If
the company fetched upward of $3,600 per subscriber, the deal would work out to 19.5 times
cash flow, or $2.3 billion.

But some industry observers believe Bresnan's
technologically superior systems would make them more valuable than Falcon's. Some
speculated that a price of between $4,000 and $4,500 per subscriber is eminently
thinkable.

TCA Cable TV Inc., a Tyler, Texas-based small-market MSO,
recently agreed to sell to Cox Communications Inc. for about $4,115 per subscriber.

Bresnan more than tripled its size earlier this year,
purchasing about 416,000 subscribers from Tele-Communications Inc. (now AT&T Broadband
& Internet Services) for an estimated $832 million.

The company is also in the middle of an aggressive upgrade
plan, spending about $110 million this year to rebuild its plant to 750 megahertz, two-way
capability. Bresnan spokeswoman Suzanne Thompson said roughly 75 percent of its plant
before the TCI deal was at 750 MHz.

Bresnan has also launched high-speed Internet service in
about 11 markets, under the “BresnanLink” and “Bresnan@Home” brands.
And the MSO has a telephony agreement with AT&T, although it didn't expect to
launch residential telephone service until next year at the earliest.

The MSO had been preparing to launch an initial public
offering — with Goldman, Sachs as one of the underwriters — when it was
approached by Waller to do a sale.

There has been speculation that AT&T, which owns a 50
percent stake of Bresnan, might be looking to sell off interests in various cable
partnerships to ease the regulatory scrutiny of its pending acquisition of MediaOne.

By the Federal Communications Commission's accounting,
the MediaOne deal boosts AT&T's cable interests to two-thirds of U.S. households
when attributable interests in MSOs such as Bresnan are included. AT&T disputed that
math, citing its outright ownership of only about 16 million subscribers on a pro forma
basis.

AT&T has said that it expects to comply with FCC
ownership rules, which now define an attributable interest at 5 percent voting control or
10 percent passive ownership of another MSO. The FCC rules also cap one company's
reach at 30 percent of households. Those rules are under review, and AT&T has said
that it expects the attribution definition to change. If needed, AT&T chairman C.
Michael Armstrong has said, the company would “trade ownership levels to accommodate
whatever the redefinition of attribution is.”

Most analysts believe AT&T's decision to sell
Comcast up to 2 million subscribers as part of the MediaOne deal was made partly to
appease regulators.

Insiders said that strategy apparently has nothing to do
with the Bresnan auction, though.

“It was basically market conditions and Waller's
past relationship with [Bresnan chairman] Bill [Bresnan],” one source said.
“Certainly, AT&T was involved in the discussion, but Waller actually had the idea
[to sell], and it went to Bresnan.”

AT&T Broadband spokeswoman LaRae Marsik said
Bresnan's decision to evaluate potential buyers has nothing to do with its
relationship with AT&T.

“TCI in the past, and now AT&T, continues to be a
very close partner of Bill Bresnan and looks forward to continuing to be,” Marsik
said. “Bresnan is doing what they need to do for the best interest of their
shareholders. Their intention has little effect on us and our current partnership with
them.”

Marsik added that it was still too early to determine how
AT&T's pending purchase of MediaOne would affect its other cable partnerships.

“Obviously, we are committed to pursuing the MediaOne
acquisition and completing it,” she said. “But it's too early in the
process to predict what effect, if any, [the acquisition] will have on the partnerships we
currently have.”

But some sources believe divesting the partnerships is the
most logical step for AT&T, especially since it has given up management control of
most of the systems in those partnerships.

“They would look a whole lot better going into
Washington with less than 60 percent [of the total cable market],” said one source
who asked not to be named. “They've given up management control anyway.
It's almost like parking a 40 percent or 50 percent interest. They've gone
through the pain of separating that out: Why hold onto it?”

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