Charter, AT & T Scrap Swap


Charter Communications Inc. and AT & T Broadband scrapped a system swap involving about 1.3 million subscribers last week after Charter discovered the AT & T Broadband systems needed more work than expected.

Charter and AT & T Broadband entered into an agreement for the systems in December. As part of the deal, Charter would give up systems in Fort Worth, Texas; Connecticut; Massachusetts; California; Tennessee; and Kentucky serving 632,000 subscribers for AT & T Broadband properties in St. Louis; Birmingham, Ala.; and areas of Illinois and Georgia with about 704,000 customers.

The companies said in a press release last Friday that they were unable to agree on the mix of assets and the values associated with those assets.

Charter's misgivings about the swap surfaced in May, when president Jerald Kent said during a first-quarter earnings conference call that the deal was being re-evaluated.

At the time, Kent said Charter discovered while conducting due diligence on the properties that some of the AT & T Broadband systems would require more upgrades than originally expected.

In June, Fort Worth assistant city manager Pat Svacina noted that Charter had not yet filed for a franchise transfer, prompting speculation that the AT & T Broadband deal was on hold.

"It looks like [the swap] is dead in the water," Svacina said at the time. "From what I see, Charter seems to be settling in for the long haul."

In a prepared statement, Kent and AT & T Broadband president Dan Somers expressed disappointment at scrubbing the deal.

"On the positive side, however, we continued to rebuild and upgrade our affected systems throughout these discussions, and they're generating extraordinary cash-flow growth as a result," Kent said in the statement.

Charter's Fort Worth system is doing especially well. In the first quarter, operating cash flow at that system was up 55 percent. The former Marcus Cable systems-of which Fort Worth is one-had 18.5 percent cash-flow growth and 2.4 percent subscriber growth in the period.

"Each company believes strongly in the value of its respective systems," Somers said in the statement. "While we're disappointed in the outcome of our talks, we're also pleased to continue providing the highest-quality broadband services to our respective communities."