MSOs Again Eye Cashing Out in Sprint

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The Sprint PCS partnership is in play again.

The backers of Sprint PCS are once again talking about
restructuring the business in hopes of achieving an arrangement that is more conducive to
allowing the parties to cash in on all or part of their shares in the venture.

Similar efforts came to naught a year ago, so why did
sources close to the matter say there was a greater likelihood that a new deal would be
worked out this time? The venture has succeeded in establishing a market base over the
past year, and the parties now seem more insistent on achieving such a restructuring. But
it was clear that hard bargaining lies ahead before anything can be announced.

'I'd expected a new deal to be announced this
month, but now, I'm inclined to say that it will happen this quarter,' commented
one Wall Street source, asking not to be named. 'It's been obvious since the
beginning of the year that something would have to give.'

The new impetus for a deal stems from a 'triggering
mechanism' built into the original partnership agreement, which provided that if the
parties couldn't agree on a budget for either fiscal-year 1997 or 1998, they would
have the option to call for a new deal.

While a 1997 budget was eventually agreed upon in lieu of a
renegotiated structure, the first-of-the-year deadline for the 1998 budget came and went,
setting new talks in motion.

'There is a triggering mechanism, but I don't
have any information to give you on how it's being used,' said LaRae Marsik, a
spokeswoman for Tele-Communications Inc., which, with a 30 percent stake, is partnered
with Comcast Corp. (15 percent), Cox Communications Inc. (15 percent) and Sprint Corp. (40
percent) in the venture. 'The companies involved are looking at a lot of
possibilities.'

'I think it's been fairly well known for some
time that the moment would come when we had to resolve questions about the whole
partnership,' said a senior executive at one of the partner companies, asking not to
be named. 'It boils down to a question of who buys out whom.'

Three weeks ago, Cox CEO James Robbins voiced
disappointment at how the possibility of delivering wireless personal communications
services via microcells attached to cable networks has played out. But the company said
his remarks in no way reflected dissatisfaction with the partnership.

'I can only speak in terms of Cox,' said Cox vice
president of public affairs Dave Andersen. 'We're happy with the
partnership.'

Comcast officials declined to comment.

Analysts said Comcast and TCI were the primary movers in
efforts to restructure the partnership, just as they were a year ago.

At Sprint, spokesman Tom Murphy said talk of restructuring
'is all hearsay and speculation at this point.

'We remain committed to the business, and we have been
since the first day,' Murphy added, noting that the commitment has paid off with
service launches in 134 markets involving 600 cities and a subscriber base now reaching
the 1 million mark. 'I don't foresee any changes in the partnership at
all.'

Speculation about a breakup in the past centered on the
possibility of an initial public offering as a way to give the parties a means of
achieving liquidity in the partnership. But there are other options, as well, including an
exchange of Sprint shares for the cable partners' shares in the venture, noted
Spencer Grimes, an analyst with Smith Barney.

'But the dilution that would cause in Sprint shares
might be hard for Sprint management and its board to accept,' Grimes added.

The problem with an IPO based on the venture as it is now
structured is that it would leave in place the majority control exercised by the cable
partners, noted one Wall Street source, who did not want to be named.

'Sprint would want to gain majority control before
going to an IPO, and the cable partners would probably insist on a premium for giving them
that,' he said. 'I suspect that's where the negotiations are focused.'

Originally, the cable partners anticipated that the
affiliation with Sprint would lead to use of cable's infrastructure not only to
support delivery of wireless services, but also to offer voice services benefiting from
Sprint's long-distance and marketing clout.

But the cable-phone push bogged down as technical problems
got in the way and, as Andersen noted, Sprint PCS decided that it couldn't wait for
cable upgrades to begin deploying its wireless services.

Cox, which won a pioneer's preference from the Federal
Communications Commission for its work in helping to develop PCS-over-cable technology
using 'cable microcell integrators,' has been the only MSO to put the technology
to commercial use. One-half of the coverage for Sprint PCS in San Diego is accounted for
via CMIs, according to company officials.

'The technology has proven itself with flying colors,
and it is an integral part of our operations here,' said Marty Zajik, a spokeswoman
for Sprint PCS in Southern California.

But beyond that point, as Robbins noted, manufacturers
'have found no market for cable-based PCS.'

Sprint has been talking to cable companies about using CMIs
in areas where zoning restrictions, as well as terrain and other obstacles, limited
over-the-air signal coverage. So far, no deals have been struck, although there are signs
that this is about to change.

Andersen said it looked as though arrangements for the use
of CMIs over at least one MSO's system in the Los Angeles area were firming up. But
while other deals might take shape elsewhere, as well, overall, the role for cable in PCS
has been far less than anticipated, he said.

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