New York -- Investors who didn't get enough news about
cable operators' plans for telephony, data and digital television at the Western Show got
another dose last Tuesday at the PaineWebber Media Conference here.
Cablevision Systems Corp., Century Communications Corp.,
Cox Communications Inc., Comcast Corp. and MediaOne Group Inc. executives made pitches
that day. Judging by the immediate market reaction, Cox benefited the most. Its stock
price rose $4.25 Tuesday and $2.08 on Wednesday, when it closed at $60.
To varying degrees, most cable companies nowadays are
playing the AT&T card, welcoming AT&T Corp. as a potential ally for local phone
service while waiting to see how good a deal Time Warner Cable gets for being the first
and biggest partner. Time Warner is believed to be farthest along in telephony
joint-venture discussions with AT&T, and it has the clout to demand the best deal of
Cox already offers local phone service over cable
facilities in several key markets, and chief financial officer Jimmy Hayes ran through
some of the numbers at the conference. He said Cox went into the phone business believing
it could break even at about 10 percent penetration per market. Over time, the company has
adjusted that number only slightly, now feeling it needs 10 to 12 percent of the market.
"Based on our experience thus far achieved in some of
the early nodes that we've launched, we feel very comfortable we will be able to well
exceed this sort of penetration," Hayes said. Even so, Hayes said during a question
period that Cox was open to talking to AT&T, and that the AT&T brand could add
Comcast has done little with cable telephony beyond trials
and research into Internet protocol-based service. But its senior executives said last
week that telephony was a priority for the company -- probably with a partner that favors
the IP approach.
Comcast treasurer John Alchin said telephony presents a
"huge" opportunity, although just how Comcast will deploy telephone services has
not yet been determined.
"We know this business; we've been in it in the U.K.
[United Kingdom]," Alchin said. "The opportunities we see range from being a
wholesaler to a retailer. By the end of the first quarter next year we will be in the
He was referring to the expected closing date for Comcast's
$500 million purchase of a majority interest in Jones Intercable Inc., which has a
telephony operation in the Washington, D.C., area.
Alchin said Comcast will most likely partner with another
company in the telephony market, and confirmed that it has been in discussions with
AT&T. However, no deals are imminent, he said.
"We probably will be going with someone else [in
telephony]," Alchin said. "If we were going it alone, we would have had to be in
[the market] a year ago."
MediaOne, a key player with phone operations in six markets
and a stake in Time Warner Entertainment, also seems open to an alliance. But CFO Richard
Post restated the company's position that AT&T still hasn't made a convincing case
after trying out "90 to 100" variations over the last couple of years.
"To date, everything we've seen of the economics would
actually be a degradation of the business case," Post said. "That's not to say
we can't get there. I think we're all encouraged that AT&T is as interested as they
are in participating in this industry. I think it's a real plus to have that brand in the
Overall, MediaOne's top priority is to aggressively expand
its high-speed data service while it still has a 12-to-18-month head start over telco
offerings, chief marketing officer Julie Dexter Berg said. MediaOne Express has about
73,000 customers, growing at about 2,400 per week, she added.
AT&T will own Tele-Communications Inc.'s one-third
equity in Cablevision after the TCI acquisition closes, and Cablevision investor relations
vice president Frank Golden said his company hopes to strike a cable telephony deal with
AT&T. So far, no "substantive discussions" have taken place, he said. With
its Lightpath unit, Cablevision has a strong commercial telephone business on Long Island,
N.Y., just outside of New York City, and is extending it to Connecticut in the first
quarter of 1999.
Golden also said Cablevision's high-speed data service, now
claiming about 6,900 customers, will have a bigger market base by the end of the year. He
said about 370,000 homes in the MSO's territories were "modem capable" as of
Sept. 30, growing to over 700,000 by year's end.
Century also will have strong AT&T ties, via its
pending partnership with TCI in Southern California. CFO Scott Schneider said Los Angeles
is already a key market for AT&T, which has stepped up its ownership of wireless phone
assets there. "We're talking to AT&T" about local phone opportunities in Los
Angeles, Schneider said, adding that he expects local phone service would be bundled with
wireless and long-distance offerings.
Schneider also emphasized Century's upgrade plans. In
markets where it had planned to expand capacity to 550 megahertz, Century now plans
750-MHz upgrades. And that minimum may grow to 860 MHz, based on new service bandwidth
requirements and declining upgrade costs, he said.
Asked whether Century might be considering a sale to Paul
Allen or other possible suitors, Schneider said, "We've demonstrated with Centennial
that we've done what nobody thought we would ever do, which is sell something." After
lowering the previously agreed-on sale price by about 5 percent, Centennial's $2
billion sale to the buyout firm Welsh, Carson, Anderson & Stowe seems likely to close,
Schneider added: "We're cognizant of values. We're
cognizant that we're fiduciaries for our shareholders, both our principal shareholders and
our public shareholders. And valuations are quite high right now. So just as any good
public company does, we don't lock our front door."
If Century were to seek buyers, it might want to contact
Comcast, judging by the Philadelphia-based officials' comments at the conference.
Fueled by a war chest fattened with $2.4 billion in stock
from the sale of Teleport Communications Group to AT&T and its holdings in Sprint PCS,
Comcast is in acquisition mode.
Vice-chairman Julian Brodsky said Comcast always is looking
at potential acquisitions, but that the company will be able to increase its focus on
potential purchases after the first quarter of 1999, when the Jones acquisition should
"I'll tell you what we will do -- we will try to
expand in the cable business. We will look at every sizeable opportunity that comes
along," Brodsky said. "What we won't do is pay down our debt. If we
can't find productive uses for those funds, we will buy back shares."