Ops Await SBC/Ameritech Fallout

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Once again, cable operators are wondering what will happento one of their toughest competitors now that it is being consumed by SBC CommunicationsInc.

MSOs have reason to hope that SBC's proposed acquisition ofAmeritech Corp. -- valued at $62 billion when it was announced last Monday -- will atleast slow Ameritech's Midwestern cable onslaught.

In two years, the regional Bell operating company's cablearm, Ameritech New Media, has racked up more than 100,000 subscribers, pursuing anoverbuild strategy that has left industry analysts scratching their heads over theeconomics and wondering what Ameritech chairman Richard Notebaert saw that they couldn't.

SBC, meanwhile, scrapped Pacific Telesis Group's nascentcable efforts after it bought that RBOC last April. SBC went ahead with the launch ofPacTel's digital wireless cable system in Los Angeles, but it has since been negotiatingto sell it to Prime Cable.

SBC also abandoned its own domestic cable operations,agreeing last fall to sell systems in the Washington, D.C., area to a group includingPrime, and shuttering its cable system in Richardson, Texas.

SBC has a pending deal to buy Southern New EnglandTelecommunications Corp., as well, and many Wall Street analysts believe that deal couldsignal the end to SNET's plan to overbuild cable operators throughout its Connecticutterritory.

Furthering the perception of a pullback from wired cable,in March, SBC announced resale agreements with direct-broadcast satellite providersDirecTv Inc. and U.S. Satellite Broadcasting.

But operators that have been overbuilt by ANM are notcrowing yet. Said Ed Wood, CEO of Coaxial Communications, which competes with ANM inColumbus, Ohio: "Our philosophy is to believe what they've said. They're in for thelong term, and we're in for the long term, and we can't afford the luxury of speculatingthat they're not going to be."

The Ameritech deal will probably take at least a year toclose, the two companies figured. In the meantime, it's "business as usual,"spokesmen from both companies said.

SBC chairman Edward Whitacre Jr., in one of his fewcomments on Ameritech's cable business, told analysts in New York last week that"Ameritech has done video differently from how SBC has done it, and they do have somegood properties that we will look at and closely examine," an SBC spokesmanconfirmed.

ANM vowed to keep adding to its current roster of 72 cablefranchises in the Chicago, Detroit, Cleveland and Columbus areas. In at least somemarkets, ANM claims that its Americast customers outnumber those of the incumbent cableoperators.

Last week, ANM kicked off service in Trenton, Mich., whichit said gives it 50 operating markets. And ANM officials are scheduled to meet withChicago officials Wednesday (May 20) about their application for a franchise covering abig chunk of the city. About 30 additional franchise agreements are in the works,according to Donna Garofano, ANM's vice president of public affairs.

Garofano said a few franchise authorities called her lastweek, asking what the merger would mean for Ameritech's cable commitments. She said shebasically told them, "We intend to fulfill our commitments, and this is business asusual."

The cable industry has seen a lot more consolidation thanthe regional phone business has, Garofano noted, and many franchise authorities have dealtwith three or four new owners of their local cable systems. If anything, this"prospective merger, down the road," means less work and worry for them, shesaid.

SBC -- the share price of which has fallen since before thedeal was announced, trimming the value of the all-stock deal -- laid out plans to competefor residential and business customers outside of its service territory as part of acampaign to persuade regulators that the deal would enhance competition. Whitacre toldanalysts last Monday that the combined company would enter 30 cities outside of itscombined 13-state (with SNET) region, claiming that the scale economics of the new entitywould make such a strategy economical.

The deal could face a tougher time than past Bell mergers,anyway. Senate Commerce Committee chairman John McCain (R-Ariz.) lamented the apparentresults of the 1996 Telecommunications Act. Since then, he said, "we have seenconsolidations within the industries; we have seen mergers, rather than competition; andwe have seen increased rates, whether they be in cable, or local, or long distance --indicating again that the 1996 Telecommunications Act, whether it was intended so or not,protected industries and protected everybody but the consumer. It again argues for are-evaluation of the unintended consequences of the Telecommunications Reform Act of1996."

Some state regulators will have a say, as well. In Ohio,for example, state law gives the Public Utilities Commission jurisdiction over theacquisition of a domestic telephone company. "The commission will certainly want tolook at the impact, if any, on competition," PUCO spokesman Dick Kimmins said."It will want to see if Ameritech customers will benefit from this." The PUCOwill likely want to look at how SBC proposes to deal with Ameritech's inability in thepast to meet the commission's minimum-service standards

In addition to facing video competition from the telcos,cable operators that want to offer phone service have to deal with phone companies onnetwork-interconnection agreements.

One cable-industry executive last week worried that SBC'scorporate philosophy -- which he characterized as "blatantly anti-competitive"-- could result in trouble down the road for the RBOC and its potential competitors.

"As difficult as Ameritech can be to work with, SBC isseen as the RBOC that is even tougher to deal with," the industry official said."At least Ameritech gives lip service to the benefits of competition. SBC doesn'teven do that." That approach, he said, could backfire on SBC and prompt some stateregulators to take a hard line on approving the deal.

Tele-Communications Inc. president and chief operatingofficer Leo J. Hindery Jr., whose cable systems compete against ANM's in Trenton andelsewhere, said he had no feel for whether SBC would throttle back Ameritech's cableambitions.

But Hindery, who is also chairman of the National CableTelevision Association, said, "I do believe that the merger is helpful to ourindustry from a public-policy point of view, in that it suggests, at least to me, that ourindustry represents the best wireline alternative to big telephone companies. If peopleare questioning the '96 Act, they should perhaps question [the merged] Bell Atlantic[Corp.]-Nynex [Corp.] and SBC-PacBell [Pacific Bell]/Ameritech more than they are doingright now."

Ted Hearn and Joe Estrella contributed to this report.

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