Cable's Consolidations
Regulation relief may spur further system consolidation
By Evan Blackwell
from the March 19, 2001 issue of Broadband Week
AT&T Broadband continued making good on its debt-reducing business strategy late last month when it began selling off cable systems in some of its smaller markets in order to focus on larger metro areas. Now, thanks to a recent court ruling, fellow cable giants could be the ones snapping up future AT&T system offerings. In the meantime, regional operators are enjoying a resurgence of sorts.
Consolidation or no consolidation seems to be the question that will likely be answered in the cable marketplace. On the legal front, a decisive ruling from the U.S. Court of Appeals on March 2 may turn out to be the catalyst that jump starts system-gobbling once again. Previous FCC regulations placed an ownership cap on cable operators that forbid any of them from owning more than 30 percent of the pay television market. But, after challenges from the likes of AT&T and AOL Time Warner, the District of Columbia circuit court overturned the limiting FCC rules, calling them a violation of the 1st Amendment. The Court then sent the matter back to the FCC for re-consideration. With Republican Michael Powell now in charge at the Commission, analysts have speculated that the rules will be altered with less severe caps on system ownership. And while some large operators like AT&T are still strapped for cash, others like AOL Time Warner or Comcast would have no problem generating the funds to buy more systems should the regulations be lifted, or lightened.
The dramatic court ruling alarmed several consumer groups and came at a time when regional operators were rebounding quite well under the regulated market conditions. On Feb. 27, AT&T sold off cable systems from second- and third-tier markets in four states to New York's Mediacom Communications. A day later, AT&T completed a swap with Charter Communications that unloaded some more similar operations and allowed it to gain systems in Miami Beach, Fla.
AT&T's strategy paid huge dividends for Mediacom, who ponied up $2.2 billion to double its number of subscribers to around 1.6 million. It also begged the question of whether or not the regional cable operators were due for an extended comeback. Mediacom CEO Rocco Commisso stressed that his company didn't plan to stand pat with its new markets, but would "aggressively upgrade the remaining AT&T Broadband cable systems."
Daniels & Associates, the Denver financial services firm that brokered both of AT&T Broadband's recent deals, believes a regional comeback won't be a mirage. Daniels CEO Brian Deevy says any market changes that benefit smaller businesses should be viewed as positive on the whole.
"We're excited to see that some of the mid-size entries are becoming more prominent," Deevy said. "What you're seeing is some of those guys coming back in a big way."
The group at Daniels won't speculate on where the next regional expansion deals, if any, will come from. However, Deevy says that regional success stories aren't difficult to find. Insight Communications, Millennium Digital Media in St. Louis and Alaska's GCI are all examples of operators performing well by serving smaller markets.
"There are a lot of small and medium-sized regional operators out there that are great businesses," Deevy says. "If you're run well, you can still do well without having five million subscribers."
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