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Malone’s Tepid Voom View

3/20/2005 7:00 PM Eastern

John Malone offered a less-than-ringing endorsement of efforts to keep the struggling Voom-branded satellite-TV service afloat, saying last week he wouldn’t put his own money into a third satellite competitor.

Malone, recently named by Cablevision Systems Corp. chairman Charles Dolan to that MSO’s board of directors, told analysts on a conference call discussing Liberty Media International results that HD-centric Voom did launch early in the high-definition product cycle. But its edge is being eroded as HDTV programming expands elsewhere.

LMI Assets At A Glance
($ in millions)
4Q04 4Q03
Revenue Operating Cash Flow Revenue Operating Cash Flow
UGC $775 $239 $516 $186
J-Com $415 $157 $347 $127
JPC $176 $23 $129 $19
Source: Liberty Media International

'WINDOW CLOSING’

“I believe that window is closing for them,” said Malone, LMI’s chairman and CEO. “They may still be able to squeak through it. They may find an existence as a subset of one of the major two distribution systems with that. I don’t know — that’s really a Cablevision issue.”

While not giving specifics, Malone said that he was approached last year to invest in a third direct-broadcast satellite provider, but passed because he didn’t think the potential return justified the risk.

“I wouldn’t do it with my money, let me put it that way,” Malone said.

Some had speculated Dolan picked Malone, former ITT Corp. chairman Rand Araskog and former Century Communications chairman Leonard Tow for the board because they’d be more sympathetic to Dolan’s entrepreneurial efforts to keep Voom afloat.

Dolan has been at odds with Cablevision’s board of directors concerning funding for Voom. And in February, the majority of the board sided with Cablevision CEO James Dolan to pull the plug on the DBS service.

But after Charles Dolan rejiggered the board, Cablevision gave him until March 31 to come up with a plan to secure funding to keep the service alive.

Malone said he was doing a favor for a chum.

“I joined the Cablevision board because Chuck Dolan asked me to, and he has been a friend for 40 years,” Malone said on the call. “And it seemed like I might be helpful to him, in terms of settling things down for him.”

It might be the last time Malone addresses analysts as CEO of LMI, which will be renamed Liberty Global after a planned merger with UnitedGlobalCom Inc. later this year.

As reported earlier, Malone will become chairman of Liberty Global and UGC president and CEO Mike Fries will retain those posts in the new entity.

Shareholders are expected to vote on the merger sometime in mid-May or June.

Liberty already owns 54% of UGC (and 91% of its shareholder votes).

Key to whether UGC shareholders accept the offer is the recent initial public offering of Jupiter Telecommunications Ltd., a Japanese MSO jointly owned by LMI and Sumitomo Corp.

LMI is offering little premium for the remaining 46% of UGC it doesn’t own. The higher the price for the J-Com IPO, the more valuable the deal is for UGC shareholders because LMI shares would rise in value.

In December, Liberty and Sumitomo contributed interests in J-Com to a joint venture – LMI Sumisho Super Media LLC – that owns a 65% interest in UGC.

On March 14, J-Com priced its IPO on the Japanese stock exchange (Jasdaq) at about $767.87 per share. That’s at the high end of J-Com’s pricing range of $672 to 767.87 and would raise about $837 million in cash.

J-Com is offering 1.09 million shares to the public, about 20% of outstanding shares.

J-Com is slated to begin listing on Jasdaq March 23.

J-Com is expected to use the new deal currency to acquire other, smaller Japanese cable companies.

At J-Com, revenue rose 20%, to $415 million, in the fourth quarter and operating cash flow rose 24%, to $157 million.

Video subscribers rose slightly from 1.41 million in 2003 to 1.48 million.

At its Japanese programming unit, Jupiter Programming Co., revenue rose 36%, to $176 million from $129 million, and operating cash flow rose 21%, to $23 million from $19 million.

UGC’S SOLID FOURTH

UGC shareholders had other news to be happy about. The international cable company reported another strong quarter of growth.

In the fourth quarter, UGC was one of LMI’s top performers, with revenue of $775 million (up 50% from $516 million in 2003) and operating cash flow of $239 million (up 28.5% from $186 million in 2003).

For the year, UGC’s basic video-subscriber count rose to 8.7 million from 7.3 million.

Internet subscribers rose to 1.4 million in the most recent quarter, from 923,000 in the fourth quarter of 2003, and telephone customers were up by 71,000, to 804,000 from 733,000.

September