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Cable Operators

A Man Who Loves Cable

3/06/2005 7:00 PM Eastern

Time Warner Inc. chairman and CEO Richard Parsons heaped laurels on his cable business last week, and compared the looming threat of regional Bell operating companies entering the video business to the hyperventilated fears of competitive overbuilds a few years ago.

At the Bear Stearns & Co. Media Conference in Palm Beach, Fla., March 1, Parsons said that despite investor fears about diminishing growth prospects in the cable business, Time Warner sees much potential.

He pointed to Time Warner Cable’s voice product — it ended the year with about 220,000 customers and is available throughout its footprint — and said the RBOCs are at a competitive disadvantage with their video product.

COMPETING ON PRICE

Comparing the telcos to the overbuilding threat of a few years ago, Parsons said the market will accept a level of “irrational competition,” but not for long.

“It’s not the first time cable plants have been threatened with overbuilders — that’s all we’re talking about here, people are going to come in and overbuild and then compete on price,” Parsons said. “Well, it’s an expensive proposition and it takes a long time and the markets will have to say, 'We’ll just sit back and let them burn through a bunch of capital because we like what the business looks like down the road at the end of this irrational competition.’ I’m not sure that’s going to happen.”

Parsons also made a case for continued acquisitions on the cable MSO side.

Without directly addressing Time Warner’s participation in the Adelphia Communications Corp. auction — Time Warner has reportedly made a joint $17 billion bid for the MSO with Comcast Corp. — Parsons said that adding scale, especially systems that have yet to roll out a full complement of advanced services, would be good for Time Warner.

“If you can roll out a suite of products onto a new footprint more rapidly, you can create real value by putting two cable companies together,” Parsons said.

ALCHIN: TAX EFFICIENCIES

At the same conference, Comcast co-chief financial officer John Alchin said on March 2 that the Philadelphia-based MSO’s participation in the Adelphia bid is tied mainly to its desire to unwind its 21% interest in Time Warner Cable, which it inherited as part of its purchase of AT&T Broadband in 2002.

“There is absolutely no question that the opportunity we have with Time Warner to tax efficiently exit our 21% interest in Time Warner Cable is a linchpin that keeps us involved in and keeps us interested in the Adelphia process,” Alchin said. “Time Warner is by any and every measure the largest player in the venture that is proposed.”

As part of the Federal Communications Commission’s approval of the AT&T Broadband acquisition, Comcast agreed to divest its 21% interest in Time Warner Cable by 2007.

While Alchin did not speculate on how many subscribers Comcast could receive as part of that deal, several industry observers have estimated the Philadelphia-based MSO could receive about 2 million subscribers.

“In terms of the integration challenge, because we’re looking at these properties in a way that involves filling in and expanding on footprint we already have, integration would be fairly simple,” Alchin said. “Integration would not involve some of the challenges presented to us in the AT&T Broadband situation, where a huge amount of rebuild had yet to be completed. That is not the case in Adelphia.”

September