AT&T Corp.'s Broadband unit is trying to quietly unload some of its newly acquired cable-TV systems that could be worth at least $3 billion, according to some estimates.
According to people familiar with the matter, AT&T Broadband has placed about 1.2 million cable-TV subscribers in Montana and Iowa on the auction block. A couple of big cable-TV operators have taken a look, but so far no serious buyers have emerged, The Wall Street Journal said Wednesday. AT&T declined comment. A previous plan to sell some of the same cable-TV assets is believed to have died after opposition from John Malone, the powerful AT&T board member.
One person close to the company said the latest sale attempt is aimed at better "clustering" AT&T's cable-TV properties. Many of the systems for sale are located in rural areas that aren't strategically aligned with the rest of AT&T's expansive cable-TV empire, this person noted.
The move comes at a time when AT&T is under increasing pressure to conserve cash and boost its flagging stock price. AT&T recently announced plans to cut its dividend substantially.
AT&T, facing intense scrutiny from credit-rating agencies because of its $62 billion debt load, is planning major, nonstrategic asset sales over the next several months. The sales are aimed at shaving $25 billion in debt off the books and come on the heels of a plan to break the company into three separately traded companies, consisting of cable, wireless and consumer long distance combined with business services. Two other significant cable divestitures could be the sale of AT&T's 25% stake in Time Warner Entertainment and its 30% stake in Cablevision Systems Corp.
AT&T's stock price has lost more than 60% of its value this year amid Wall Street concerns about AT&T's execution of its shifting strategy and a downturn in the telecom and technology sectors. In 4 p.m. New York Stock Exchange composite trading, AT&T rose 63 cents to $20.38.
Most of the cable-TV properties AT&T Broadband now is shopping were formerly owned by Tele-Communications Inc., which AT&T acquired in early 1999. AT&T won't say how much it paid per subscriber, but says it paid a "blended" average of $2,600 apiece for each of the 16.1 million subscribers it got in the TCI and MediaOne Group transactions. Once all announced cable-system deals have closed, AT&T will have about 15.3 million customers.
Some industry analysts estimate AT&T paid around $3,000 per subscriber in the TCI deal, and about $5,000 a head in the MediaOne Group deal, which also included a portfolio of international assets.
It isn't clear how much the systems in Iowa and Montana would fetch in the current market. Prices for cable subscribers have been dragged down by troubles in the equity markets. Media broker Tom MacCrory of Communications Equity Associates said subscriber prices in urban and suburban markets remain strong at about $4,500 to $5,500 a head. But he said customers in smaller rural systems are fetching just $800 to $1,200 apiece these days, in part because of the expenses involved in upgrading those systems.
MacCrory guessed that AT&T's properties in Montana and Iowa could fetch anywhere from $2,500 to $3,000 a customer, depending on the quality of the cable plant, the local economy and competitive factors. "They're nice systems; they [AT&T] just missed the market," MacCrory said.
A previous effort by AT&T Broadband to sell off the Montana and Iowa systems fell apart in the face of opposition from Malone, the former chairman of TCI and a big AT&T shareholder and director.
According to people familiar with the matter, Dan Somers, president and CEO of AT&T Broadband, agreed this fall to sell the Montana and Iowa cable subscribers for about $2,600 apiece to two former cable executives. The $3 billion deal would have left AT&T Broadband with an immediate tax hit, people familiar with the transaction say.
Malone promptly challenged the deal price and structure, these people say, particularly taking issue with the tax consequences of the transaction. Malone ultimately took his concerns directly to AT&T Chairman C. Michael Armstrong. The deal died.
Another cable deal by Somers unwound in the face of objections from yet another board member, Amos Hostetter.
According to people familiar with the matter, Somers reached agreement to swap about one million cable subscribers with Charter Communications Inc., St. Louis. But the trade would have left AT&T with a cache of systems that Hostetter considered subpar, leading the cable pioneer to raise a ruckus. That deal, too, quickly died.
An AT&T Broadband spokesman declined to comment. But he did note that it is routine for board members to weigh in on cable transactions that AT&T Broadband is considering.