Seizing the chance to exit an increasingly competitive
business, Comcast Corp. last week agreed to deal away its cellular-phone operations to SBC
Communications Inc. for about $1.7 billion.
The deal will remove about $1.3 billion in relatively
expensive debt from Comcast's books, making it easier to engineer cable acquisitions
like its pending deals to acquire Jones Intercable Inc. and to invest in Prime
Communications LLC. Comcast also gets $400 million in cash.
Comcast said the sale price was about 10 times annualized
cash flow, although the multiple was probably closer to nine times the unit's
estimated 1999 cash flow. Some regional cellular companies have sold for more recently.
But Comcast's cellular business has suffered from
declining cash flow lately in the face of stiff competition, and the business looked to be
flat this year, analysts said.
In a call with analysts last Wednesday, Comcast president
Brian Roberts said its money was better spent elsewhere.
"We decided that wireless is more of a national and
soon to be international business," Roberts said. "We were not, for the long
term, going to be able to remain competitive with the kinds of margins and profits that we
enjoy today.
"Our focus is on the broadband plant, and it was
really just opportunistic of us to find a chance to sell now," he added.
Analysts were generally upbeat about the sale and the
price. Alan Gould, a cable and media analyst with Gerard Klauer Mattison Inc., said the
price was about $200 million less than he thought Comcast might have gotten. But he added
that he thought the deal was great for Comcast, nonetheless.
"I'm just happy to see them out of that
business," Gould said.
Comcast executives said they were pleased to be getting
out, too. One executive noted that when Comcast got into the business in 1988 and expanded
with an acquisition in 1992, the cellular business was a comfortable duopoly divided along
urban and rural market lines.
Today, the Philadelphia market alone is served by three
carriers with nationwide networks: AT&T Corp., Sprint PCS Inc. and Nextel
Communications. The other big carrier, Bell Atlantic Mobile, covers the entire East Coast.
"This is a reasonable exit for Comcast at a time when
wireless properties have been trading at a premium," The Yankee Group analyst Mark
Lowenstein said. Comcast Cellular performed well in Philadelphia, but it inevitably lost
ground against bigger rival operators. "Companies like Comcast in wireless are a
dying breed," Lowenstein added.
Roberts said Comcast Cellular, with about 800,000
customers, had managed to maintain top share of the Philadelphia market. But when
opportunities arose to expand the business -- such as when Vanguard Cellular Systems Inc.
sold out to AT&T for $1.5 billion in October -- Comcast stayed on the sidelines.
At least one other company also expressed interest in the
cellular operation, Roberts said.
Comcast offers wireless service under the "Comcast
Metrophone" brand in Pennsylvania, and it operates as "Comcast Cellular
One" in Delaware and New Jersey. Its market covers an area with about 8.4 million
people.
SBC is also buying Comcast's wireless systems in
Aurora-Elgin and Joliet, Ill., and 12 personal-communications-system licenses in
Pennsylvania that Comcast bought in 1997. SBC had already been operating the Illinois
properties under a management contract.
The deal helps to fill a gap in SBC's Cellular One
operations along the East Coast.
Roberts said there were no specific plans to redeploy the
cash and increased borrowing flexibility.
Comcast has aggressively seized opportunities when they
have arisen, though. Last month's deal to, in essence, buy Prime and its 430,000
cable subscribers for $1.45 billion over the next several years was the latest such move.
Earlier, Comcast agreed to buy control of Jones for about $700 million, and it may decide
to trade stock or pay cash for other outstanding Jones shares.
"There is nothing we are currently working on,"
Roberts said, when asked if Comcast planned to plow the $1.7 billion into cable
acquisitions. "Our philosophy has always been to do transactions
opportunistically."
Century Communications Corp. is currently on the block, or
at least exploring sale opportunities, but analysts said they think that Century's
expected $4.5 billion price tag is probably more than Comcast would want to pay.
Comcast said the cellular sale, which will probably close
in the third quarter, would cut its debt-to-cash flow ratio to about 3.4 times from 3.8
times. But when various transactions -- including the acquisitions of Prime and Jones
and the sale of the company's United Kingdom operations to NTL Inc. -- are factored
in, Comcast's leverage ratio will hold steady at about 4.5 times, treasurer John
Alchin said.
The company's war chest contains a trove of marketable
securities, including 24 million AT&T shares worth more than $2 billion, 50 million
Sprint PCS shares (which can't currently be sold) and 4.8 million NTL shares. Some of
that will probably go in the Prime deal, which starts out as a $735 million loan from
Comcast.
