MediaOne Group Inc. and Time Warner Cable have agreed to
swap systems in six states totaling more than 700,000 subscribers, keeping in line with
efforts by both companies to strengthen their clusters in major markets.
Time Warner will receive MediaOne systems in Ohio, Maine
and California, with about 350,000 subscribers. In return, MediaOne will receive an
undisclosed amount of cash and Time Warner systems in Massachusetts, New Hampshire and
Georgia, with about 310,000 customers.
The deal, which was brokered by Waller Capital Corp., is
expected to significantly enhance both companies' clusters of cable systems, creating
a large concentration in Massachusetts for MediaOne and likewise in Ohio for Time Warner.
Time Warner -- the largest MSO in Ohio, with 900,000
subscribers -- will add another 270,000 customers in that state. The company also will
enhance clusters in Southern California and Maine by 70,000 subscribers and 10,000
subscribers, respectively.
In Ohio, Time Warner gets systems in almost 200 smaller
communities near large cities like Cincinnati, Dayton, Toledo, Columbus and Cleveland.
The Dayton area -- which includes about 50 smaller
communities -- is the largest cluster, with about 175,000 subscribers, said Michael
Luftman, vice president of public affairs for Time Warner Cable. Luftman added that the
Dayton system also fits in well with Time Warner's Cincinnati cable operation.
Time Warner also gets systems in Saco, Maine, near its
Portland operation; and in Palm Desert, Calif., close to its system in Palm Springs.
Luftman said the deal is a classic clustering strategy --
trading systems in areas where it is not the dominant provider for systems in areas where
it is.
"We're giving up systems that are not near our
other major operations," Luftman said. "In Boston, we have [systems in] the
north shore but MediaOne is the dominant operator there. It made sense to trade
them in."
The Boston systems were ones that Time Warner had acquired
from Cablevision Industries.
Time Warner is one of the most clustered MSOs in the
country, with roughly 80 percent of its 12.6 million customers in cable systems with
100,000 subscribers or more.
MediaOne also makes out in the deal. Already the largest
provider of broadband services in Massachusetts, with 800,000 subscribers, the company
receives 240,000 additional customers in that state and in neighboring New Hampshire.
MediaOne also gets another 71,000 customers in Atlanta, adding to its 550,000-subcriber
hub there.
After the deal closes, which is expected later this year,
more than one-half of MediaOne's subscribers will be in markets where the company has
in excess of a 50 percent share of the area. And more than two-thirds of MediaOne
customers will be in markets where the company has at least 250,000 subscribers.
In Massachusetts, MediaOne gets cable properties with about
220,000 subscribers in Lynn, Salem, Malden, Medford, Somerville, Canton, Walpole,
Foxborough, Medway and Holliston.
Ted Henderson, an analyst who follows MediaOne for Janco
Partners, an Englewood, Colo.-based investment banker, said the deal is more evidence of
the push by cable companies to grow their clusters ever larger.
"This is strategic clustering between players,"
Henderson said. "They are trading [MediaOne]-owned systems with Time Warner systems
and strengthening their own clusters."
The deal also is expected to give MediaOne a leg up in its
strategy to offer telephone service to its cable customers. MediaOne already offers
telephony in 23 communities in Massachusetts.
Steve Lang, a spokesman for MediaOne, said that while the
company has been aggressive in rolling out its telephony services in several markets, just
what will happen in the Boston market has yet to be determined.
So far, MediaOne has been offering telephony in six
markets: New England; Atlanta; Jacksonville and Lighthouse Point, Fla.; Richmond, Va.; and
Los Angeles. Lang said the company's strategy has been to roll out telephony services
in its markets over its own network.
And the recent deal between AT&T Corp. and Time Warner
to offer AT&T-branded telephony services over Time Warner's cable network does
not affect MediaOne's plans for telephone service.
Although Lang said MediaOne has acknowledged that it has
spoken with AT&T and other companies concerning telephony, and it is open to the right
deal, he added that the AT&T-Time Warner pact doesn't change MediaOne's
telephony strategy.
One thing is for sure, however: MediaOne expects to make
high-speed Internet services available to its new customers.
The company already offers its MediaOne Express high-speed
service in its Boston systems. The former Time Warner markets that MediaOne will receive
as part of the deal will help to fill in gaps in its coverage.
"That whole metro area has high-speed data," said
Dave Wood, a MediaOne spokesman. "We continue to roll it out."
Those areas also have an attractive demographic when it
comes to high-speed services: Many of the service areas in Massachusetts are college
towns; the residents are Internet-savvy; and several communities are located near the
Route 128 belt -- a highway through the Boston area with a large concentration of
high-technology companies.
"Given the environment in Massachusetts and Greater
Boston, we believe that we will do very well there," Wood said.
