|
Joshua Cho
While most industry execs and analysts attending the National Show in Chicago last week were promising that cable is ready to execute on its broadband promises, at least one investment fund said it was "getting out of Dodge."
Speaking at a panel ironically titled "Visions of the Future," Frank Yeary, managing director of New York-based The Carlyle Group, said that a combination of super-high market valuations and new and emerging competitive players in the field made it a good time to exit as investors in the domestic cable industry.
"We have monetized most of our cable holdings," Yeary said. "This is a business where the large consolidators see a lot more value in the business than stand-alone operators."
Indeed, one needed only to attend the convention's general sessions to reiterate that viewpoint: The opening session starred AT&T Corp.'s C. Michael Armstrong; the second day's general panel session featured a dais with Vulcan Northwest chairman Paul Allen, Time Warner Inc.'s chairman and CEO Gerald Levin and Comcast Corp.'s president Brian Roberts.
In contrast to Yeary's assessment of cable stocks was the bullish Merrill Lynch & Co. analyst Jessica Reif Cohen, who in addition to also being a panelist at the session, gave a short slide presentation.
Among Cohen's projections was one that estimated that by the year 2008, basic cable would enjoy 80% penetration; digital would have 65% penetration; data would have 30%; telephony 35.4% and VOD 60%.
In reaction to those assumptions, Yeary said, "When we run our analysis, it's difficult to get returns at (current) multiples." Unfortunately, Cohen was unable to respond. She departed midway through the session due to a presentation she was scheduled to give at a conference in Europe.
Yeary also believes that cable operators will increasingly find their space invaded by incumbent local exchange carriers, data CLECs and ISPs - "which in two to three years will have voice over IP" - wireless PCS cellular businesses and more importantly, RCN-like companies which will overbuild in dense metropolitan areas, using 860MHz plant with a "Siamese drop" at the home consisting of coaxial cable and twisted pair.
"We see a lot of other people coming at a very attractive business," Yeary said. "There is a lot of attention from a lot of companies focusing on all those new services."
RCN is a threat to cable, Yeary said, because they focus only on upscale communities in the densely populated eastern seaboard corridor from Maryland to Boston and on the West Coast from San Diego to San Francisco. By focusing only on select upper demographic areas, RCN was only shelling out 60% of what it would cost to build the entire region, something like $800-$900 per home passed, and it had the money to do it.
Yeary also said that RCN would only need about 25% penetration in high-speed data, video and telephony to have a good business.
However, also on the dais was Tim Rigas, EVP of Adelphia Communications, Corp., who commended Cohen's analysis, calling it a "road map that we just have to follow."
But Yeary's projections were backed up by another panelist, Vulcan Northwest Inc. president Bill Savoy, who said that overbuilding was a natural occurrence.
"You're going to see overbuilds," Savoy said.
Earlier, Savoy had said that cable companies had to be proactive rather than reactive.
"The challenge is to aggressively bring new technology to customers in the home," he said. "We'd better bring devices that engage in all these new transactions before customers ask for it," especially in light of the fact that current subscriber valuations of $4,000 and up assume value accretion from new services.
As a confirmation of overbuilding concerns, last week the town of Pocahontas, Iowa, voted to build its own cable and telephone system to compete with AT&T Broadband & Internet Services, citing unsatisfactory rate increases.
Back to this issue
|
