Southwestern Bell buys D.C-area cable TV systems Phone company's move breaks barrier

February 10, 1993|By New York Times News Service

In the first transaction of its kind, a telephone company has acquired a cable television system, signaling the start of a race between the two industries to dominate the delivery of communication services of all kinds to the home.

Both industries want to use their elaborate networks to provide movies on demand, hundreds of channels of television programming and on-line electronic libraries. And advances in technologies, blurring the distinctions between what the two industries can do, have set off a Darwinian contest.

In yesterday's deal, the Southwestern Bell Corp. said it had agreed to buy two cable systems, in Montgomery County, Md., and Arlington, Va., from Hauser Communications Inc. for $650 million in cash and stock. Southwestern Bell provides telephone service in Southwestern states, including Arkansas and Texas. Telephone companies are not permitted to buy cable systems in areas where they operate phone systems, but can do so in markets outside their territories.

"Everybody has been waiting for the first move by a telephone company," said Dennis Leibowitz, who follows both the cable and the cellular telephone industry for Donaldson, Lufkin & Jenrette. "They want to get the experience of being in the cable business, and they want to offset the defensive risks that cable will offer competition in the phone business."

In the deal, Southwestern Bell acquired cable systems that jointly have 225,000 subscribers and are expected to generate about $60 million in cash flow this year, according to several executives with knowledge of the transaction.

That would put the price at more than 10.5 times cash flow, a lower multiple than the 12 or 13 times cash flow that comparable systems were fetching in the late 1980s when media properties were hot.

The deal also sets the stage for telephone monopolies in one region to raid the territories of others. That is because an advanced cable system could be equipped to handle telephone calls and would have something approaching the reach of the traditional local phone company. Southwestern Bell's purchase in the Washington area, therefore, could threaten the local phone provider, the Bell Atlantic Corp.

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