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Cablevision, With Bresnan in Fold, Set to Battle Qwest-CenturyLink

Cablevision Systems Corp., now that its moving west with the $1.37 billion purchase of privately held Bresnan Communications, is setting itself up for battle with Qwest Communications International Inc., soon to be owned by CenturyLink.

Qwest serves several million customers in 14 Western states and, once its joined with CenturyLink, will become the third-largest local phone provider in the nation. Bresnan, the 13th-largest cable company, claims 300,000 subscribers in four states where Qwest also operates: Colorado, Montana, Wyoming and Utah. But with the added financial and marketing resources from New York-based Cablevision behind it, Bresnan will go head-to-head even more with Qwest for broadband, television and phone users. Indeed, the greatest rivalry stands to come in the broadband sector as some macro factors converge.

First, for example, the U.S. federal government is pushing broadband adoption through its $7.2 billion broadband stimulus package. Cablevision and Bresnan will really feel the heat if Qwest receives the $350 million it requested to bring 12-40mbps broadband to a half-million homes, schools, businesses and hospitals. And second, communications service providers highest revenue is coming from high-speed Internet services as the global economy relies on connectivity, and as landline profits disappear. The race is on, then, for carriers and MSOs to lure as many subscribers as possible, and for as low a per-user acquisition cost as possible. Merging assets to create operational synergies often helps reduce such expenses.

Thats not to say Qwest wont have a fight on its hands either. Even though it boasts a $9.18 billion market cap, as compared to Cablevisions $7.59 billion cap, Qwest has suffered enough from the dot-com bust and from the Joe Nacchio antics that it has yet to regain its previous, more solid, footing. Thats part of why the Denver-headquartered company is selling to CenturyLink.

Bresnan, meanwhile, is selling to Cablevision after turning down bids from companies including Charter Communications, Suddenlink Communications and private-equity firm TPG Capital. The Wall Street Journal said offers ranged from $1.1 billion to $1.4 billion. But Bresnan executives apparently saw the most promise for growth and stability in Cablevision ownership. However, some observers are a bit wary of the deal, announced June 14. At least one analyst called Cablevisions purchase price too high, compared to what some Bresnan competitors are worth, and the Journal said investors fear Cablevision wont pull off the deal well, citing the 2008 acquisition of Newsweek as a flop. Theres also little insight into what Cablevision plans to do with Bresnan. Other than closing the smaller operators main offices, synergies remain unclear.

Cablevision will buy Bresnan through a newly formed subsidiary with standalone financing, the companies said. The subsidiary will receive no more than $400 million from Cablevision and will issue about $1 billion in debt to pay for the transaction. Cablevision COO Tom Rutledge will run the Bresnan properties.

The takeover should be finalized late this year or early next, a little before CenturyLink closes the Qwest deal.


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