Some rambling thoughts (my forte! <smile>) . . .
I got caught up tonight thinking about this latest $1B loan announcement and dug up a couple of figures to try and put one billion Wired World dollars in perspective. I'm not speculating that the money will be used to acquire a cable co, but it's interesting to note that all of this past year's big-dollar acquisitions have been MSO's. To put $1B in perspective here's the approximate dollars spent (in billions):
Charter Comm: 4.5 (PA's single biggest investment, to date)
Marcus Cable: 2.78
Besnan Comm: 2.1
Falcon/Fanch Cable: 3.6
As far as I can tell, the next closest (in terms of dollar amount) investment was in Go2Net, just short of 1/2 billion. Most of the deals reportedly involved cash and stock options (stock in what?, I don't know. From browsing through the SEC filings, all I know for sure is that these deals are very complicated and intertwined. In fact, ATHM still has contracts in effect with a couple of the providers for homes passed, while AT&T still holds a small stake in Charter). Per the Bloomberg article, the Charter deal involved a similar $1B loan. The Bresnan deal involved assumption of $1B debt.
Here's an excerpt from a May 26 article concerning the acquisition of Falcon Cable:
archives.seattletimes.com
Falcon was formed in 1975 to bring no-frills cable services to remote communities underserved by broadcast television, with most of its systems capable of delivering only 35 channels, compared with the 100 or more that have become standard as the industry has undertaken an expensive and ambitious modernization program. Falcon has operations in Washington, Oregon, California, Missouri, North Carolina and Georgia.
The harsh economics of upgrading systems in sparsely populated communities, where there are fewer houses for each mile of cable line, have kept small operators like Falcon behind the competitive curve - forcing more of them to sell out.
"The future of the cable business requires deep pockets," said Marc Nathanson, Falcon's founder and chairman who will become vice chairman and a member of the Charter board as a result of the transaction. "In talking to Paul Allen, I heard a vision I could believe in. He is going to put small-town America at the forefront of new technology because he believes people in these towns will have insatiable appetites for Internet services."
This all seems consistent with HSAC's focus and expertise on serving exurban markets. Personally, I agree with the contention that exurban markets will exhibit a strong demand for broadband cable access. Subscription rates will be much higher in these areas due to lack of alternatives (upgrade costs will also be proportionally higher and should not be overlooked). But business considerations aside, I just get the gut feeling that these decisions involve a great deal more than conventional dollars and cents wisdom. I imagine many exurban subscribers consider themselves underdogs in terms of ability to connect, and I see the Wired World strategy as a champion of this cause - the "equalizer" who realizes the needs of and potential benefits to exurban activities that the other big players ignore because of pure business decisions.
Today I was fortunate to hold a considerable position in NTRO while it gained over 50% on the day. It was a great quick pop, but to be honest, my investment in Wired World companies is far more satisfying over the long run because the "artistic investment" of PA is a great pleasure to be a part of (and fairly profitable, too!). Ticketmaster aside (blech!), the Wired World companies instill a lot of investor pride, but that's just me.
All FWIW, corrections welcome.
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