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TCI, Microsoft in Negotiations
That Could Lead to Major Stake
By EBEN SHAPIRO
Staff Reporter of THE WALL STREET JOURNAL
Microsoft Corp. is in talks to possibly invest between $600 million and $1 billion in Tele-Communications Inc., one of the nation's largest cable-television operators, according to people familiar with the negotiations.
Microsoft and TCI declined to comment. The people familiar with the negotiations cautioned that no deal had been finalized and that the talks could unravel. But an investment by Microsoft would, among other things, provide the financing TCI needs to pay for a huge order of the next generation of digital cable boxes that would provide high-speed Internet access, plus access to hundreds of digital cable channels.
Microsoft Invests in Comcast, Gaining Foothold in Cable TV (June 10)
Join the Discussion: What will Microsoft's growing involvement in cable companies mean to future attempts to merge cable and the Internet?
An investment in TCI, the nation's largest cable operator, would be yet another boost for the cable industry from the Redmond, Wash., software giant. Microsoft's $1 billion investment in Comcast Corp. in June almost single-handedly reversed perceptions about the cable industry and rekindled Wall Street's interest in cable shares.
TCI's stock has climbed about 20% since last month, and speculation has been mounting that the company was preparing some kind of deal. At a Goldman, Sachs & Co. conference last week, TCI's president, Leo J. Hindery Jr., said the company would announce a strategic venture that would lift the value of all cable stocks "by the first snowfall." And Microsoft executives recently have said that they were mulling investing in other cable companies.
TCI stock closed at $23 a share, up 6.375 cents, in Nasdaq Stock Market trading Tuesday.
One possibility, people on Wall Street said, is that Microsoft could acquire some of the shares formerly controlled by the estate of the late TCI founder Robert Magness. The bulk of those shares were sold to Merrill Lynch & Co. and Lehman Bros. for more than $500 million to settle tax problems for Mr. Magness's heirs, with the understanding that the shares would be eventually be repurchased by TCI.
A number of reports have suggested that Microsoft and TCI were talking about deals such as TCI buying converter boxes using some Microsoft technology. But the people familiar with the situation said the talks are more far-reaching than that. It isn't clear whether Microsoft would have an equity stake in TCI; in the case of Comcast, Microsoft acquired an 11.5% stake.
Microsoft has been maneuvering furiously to influence the design of the new set-top boxes that will help bring the Internet to the nation's living rooms through cable wires. Microsoft executives have said that they consider success in penetrating the "living room" market for non-personal computer consumer-electronics devices, particularly television, to be a strategic necessity for the company in a long run.
The reason goes beyond Microsoft's desire to have another market for its system software; the company is worried that a rival operating system that takes hold in consumer-electronics devices could then encroach on its core Windows business for PCs.
People familiar with the talks say that TCI has been adamant that the boxes have an open architecture that would not benefit Microsoft at the expense of other software and hardware companies, so it isn't clear how much influence Microsoft would have in the operating system of the new set-top boxes to be ordered by TCI. TCI is expected to order between 500,000 and one million new boxes.
Using cable wires and television sets as the main link to the Web is expected to greatly accelerate broad-based consumer use of the Internet for entertainment and commerce.
The Microsoft-TCI talks come as the cable industry is debating the technological standards for the next generation of high-tech cable boxes, which are expected to provide a plethora of services including Web access, e-mail, home shopping, interactive games and movies on demand.
CableLabs, a cable research and development consortium, is soliciting proposals for the new boxes, and as of last week, according to CableLab's Web Site, it had received proposals from a Who's Who of high-tech companies including Microsoft, Intel Corp., Sony Corp. and International Business Machines Corp. |
