Big money thinks those cable wires are better than all those copper wires.................................
thestandard.com
Despite a setback in the U.K., the assembly of a cable empire under Microsoft (MSFT) and Liberty Media International is still on track.
When Microsoft was making early deals in the cable industry in 1998, the best Bill Gates could get out of hard-nosed TCI chief exec John Malone was a nonexclusive arrangement. Malone agreed to use the Windows operating system in some of his set-top boxes but made it clear that he'd use Sun software in others. Malone wasn't about to let Gates' 800-pound software gorilla gain control of the cable industry.
Although Malone still hedges his very complex bets, these days he and Gates are closer bedfellows. Malone now heads Liberty Media International, formerly TCI's content arm and now a worldwide cable-investment vehicle. In the past year, Gates has used Microsoft's enormous cash reserves to invest in cable assets around the world. Both men see cable set-tops as gateways into people's homes – not only for TV, but also for broadband, Web access and Internet telephony.
Earlier this month, the European Competition Commission had to pry apart the two companies to prevent them from controlling Telewest, Britain's second-largest cable company. That setback for Microsoft and Liberty highlights the growing web of cable-related alliances between the two. Soon, each will own separate chunks that add up to 60 percent of Japan's largest cable operator. There are additional links in Europe and beyond, and Malone is looking at more possibilities to partner with Microsoft.
More than 50 million set-top boxes are in homes across North America, and there are perhaps twice that amount worldwide. Within the next few years, all of those boxes will be upgraded to digital technology. That means they'll each have a hard drive and an operating system – a Microsoft operating system, if Gates has his way.
Liberty and Microsoft approach the cable business from different perspectives. Malone, who assembled the largest cable company in the U.S. before selling TCI to AT&T in 1998 for $48 billion, focuses on content and invests in the pipes chiefly to ensure its distribution. Gates, however, wants Microsoft client software in the set-top boxes and its server software at the cable-system head end, or origination point. When Microsoft took its massive $5 billion stake in AT&T, the deal included putting Windows into 10 million set-tops.
At the Cable 2000 show in May in New Orleans, Microsoft announced that 1.5 million basic digital receivers were already deployed in Europe, South America and Asia, and that the company had commitments to distribute 14 million units of its advanced set-top software.
Since its AT&T investment, Microsoft has shifted away from insisting on such technology commitments. Instead, says Liberty President Miranda Curtis, who oversees all of the company's foreign assets, "it's investing in the pipes themselves, not just the technology. It's more closely aligned with our strategy."
In addition to the AT&T stake, the Redmond software giant's cable investments in North America include $1 billion in Comcast (CMCSK) , $212 million in Road Runner and $400 million in Canada's Rogers (RG) Communications. In Europe, Microsoft's stake in Britain's Telewest cost $3 billion; it put more than $400 million into Netherlands-based UPC, which is now positioning itself to be the AtHome of continental Europe. Microsoft also invested $40 million in TV Cabo of Portugal and $500 million in Telewest rival NTL (NTLI) , which afterward bought the cable division of Cable & Wireless (CWZ) to become the U.K.'s largest cable operation. In Latin America, Microsoft paid $126 million for 11 percent of Globo Cabo, a Brazilian cable company.
Malone's investments are equally extensive. Based in Englewood, Colo., Liberty is a wholly owned but autonomous subsidiary of AT&T, with Malone as chairman. Tracked separately from AT&T, it has a market cap of $70 billion. Yet the company has all of 39 employees. That's because it doesn't run any cable business on a day-to-day basis. It's purely a vehicle for Malone's far-flung deal-making.
Liberty owns stakes in numerous content companies, including cable networks such as Discovery and USA, Rupert Murdoch's News Corp. (8 percent), Time Warner (TWX) (10 percent) and TV Guide (TVGIA) (44 percent). Its extensive holdings in cable systems all lie outside the U.S. and include significant holdings in Asia, Europe and Latin America, with a total reach of 14 million cable subscribers.
From these disparate pieces, Malone has assembled a diverse, worldwide cable empire. In June, a typically complex Liberty deal brought together Jupiter and Titus, two large Japanese cable companies. Liberty owns Jupiter in partnership with Japanese company Sumitomo; Microsoft owns 60 percent of Titus. Postmerger, the two U.S. companies would jointly control the largest cable operator in Japan, offering broadband services in one of the most technologically advanced markets.
A similar play in Britain has raised antitrust concerns. When Microsoft took over MediaOne's stake in Telewest, it inherited shareholder-voting agreements that would have given it effective control of Telewest, along with Liberty. The European Competition Commission balked, fearing a Microsoft stranglehold on software for digital set-top boxes in Britain. |
