December 15, 1997 5:03 PM
DOW JONES NEWS SERVICE
TELE-COMMUN INC STANDS TO REAP AS GIANTS EXAMINE ITS ASSETS
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By Brian Steinberg
NEW YORK (Dow Jones)--Tele-Communications Inc., parent company of cable titan TCI Group (TCOMA, TCOMB) and the diverse set of equity stakes known as TCI Ventures Group (TCIVA, TCIVB) and Liberty Media Group (LBYTA, LBTYB), stands to gain mightily as a host of technology giants paws over its various assets.
A report in Monday's Wall Street Journal suggests Microsoft Corp. (MSFT), Intel Corp. (INTC) and other computer makers are in talks to supply Tele-Communications Inc. millions of set-top boxes for cable's next generation. And last week, rumored moves by AT&T Corp. (T) positioned the cable company to reap windfalls from some of the equity stakes it holds in smaller companies.
"There are lots of different technology partners that see cable as an important distribution vehicle," said Michael W. Harris of Kinetic Strategies Inc., a cable and Internet market research firm. "They can be part of it to grow their own business, and they can accelerate it to grow their own business."
Placed in the spotlight yet again is Tele-Communications' complex stock structure. While its cable business is its most well-known asset, the Englewood, Colo. company owns so many stakes in so many diverse interests that it has had to set up three tracking stocks in order to monitor it all.
TCI Inc. represents the company's core cable business, which has as many as 20 million subscribers, according to Harris. Liberty Media holds stakes in a variety of programming ventures, including QVC Inc. And TCI Ventures holds stakes in several companies either tangential to the core business or completely unrelated to it, including At Home Corp. (ATHM) and Teleport Communications Group Inc. (TCGI).
Despite the difficulty in describing the company, this much is clear: Tele-Communications has something to offer potential partners.
Microsoft and Intel want the huge subscriber base offered by the potential cable market.
AT&T is rumored to be considering a $1.25 billion investment in At Home, an upstart Internet company in which TCI maintains a stake of 39%, or 46 million shares.
Finally, AT&T is rumored to be exploring a merger with Teleport, which offers local telephone service to businesses. While the rest of the telephone industry has been wheeling and dealing, consolidating and merging, AT&T has been sitting on the sidelines sorting out internal management issues. Jack Grubman, a telecommunications analyst with Salomon Smith Barney, said in a research note last week that the pairing would make good business sense.
With all the interest, real or reported, one might think all TCI has to do is hold out its corporate hands for falling money. But industry observers say the cable giant has lumbered along for quite some time and needs the deals to move forward.
Needs To Make Upgrades Sooner, Not Later
Many cable experts recognize TCI as the largest cable provider but also as an industry laggard. In terms of system upgrades, it has been outpaced by Cox Communications Inc. (COX), Time-Warner Inc.'s (TWX) cable units and MediaOne, U S West Media Group's (UMG) cable company, Kinetic Strategies' Harris noted.
"Certainly, the longer you wait, the more that harms your time to market," said Harris. At the same time, he said, no cable company would strike an alliance with a set-top manufacturer "just to do a deal. It's got to make sense to all parties."
"This is sequentially when you'd expect (TCI) to start rolling out boxes," said Salvatore Muoio, who runs the boutique investment firm Salvatore Muoio & Co. in Manhattan. "They've only been talking about it now for three years. This time it looks like it's coming."
According to Frederick Moran, who follows TCI for Furman Selz Inc., the potential set-top box alliance with Microsoft, Intel or a dark horse leaves TCI "in a powerful relationship with the tech industry's leading players." The news has prompted him to suggest that the Series A stock (TCOMA) could trade at $33 to $35 by the end of 1998.
The Nasdaq-listed shares were recently at 28 5/8, up 5/8, or 2.2%, on volume of 6.7 million, compared with a daily average of 4.9 million.
The benefits resulting from any of the potential AT&T moves are more difficult to discern. Moran said any between AT&T and At Home or Teleport simply bolster the TCI Ventures stock, which many liken to an odd sort of mutual fund.
But others argue the AT&T deals would be good for the core cable company. According to Merrill Lynch & Co. analyst Jessica Reif Cohen, both Teleport and At Home deals would help clarify TCI Ventures stock and have a "real benefit over a long term" for TCI stock.
Cohen said she believes TCI will announce a set-top box alliance before year's end. She also said it will seek an Internet telephony pact with a long-distance partner, probably through At Home.
Along with its At Home investment, TCI Ventures holds a 28.5% Teleport stake that, Muoio said, it has wanted to sell for a long time.
"They haven't been shy about monetizing that, when they get the right deal," he said.
But Muoio said Teleport's stock is overvalued and the company's pending recent acquisition of small phone-carrier ACC Corp. (ACCC) does little to make it more attractive.
On the other hand, most believe AT&T is at least showing signs of trying to stay competitive in the industry. "They're going to be more active than they have before," said Muoio. "All the musical chairs have gotten filled and they sat around watching."
Most of Tele-Communications' opportunities would seem to lie in the long-term. Despite the company's large subscriber base, no one knows exactly what impact system upgrades might have. Cable modems have shown growth recently - Harris said Time-Warner will have 29,000 cable modem users at year's end, compared with TCI's 4,000 - but are still very much a niche product.
But the potential is what the tech companies see, he noted. The nature of any potential offspring remains unclear for now, but obviously many see the pairings' carrying some kind of tangible benefit.
Perhaps, Harris speculated, "some of these large technology companies see a chance to get into bed with TCI and take part in services" that will debut later on.
-By Brian Steinberg; 201-938-5218; brian.steinberg@cor.dowjones.co |
